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Front Page / NATIONAL
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Editorial/OPINION
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ECONOMY
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Stalemate over jurisdiction of GST continues
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The thrill of saving India from cybercrime
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RBI proposes ‘Islamic window’ in banks
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Indian Express
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Live Mint
Click here to Download 9 PM Daily Brief PDF (21st November 2016)
Front Page / NATIONAL
[1]Telangana to oppose Godavari board’s draft
Context
The Telangana Government is likely to lock horns with the Godavari River Management Board (GRMB) opposing the proposals included in the latter’s working manual draft on the management of projects based on the river and its tributaries, as it believes that the board’s attitude is ‘heavily biased’ against it.
Contentious clause
The GRMB authorities are understood to have included half a dozen projects of Telangana against only one of A.P. in the list of projects it proposes to manage
- Apart from monitoring the water releases (regulation) from the projects, the board has proposed to keep a tab on power generation, if any, being done at these projects
- The river board has given the two States a fortnight’s time for giving their opinion on the draft and is likely to take a final call on it before forwarding it to the Union Ministry of Water Resources for issuing a formal notification at its next meeting
Telangana’s stand
Telangana government feels that the GRMB is biased as it has not included other projects in AP for monitoring.
- Moreover, the power generation issue is also beyond its purview since the Krishna River Management Board (KRMB) has made it clear in the past that its mandate was not to intervene in the issues related to power generation when Telangana raised the issue of Lower Sileru project in AP
[2] DRDO still aims for Kaveri in LCA
Context
Kaveri, the indigenous aeroengine with over 25 years’ chequered story, may after all fly on the indigenous LCA fighter as was originally planned.
Taking help of an overseas aeroengine maker to revive Kaveri, it will be rid of its shortcomings and certified to safely power the fighter LCA Tejas or the proposed combat drone Ghatak
More on Kaveri: Read it here
Editorial/OPINION
[1] Getting real on climate
Context
The UN conference on climate change held in Marrakech, with an emphasis on raising the commitment of all countries to reduce greenhouse gas (GHG) emissions, is particularly significant as it provided an opportunity to communicate concerns about the future climate policy of the U.S.
Backdrop
COP 22 or the 22nd session of the Conference of Parties was held in Marrakech in Morocco. A Marrakech action proclamation was issued at the end of the conference.
Marrakech Action proclamation: Read more about it here
Twin challenges
With respect to India author states that, it is faced with twin challenges, viz.
- Growing its economy to meet the development aspirations of a large population
- Cutting emissions
Pressure to make cuts
Pressure on India to make big cuts in its emission levels will increase under the Paris agreement because the national GHG levels are small per capita, but when added up they put India in the third place globally
Conclusion
India has no historical responsibility for accumulated GHGs, but smaller, more vulnerable countries such as island states and Bangladesh are demanding action to cut emissions. A strategy that involves all State governments will strengthen the case for international funding, and induce domestic action.
[2]In an age of disruptive politics
Context
Donald Trump might have been the wrong man, but he was at the right place at the right time. His victory has a message for democracies elsewhere and for Indian foreign policy.
Article is a general commentary on the shocking win of Mr Trump.
In the last few paragraphs author has something useful from Indian perspective. He states that
- Change of policy: India’s current ‘Obama-mania’ could well prove to be a hindrance to better U.S.-India relations. Mr. Trump is unlikely to pursue many of the policies initiated by the Obama Administration, including a possible joint India-U.S. initiative to contain China in East Asia
- Economy: On the economic front, given that under Mr. Trump U.S. priorities are to ensure that American jobs are not at risk and lost to China or India, India might again find itself at a greater disadvantage than China.
Conclusion
In the triangular relationship between the U.S., China and India, India may hence find itself as the ‘outlier’.
[3] Hitting the refresh button
Context
The framework regarding fiscal responsibility and discipline as outlined by the previous version of the FRBM Act needs to get urgently revived and fine-tuned.
What is fiscal policy?
