Note4Students
From UPSC perspective, the following things are important :
Prelims level: Electoral bonds
Mains level: Paper 2- Issues with electoral bonds
Context
Ever since its introduction, the electoral bond scheme has envenomed the democratic process, by destroying altogether any notion of transparency in political funding.
Issue of anonymity in electoral bond
- The electoral bond scheme is designed to allow an individual, or any “artificial juridical person”, including body corporates, to purchase bonds issued by the State Bank of India during notified periods of time.
- These instruments are issued in the form of promissory notes, and in denominations ranging from ₹1,000 to ₹1 crore.
- Once purchased, the buyer can donate the bond to any political party of their choice and the party can then encash it on demand.
Supreme Court’s opinion
- The Supreme Court has allowed the scheme to continue unabated and has denied an interim stay on its operation.
- In one such provisional order, the Court asserted that the bonds were not, in fact, anonymous.
- According to the Court, since both the purchase and the encashment of bonds are made through banking channels, all it would take for a person to glean the identity of a donor was for her to look through every corporation’s financial statement — these records, the Court said, ought to be available with the Registrar of Companies.
- What the order ignored was that there is no attendant obligation on political parties to provide details to the public on each donation received by them through electoral bonds.
- Companies are also under no obligation to disclose the name of the party to whom they made the donation.
Violation of voter’s right
- The Supreme Court has consistently held that voters have a right to freely express themselves during an election and that they are entitled to all pieces of information that give purpose and vigour to this right.
- Surely, to participate in the electoral process in a meaningful manner and to choose one’s votes carefully, a citizen must know the identity of those backing the candidates.
Electoral bond does not eliminate the role of black money in funding elections
- As affidavits filed by the Election Commission of India in the Supreme Court have demonstrated, the scheme, if anything, augments the potential role of black money in elections.
- It does so by, among other things, removing existing barriers against shell entities and dying concerns from donating to political parties.
- Moreover, even if the bonds were meant to eliminate the presence of unaccounted currency, it is difficult to see what nexus the decision to provide complete anonymity of the donor bears to this objective.
- It is for this reason that the Reserve Bank of India reportedly advised the Government against the scheme’s introduction.
Conclusion
The worries over the electoral bond scheme, however, go beyond its patent unconstitutionality. This is because in allowing anonymity it befouls the basis of our democracy and prevents our elections from being truly free and fair.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Credit to GDP ratio
Mains level: Paper 3- How to generate high growth
Context
Although the impact of Omicron is less on the economy, the loss of GDP in the last two years is high. Also note that the pre-Covid year FY20 had a low base with 4 per cent growth of GDP. Therefore, the need to focus on higher growth in the forthcoming budget and in the medium term, that is, beyond India@75, is obvious.
Challenges in creating quantity and quality of jobs in the economy
- Unemployment rate is high in both rural and urban areas;
- Decline in work participation rates, particularly for women;
- Recovery in employment is still below the levels of the pre-Covid period.
- 85 per cent of the workforce is still in informal sector.
- Lack of skill: Less than 5 per cent of India’s workforce has formal skill training.
- Need for structural change: Manufacturing and services need structural change.
- Focus on MSME sector is needed for higher employment.
Policies needed to achieve higher economic growth and jobs
1] Capital expenditure and infrastructure
- The government outlined an infrastructure project pipeline worth more than Rs 102 lakh crore and asset monetisation pipeline of Rs 6 lakh crore to be implemented in the medium term.
- Continuing focus on infrastructure and capex by the government is important as it is a key driver for the “future of India”.
2] Focus on export growth
- It is well known that rise in exports is one of the main engines of growth and also important for employment creation.
- Export growth in India has increased and is expected to reach $400 billion by the end of FY22.
- One worrying aspect of India’s export performance is the failure in expanding the share of labour intensive products in the export basket.
- Protectionist trade policy: However, one problem in recent years is that India’s trade policy has become more protectionist by increasing import tariffs.
- Join RCEP: India should also join the Regional Comprehensive Economic Partnership (RCEP) for integrating our industries with the value chains in Asia.
3] Manufacturing and service sector growth
- The share of manufacturing in GDP and employment has hardly increased over time.
- Production Linked Incentive (PLI) schemes can improve performance.
- However, more efforts are required to improve the manufacturing sector.
- Similarly, there are a lot of opportunities for India in the service sector.
- Brand and customer centricity are important here.
- India can also think of more business in the service sector.
- Growing startups including unicorns in manufacturing and services is part of this effort.
4] Banking reforms
- Banking reforms are important as bank credit growth is a key indicator of economic growth.
- Low credit-to-gdp ration in India: Credit to GDP ratio in India is only around 55 per cent compared to 100 per cent and 150 per cent in many other countries.
- Credit should flow to all categories of economic agents like firms, households etc.
- The bad bank, a key initiative of the last budget, is yet to take shape.
- The role of fintech companies in the financial sector has increased significantly.
- They may not be able to replace banks although they are competing on payments.
- The banks also have to focus now on ESG (environment, social and governance) while giving credit.
- Big technology and digital push is also needed for banks.
5] Deal with K-shaped recovery
- The K-shaped recovery of the economy is still continuing.
- The policies have to focus on giving a push to the MSME sector, increasing investment in agriculture and rural infrastructure, a social sector push including bridging divides in health and education, social protection measures like foodgrain distribution, cash transfers, MGNREGA in rural areas, urban employment guarantee schemes etc.
- This will also create demand for the economy.
Conclusion
In the near term, fiscal policy has to play an important role in achieving the objectives of growth and jobs by expanding fiscal space while the fiscal deficit can be stabilised in the medium term. Increase in private investment may take some more time.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Defining formal sector
Mains level: Paper 3- Challenges of formalisation
Context
Despite efforts by the government, formalisation of economy still eludes us.
Prevalence of informality in India
- Despite witnessing rapid economic growth over the last two decades, 90% of workers in India have remained informally employed, producing about half of GDP.
- Combining the International Labour Organization’s widely agreed upon template of definitions with India’s official definition (of formal jobs as those providing at least one social security benefit — such as EPF), the share of formal workers in India stood at 9.7% (47.5 million).
- The prevalence of informal employment is also widespread in the non-agriculture sector.
- About half of informal workers are engaged in non-agriculture sectors which spread across urban and rural areas.
- Industries thriving without paying taxes are only the tip of the informal sector’s iceberg.
- What remains hidden are the large swathes of low productivity informal establishments working as household and self-employment units which represent “petty production”.
- To conflate the two distinct segments of the informal sector would be a serious conceptual error.
Fiscal perspective of formalisation
- Efforts to encourage formalisation: Currency demonetisation, introduction of the Goods and Services Tax (GST), digitalisation of financial transactions and enrolment of informal sector workers on numerous government Internet portals are all meant to encourage the formalisation of the economy.
- The formal sector is more productive than the informal sector, and formal workers have access to social security benefits.
- The above-mentioned efforts are based on the “fiscal perspective” of formalisation.
- This perspective appears to draw from a strand of thought advanced by some international financial institutions such as the International Monetary Fund, which foregrounds the persistence of the informal sector to excessive state regulation of enterprises and labour which drives genuine economic activity outside the regulatory ambit.
