THE HINDU – CURRENT NOTE 06 APRIL
Ties severely damaged, says China
Analysts say CM Pema Khandu’s statement can be interpreted as questioning the “one-China” principle.
•The row between India and China on the visit of the Dalai Lama to Arunachal Pradesh spiralled on Wednesday, with the Chinese Foreign Ministry asserting that the Tibetan leader’s visit to the State “will escalate the dispute in border areas.” China also lodged a protest with India’s Ambassador in Beijing Vijay Gokhale.
•China’s Foreign Ministry spokesperson Hua Chunying stressed, in response to a question at her regular briefing that the Dalai Lama’s visit had “severely damaged” Sino-Indian ties.
•“India is keenly aware of the role of the 14th Dalai Lama. Arranging this visit to the disputed areas not only runs counter to India’s commitments on Tibet but will escalate the dispute in border areas,” she observed.
‘Chinese interests hit’
•Ms. Hua said that the Tibetan leader’s visit had “severely damaged China’s interests.”
•According to her, India had acted “obstinately “by green-lighting the visit, despite repeated Chinese protests.
•Arunachal Pradesh is at the heart of the Sino-Indian boundary dispute in the eastern sector.
•The dispute in this zone is over territory south of the McMahon Line in Arunachal Pradesh, which includes Tawang — which is on the Dalai Lama’s itinerary. The McMahon Line was the result of the 1914 Simla Convention, between British India and Tibet, and was rejected by China.
•Reuters quoted Pema Khandu, Chief Minister of Arunachal Pradesh as saying that the State does not share a boundary with China, but with Tibet.
•“As far as the boundary issue is concerned, I have also maintained that we don’t share our boundary with China, but we share our boundary with Tibet,” he observed. Analysts say that the statement can be interpreted as questioning the “one-China” principle.
•An op-ed in the state-run tabloid Global Times accused Prime Minister Narendra Modi of seemingly taking “a different stance on the Dalai issue, raising public engagements with the monk and challenging Beijing’s bottom line.”
•Rejecting India’s position that the visit was purely religious in nature, Ms. Hua said that no one believed that the Dalai Lama was visiting a “disputed region” for religious reasons alone.
•“We demand the Indian side immediately stop wrong actions, not hype up sensitive issues and take concrete steps to safeguard growth of India-China relations,” she observed.
•Sections of the Chinese state media have linked the Dalai Lama’s visit as India’s comeback to Beijing’s refusal so far to include Masood Azhar, the head of the Pakistan-based Jaish-e-Mohammad group in the U.N. ban list, as well as obstruction to New Delhi’s membership to the Nuclear Suppliers Group.
•“New Delhi is dissatisfied with Beijing’s stance over its membership bid to the Nuclear Suppliers Group [NSG] and its request to name Masood Azhar, head of Pakistani militant group, to a U.N. Security Council blacklist. Therefore, Delhi attempts to play the Tibet card against Beijing,” wrote the Global Times.
•Long Xingchun, Director of the Center of India Studies, China West Normal University, told The Hindu that the move of allowing the Dalai Lama to visit Arunachal is “not helpful for winning China’s support for India’s membership to the NSG and the listing of Masood Azhar in the UN 1267 committee.”
•He said that India may have the motive of “reinforcing its legitimacy over the disputed area, with the Dalai Lama as the vehicle.”
•When asked for its reaction, the Ministry of External Affairs in Delhi referred to its statement a day earlier.
•“We clearly said that the Dalai Lama is a revered religious leader and has visited Arunachal earlier on half a dozen occasions. We also urged that no political colour be ascribed to his religious and spiritual activities and to his visits to States of India, and no artificial controversy created around his ongoing visit.”
Rail regulator gets green light
•The Centre on Wednesday cleared the decks for setting up an independent rail regulator that will be responsible for recommending passenger fares, setting performance standards for rail operations and creating level playing policy for private sector participation.
•The regulator, named Rail Development Authority (RDA), will be based in Delhi with an initial corpus of Rs. 50 crore and will be set up through an executive order later this month. The RDA will act within the parameters of the Railway Act, 1989 and only make recommendations to the Ministry which will take a final call on passenger and freight fares.