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the parallel strategy to monetary policy through which a central bank like RBI influences a nation’s money supply.
Author begins by listing out few encouraging steps taken by the government to improve the conduct of fiscal policy,
- Restraint on unproductive spending
- Plugging of subsidy leakage through comprehensive implementation of the DBT (direct benefits transfer) platform
- Higher devolution of revenue to States and local self-governments
- Greater autonomy to States for spending on developmental plans
What is fiscal consolidation?
Fiscal consolidation means doing everything to fix the fiscal deficit problem in its root and preventing heavy fiscal deficits situation from occurring in future
What is FRBM Act?
The FRBM Act is a fiscal sector legislation enacted by the government of India in 2003 to ensure fiscal discipline and fiscal consolidation in India.
Read more about FRBM Act at this page
Reviving & fine tuning FRBM Act
Author points out that going forward government should indeed codify the fiscal rules so that they cannot be tinkered with due to populist agendas. So, in this context, the framework regarding fiscal responsibility and discipline as outlined by the previous version of the Fiscal Responsibility and Budget Management (FRBM) Act needs to get urgently revived and fine-tuned taking into account the ongoing changes in the global and domestic economic and financial order.
Need for FRBM
An institutional mechanism that imposes rule-based parameters on government’s spending and deficit significantly enhances its credibility
Committee to review FRBM
The government constituted a panel under Former Revenue Secretary and Rajya Sabha MP N.K. Singh to review the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 in May 2016 as per announcement made by Finance minister in his budget speech. The committee will,
- Review “the working of the FRBM Act over last 12 years and suggest a way forward, keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy”
With the committee expected to submit its report by the end of the current month, I believe the following issues need to be reflected upon,
Point or a range: Author says that in his view a target signified by a single number is the way to go rather than a target range which has wiggle room for the government. A single target further sends a positive signal to the bond market. A focused policy communicationis likely to result in a ratings upgrade for the Indian sovereign, which will eventually filter down to lower cost of borrowing for the private sector, which is important for new capital and investment formation.
Fiscal deficit target: Determining the ‘appropriate fiscal deficit target’. Given that the total supply of funds through household financial savings and sustainable capital flows are estimated at 10-12 per cent of GDP and demand for excess funds from the corporate sector is estimated at 4-6 per cent of GDP, a consolidated fiscal space of around 6 per cent of GDP exists for States and the Centre put together. This implies a 3 per cent headline fiscal deficit target for the Centre and States each.
Setting rules: A binding spending rule along with a medium-term debt range that takes into account the specific institutional setting in each country would help to enhance the policy credibility and facilitate effective monitoring that would ensure stability, fairness and efficiency. Aceiling on government debt at 60 per cent of GDP can get adopted over the next three years (67.2 per cent of GDP currently) with indicators of sustainable debt serving as guiding principles. And expenditure rules that focus on enhancing the quality of spending and improve accountability are preferred in many countries.
Independent watchdog: The revised FRBM framework can consider setting up an independent reviewer, a Fiscal Council, to oversee the adoption of rule-based fiscal policy and also recommend future course. Creation of an independent watchdog will boost fiscal accountability and transparency
Conclusion
Author concludes by saying that the adoption of version 2.0 of the FRBM framework will enhance the efficacy of India’s fiscal policy and significantly reduce the twin-deficit vulnerability (of fiscal and current account deficit)
Economy
[1]Stalemate over jurisdiction of GST continues
Context
The stalemate between the Centre and states over administrative control under the proposed goods and services tax (GST) regime continued. It failed to break the deadlock.
Bone of contention
Finance ministers’ informal meeting with state finance ministers failed to arrive at a common ground on how the Centre and states will control assessees under the new regime that will subsume an array of taxes like excise duty and service tax as well as VAT
Stance of the states
They want the right to control all assessees with up to Rs 1.5 crore annual turnover
[2] The thrill of saving India from cybercrime
Context
In India, there has been a surge of approximately 350 per cent of cyber crime cases registered under the Information Technology (IT) Act, 2000 from the year of 2011 to 2014.