- Hence, it is believed that simplifying registration processes, easing rules for business conduct, and lowering the standards of protection of formal sector workers will bring informal enterprises and their workers into the fold of formality.
Issues with fiscal perspective
- Early on, in an attempt to promote employment, India protected small enterprises engaged in labour intensive manufacturing by providing them with fiscal concessions and regulating large-scale industry by licensing.
- Such measures led to many labour-intensive industries getting diffused into the informal/unorganised sectors.
- Further, they led to the formation of dense output and labour market inter-linkages between the informal and formal sectors via sub-contracting and outsourcing arrangements (quite like in labour abundant Asian economies).
- While such policy initiatives may have encouraged employment, bringing the enterprises which benefited from the policy into the tax net has been a challenge.
- Political and economic reasons operating at the regional/local level in a competitive electoral democracy are responsible for this phenomenon, too.
Role of underdevelopment
- Global evidence suggests that the view that legal and regulatory hurdles alone are mainly responsible for holding back formalisation does not hold much water.
- A well-regarded study, ‘Informality and Development’ argues that the persistence of informality is, in fact, a sign of underdevelopment.
- The finding suggests that informality decreases with economic growth, albeit slowly.
- A similar association is also evident across major States in India, based on official PLFS data.
- Hence, the persistence of a high share of informal employment in total employment seems nothing but a lack of adequate growth or continuation of underdevelopment.
Impact of pandemic
- Research by the State Bank of India recently reported the economy formalised rapidly during the pandemic year of 2020-21, with the informal sector’s GDP share shrinking to less than 20%, from about 50% a few years ago — close to the figure for developed countries.
- These findings of a sharp contraction of the informal sector during the pandemic year (2020-21) do not represent a sustained structural transformation.
- They are a temporary (and unfortunate) outcome of the pandemic and severe lockdowns imposed in 2020 and 2021.
Way forward
- Policy efforts directed at bringing the informal sector into the fold of formality fail to appreciate that the bulk of the informal units and their workers are essentially petty producers eking their subsistence out of minimal resources.
- The economy will get formalised when informal enterprises become more productive through greater capital investment and increased education and skills are imparted to its workers.
Consider the question “What are the reasons for persistent informality in India? Suggest the way to ensure the smooth transition to the formality.”
Conclusion
Policy efforts to formalise the economy will have limited results as the bulk of informal units are petty producers.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Amendment to IAS cadre rules
Context
There are recent reports in the media about serious concerns of several state governments on Government of India’s proposed move to amend the IAS service rules to meet the shortage of officers at various levels at the Centre.
How does central deputation work?
- Voluntary: Under the current dispensation, officers opt for central deputation from the states voluntarily.
- The Centre then makes a selection from among these officers for posts which are vacant or are likely to be vacant in the near future.
- While doing so, it considers the suitability of the officer based on his/her past experience.
- Once the selection is finalised, orders are issued, requesting the state government to relieve the officer concerned.
- Quota for each state: Each state has a certain quota beyond which its officers are not accepted by the Centre.
Shortage of officers on central deputation
- In the last decade, there has been a gradual decline in the number of officers who opt for central deputation.
- Generally, of the total cadre strength of the states, about 25-30 per cent used to be on central deputation.
- Currently, less than 10 per cent are working in various central ministries.
- According to certain reports, in states like UP, Bihar, Odisha and Tamil Nadu and Kerala, the number is between 8 per cent and 15 per cent.
- One of the reasons for this non-availability of officers for central deputation is the inadequate recruitment more than a decade and half ago.
- But an important reason is also the comparatively better service conditions in the states.
So, what do the proposed rules seek to achieve?
- While fixing the cadre strength of states, about 40 per cent posts of senior duty are earmarked for central deputation.
- Shortage to be shared equitably: Considering that recruitments in the past were not adequate, the proposed change in rules provides for shortage to be shared equitably between the Centre and states.
- Time limit to relieve officers: Also, since vacancies need to be filled in time, there is a suggestion of a time limit in which states must respond and relieve the officer selected.
Way forward
- Respect the views of State: It has to be clearly understood that when states give the list of officers they wish to offer for central deputation, it will be the decision of the states alone.
- The Centre, if it wishes to have an officer work for it, can suggest so to the state.
- If the state does not wish to suggest his name for deputation, the Centre should respect their views, even though they have the power under cadre rules to do so.
- Improving working conditions for officers: The Centre has to realise that improving working conditions for officers at the deputy secretary and director levels is critical to the success of cadre management.
- Many of the officers at this level have concerns regarding education of their children, transport and the higher cost of living in Delhi.
- A deputation allowance for the period of deputation in Delhi could be an option.
- Non-adversarial manner: The states also have to look at this issue in a non-adversarial manner, where needs of both the Centre and the state have to be matched and met.
- The Centre should dispel fears of states about misuse of central power.
Conclusion
Proposed amendment to service rules is needed to meet shortage of personnel, but Centre must dispel states’ fears about overreach.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: PLIS
Mains level: Paper 3- Food processing industry in India
Context
One of the largest producers of fruits and vegetables in the world to boost processed food in large quantities, India has formulated a unique Production-Linked Incentive Scheme (PLIS) which aims to incentivise incremental sales.
Progress made so far
- A sum of ₹10,900 crore has been earmarked for the scheme.
- Beneficiaries have been obliged to commit a minimum investment while applying for the scheme.
- Under Category 1, firms are incentivised for incremental sales and branding/marketing initiatives taken abroad.
- Assuming the committed investment as a fixed ratio of their sales and undertaking execution of at least 75% of the projects, the sector is likely to witness at least ₹6,500 crore worth of investment over the next two years.
- New alternatives are being explored which have immense potential in replacing the staples of rice and wheat in the form of Nutri-cereals, plant-based proteins, fermented foods, health bars and even fresh fortified foods for pets.
- By welcoming the new brands in the category, PLIS aims to create an enabling ecosystem for innovation in both food products and processes.
Way forward
1] Improve infrastructure
- A study in the United States concluded that a 1% increase in public infrastructure increased the food manufacturing output by 0.06% in the longer run (https://bit.ly/3rOeE0l).
- This correlation holds good for India too as a higher investment is being concentrated in States such as Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh.
- These States as reported by the Good Governance Index 2020-21, ranked among the highest in the ‘Public Infrastructure and Utilities’ parameter with ‘Connectivity to Rural Habitations’ showing the highest improvement.
2] Improve profitability in export
- For the exports market, it is now established that sales promotion is positively related to increased sales volume, but inversely related to profitability.
- To bridge this gap, of the 13 key sectors announced under the PLIS, the ‘Food Processing PLIS’ earmarks a dedicated Category 3 for supporting branding and marketing activities in foreign markets.
- This ensures that India’s share of value-added products in the exports basket is improved, and it may leverage on its unique geographical proximity to the untapped markets of Europe, the Middle East/West Asia, Africa, Oceania and Japan.
3] Access to credit
- The access of micro, small, and medium enterprises (MSMEs) to finance is a perennial problem in the country, predominating due to a lack of proper credit history mechanism for MSMEs.
- Smart financing alternatives such as peer-to-peer (P2P) lending hold potential for micro-food processors.
- Access to working capital has in theory been addressed by the Trade Receivables Discounting System (TReDS), a platform for facilitating the financing/discounting of trade receivables of MSMEs through multiple financiers.