Comfort to investors
•“The move will improve the services offered to passengers, provide comfort to investors in the rail sector and will enhance transparency and accountability,” said an official statement.
•The need for a regulator has been emphasised by various committees, including the Dr. Bibek Debroy Committee on Mobilisation of Resources for Major Railway Projects and Restructuring of Railway Ministry in 2015, the National Transport Development Policy Committee (NTDPC) in 2014 and Expert Group under the Chairmanship of Dr. Rakesh Mohan in 2001.
•The Authority’s primary functions will be to recommend tariff “commensurate with costs,” frame principles for social service obligation, and ensure a level playing field for stakeholders by suggesting policies for private investment. It will also fix efficiency standards and resolve disputes related to future concession agreements, the Ministry said. It will also collect, analyse and disseminate information and statistics concerning the rail sector.
•“This is a commendable move as the Central government has been fixing the fares mostly based on political considerations,” said former Railway Board Chairman S.S. Khurana.
Centre hands over to SC accreditation guidelines for NGOs, VOs
They contain details such as maintenance of accounts, audit and recovery proceedings
•The Centre on Wednesday handed over to the Supreme Court the new guidelines framed for accreditation of nearly 30 lakh NGOs and voluntary organisations (VOs) in the country.
•A Bench of Chief Justice J.S. Khehar and Justice D.Y. Chandrachud was informed by Additional Solicitor General Tushar Mehta that the Ministry of Rural Development framed the accreditation guidelines to regulate “manner in which the VOs/NGOs, which are recipient of grants, would maintain their account, the procedure for audit of the account, including procedure to initiate action for recovering of the grants in case of misappropriation and criminal action.”
•The guidelines, which are yet to be notified, were handed over to the court, amicus curiae and senior advocate Rakesh Dwivedi and advocate Manohar Lal Sharma, who filed the PIL, for suggestions.
Nodal agency
•According to the guidelines, NITI Aayog has been appointed as the nodal agency for the purpose of registration and accreditation of VOs/NGOs seeking funding from the Government of India. The Aayog has been also tasked with maintaining of database systems to manage and disseminate information relating to NGOs/VOs.
•“The existing portal at NITI Aayog (NGO-Darpan) shall be strengthened and aligned with accreditation-like functions which should also provide a snapshot of the NGO with regard to its ongoing and past work, particularly with respect to public and foreign funds so as to facilitate grant making authorities on the bona fides,” the affidavit by the Centre said.
•“The registration system should facilitate the seamless operation of the IT Act and the FCRA with respect to NGOs without the need for cumbersome and intrusive processes, which create mutual distrust and scope for misuse,” it said.
•The formulated guidelines demand grantee institutions to upload photographs in support of the performances and geo-tag assets to help monitoring of their activities.
Progress reports
•“The periodical progress reports from grantee institutions should be incorporated in the NGO scheme work flow on the website of the ministry, with the grantee institution making data entry under a login and password. The progress report in a processed form shall also be available in the public domain preferably with a GIS interface,” the affidavit said.
•The Supreme Court had in January directed the government to audit nearly 30 lakh NGOs which received public funds but consistently failed to explain how they spent the money.
Criminal prosecution
•The court had ordered that any NGO, found in the audit, to have cooked its books or indulged in misappropriation of the public funds should be subject to immediate criminal prosecution. Besides, the government should initiate civil recovery proceedings from these rogue NGOs. The court had demanded that the government file a compliance report by March 31, 2017.
•The judicial order was unprecedented as defaulting NGOs were till then only subjected to blacklisting by the government.
BC Commission set to get constitutional status
Union government introduces Bill in the Lok Sabha
•The Union government on Wednesday introduced a new Bill in the Lok Sabha that seeks to accord constitutional status to the Backward Classes Commission, which now has only statutory powers.
•This will bring the body, which looks after the interests of Other Backward Classes, on a par with that of the Scheduled Castes and Tribes Commission, and give powers to Parliament to designate castes as OBCs.
•Social Justice Minister Thaawarchand Gehlot introduced the Constitution (123rd Amendment) Bill, a move seen as part of the ruling BJP’s aggressive outreach to politically crucial other backward castes.
