Note4Students
From UPSC perspective, the following things are important :
Prelims level: Tax buoyancy
Mains level: Paper 3- Recalibration of growth projections
The article highlights the challenges the second Covid wave poses to India’s path to fiscal consolidation.
Recalibration to growth projection due to second Covid wave
- The growth projections of different national and international agencies and the fiscal projections of Centre’s 2021-22 Budget require recalibration.
- The International Monetary Fund (IMF) had forecast real GDP growth for 2021-22 at 12.5%.
- The Reserve Bank of India (RBI) had forecast real GDP growth for 2021-22 at 10.5%.
- The Ministry of Finance’s Economic Survey had forecast real GDP growth for 2021-22 at 11.0%.
Growth rate of 8.7% to keep GDP at same level as in 2019-20
- Moody’s has recently projected India’s GDP growth in 2021-22 at 9.3%.
- Benchmark growth rate: 9.3% is close to the benchmark growth rate of 8.7% which would keep India’s GDP at 2011-12 prices at the same level as in 2019-20.
- This level of growth may be achieved based on the assumption that the economy normalises in the second half of the fiscal year.
- The 2019-20 real GDP was ₹145.7-lakh crore at 2011-12 prices.
- It fell to ₹134.1-lakh crore in 2020-21, implying a contraction of minus 8.0%.
- At 8.7% real growth, the nominal GDP growth would be close to 13.5%, assuming an inflation rate of 4.5%.
- This would be lower than the nominal growth of 14.4% assumed in the Union Budget.
- At 13.5% growth, the estimated GDP for 2021-22 is ₹222.4-lakh crore at current prices.
- Impact: This will lead to a lowering of tax and non-tax revenues and an increase in the fiscal deficit as compared to the budgeted magnitudes.
How much the gross tax revenue would be impacted?
- The budgeted gross and net tax revenues for 2021-22 were ₹22.2-lakh crore and ₹15.4-lakh crore, respectively.
- The assumed buoyancy for the Centre’s gross tax revenues (GTR) was 1.2.
- If, however, the buoyancy of 1.2 proves optimistic and instead a buoyancy of 0.9, which is the average buoyancy of the five years preceding the COVID-19 year, is applied, the nominal growth of GTR would be 12.2%.
- This would lead to the Centre’s GTR of about ₹21.3-lakh crore.
- The corresponding shortfall in the Centre’s net tax revenues is estimated to be about ₹0.6 lakh crore.
- The budgeted magnitudes for non-tax revenues and non-debt capital receipts at ₹2.4-lakh crore and ₹1.9-lakh crore, respectively, may also prove to be optimistic.
- In these cases, the budgeted growth rates were 15.4% and 304.3%, respectively.
- The excessively high growth for the non-debt capital receipts was premised on implementing an ambitious asset monetisation and disinvestment programme.
- Together with the tax revenue shortfall of nearly 0.6 lakh crore, the total shortfall on the receipts side may be about ₹2.1-lakh crore.
Impact on fiscal deficit estimates
- Two factors will affect the fiscal deficit estimate of 6.76% of GDP in 2021-22.
- First, there would be a change in the budgeted nominal GDP growth.
- Second, there would be a shortfall in the receipts from tax, non-tax and non-debt sources.
- Together, these two factors may lead to a slippage in fiscal deficit which may be close to 7.7% of GDP in 2021-22 if total expenditures are kept at the budgeted levels.
- This would call for revising the fiscal road map again.
- Protecting total expenditures at the budgeted level is, however, important given the need to support the economy in these challenging time.
Vaccination policy and role of Central government
- Positive externalities: COVID-19 vaccination is characterised by strong inter-State positive externalities, making it primarily the responsibility of the central government.
- The entire vaccination bill should be borne by the central government.
- If the central government is the single agency for vaccine procurement, the economies of scale and the Centre’s bargaining power would keep the average vaccine price low.
- The central government may transfer the vaccines rather than the money that it has budgeted for transfer.
- Some of the smaller States may find procuring vaccines through a global tender to be quite challenging.
Conclusion
Protecting total expenditures at the budgeted level and mass vaccination are important in India’s pandemic situation.