Conclusion
With growing populations, changing food habits and unrestricted use of natural resources, nations must come together and lay out a road map for a common efficient food value chain.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Issues with rapid transition to green energy
Context
Europe’s push for renewable energy at the cost of conventional fuel may end up causing a global food crisis.
Consequences of fuel shortage in Western Europe
- Since August 2021, Western Europe has faced a problem with renewable energy – the wind doesn’t always blow when needed and the sun doesn’t always shine.
- Commodity markets across the world operate on a balance of demand and supply — even seemingly “small” changes in either side of a few percentage points can push the prices up or down sharply.
- High energy bills: Higher gas prices have pushed up energy bills for households and are expected to impact household spending and consumption as well.
- High urea prices: Natural gas is used to produce urea – if gas prices go up, fertiliser also becomes expensive.
- Some poor and middle-income countries are already starting to face problems of fertiliser availability — there are reports from several Indian states as well.
- High food prices: The impact of expensive fertiliser will be felt some months down the line as expensive fertiliser and reduced harvests push up food prices.
- India is relatively less affected as the share of natural gas in the country’s energy mix is low but will still face problems due to high food prices.
- In 2007-08, when oil prices were high, there was a push to use “biofuels” led by the US and Europe.
- The effects of the 2008 food price crisis were felt around the world, especially by the poor.
Lessons for India
- Cheap and reliable energy sources should not be abandoned until the alternatives have been stringently stress tested.
- India will be especially hard hit if oil prices spike as it imports close to 1.4 billion barrels of oil annually.
Consider the question “What are the inherent dangers in rapid transition to the green energy? Suggest the way forward for India.”
Conclusion
A blind push to shut down traditional sources of energy and move to less reliable “clean” energy can have second and third order effects.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: GST Council
Mains level: Paper 2- Working of Constitution
Context
A republic is made robust and kept alive by its people. In its current form, the Indian republic marks 73 years of maintaining a dynamic balance.
Directly elected representation
- It is to the credit of our people that today we have a pyramidal three-layered elected representative system that governs us.
- This system today has over 3 million elected representatives (a million of them women), over 4,000 elected to the state legislatures and over 500 in the Parliament.
- This scale of directly elected representation, perhaps, can be seen nowhere else in the world.
Moral and spiritual basis of the Constitution
- In Pilgrimage to Freedom, K M Munshi writes, “our Constitution has a moral background — to secure justice for every section of our society; as also a spiritual basis — to preserve and protect all religions in the exercise of their functions”.
- The challenges continue in securing justice for every section of our society.
- The Backward Classes, the Scheduled Castes and the Scheduled Tribes and the poor across all categories clamour for better opportunities and affordable justice.
- What Munshi calls the spiritual basis of our Constitution in having to preserve and protect all religions is also seen under stress.
- When the right to practise one’s religion is denied or threatened, the silence of the thinking public or the media weakens that constitutionally embedded protection.
Challenges posed by social media
- Through the power of technology and its capacity to broadcast at mass scale, an otherwise useful tool, social media, has become a challenge and sometimes a threat to one or several of the rights enshrined in our Constitution.
- Curtailing them to protect the rights of citizens is seen as trampling upon the right to free speech.
- Without any action, the damage caused to social harmony by such rampant false news can result in people losing faith in the Constitution itself.
Constitution as a living, dynamic process
- Our Constitution is the most amended of all constitutions in the world.
- If there are more than 100 amendments made to the Constitution, there are more than 1,500 laws that have been repealed because they have outlived their times.
- These deadwood laws, by remaining on paper, occasionally became a weapon in the hands of rent-seekers.
- Their removal, as a part of administrative reform, has kept the role of the executive transparent and accountable.
- That the Constitution is always evolving is best exemplified by the 101st amendment which rolled out the Goods and Services Tax.
- his amendment brought in a unified indirect tax regime by subsuming most of the indirect taxes of the Centre and the states.
- Yet to complete five full years, the GST Council has stood the test of challenging times even in its initial years.
- It augurs well for cooperative federalism.
Conclusion
Our Constitution has served us well in these seven decades. Several republics in the post-imperial era have rejected their earlier constitutions and tested new ones. It is the people who can keep the republic robust and alive.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Constituent Assembly working
Mains level: Paper 2- Working of India's Constitution
Context
This year we are celebrating our 73rd Republic Day. The Constitution has been our guiding force in the journey of the nation as a mature democracy among comity of nations.
Historical background
- The Constituent Assembly undertook intensive deliberations over a period of two years, 11 months and 18 days spread over 11 sessions, during which the Constitution of India took shape.
- Our Constituent Assembly played a dual role after Independence, given the insurmountable task of nation-building.
- Our Constituent Assembly had performed the functions of the provisional Parliament of India in the interval between the time our Constitution was enforced and the day when the new Parliament was formed following the first General Elections (October 25, 1951-February 21, 1952).
- The Constituent Assembly of India acted as the first Parliament of independent India.
Role of the Parliament
- Representative institutions and democratic traditions have always been an integral part of our rich heritage
- Our Parliament has been playing a pivotal role in the all-round development of the nation by adopting many parliamentary devices for ensuring free and fair discussions and dialogue.
- We have to ensure that our institutions and governance ensure inclusivity and the participation of our population in our developmental journey, particularly our women, Scheduled Castes, Scheduled Tribes and all other marginalised sections become equal partners in our growth story.
Ensuring the best legislative practices
- Repository of the proceedings: To ensure that best legislative practices are shared, a national portal is being planned to serve as a repository of the proceedings of Parliament and all State/Union Territory legislatures in the country.
- Research support is being provided to Members to help them participate better and meaningfully in matters brought before Parliament.
- Review of the laws to make them relevant: It is also time in the journey of our nation to take stock and review laws that were enacted during the pre-Independence era so as to make them more relevant to our current requirements and future challenges.
Conclusion
Republic Day is an occasion for people’s representatives and all citizens of this proud nation to reaffirm faith in the ideals enshrined in our Constitution.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: COP26
Mains level: Paper 3- Transition to net zero-emission future
Context
While many developing countries made net-zero pledges at COP26 in Glasgow, they face enormous developmental challenges in their attempts to grow in a climate-constrained world.
Developmental challenges for India
- For India, the national context is shaped by high youth unemployment, millions more entering the workforce each year, and a country hungry for substantial investments in hard infrastructure to industrialise and urbanise.
- Growth with low emission footprint: India’s economic growth in the last three decades, led by growth in the services sector, has come at a significantly lower emissions footprint.
- But in the coming decades, India will have to move to an investment-led and manufacturing-intensive growth model to create job opportunities and create entirely new cities and infrastructure to accommodate and connect an increasingly urban population.
- All of this requires a lot of energy. Can India do all of this with a low emissions footprint?
What could India do to pursue an industrialization pathway that is climate-compatible?
- A coherent national transition strategy is important in a global context where industrialised countries are discussing the imposition of carbon border taxes while failing to provide developing countries the necessary carbon space to grow or the finance and technological assistance necessary to decarbonise.
- What India needs is an overarching green industrialisation strategy that combines laws, policy instruments, and new or reformed implementing institutions to steer its decentralised economic activities to become climate-friendly and resilient.