Mandate
•The proposed commission will have a chairperson, vice-chairperson and three other members and will hear the grievances of socially and educationally backward classes, a function discharged so far by the Scheduled Castes commission.
•At present, the functions of the commission are limited to examining the requests for inclusion of any class of citizens as a backward class and hear complaints of over-inclusion or under-inclusion of any backward class in the existing quota and advise the Central government, the Constitution Amendment Bill said.
•“In order to safeguard the interests of the socially and educationally backward classes more effectively, it is proposed to create a National Commission for Backward Classes with constitutional status at par with the National Commission for Scheduled Castes and the National Commission for Scheduled Tribes,” the Bill states in its intent.
•The Bill will require the support of two-thirds of the members of the House for its passage.
•The Cabinet gave its nod to the formation of the new commission in a meeting headed by Prime Minister Narendra Modi.
India asserts sovereignty over Gilgit-Baltistan
Will not part with our territory, Sushma tells Lok Sabha
•Responding to reports of a Pakistani move to declare Gilgit-Baltistan its new province, India on Wednesday asserted its territorial sovereignty over the region.
•Responding to questions in the Lok Sabha, External Affairs Minister Sushma Swaraj said India would not part with any part of its territory.
•“Even raising a doubt over this government, that it will let go of some area, will be wrong,” the Minister said.
•Ms. Swaraj recalled that both Houses of Parliament had passed resolutions which reiterated India’s claims over Pakistan-occupied-Kashmir and Gilgit Baltistan and the government was bound by it.
•Ms. Swaraj’s statement came after BJD leader Bhartruhari Mahtab asked the government about its diplomatic response to Pakistan’s reported plans to make Gilgit-Baltistan its fifth province.
•Ms. Swaraj said India had been opposed to such a move and had communicated its objection to Pakistan soon after the news became known.
On Jammu & Kashmir
•“We are bound by Parliament’s resolutions and our resolve,” Ms. Swaraj said. “The position of the government regarding Jammu and Kashmir is well known. The entire State of Jammu and Kashmir acceded to India in 1947. It has been, is and will always be an integral part of India,” an Ministry of External Affairs spokesperson had said.
A new Delhi chapter for Sheikh Hasina
Expectations are high in Bangladesh that her India visit will yield substantial results
•Bangladesh Prime Minister Sheikh Hasina’s forthcoming visit to India is being observed keenly here in Dhaka. There is little question that in the three years since Narendra Modi took charge as Indian Prime Minister, the degree of cooperation which has generally characterised Dhaka-Delhi ties has gone up by a good number of notches, with the two countries seeing eye to eye on a number of issues affecting them as well as the South Asian region. As an instance, both India and Bangladesh have adopted a common stance on tackling terrorism through not only cracking down on the purveyors of terror but also keeping at arm’s length, and in fact condemning, nations regarded as sponsors of terrorism in the region.
A recent trajectory
•In recent times, cooperation between Dhaka and Delhi has been enhanced in other areas, particularly with respect to Bangladesh’s measures toward setting up a power plant in the Sundarbans. At the same time, Bangladesh has witnessed a rather impressive degree of Indian investment in other areas where its economic development is concerned. In terms of diplomacy in the South Asian region, both countries have had identical views on how organisations such as the South Asian Association for Regional Cooperation (SAARC) should be going forward in promoting cooperation among its member nations. It may be recalled that India and Bangladesh, for different reasons, pulled out of the SAARC summit scheduled to be held in the Pakistani capital of Islamabad last year.
•The upcoming visit of the Bangladesh leader to Delhi, on the face of it, would appear to be a courtesy call on the Indian leadership. Yet that would be a rather naïve way of looking at the realities which today underscore India-Bangladesh relations. Sheikh Hasina’s great need at this point of time is to convince her people that with her in charge, Bangladesh’s foreign policy and its operation are on track, and that through such a process, Bangladesh stands the best chance of being part of a time of regional stability in the region. At home, the opposition Bangladesh Nationalist Party (BNP) has already begun hurling the usual epithets at the Awami League government to highlight what it has called genuflection before India where preserving Bangladesh’s interests is the issue. Those charges have of course been roundly dismissed by observers. It has not helped the BNP any bit that since its formation and subsequent exercise of political power in Dhaka, its fundamentally anti-India card has continued to power its attitude to Dhaka-Delhi relations.