Back2basics: Tax buoyancy
- There is a strong connection between the government’s tax revenue earnings and economic growth.
- Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP.
- It refers to the responsiveness of tax revenue growth to changes in GDP.
- When a tax is buoyant, its revenue increases without increasing the tax rate.
- In 2007-08, everything was fine for the economy, GDP growth rate was nearly 9 per cent.
- Tax revenue of the government, especially, that of direct taxes registered a growth rate of 45 per cent in 2007-08.
- We can say that the tax buoyancy was five (45/9).
What is tax elasticity?
- It refers to changes in tax revenue in response to changes in tax rate.
- For example, how tax revenue changes if the government reduces corporate income tax from 30 per cent to 25 per cent indicate tax elasticity.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Deep Sea Faunal Diversity in India
Mains level: Not Much
India is home to 4,371 species of deep-sea fauna, including 1,032 species under the kingdom Protista and 3,339 species under the kingdom Animalia, a recent publication by the Zoological Survey of India (ZSI) has revealed.
Highlights of the Survey
- India is surrounded by the Arabian Sea, the Bay of Bengal, the Andaman Sea, and the Laccadive Sea (Lakshadweep Sea).
- Of the 4,371 species, a maximum of 2,766 species has been reported from deep-sea areas of the Arabian Sea, followed by 1,964 species from the Bay of Bengal, 1,396 species from the Andaman Sea, and only 253 species from the Laccadive Sea.
RIMS ship investigator
- India is one of the countries that made a pioneering exploration in the deep Indian Ocean region in 1874 by commissioning a RIMS (Royal Indian Marine Survey) ship investigator.
- This conducted enormous studies in seas around India and continued to work till 1926.
Components of the exploration
- The deep-sea ecosystem was the most unexplored ecosystem across the world. It included hydrothermal vents, submarine canyons, deep-sea trenches, seamounts, cold seeps, and mud volcanoes.
- This publication, the first of its kind, provides baseline information on all groups of fauna and biological organisms in the Indian deep seas.
- Not only will this support our knowledge on conserving and managing deep-sea faunal resources, but it will also pave way for their sustainable utilization.
Key findings
(1) Mammals
- There are 31 species of sea mammals that are found in the deep-sea ecosystem of Indian waters, including the Critically Endangered Irrawaddy Dolphin.
- Two other species, the Indo-Pacific Finless Porpoise and the Sperm Whale are recorded as ‘Vulnerable’ in the IUCN classification.
- The list of mammals includes Cuvier’s Beaked Whale and Short-beaked Common Dolphin, which dive as deep as 8,000 meters below the Earth’s surface.
(2) Marine turtles
- Out of the seven species of marine turtles found across the world, five species have been recorded from Indian waters.
- India is known as one of the best and largest breeding grounds for sea turtles, especially for Olive Ridley and Leatherback Turtles, across the world.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: 17+ 1 Forum
Mains level: Not Much
Lithuania has decided to quit China’s 17+1 cooperation forum with central and eastern European states that include other EU members, calling it “divisive”.
About 17+ 1 Forum
- The forum is an abbreviation for Cooperation between China and Central and Eastern European Countries.
- It is an initiative by the Chinese Ministry of Foreign Affairs to promote business and investment relations between China and 16 countries of CEE (CEEC).
- The countries are Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Greece, Hungary, Latvia, North Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia.
- The format was founded in 2012 in Warsaw to push for the cooperation of the “17+1” (the 17 CEE countries and China).
- Its goals are to promote the Chinese Belt and Road Initiative and enhance cooperation in the fields of infrastructure, transportation, and logistics, trade and investment”.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Indian SARS-CoV-2 Genomic Consortia (INSACOG)
Mains level: Not Much
In early March, members of the Indian SARS-CoV-2 Genomic Consortia (INSACOG), an advisory group to the Central government, warned of a new and contagious form of the novel coronavirus.
What is INSACOG?
- INSACOG is a consortium of 10 labs across the country tasked with scanning COVID-19 samples from swathes of patients and flagging the presence of variants that were known to have spiked transmission internationally.