In the first few paragraphs, author, while referring to the large scaledebit card information breach that happened a while ago in India, states that there has been a surge in cyber-crime cases in the country
Present situation
- In India, there has been a surge of approximately 350 per cent of cybercrime cases registered under the Information Technology (IT) Act, 2000 from the year of 2011 to 2014, according to a joint study by The Associated Chambers of Commerce and Industry of India and consulting firm PricewaterhouseCoopers
- The Indian Computer Emergency Response Team (CERT-In) has also reported a surge in the number of incidents handled by it, with close to 50,000 security incidents in 2015, noted the Assocham-PwC joint study
Ethical hacker
Terming the surge as an opportunity for ethical hackers in India, author goes on to list the definition of an ethical hacker
- An ethical hacker is a computer expert who hacks into a computer network on the behalf of its owner in order to test or evaluate its security, rather than with malicious or criminal intent.
Observations of Assocham-PwC study
- A new breed of cyber criminals has emerged, whose main aim is not just financial gains but also cause disruption and chaos to businesses in particular and the nation at large
- Attackers can gain control of vital systems such as nuclear plants, railways, transportation and hospitals. This can subsequently lead to dire consequences such as power failures, water pollution or floods, disruption of transportation systems and loss of life
Budgetary woes
India’s cybersecurity budget is woefully inadequate when compared to the spending by other countries.
- In 2014-15, the government doubled its cybersecurity budget by earmarking Rs.116 crore. India requires a budget of $1 billion per annum or every two years to build the cybersecurity infrastructure. The current cyber security policy has no such budget
Cybersecurity market in India
According to Data Security Council of India (DSCI), India’s cybersecurity market is expected to grow nine-fold to $35 billion by 2025, from about $4 billion. This would mainly be driven by an ecosystem to promote the growth of indigenous security product and services start-up companies.
- The Cyber Security Task Force (CSTF) set up by DSCI and industry body Nasscom expects to create a trained base of one million certified and skilled cybersecurity professionals. It also aims to build more than 100 successful security product companies from India.
[3] RBI proposes ‘Islamic window’ in banks
Context
The Reserve Bank of India (RBI) has proposed the opening of “Islamic window” in conventional banks for “gradual” introduction of Sharia-compliant or interest-free banking in the country.
Backdrop
Both the Centre and the RBI have been exploring the possibility of introduction of Islamic banking for a while now to ensure financial inclusion of those sections of society that remain excluded due to religious reasons.
Simple products first
Initially, a few simple products similar to conventional banking products may be considered for introduction through the Islamic window of conventional banks after necessary notification by the government.
What is Islamic-banking system?
Islamic or Sharia banking is a finance system based on the principles of not charging interest. The charging of interest is prohibited under Islam.This model works on the basis of risk sharing and the customer and the bank share the risk of any investment on agreed terms.
- The customer and the bank also divide any profits between them. There are five main categories within Islamic finances. They are Ijara, Ijara-wa-iqtina, Mudaraba, Murabaha and Musharaka
For more details: Visit this page
Indian Express
[1] Jobs vs Wages
Context
Three fault lines in wages sabotage private formal job creation. Demonetisation will undo some
Damage
Three problems
Author states that the creation of high paying private sector jobs is being limited by three problems in the wages sector, which are
- Government vs private wage: Author states that the problem is that the class 3 & 4 level government jobs are far more secure and pay handsomely when compared to private jobs of same nature. This results in distortion as people run towards high paying, high security government jobs. Author states that government job should be public service with reasonable wages.
- Nominal vs Real wage: Huge mispricing of land has created an uneven space that affects living, eating and commuting costs in India’s few job magnets.