The electoral timescale
•Even so, Sheikh Hasina will need to convince Bangladeshis through this visit that her government is on top of things where ties with India are concerned, given especially the fact that she and her party faces a general election in early 2019. There is little question that in the last few years, the Hasina government has provided stability in such areas as the economy, even though there has been disquiet in other areas, notably in security, as the government has been coming down hard on terrorists. A fresh injection of energy into relations with India can only benefit Bangladesh and of course convince Bangladesh’s people that their future is in good hands, those of Sheikh Hasina.
•The extent to which ties between India and Bangladesh can be re-energised is to be observed from the fact that a slew of agreements are expected to be signed by the two countries during the presence of the Bangladesh leader in Delhi. A critical aspect of the trip will certainly be a defence deal that will likely be initialled by the two Prime Ministers. This is an area that is clearly sensitive for the Bangladesh leader since questions are already being raised in Dhaka about the terms of, or even the need for, such a deal. It may be recalled that the 25-year treaty of friendship and cooperation reached by Prime Minister Indira Gandhi and Prime Minister Sheikh Mujibur Rahman in 1972, within months of Bangladesh’s emergence as an independent state, continued to be the subject of criticism in anti-Awami League circles till the deal reached its natural end. Sheikh Hasina will surely be extremely cautious as her government proceeds to a new deal with the Modi government. She comprehends the worries associated with the move and will need to convince Bangladeshis that the deal will be initialled on the basis of sovereign equality and is not a measure that will have India roping Bangladesh into its interpretation of geopolitical realities.
•There is, with all this importance attached to Sheikh Hasina’s visit to Delhi, the Indian government’s worry about the increasing levels of cooperation between Bangladesh and China, particularly in the spheres of the economy and defence. Dhaka’s recent procurement of two submarines from Beijing, coupled with Sheikh Hasina’s statement that no country would now dare to attack Bangladesh, can only have raised eyebrows in the corridors of power in Delhi. The Bangladesh Prime Minister has therefore a particular need now to convince the Indian leadership that Dhaka’s links with Beijing are in no way an effort to turn away from its traditional links with Delhi, but are aimed at ensuring for itself a basis of balanced, cooperative relations with the major players in the region. For good measure, the Chinese will be keeping a hawk’s eye on the Hasina-Modi deliberations in Delhi.
The Teesta factor
•And then, of course, there is the matter of the sharing of the Teesta waters, a subject that has continued to be the focus of discussions in Dhaka ever since the possibility of a deal was scuttled in 2011. Bangladeshis by and large continue to hope that Prime Minister Modi will be able to live up to his promise of a treaty being arrived at through his influence. That could again depend on how a meeting of three Bengalis — President Pranab Mukherjee, Prime Minister Sheikh Hasina and West Bengal Chief Minister Mamata Banerjee — goes at Rashtrapati Bhavan in Delhi.
•The Hasina visit should throw up substantive results for both Bangladesh and India. Anything less will be disappointing.
Painting it all black
Demonetisation may not unearth much because large deposits in banks aren’t necessarily black money
•Finance Minister Arun Jaitley, in his reply to the discussion on the Finance Bill, has pointed again to the small direct tax base. Detailed tax data for 2012-13 showed that the picture has changed little from the 1990s, when only 1% of Indians were in the direct tax net.
•Mr. Jaitley has presented data on the large sums of money deposited into some bank accounts post the demonetisation of November 8, 2016. The implication is that these may be black funds and they are being tracked and the people behind them will be caught.
•The secretary of the Income Tax Gazetted Officers Association has written to the Central Board of Direct Taxes Chairperson that the top leadership has issued directions, at times hourly, leading to confusion and indecision and to spoiling the image of the tax department. Officers have exerted pressure on taxpayers via email, SMS and summons. In spite of all this, apparently little black income has been declared.