- It has also been tasked with checking whether certain combinations of mutations were becoming more widespread in India.
- Some of these labs had begun scanning for mutations in April 2020 itself, but it was not a pan-India effort.
- The institutes involved were laboratories of the Department of Biotechnology, the CSIR, the ICMR, and the Ministry of Health & Family Welfare (MoHFW).
- The National Centre for Disease Control (NCDC) under the MoHFW was tasked with coordinating the collection of samples from the States as well correlating disease with the mutations.
- The work began in January by sequencing samples of people who had a history of travel from the United Kingdom and a proportion of positive samples in the community.
What are the findings?
- The “foreign” variants identified were primarily the B.1.1.7 (first identified in the United Kingdom) and the B.1.351 (first found in South Africa) and a small number of P2 variants (from Brazil).
- However, some labs flagged the growing presence of variants identified in India that were clubbed into a family of inter-related variants called B.1.617, also known as the ‘double mutant’ variant.
- It was primarily due to two mutations — E484Q and L452R — on the spike protein.
- The B.1.617 family was marked as an international ‘variant of concern’ after it was linked to a recent spike in cases in the UK.
- INSACOG labs also found that the B.1.1.7 variant, which is marked by increased infectivity, is distinctly more prevalent in several northern and central Indian States in comparison to southern States.
Beyond identifying patterns, why is genome sequencing useful?
- The purpose of genome sequencing is to understand the role of certain mutations in increasing the virus’s infectivity.
- Some mutations have also been linked to immune escape, or the virus’s ability to evade antibodies, and this has consequences for vaccines.
- Labs across the world, including many in India, have been studying if the vaccines developed so far are effective against such mutant strains of the virus.
- They do this by extracting the virus from COVID-19-positive samples and growing enough of it. Then, blood serum from people who are vaccinated, and thereby have antibodies, is drawn.
- Using different probes, scientists determine how much of the antibodies thus extracted are required to kill a portion of the cultured virus.
- In general, the antibodies generated after vaccination — and this was true of Covaxin, Covishield, Pfizer and Moderna jabs — were able to neutralize variants.
- Antibody levels are not the only markers of protection and there is a parallel network of cellular immunity that plays a critical role in how vaccines activate immunity.
- The current evidence for most COVID-19 vaccines is that they have almost 75% to 90% efficacy in protecting against disease but less so in preventing re-infection and transmission.
Challenges faced by INSACOG
- Given that the novel coronavirus is spreading, mutating, and showing geographical variations, the aim of the group was to sequence at least 5% of the samples.
- For many reasons, this has so far been only around 1%, primarily due to a shortage of funds and insufficient reagents and tools necessary to scale up the process.
- While some of these issues, the INSACOG, in spite of being peopled by expert scientists, is ultimately an advisory group to the Central government and part of its communication structure.
- Warnings about emerging variants were not made public with sufficient urgency and the sharing of datasets, even within constituent groups of the INSACOG, was less than ideal.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Mount Nyiragongo
Mains level: Not Much
Thousands have fled a volcanic eruption in the Democratic Republic of Congo from Mount Nyiragongo on the outskirts of Goma City.
These were some volcanoes in news this year:
Mount Vesuvius, Taal Volcano, La Soufriere
Mount Nyiragongo
- Mount Nyiragongo is an active stratovolcano with an elevation of 3,470 m (11,385 ft) in the Virunga Mountains associated with the Albertine Rift.
- The main crater is about 2km wide and usually contains a lava lake.
- The crater presently has two distinct cooled lava benches within the crater walls.
- It is one of the 16 Decade Volcanoes.
- Nyiragongo’s lava lake has at times been the most voluminous known lava lake in recent history. The depth of the lava lake varies considerably.
- Nyiragongo and nearby Nyamuragira are together responsible for 40 percent of Africa’s historical volcanic eruptions.
Answer this PYQ in the comment box:
Q.Which of the following adds/add carbon dioxide to the carbon cycle on the planet Earth?
- Volcanic action
- Respiration
- Photosynthesis
- Decay of organic matter
Select the correct answer using the code given below:
(a) 1 and 3 only
(b) 2 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4
What are Decade Volcanoes?