Issues with India’s domestic manufacturing of renewable technology components
- India’s industrial policy efforts to increase the domestic manufacturing of renewable energy technology components have been affected by policy incoherence, poor management of economic rents, and contradictory policy objectives.
- India managed to create just a third of jobs per megawatt that China has managed to in its efforts to promote solar PV and wind technologies.
- China has created more jobs in manufacturing solar and wind components for exports than domestic deployment.
- India could have retained some of those jobs if it were strategic in promoting these technologies.
Opportunities in decarbonising transport and industry sector
- Technologies needed to decarbonise the transport and industry sectors provide a significant opportunity for India.
- However, India’s R&D investments in these emerging green technologies are non-existent.
- PLI is a step in right direction: The production-linked incentives (PLIs) under ‘Aatmanirbhar Bharat’ are a step in the right direction for localising clean energy manufacturing activities.
- Focus on R&D: Aligning existing RD&D investments with the technologies needed for green industrialisation is crucial for realising quantum jumps in economic activities.
- Encourage private entrepreneurship: India also needs to nurture private entrepreneurship and experimentation in clean energy technologies.
- Besides China, Korea’s green growth strategy provide examples of how India could gain economic and employment rents from green industrialisation without implementing restrictive policies.
Way forward
- India should set its pace based on its ability to capitalise on the opportunities to create wealth through green industrialisation.
- India should follow a path where it can negotiate carbon space to grow, buying time for the hard-to-abate sectors; push against counterproductive WTO trade litigations on decarbonisation technologies; all while making R&D investments in those technologies to ensure that it can gain economic value in the transition.
Consider the question “What are the challenges India faces as it strives to reach the goal of net-zero emission by 2070. Suggest the strategy India should follow to maximise the developmental gains.”
Conclusion
The government should neither succumb to international pressure to decarbonise soon nor should it postpone its investment in decarbonisation technologies and lose its long-term competitiveness in a global low-carbon economy.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Tax buoyancy
Mains level: Paper 3- Macroeconomic uncertainty and way ahead
Context
Macroeconomic uncertainties are mounting.
Impact of US Fed’s decision
- Against the backdrop of possible interest rate hikes by the U.S. Federal Reserve and the taper tantrum, there is pressure on the Reserve Bank of India (RBI) to increase its interest rates to prevent capital outflows.
- The monetary policy corridor is still “accommodative” to support the growth recovery.
- Globally, central banks have started increasing the interest rates.
Macroeconomic uncertainties
1] Inflationary pressure
- In India, the wholesale price index (WPI) inflation rose to a record high of 14.32% in November 2021 as per the data released by the Ministry of Commerce and Industry.
- The consumer price index (CPI) inflation now is 5.03%, though that is still within the comfort zone of the inflation targeting framework envisaged in India’s new monetary framework.
- The official nominal inflation anchor in India is 4%, with a band of variations of +/- 2.
2] Absorbing excess liquidity
- The RBI Financial Stability Report, published on December 29, 2021, revealed a possible worsening of the gross non-performing asset (GNPA) ratio of scheduled commercial banks — from 6.9% in September 2021 to 9.5% by September 2022.
- Absorbing the excess liquidity that was injected to stimulate growth as part of the pandemic response is crucial to reversing trends in non performing assets (NPAs).
- Absorption of excess liquidity was attempted by increasing the cut-off yield rate of variable rate reverse repo (VRRR) to 3.99%, and curtailing the government securities acquisition programme.
3] Interest rate structure and implications for government borrowing
- The call money market rates are below the repo rate.
- The bond yields are increasing ahead of the Union Budget 2022-23.
- The rise in bond yields will result in higher borrowing costs for the Government.
Way forward for fiscal policy
- Maintain accommodative policy stance: Given these macroeconomic uncertainties, maintaining an accommodative fiscal policy stance in the upcoming Union Budget for FY23 is crucial for a sustainable recovery.
- Don’t focus on fiscal consolidation: Any attempt at fiscal consolidation at this juncture employing capital expenditure compression rather than a tax buoyancy path can adversely affect economic growth.
- Public investment — infrastructure investment in particular — is a major growth driver through “crowding-in” of private corporate investment.
- Strengthening investments in the health-care sector is crucial at this juncture as a prolonged lockdown can accentuate the current humanitarian crisis and deepen economic disruptions.
- When credit-linked economic stimulus has an uneven impact on growth recovery, the significance of fiscal dominance cannot be undermined.
- Address unemployment: Rising unemployment needs to be addressed through an urgent policy response that strengthens job guarantee programmes.
Conclusion
The upcoming Union Budget for 2022-23 should maintain an accommodative fiscal stance in order to support the sustainability of the economic growth process and also for financing human development.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Sittwe port
Mains level: Paper 2- Why India should engage with Myanmar
Context
Notwithstanding the unfortunate developments since the Tatmadaw took over, a recalibration exercise for developing a robust relationship with Naypyidaw is the need of the hour.
Need for proactive neighbourhood policy with Myanmar
- Security and economic interests: India should implement an unbiased and proactive “Neighbourhood First” strategy that facilitates the Act East policy crucial for India’s long-term security and economic interests.
- Myanmar — regardless of who governs its polity — is not only the decisive lynchpin for India’s Act East policy but critical for the economic development and security of India’s Northeast.
- China factor: Such a policy should take into account the measures that China has taken to arm the Tatmadaw.
How to support Myanmar?
- Critical requirements: India should find ways to support Naypyidaw for its critical requirements of systems and platforms like UAVs, surveillance systems and communication equipment.
- Economic engagement: There is a need for dynamic economic engagement with Myanmar, to expedite the completion of the earlier agreement on the operationalisation of the Sittwe port, the establishment of an oil refinery and joint vaccine production facilities at a cost of $6 billion.
- People-to-people goodwill: India also needs to proactively employ the existing “people-to-people” goodwill and proximate ties between the two armies.
- Engage with military leadership to stop highhandedness: India has the singular advantage of acceptability from both factions in Myanmar and it is, therefore, imperative that it takes the lead in engaging with the ruling military leadership, to stop the highhandedness.
- The visit by India’s Foreign Secretary to Myanmar in the last week of December 2021 was significant.
- It conveyed the message that India, notwithstanding its commitment to democracy, is amenable to conduct business with the country, regardless of who is in the seat of power.
Conclusion
It is of the utmost importance for India to positively engage Naypyidaw and stave off attempts to exploit Myanmar by countries inimical to India’s growth. Any ambiguity or delay in India’s constructive engagement with Myanmar would only serve the interests of anti-India forces.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: NATO
Mains level: Paper 2- India-Europe relations
Context
For India, an important strategic priority today is to rebalance the Indo-Pacific. Delhi, however, recognises that this expansive challenge can’t be met by any one power, including the US. A larger European role in securing Asia therefore becomes critical.
Importance of Russia in balancing China
- Peace with Russia in Europe might be necessary for America to focus on Asia has been the key motivation behind President Joe Biden’s decision to intensify engagement with Vladimir Putin in the last few months.
- On the question of Ukraine’s membership of NATO, the US and its European allies have suggested that membership is certainly not imminent; but they are unwilling to say Ukraine will “never” be admitted.
Contradiction in Europe
- 1] Europe remains geopolitically unstable: None of the three European settlements of the 20th century — in 1919 after the First World War, in 1945 after the Second World War, and in 1991 after the Cold War — has endured.