Decoding account deposits
•In the Budget speech, the Finance Minister stated, “Deposits of more than ₹80 lakh were made in 1.48 lakh accounts with average deposit size of ₹3.31 crore… deposits between ₹2 lakh and ₹80 lakh were made in about 1.09 crore accounts with an average deposit size of ₹5.03 lakh.” These two add up to about ₹10 lakh crore. Thus, two-third of the total of ₹15 lakh crore of old notes returned to the banks were accounted for by 1.1 crore accounts. Even if one or two lakh crores of this sum proves to be black (after years of litigation, etc.), this would hardly dent the black economy generating ₹93 lakh crore in 2016.
•Many businesses such as petrol stations and hospitals generate a lot of daily cash. They were allowed to use old currency notes; every day, they would have deposited lakhs of rupees, and over a month, crores.
•Businesses hold working capital and cash in hand which, depending on the size of the business, could be substantial. Mr. Jaitley has stated that there are “5.6 crore informal sector individual enterprises and firms doing small business”. Such small businesses work mostly in cash and, therefore, may hold fairly large sums of it. He has also said that there are 13.94 lakh registered companies as of March 31, 2014. Of these, 5.97 lakh filed tax returns but 2.76 lakh of them showed a loss or zero income.
•Companies not filing returns or running at a loss or at zero profit also hold cash — to hire labour, buy inputs, spend on overheads. The number of businesses mentioned by the Finance Minister and the crores of farmers together could legitimately hold about ₹9 lakh crore of cash in hand. The remaining ₹8.5 lakh crore of currency in circulation in October 2016 would have been with households.
All cash isn’t black
•The government has said it would use ‘data mining’ to figure out whether the large deposits in accounts are consistent with their declared incomes. This will be a difficult exercise at best. Cash as working capital has to be distinguished from cash as saving from income. Every household keeps some money for day-to-day requirements and for emergencies. The 26 crore Indian households could hold about ₹5.5 lakh crore for these purposes. The balance of the currency in circulation, another ₹3 lakh crore, could be held as black savings. Since about four crore people generate substantial black incomes, the average cash holding of this group would be ₹75,000. Not a huge sum of money.
•This is not to say that some individuals may not hold large sums of cash which may be black. It is generally believed that lakhs of people have sacks full of currency at home or on their business premises. Suppose one lakh entities hold ₹20 crore as black cash; that would amount to ₹20 lakh crore which is more than the currency in circulation (₹17.5 lakh crore) in October 2016. It is very likely that not even 10,000 entities would have an average of ₹20 crore in cash.
•The notion that black means holding cash is not generally correct and may be true only for a few.
•The Finance Minister pointed to the narrow direct tax base by saying that the number of people declaring income of above ₹50 lakh is only 1.72 lakh. He contrasted this with the 1.25 crore cars bought in the last five years. He said, “The predominance of cash in the economy makes it possible for the people to evade their taxes.”
•Again, black has been equated with cash. The lacuna is that the above tax data do not give the actual income but the income declared for tax purposes. Given the large number of concessions and deductions available, actual incomes are much greater than the taxable income. So, many more can legitimately afford to buy cars. Further, clarity is needed as to how many cars bought were commercial or by the wealthy. More importantly, if the department could not catch them during normal times then in these days of heavy pressure of work, is it possible? The Income Tax Department is barely able to audit 1% of those in the tax net.
•The money deposited in the banks cannot be assumed to be black — the Income Tax Department has to prove that. The explanation given by the suspects would have to be scrutinised. Most of those who deposited more than ₹2.5 lakh would have known that they could be asked questions since the government had already announced that. So, care would have been exercised in depositing the sums, such as showing it on the books as cash in hand and working capital or using shell companies.
•In brief, the data given by the Finance Minister in the Budget speech does not imply that demonetisation will help unearth substantial black incomes, because cash deposited does not automatically make it black and black cash is a tiny part of the black economy.