- Gross vs net wage: In the formal sector, an employer has to make deductions from an employees’ salary. Consequently, there in-hand salary is much less as compared to informal sector where these deductions are not done
Three solutions
Three regulatory interventions are needed as per author to solve the above problems
- Faster urbanisation: Faster urbanisation means an increase to the number of Indian cities with more than a million people from 50 to 200; bad urbanisation is better than no urbanisation but high quality urbanisation like having real mayors, robust city finances, etc could create the cycle of higher formalisation, higher productivity and higher wages. Demonetization will bring down land prices, accelerate construction, and raise labour mobility.
- Lower regulation: Author states that lower regulation is necessary as most of our workers work in low-productivity enterprises that are not productive enough to pay the wage premium
- Broader human capital: Modern day job market values reading, writing, arithmetic and soft skills disproportionately. So, primary education infrastructure should be strengthened at domestic level.
Live Mint
[1] India’s response to the global health challenges
Live Mint
Context
As pathogens old and new spread global health crises, India must step up.
Article lists outbreaks of following diseases around the world,
- Japanese Encephalitis (JE)
- Dengue
- Chikungunya
- Zika virus
Author points out that it is worrisome that diseases like Chikungunya that were earlier limited to only certain countries (chikungunya was first isolated in Tanzania in 1950s) have now spread to different corners of the world.
Traditionally, the World Health Organization has been the leader in global public health issues but a funding crunch has tied its hands for many years now.
Opportunity
Author points out that though India is still riddled with a lagging public healthcare system and rising number of diseases but there is enough scope to convert this enormous burden into an opportunity for innovation and global leadership.
- Lessons for poor countries: apart from the cost-effective quality care that it provides to urban elites, India has had some major successes such as containing HIV infections and leprosy and eradicating polio, which offer valuable lessons in public health management, particularly in poor countries with inadequate healthcare infrastructure.
[2] Six battlefronts for the war on corruption
Context
To truly disrupt the shadow economy, reforms targeting gold, hawala, real estate, taxation, politics and elections, and administration are a must.
In the first few paragraphs author has lauded the recent demonetization move of the government.
Three components of black money
While, in the public eye, piles of cash are synonymous with corruption, we should be careful about distinguishing between the three components of black economy.
- Underlying source of corruption: An example of this would be the high stamp duties on real estate transactions that lead to payments in cash
- Methods adopted for storing unaccounted wealth: An example of this would be holding assets in gold
- Methods through which transactions are effected: This could involve cash.
Author points out that targeting black money would involve targeting all of its elements. Moreover, to address the prime concern of corruption funded via black money there are six problem areas that need to be sorted out. These are,
- Gold: Author points out that the imposition of custom duty on gold should be done away with.
- Hawala: India needs to reform its capital controls. Capital controls represent measures taken by a government, central bank or other regulatory body to limit the flow of foreign capital in and out of the domestic economy.These controls include taxes, tariffs, outright legislation and volume restrictions, as well as market-based forces.
The Chinn-Ito Index: It is an index measuring a country’s degree of capital account openness. Author points out that India can substantially improve its position on this index by abolishing complex capital controls.
- Real estate: Buying real estate generally involves a cash component. Cash payments are favored so as to avoid stamp duty. Stamp duty, like customs duty, is a bad tax and should go, and the real-estate sector should be merged into the goods and services tax (GST).
- Taxation: Author states that the rate of taxes should be low and focus should be on establishing an efficient administration. Taxes other than income tax and GST, at the central level, should be removed. This will take us to a high-compliance and low-corruption environment
- Politics and elections: Running a political party and fighting elections requires large-scale resourcing. The procedures in India all but force political parties to engage in these activities using black money. This is reinforcing political parties as family businesses, which can hold secrets and manage treasuries through informal systems. Fundamental reforms are required in order to change over to a political system grounded in white money. This will also take us beyond family-dominated political parties.
- Administration: Arbitrary power should not be given to anyone. Proper regulatory framework rooted in democratic principles must be stated out. At present, regulators disproportionately powered as seen by their powers to write laws, powers to grant licenses, power to punish & conduct investigation. An Indian financial code is the need of the hour.
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