- 2] The difficulty of integrating Russia into a European order: Russia was part of the great power system in Europe through the 18th and 19th centuries.
- If the 1917 Bolshevik Revolution put Russia and the West at odds with each other, the collapse of the Soviet Union has not resolved the contradiction.
- 3] Growing tension between the US and Europe: Since the Second World War, Europe has relied on the US for its security.
- However, Europe has never stopped resenting the American dominance over its geopolitics.
- The EU’s foreign policy chief, Josep Borrell, has repeatedly objected to the US and Russia deciding the future of Ukraine over European heads.
- But Russia does not take the EU seriously and is betting on negotiations with the US.
- 4] Europe still remains a weak security actor: While the EU has become a powerful economic entity (with its $17 trillion GDP), it remains a weak security actor.
- Whatever might be the outcome from the gathering conflict over Ukraine, these European contradictions are not going to disappear any time soon.
Why Europe remains a weak security actor?
- Dominance of the US and Russia: The ambition to construct a strong geopolitical personality for the EU is hobbled by divisions over the role of Russia and the US in the region.
- Mutual suspicions: The historically rooted mutual suspicions among European states also plays role.
- Reluctance to spend on defence: This is compounded by the reluctance to spend more on defence and the inability to develop collective defence arrangements outside of NATO led by the US.
Suggestions for India
- The contradictions in Europe demand that Delhi discard its tendency to view the region through the “East versus West” binary.
- Delhi today could profitably take a leaf out of the book of the Indian national movement.
- In the late 18th century, as European powers competed for influence in the subcontinent, many Indian princes sought to take advantage of the contradictions between Britain and France.
- Imperial Germany supported the formation of a nationalist government of India in Kabul in 1915 headed by Raja Mahendra Pratap Singh.
- Eager to accelerate Indian independence during the Second World War, Netaji turned to Germany and Japan, the world’s newest great power.
- The sharpening struggle for Indian independence, and more broadly the liberation of Asia between the two World Wars, inevitably involved exploiting the contradictions between different imperial powers.
- This was complicated, however, by rapid realignment among the major powers —friends became adversaries and enemies became allies.
- The Indian and Asian national movements were deeply divided in coping with the shifting great power dynamic.
- The world enters a similar moment today that could rearrange relations between the US, UK, Europe, Russia, China and Japan.
Consider the question “What are the contradictions in Europe today? How these contradiction can play role in India’s international relations with the European countries?”
Conclusion
Greater engagement with Europe and dealing with its multiple contradictions must necessarily be important elements of India’s international relations today.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Expenditure on education in India
Mains level: Paper 2- Increasing the expenditure on education
Context
Faced with an unprecedented education emergency, this is the time to substantially ramp up public spending on education and make it more effective.
Low allocation for education
- UNESCO’s 2030 framework for action suggests public education spending levels of between 4% and 6% of GDP and 15%-20% of public expenditure.
- A recent World Bank study notes that India spent 14.1 % of its budget on education, compared to 18.5% in Vietnam and 20.6% in Indonesia, countries with similar levels of GDP.
- But since India has a higher share of population under the age of 19 years than these countries, it should actually be allocating a greater share of the budget than these countries.
- Public spending on education in most States in India was below that of other middle-income countries even before the pandemic.
- Most major States spent in the range of 2.5% to 3.1% of State income on education, according to the Ministry of Education’s Analysis of Budgeted Expenditure on Education.
- This compares with the 4.3% of GDP that lower-middle-income countries spent, as a group, between 2010-11 and 2018-19.
- In the 2021-22 Budget, the Central government’s allocation for the Education Department was slashed compared to the previous year, even though the size of the overall budget increased.
- Of the major States and Delhi, eight either reduced or just about maintained their budget allocation for education departments in 2021-22 compared to 2020-21.
Way forward
- The vast majority of the 260 million children enrolled in preschool and school, especially in government schools, did not have meaningful structured learning opportunities during the 20 months of school closures.
- Infusion of resources: The education system now needs not only an infusion of resources for multiple years, but also a strengthened focus on the needs of the poor and disadvantaged children.
- What it is spent on and how effectively resources are used are important.
- It is clear what additional resources are required for.
- The needs include: back-to-school campaigns and re-enrolment drives; expanded nutrition programmes; reorganisation of the curriculum to help children learn language and mathematics in particular, and support their socio-emotional development, especially in early grades; additional learning materials; teacher training and ongoing support; additional education programmes and collection and analysis of data.
- Focus on teacher training: How does expenditure on technology compare with the amounts spent on teacher training, which represents just 0.15% of total estimated expenditure on elementary education?
- Teachers are central to the quality of education, so why does India spend so little on teacher training?
The opacity of education finance data in India
- The opacity of education finance data makes it difficult to comprehend this.
- For instance, the combined Central and State government spending on education was estimated to be 2.8% of GDP in 2018-19, according to the Economic Survey of 2020-21.
- This figure had remained at the same level since 2014-15.
- On the other hand, data from the Ministry of Education indicates that public spending on education had reached 4.3% of GDP in the same year, rising from 3.8% of GDP in 2011-12.
- The difference in the figures is due to the inclusion of expenditure on education by departments other than the Education Department.
- Including expenditure on education by, for example, the Ministry of Tribal Affairs, the Ministry of Social Justice and Empowerment (on Anganwadis, scholarships, etc.), the Ministry of Science and Technology (for higher education) is of course legitimate.
- However, the composition of these expenditures is not readily available.
Conclusion
The questions for this Budget should be clear. How much additional funds are being allocated for different levels of education by the principal departments in 2021-22? Are the funds being spent on the specific measures required to address the education emergency facing the children?
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Marginal propensity to consume
Mains level: Paper 3- Growth prospects for Indian economy
Context
The adverse effect of the third wave of COVID-19, which is mainly affecting the last quarter of 2021-22, may call for a further downward adjustment in the growth rate to about 9%.
Growth in FY 2021-22
- As per the NSO’s advance estimates, at the end of 2021-22, the magnitude of GDP in real terms is estimated at INR₹147.5-lakh crore that is only a shade higher than INR₹145.7-lakh crore in 2019-20.
- Thus, due to the three waves of COVID-19 that India has experienced, two years of real growth in economic activities have been wiped out.
- As per the advance estimates, the gross fixed capital formation (GFCF) relative to GDP at current prices stands at 29.6% in 2021-22.
- Capacity utilisation in India continues to have considerable slack.
- Private final consumption expenditure (PFCE) also shows a low growth of 6.9% in 2021-22.
- Any pick-up in demand would continue to be constrained by low-income growth in sectors characterised by a high marginal propensity to consume (MPC) such as the trade, transport, et al. sector and the Micro, Small and Medium Enterprise (MSME) sector more broadly.
- It may thus be prudent to expect a real GDP growth in the range of 6%-7%.
- Growth in 2022-23 would also continue to be constrained by supply-side bottlenecks and high prices of global crude and primary products.
- Growth in 2022-23 would depend on the basic determinants such as the saving and investment rates in the economy.
Suggestions
- Extend GST compensation period: The GST compensation provision would also come to an end in June 2022.
- This would cause a major revenue shock at least for some States such as Tamil Nadu, Kerala and Andhra Pradesh.