In largesse we trust
Two separate decisions on farm loan waivers could have a domino effect
•Chairing his first cabinet meeting after taking over the reins in Uttar Pradesh, Chief Minister Yogi Adityanath approved a write-off on outstanding farmer loans of up to ₹1 lakh taken before March 31, 2016. The State cabinet also decided to waive loans worth ₹6,000 crore extended to small and marginal farmers that had turned into non-performing assets. Together, this package, aimed at fulfilling the Bharatiya Janata Party’s election promise, will cost the exchequer about ₹36,000 crore. There was no mention of a bigger plan to ramp up the farm sector, in which U.P. invested just 2.3% of total expenditure in 2016-17 — one of the lowest rates across major States. A little earlier, the Madras High Court ordered the Tamil Nadu government to extend a similar farm loan waiver scheme for small farmers (with land holdings of up to 5 acres) and marginal farmers (who own up to 2.5 acres) to all farmers. Officials have even been forbidden from trying to recover loans where repayments have slipped. The State, which had already doled out ₹5,780 crore on this front, would need nearly ₹2,000 crore more to comply with the court’s order. This is a worrying trend for a country that wants to double agricultural incomes by 2022. Not only could it trigger a countrywide clamour for similar debt relief packages, political parties would also be more inclined to make such grand promises ahead of future polls. This is a slippery slope with multiple unintended outcomes likely in the years to come.
•The Madras High Court has clearly reached into the the domain of the executive. The risk is that this overreach could be cited in other courts to seek omnibus loan waivers. Opposition parties in U.P. have already criticised the cap of ₹1 lakh on farm loans that will attract relief. The timing of these drastic interventions is unusual as India had a good monsoon in the 2016-17 crop season, after two years of drought, and a bumper output is expected for all major crops barring sugarcane. Forgiving loan burdens is a powerful political gesture that glosses over the fact that governments have had little patience to make agriculture a sustainable economic activity with efficient linkages to formal markets, be it for credit or for supply chains from farm gate to fork. FDI of up to 100% was allowed in food retail trading but investments are stuck over the reluctance to allow a small proportion of non-food sales. Writing off loans as a blanket policy, without scrutiny and restructuring attempts creates a moral hazard for borrowers, who will have no incentive to stick to credit discipline. Frequent write-offs will prod banks to invest in alternatives such as the Rural Infrastructure Development Fund instead of reaching out to individual farmers to meet their agricultural lending targets. In which case, usurious local moneylenders could have a field day.
‘Excess liquidity may be a concern’
It is likely that the RBI would take steps to reduce surplus liquidity, say analysts
•With the central bank widely expected to keep interest rates unchanged in the new fiscal year’s first bimonthly monetary policy review on Thursday, markets are keenly waiting to see what steps the RBI may take to tackle surplus liquidity in the banking system.
•Post demonetisation, deposits increased by ₹4.27 lakh crore. Deposits grew 13% year-on-year till March 17. Credit growth was 4.4%. Foreign investors have invested close to ₹45,000 crore in equities since February. According to an estimate by State Bank of India, average cash withdrawals declined in March as compared with January and there has been a permanent liquidity injection of ₹1.7 lakh crore in the system. The surplus liquidity in the system is estimated to be about ₹4 lakh crore.
•“The surplus liquidity in the system is likely to rise further when the government starts spending in the new fiscal year,” Abheek Barua, chief economist, HDFC Bank, wrote in a report.
•“If the rupee continues to appreciate, there could be added pressure as the RBI will start buying dollars to cap gains in the currency. Leaving the surplus problem unattended could lead to investments into riskier assets... Hence, it is highly likely that the RBI will implement measures to soak up excess liquidity,” he said.
•One way to drain the excess liquidity is to raise the cash reserve ratio (CRR) which is at 4%. CRR is the proportion of deposits that banks have to keep with RBI.
•“We do not believe that a hike in CRR is feasible given the abundance of liquidity,” said Dhawal Dalal, CIO-Fixed Income, Edelweiss Asset Management.
•The proposed standing deposit facility (SDF) could be a useful tool to tackle liquidity. SDF is a mechanism to drain surplus cash at a rate lower than the repo rate without the need for any collateral. The implementation of SDF requires an amendment to the RBI Act. Hence, it is felt that the RBI could start draining liquidity from banks at a lower rate so that it would bring interest rates down.
•“The RBI is constantly absorbing excess liquidity at around repo rate of 6.25%, which is also the LAF (liquidity adjustment facility) rate. Is there a thought process within the RBI to gradually trend LAF rates towards the reverse repo rate, which is 5.75%” Mr. Dalal observed.
