Answered: Mains Marathon – UPSC Mains Current Affairs Questions – February 7

Suggested Answer:

“Those with glass doors do not throw stones at houses of others.”
This adage teaches us that unless and until one possesses a specific quality or virtue, s/he isn’t qualified to lecture others about it. Hypocrisy is not a virtue, and being hypocritical is not only universally frowned upon, it is also devoid of moral authority.

For example, once a mother approached Ramkrishna Paramhans and asked him to forbid her son from eating sweets. Paramhans asked them to return after a week. Next week, Paramhans simply asked the kid not to eat sweets. The mother, puzzled, asked “What stopped you from saying this same thing last week?” The saint replied “Till last week, I used to eat sweets. Now I don’t. Therefore, now I can ask your child to stop eating sweets as well.”

Moral authority notwithstanding, if a corrupt person leads the fight against corruption, s/he risks the progress of the fight itself, since his/her corrupt acts can be divulged to the public at any point of time. People flocked in large numbers to Anna Hazare because of his reputation as a man of unquestionable integrity, transparency and honesty.

At the same time, it has to be accepted that the people who pledge to fight corruption must get their hands dirty. They must be like lotus petals which do not get muddy despite being surrounded by muck.

Also, there is a possibility that a person may have been corrupt in the past but has now reformed himself/herself after seeing the error of his/her ways. Such people should be supported instead of being treated with utter scepticism and distrust.

Thus, it is not always necessary that those who fight corruption must be clean themselves. What matters is that the resolve to fight corruption must be strong, and they should be honest about their past transgressions, if any. They should be clean at present, and their past actions should serve to strengthen the fight, instead of crippling it.

Suggested Answer:

 Political democracy is a means for the people to choose their own leaders and hold them accountable. It offers the citizens the freedom to express their thoughts and views subject to reasonable restrictions. It signifies the will of the people living in a country at present.

Fiscal democracy refers to the freedom of the elected government to spend and tax so as to best serve the people at present, instead of being tied down by expenditure commitments of the previous governments.
Fiscal democracy can be said to be achieved when a government can spend on the present-day priorities instead of past ones. For example, spending on climate change right now needs higher priority than what previous governments would have assigned to it.

India has achieved political democracy to some extent, by inculcating democratic values amongst its citizens, providing a robust electoral system, regional parties representing linguistic and religious minorities, political decentralization with 73^rd and 74^th amendments etc.

However, it has not yet achieved fiscal democracy as:

1. India has a history of populist schemes that are seen as entitlements by the successive generations. This makes it very difficult to even revamp these schemes to suit present priorities. It constrains government spending.
2. The cost of financing these entitlements increases with time, and further constrains fiscal space for present-day spending priorities. Thus, the present government has to spend on priorities of previous governments, hampering fiscal democracy.
3. In India, paying tax is seen as a burden instead of a duty. Thus, governments, in order to get elected, resort to lower taxes as a populist measure. This hampers revenue growth and constrains fiscal space. In India, only 7 out of 100 voters pay taxes. India also has a low tax-to-GDP ratio at 17%.
4. Indian political system has perpetuated this mindset of entitlements and low taxes. Thus, it can be asserted that political democracy has been achieved at the expense of fiscal democracy.
5. The trend of spending on doles also results in higher borrowing >> higher fiscal deficit >> higher burden for future generations >> cripples fiscal democracy for future governments. This also draws fiscal allocation away from creation of capital assets.

This mindset of voting for populist governments doling out freebies cannot be considered to be a true political democracy, since the electorate is not enlightened enough to make sound political choices.

India has millions of poor people who are at risk from problems such as climate change and non-communicable diseases. With nearly 65% of the population below 35 years of age, the present governments need to plan for their social security and healthcare. For the fiscal space to be created for these priorities, the citizens need to be enlightened enough to understand the malaise that unproductive subsidies and doles affect on the system.

Therefore in India, it is only by achieving more political democracy that proper fiscal democracy can be attained.

Suggested Answer:

Credit ratings agency act assign ratings to debtors based on the ability to pay back debt and after assessing other risks including the risk of default. Credit ratings to countries are assigned after assessing macroeconomic scenario, political stability, the willingness to repay existing debt and other variables.

How the ratings are anomalous with respect to India:

1. India was denied a ratings upgrade from BBB- on account of its low per capita GDP and relatively high fiscal deficit among peers. It did not take into account that while the peers are languishing in terms of growth, India is a bright spot with a growth rate of more than 7% and a debt of 68.6% of GDP (as compared to Japan’s more than 200% of GDP)
2. India has dramatically improved in terms of macroeconomic stability, including reining in inflation by adopting inflation targeting and instituting a Monetary Policy Committee (MPC), but this has not led to a ratings upgrade.
3. India has shown high willingness to pay, as demonstrated by the great lengths the government went to during the 1991 BoP crisis. It has never defaulted in its debt payments. This has not been considered by the agencies.
4. India has adopted numerous reform measures for Ease of Doing Business, and has made strides in transparency with RTI and e-governance. It has instituted a Bankruptcy code, and several welfare measures like CSR and social security schemes. This holistic development has not been considered by the ratings agencies while assessing for an upgrade.

How the ratings are anomalous with respect to China:

1. After 2008 crisis, China launched a credit expansion that led to a massive increase of 86% to its credit-GDP ratio. Simultaneously, its growth has declined to 6.5%, resulting in an ominous scissor-pattern graph which is considered as posing a serious risk to any economy. Despite this, its ratings were upgraded to A+ from AA- in 2010.
2. Despite declining growth since then, and the signs of a real estate bubble, these ratings have been unchanged. The ratings agencies are wilfully ignoring the Chinese economy’s dangerous path.
3. China is a very opaque economy with no press freedom. There is widespread scepticism regarding the macroeconomic figures that are placed in public domain, since third-party scrutiny is seriously curbed by the authoritarian one-party state. These variables have not been considered by the ratings agencies.
4. Persistent devaluation of yuan in order to boost exports, dumping of commodities in various economies etc are other factors which exemplify China’s erroneous behaviour in global exchange, but the ratings agencies have turned a blind eye to them.

Credit rating agencies have suffered severe dent in credibility after they failed to predict the 2008 financial crisis and they certified the mortgage-backed securities that were at the heart of the crisis with a AAA rating. Moreover, most of the popular agencies suffer from a pro-Western bias. To circumvent this, emerging economies from BRICS have set up their own credit ratings agency, which will be functional soon.
Thus, it is important for the investors to look at other variables before investing, instead of solely relying on ratings by the credit rating agencies.