- While this matter may be considered by the GST Council, the compensation arrangement should be extended by two years in some modified form.
- With respect to non-tax receipts, the scope of the National Monetization Pipeline (NMP) may be extended to cover monetisation of government-owned land assets.
- Disinvestment initiatives may have to be accelerated.
- Expenditure prioritisation in 2022-23 should focus on reviving both consumption and investment demand.
- Urban counterpart to MGNREGA: Since consumption demand remains weak, some fiscal support in the form of an urban counterpart to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) may be considered.
Focusing on fiscal consolidation
- It would be appropriate now to consider a graduated return to fiscal consolidation while using fiscal policy to lay the base for faster growth in the years to come.
- The Fifteenth Finance Commission had suggested a fiscal consolidation path where the Centre’s fiscal deficit was benchmarked at 5.5% of GDP for 2022-23.
- In their pessimistic scenario, it was kept at 6% of GDP.
- It may be prudent to limit the reduction in fiscal deficit-GDP ratio to about 1% point of GDP in 2022-23.
- This would imply a fiscal deficit in the range of 5.5%-6% of GDP.
- From here on, a stepwise reduction of 0.5% points per year would enable a level of about 4% of GDP by 2025-26.
- By this time, as suggested by the Fifteenth Finance Commission, a high-powered inter-governmental group should be constituted to re-examine the sustainability parameters of debt and fiscal deficit of the central and state governments.
Conclusion
Expenditure prioritisation in 2022-23 should focus on reviving both consumption and investment demand while aiming for the gradual return to the fiscal consolidation.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: CAPF
Mains level: Paper 3- Issues with multiple agencies guarding borders
Context
Recent developments warrant a comprehensive review of border management to ensure the all-weather security of our borders.
What makes India’s border management difficult?
- India shares land borders with Pakistan, China, Nepal, Bhutan, Bangladesh and Myanmar, which stretch approximately 15,106 km.
- In addition, we have an approximately 3,323 km-long LoC with Pakistan, which further extends to the rechristened 110 km stretch of “Actual Ground Position Line” (AGPL) dividing the Siachen glacier region.
- Further east, we have the 3,488 km LAC with China.
- We share maritime boundaries with Sri Lanka, Maldives, Bangladesh, Pakistan, Myanmar and Indonesia; we have a 7,683 km coastline and an approximately 2 million sq km exclusive economic zone (EEZ).
- This makes India’s task more complex than most other countries.
Multiple agencies securing borders
- Complexity is accentuated by the fact that along with the army, we have multiple other security agencies — the Central Armed Police Force (CAPF) and the Paramilitary Forces (PMF) — sharing the responsibility.
- While the army is deployed along the LoC and AGPL, the Border Security Force (BSF) looks after the international border with Pakistan and Bangladesh.
- Guarding the LAC has been assigned to the Indo-Tibetan Border Police (ITBP) and Assam Rifles.
- The Sashastra Seema Bal (SSB) is responsible for guarding the borders with Nepal and Bhutan.
- The Assam Rifles looks after our border with Myanmar.
- In a nutshell, in addition to the army, we have four agencies guarding borders with six neighbours.
- Conversely, maritime borders are guarded by a single agency — the Coast Guard.
Need for review of the border management
- There is a lack of a coherent policy on training, planning and the conduct of guarding operations among various outfits.
- Overall coordination is also affected.
- Our adversary on the western border has often escalated violations by resorting to the prolonged use of military resources.
- Chinese provocations along the LAC are military operations.
- Clearly, the peace-time scenario is now by and large militarised.
Way forward
- Single security agency: In this scenario, India needs a single security agency adequately equipped, suitably armed and trained in advanced military drills and sub-unit tactics to guard our borders.
- Manpower from Army: Further, to augment the battle efficiency, a fixed percentage of manpower, including the officer cadre, should be drawn on deputation from the army.
- Paramilitary force under Ministry of Defence: To ensure the desired training and operational standards, this single security agency should be designated as a paramilitary force under the Ministry of Defence and operate under the army.
- Mergers: The ITBP and the SSB should be fully merged into the new outfit; the BSF and CRPF still have important internal security duties and can be partially merged.
- The reorganised Assam Rifles too should retain its role of conducting counter-insurgency operations and act as a reserve for the army for conventional operations.
- Most countries have raised specialised and dedicated armed bodies for border security.
- Iran has the Border Guard Command, Italy has the Border Police Service, Russia has created a Border Guard Service, whereas in the US, it is under Homeland Security.
- Most of these countries, based on threat perception and for better combat cohesion, have placed these organisations under the command of the armed forces.
Conclusion
India should adopt a single agency with adequate resources and training to deal with the evolving challenges.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Federal system
Mains level: Paper 2- Federal character of India polity
Context
Conscious recognition of the federal character of our polity is essential to protect our national character.
Federal spirit and ideas in Indian Constitution
- Conscious of the differential needs of the populations of different states, the drafters of the Constitution made provisions for an equitable share of powers and responsibilities among different levels of governments.
- The lists in the 7th Schedule of the Constitution — Union, state and concurrent — are an example of this division, wherein each level of government has its own sphere, enabling context-sensitive decision-making.
- Local self-government: Later, institutions for local self government were added through the 73rd and 74th amendments, which strengthened grass roots democracy.
- Division of responsibility: Article 246 and Article 243 G provide for this division of responsibilities.
- Finance Commission: Article 280 provided for the constitution of Finance Commission to define the financial relationship and terms between the Union and states.
- Inter-State Council: Article 263 provided for the establishment of an Inter-State Council for smooth transition of business between the Union and states and resolution of disputes.
- The inter-state tribunals, the National Development Council and other informal bodies have served as vehicles of consultations between the Union, states and UTs.
- Rajya Sabha: Apart from these institutions and the Rajya Sabha, the Constitution makers also left much scope for consultative and deliberative bodies so as to strengthen the spirit of cooperation and federalism.
Steps against the spirit of federalism
- The Planning Commission has been scrapped.
- The Inter-State Council has met only once in the last seven years while the National Development Council has not met at all.
- The tenure of the 15th Finance Commission was mired in controversy and many states expressed apprehensions about devolution.
- The GST has already taken away much of the autonomy available to states and has made the country’s indirect tax regime unitary in nature.
- Article 370 was removed without consulting the state legislature.
- Parliament legislated on “agriculture”, entry no. 14 in the state list, to enact the three contentious farm laws, overstepping its jurisdiction and imposing a law on the states.
- The New Education Policy has been flagged as encroaching on the federal nature of the polity.
- The BSF’s jurisdiction was extended in Assam, West Bengal and Punjab without any consultation with the concerned states.
- The constitutional office of governor has come under scrutiny several times for encroaching on the powers of state executive and legislature.
Conclusion
It should be underlined that Article 1 of our Constitution declares that “India that is Bharat is a union of states”, and that devolution of powers is necessary in such a setting.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: All India Services
Mains level: Paper 2- Amendments to IAS Cadre rules
Context
The Central Government has proposed four amendments to Rule 6(1) of the IAS (Cadre) Rules, 1954 dealing with deputation, and has sought the views of State governments before January 25, 2022.