- The Decade Volcanoes are 16 volcanoes identified by the International Association of Volcanology and Chemistry of the Earth’s Interior (IAVCEI).
- They are considered worthy of particular study in light of their history of large, destructive eruptions and proximity to densely populated areas.
- They are named Decade Volcanoes because the project was initiated in the 1990s as part of the United Nations-sponsored International Decade for Natural Disaster Reduction.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Benefits of environmental tax
The article highlights the advantages of environmental fiscal reforms in India.
Status of out-of-pocket spending on health in India
- As per WHO data, in 2011, 17.33% of the population in India made out-of-pocket payments on health that was more than 10% of their income.
- The percentage was higher in rural areas compared to urban areas.
- Globally, 12.67% of the population spent more than 10% of their income (out of their pocket) on health.
- In Southeast Asia, 16% spent more than 10% of their household income on health.
- Similarly, 3.9% of the population in India made more than 25% of out-of-pocket payments on health, with 4.34% of it in the rural areas.
Alternate source of health financing: Eco tax
- The Economic Survey of India 2019-20 has outlined that an increase in public spending from 1% to 2.5-3% of GDP, can decrease out-of-pocket expenditure from 65% to 30% of overall healthcare expenses.
- The National Health Policy of 2017 also envisages increase in public spending from 1% to 2.5-3% of GDP.
- This is where the importance of alternate sources of health financing in India needs to be stressed.
- Fiscal reforms for managing the environment are important, and India has great potential for revenue generation in this aspect.
Environmental tax reforms
- Environmental tax reforms generally involve three complementary activities:
- 1. Eliminating existing subsidies and taxes that have a harmful impact on the environment;
- 2. Restructuring existing taxes in an environmentally supportive manner;
- 3. Initiating new environmental taxes.
- Taxes can be designed either as revenue neutral or revenue augmenting.
- Revenue augmenting model: In case of revenue augmenting, the additional revenue can either be targeted towards the provision of environmental public goods or directed towards the overall revenue pool.
- In developing countries like India, the revenue can be used to a greater extent for the provision of environmental public goods and addressing environmental health issues.
Eco tax
- The success of an eco tax (environment tax) in India would depend on its architecture, that is, how well it is planned and designed.
- It should be credible, transparent and predictable.
- Ideally, the eco tax rate ought to be equal to the marginal social cost arising from the negative externalities associated with the production, consumption or disposal of goods and services.
- This would include the adverse impacts on the health of people, climate change, etc.
- The eco tax rate may, thus, be fixed commensurate to the marginal social cost so evaluated.
- There is also a need to integrate environmental taxes in the Goods and Service Tax framework.
In India, eco taxes can target three main areas
- One, differential taxation on vehicles in the transport sector purely oriented towards fuel efficiency and GPS-based congestion charges.
- Two, in the energy sector by taxing fuels which feed into energy generation.
- Three, waste generation and use of natural resources.
Benefits of implementation of eco taxes
- The implementation of an environmental tax in India will have three broad benefits: fiscal, environmental and poverty reduction.
- Finance basic public services: Environmental tax reforms can mobilise revenues to finance basic public services when raising revenue through other sources proves to be difficult or burdensome.
- Reduce distorting taxes: It can can also help to reduce other distorting taxes such as fiscal dividend.
- Finance research: Environmental tax reforms help internalise the externalities, and the said revenue can finance research and the development of new technologies.
Impact
- Environmental regulations may lead to slow productivity growth and high cost of compliance in private sector.
- This could result in the possible increase in the prices of goods and services.
- However, the European experience shows that most of the taxes also generate substantial revenue and there is no evidence on green taxes with sustainable development goals leading to a ‘no growth’ economy.
- Negligible impact on GDP: Most countries’ experiences suggest negligible impact on the GDP, though such revenues have not necessarily been used for environmental considerations.
- The negligible impact on the GDP may be a temporary phenomenon.
Conclusion
This is the right time for India to adopt environmental fiscal reforms as they will reduce environmental pollution and also generate resources for financing the health sector.
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