Historical background of All India Services
- It was Sardar Patel who had championed the creation of the Indian Administrative Service (IAS) and the Indian Police Service (IPS) as “All India Services” (AIS) whose members would be recruited and appointed by the Centre and allotted to various States, and who could serve both under the State and the Centre.
- Speaking to the Constituent Assembly on October 10, 1949, Patel said, “The Union will go, you will not have a united India if you have not a good All India Service which has the independence to speak out its mind, which has a sense of security….”.
Central deputation of All India Service officers
- Consultative process: AIS officers are made available for central deputation through a consultative process involving the Centre, the States and the officers concerned.
- The Centre would choose officers only from among those “on offer” from the States.
- Concurrence of the State government: The existing Rule 6(1) states that a cadre officer may be deputed to the Central Government (or to another State or a PSU) only with the concurrence of the State Government concerned.
- However, it has a proviso which states that in case of any disagreement, the matter shall be decided by the Central Government.
- Unfortunately, both the Centre and the States have at times flouted these healthy conventions for political considerations.
The politicisation of the deputation process
- In May 2021, the Centre unilaterally issued orders for the central deputation of the Chief Secretary of West Bengal just before his last day in service.
- Some States used to vindictively withhold the names of some of the officers who had opted for central deputation or delay their relief after they were picked up by the Centre.
- The proposed amendment to rule: The Central Government has proposed four amendments to Rule 6(1) of the IAS (Cadre) Rules, 1954 dealing with deputation.
Two of the four proposed amendments are disconcerting
- 1] Providing a fixed number of IAS officers for central deputation: One is a new proviso making it mandatory for the State government to provide a certain fixed number of IAS officers for central deputation every year.
- The proposed amendment more or less compels a State government to offer IAS officers for central deputation even when these officers themselves may not wish to go on central deputation.
- Reasons for shortage of IAS officers: Poor working conditions in junior-level posts, an opaque and arbitrary system of empanelment for senior-level posts, and lack of security of tenure at all levels are the real reasons for the shortage of IAS officers, which the Centre should address.
- 2] Requiring states to release the officer: The other is a proviso that requires the State government to release such officers whose services may be sought by the Central Government in specific situations.
- Based on experiences of the recent past, State governments have a justified apprehension that this proviso may be misused for political considerations.
Issues with the proposed amendments
- The contemplated changes have grave implications for the independence, security and morale of IAS officers.
- Infringement of rights of States: States are right in perceiving the proposed amendments as a serious infringement of their rights to deploy IAS officers as they deem best, especially when the cutting edge of policy implementation is mostly at the State level.
- States may prefer officers of the State Civil Services to handle as many posts as possible.
- . In course of time, the IAS will lose its sheen, and the best and the brightest candidates will no longer opt for the IAS.
- Against cooperative federalism: In S.R. Bommai vs Union of India (1994), the Supreme Court held that “States have an independent constitutional existence and they have as important a role to play in the political, social, educational and cultural life of the people as the Union. They are neither satellites nor agents of the Centre”.
Consider the questions “What are the proposed amendments to IAS Rule 1954? What are the concerns with the proposed changes?”
Conclusion
In a federal setup, it is inevitable that differences and disputes would arise between the Centre and the States. But all such quarrels should be resolved in the spirit of cooperative federalism and keeping the larger national interest in mind.
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From UPSC perspective, the following things are important :
Prelims level: NATO
Mains level: Paper 2- Disruption in Central Asia and role of Russia
Context
Vladimir Putin, who annexed Crimea in 2014 has now mobilised some 100,000 troops on the Ukraine border.
How insecurity and history plays role in Russia’s actions
- Russia, the world’s largest country by land mass, lacks natural borders except the Arctic Ocean in the north and the Pacific in the far east.
- Its vast land borders stretch from northern Europe to Central and north east Asia.
- The country’s heartland that runs from St. Petersburg through Moscow to the Volga region lies on plains and is vulnerable to attacks.
- In the last two centuries, Russia saw two devastating invasions from the west — the 1812 attack by Napoleonic France and the 1941 attack by Nazi Germany.
- After the Second World War, Russia re-established its control over the rim land in Eastern Europe and Central Asia, which it hoped would protect its heartland.
- But the disintegration of the Soviet Union threw its security calculations into disarray, deepening its historical insecurity.
NATO’s expansion after disintegration of the Soviet Union
- When the Soviet Union collapsed, Russia lost over three million square kilometres of sovereign territory.
- In the last months of the Soviet Union, the West promised that the North Atlantic Treaty Organization (NATO) would not “expand an inch to the east”.
- The United States and the United Kingdom repeated the pledge after the collapse of the Soviet Union.
- But despite the promises, NATO continued expansion.
- In March 1999, in the first enlargement since the end of the Cold War, the Czech Republic, Hungary and Poland (all were members of the Soviet-led Warsaw Pact) joined NATO.
- Five years later, seven more countries — including the three Baltic countries of Estonia, Latvia and Lithuania, all of which share borders with Russia — were taken into the alliance.
- Russia felt threatened but was not able to respond.
- But in 2008, when the U.S. promised membership to Georgia and Ukraine in the Bucharest summit, Russia, which was coming out of the post-Soviet retreat, responded forcefully.
How Russia see NATO expansion as threat to its dominance on Black Sea
- Turkey, Bulgaria and Romania, all Black Sea basin countries, are NATO members.
- Ukraine and Georgia are the other countries that share the Black Sea coast, besides Russia.
- Russia was already feeling squeezed on the Black Sea front, its gateway to the Mediterranean Sea.
- If Ukraine and Georgia also join NATO, Russia fears that its dominance over the Black Sea would come to an end.
- So, in 2008, Mr. Putin sent troops to Georgia over the separatist conflict in South Ossetia and Abkhazia.
- In 2014, when the Kremlin-friendly regime of Ukraine was toppled by pro-western protesters, he moved to annex the Crimean peninsula, expanding Russia’s Black Sea coast, thereby protecting its fleet based in Sevastopol in Crimea.
Restoring the rim land
- In recent years, Mr. Putin has tried to turn every crisis in the former Soviet region into a geopolitical opportunity.
- South Ossetia and Abkhazia, the self-proclaimed republics that broke away from Georgia, are controlled by Russia-backed forces.
- In 2020, when protests erupted in Belarus after a controversial presidential election, Mr. Putin sent assistance to the country to restore order.
- In the same year, Russia sent thousands of “peacekeepers” to end the war between Armenia and Azerbaijan.
- Earlier this year, Belarus leader Alexander Lukashenko, with Mr. Putin’s backing, manufactured a migrant crisis on the Polish border of the European Union.
- This month, when violent unrest broke out in Kazakhstan, the largest and wealthiest country in Central Asia, its leader turned to Russia for help.
How do geopolitical circumstances favour Russia?
- The U.S.’s ignominious withdrawal from Afghanistan has left the Central Asian republics deeper in the Russian embrace.
- Europe is very much dependent on Russian gas, which limits its response.
- For years, the West, the winner of the Cold War, discounted Mr. Putin.
- Having failed to defeat the Taliban in Afghanistan, NATO is unlikely to pick a war with Russia over Ukraine.
Conclusion
By destabilising Georgia and Ukraine and re-establishing Russia’s hold in Belarus, Caucasus and Central Asia, Moscow has effectively stalled NATO’s further expansion into its backyard.
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From UPSC perspective, the following things are important :
Prelims level: PLI scheme
Mains level: Paper 3- Lessons from the success of mobile manufacturing
Context
The mobile phones and room air conditioners (RAC) sectors in recent times have shown us the formulae for expansion of the manufacturing sector and growing exports.
How did India expand its mobile manufacturing base?
- We were one of the largest consumers of mobile phones in 2014.
- In 2014-15, our mobile phone imports exceeded $8 billion.
- Our electronics imports were threatening to exceed our oil imports.
- Steps taken by govt: The government took many steps like 100 per cent automatic FDI,
- levy of import duties to protect local manufacturers,
- the Phased Manufacturing Plan (PMP),
- manufacturing clusters (EMC 2.0) and
- the Production Linked Incentive (PLI) scheme.
- They have attracted investments, created lakhs of jobs, and have moved us from being a net importer to a net exporter.
- Our mobile phone manufacturing value has jumped more than eight times from Rs 0.27 trillion in 2013-14 to Rs 2.2 trillion in 2020-21.
- We have surpassed the US and South Korea to become the second-largest manufacturer globally.
Steps need to be taken
- Our mobile phone exports are primarily limited to feature phones and low-value smartphones.
- India must aim for a significant increase in exports from the current $4 billion.
- China exports $200 billion, and Vietnam exports $60 billion worth of mobile phones.
- The PLI scheme aims to achieve the same by allocating incentives of Rs 410 billion for the mobile phone category over the next five years.
- Low value addition: Our value addition in mobile phone manufacturing is currently limited to 15-20 per cent versus more than 40 per cent in China.
- The scheme for promoting the manufacturing of electronic components and semiconductors (SPECS) is a step in the right direction.
- We must focus on setting up a fabrication plant to manufacture semiconductor chips to facilitate complete vertical integration.
The Room AC sector story
- We imported RACs worth Rs 41 billion in 2017-18.
- The government initiated multiple measures such as the PMP scheme, banning the import of refrigerant-filled ACs, increasing the import duty on RACs and critical components, and the PLI scheme.
- From 2017-18, RAC imports have declined by 56 per cent to Rs 18 billion in 2020-21.
- Our import of RACs has shifted from China to an FTA country like Thailand, where import duty isn’t applicable.
- A judicious mix of protection (levy of import duty/banning of finished goods) and incentives (PMP, PLI scheme, 100 per cent FDI) has developed local manufacturing, created jobs, and turned a trade surplus.
Way forward
- We missed the manufacturing/export bus in the 1980s.
- We did excel in services like software to become back office to the world. With China+1 becoming a geopolitical imperative, it is an opportune time for us to expand the manufacturing sector and improve our export market share.
- To achieve our true potential we need close coordination and seamless working between central, state, and local governments, the rule of law, improvements in infrastructure, especially logistics and flexible labour laws.
Conclusion
Many of our peers are ahead of us in ease of doing business, but none of them has a large domestic market like us. The automobile and generic pharma sector in the past and the mobile phone/RAC sectors recently have shown that we know the formulae.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: 73rd and 74th Constitutional amendment
Mains level: Paper 2- Strengthening local governments
Context
The “State Finances, Study of Budgets of 2021-22” report, correctly identify the role of the city governments in meeting the challenges the pandemic has thrown up, the report also points to the draining of resources.
What the RBI report says about the role of local governments
- The report highlights the frontline role played by the third-tier governments by implementing containment strategies, healthcare.
- Due to this, their finances have come under severe strain, forcing them to cut down expenditures and mobilise funding from various sources.
- Need for functional autonomy: The RBI further commented that the functional autonomy of civic bodies must increase and their governance structure strengthened.
- Empowering financially: This could happen by ‘empowering them financially through higher resource availability.
- The RBI did echo the recommendations of the 15th Finance Commission report on local bodies that emphasised city governance structures and financial empowerment.
- Limited coverage of property tax: The RBI report also highlights the limited coverage of property tax and its failure in shoring up municipal corporation revenues.
- Organisation for Economic Co-operation and Development (OECD) data show that India has the lowest property tax collection rate in the world — i.e., property tax to GDP ratio.
Issues faced by city governments
- During the pandemic, while leaders from the Prime Minister to Chief Ministers to District Magistrate were seen taking a call on disaster mitigation strategies, city mayors were found missing.
- The old approach of treating cities as adjuncts of State governments continues to dominate the policy paradigm.
- The general approach towards urban empowerment has remained piecemeal in India.
- The first intervention to understand ‘the urban’ (though there are references in the Five Year plans) and plan with a pan-Indian vision took place in the 1980s when the National Commission On Urbanisation was formed with Charles Correa as its chairperson.
- Another important intervention was in the first half of the 1990s with the Constitution 73rd and 74th Amendments.
- The latter refers to urban reforms — empowering urban local bodies to perform 18 functions listed in the 12th Schedule.
- However, there is no mention of financial empowerment.
- The only exception to the rule has been the people’s plan model of Kerala where 40% of the State’s plan budget was for local bodies (directly) with a transfer of important subjects such as planning, etc.
How to achieve functional autonomy for city government
- This should happen with three F’s: the transfer of ‘functions, finances and functionaries’ to city governments.
- There are nearly 5,000 statutory towns and an equal number of census towns in India.
- Nearly 35% of the population lives in urban centres.
- And, nearly two-thirds of the country’s GDP stems from cities and almost 90% of government revenue flows from urban centres.
- Before value-added tax and other centralised taxation systems, one of the major earnings of cities used to be from octroi.
- But this source of revenue collection was taken away by the State and the central governments.
- Instead, finance commissions recommended grants to urban local bodies based on a formula of demographic profile.
- In such a situation, it is difficult for the towns to sustain their ability to perform their bare minimum functions, especially with the latest Pay Commission recommendations.
- This has resulted in burdening people more with taxes and further privatisation/outsourcing of the services of the municipalities.
- The often-cited example is how cities in the Scandinavian countries manage their functions well — from city planning to mobility to waste management.
- But the truth is that a chunk of the income tax from citizens is given to city governments.
- A committee formed by the Ministry of Housing and Urban Development to review the 74th constitutional amendment recommended that 10% of income tax collected from the cities was to be given back to them as a direct revenue grant from the central government.
Way forward
- 1] Cities must be treated as important centres of governance, where democratic decentralisation can bring in amazing results.
- There will be transparency and adequate participation of the people.
- 2] Cities should not be considered as entrepreneurship spaces where the sole driving force is to make them competitive to attract investments.
- 3] The resources required for quantitative and qualitative data must be immediately provided to the cities to ensure a disaster risk reduction plan keeping vulnerable communities in mind.
- 4] A piecemeal approach such as the concept of ‘smart cities’ must be shunned altogether.
- This approach further widens the gap between different sets of people.
- 5] Leadership in the cities must be elected for a term of five years.
- Likewise, the third F, i.e., functionaries, must be transferred to the cities with a permanent cadre.
Consider the question “The functional autonomy of civic bodies must be increased and their governance structure strengthened. This could happen by ‘empowering them financially through higher resource availability’. Comment.”
Conclusion
Thus, in this exercise by the RBI, the good part is that there has least been a mention of cities, with local bodies as important centres of governance.
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