The HINDU Notes – 03rd July 2019 - VISION

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Wednesday, July 03, 2019

The HINDU Notes – 03rd July 2019





πŸ“° U.P. move to shift 17 OBCs to SC list ‘unconstitutional’: Union Minister Thawar Chand Gehlot

It's a transgression of Parliament’s jurisdiction, he says.

•The Uttar Pradesh government’s move to relist 17 OBCs (Other Backward Classes)in the Schedule Caste list is unconstitutional and it is a transgression of Parliament’s jurisdiction, Union Minister for Social Justice and Empowerment Thawar Chand Gehlot said in the Rajya Sabha on Tuesday.

•“This is not proper and not constitutional,” Mr. Gehlot said in reply to BSP’s Satish Chandra Misra, who raised the issue during the Zero Hour.

•On June 24, the government directed district magistrates and commissioners to issue caste certificates to 17 OBCs - Kashyap, Rajbhar, Dhivar, Bind, Kumhar, Kahar, Kewat, Nishad, Bhar, Mallah, Prajapati, Dhimar, Batham, Turha, Godia, Manjhi and Machua.

•Agreeing with Mr. Misra, Mr Gehlot said only Parliament haD the right to alter the notified list. “This issue came to Parliament a couple of times but no consensus could be formed.” If the government followed the due process, then it could be considered, he noted.

•“I would request the State government not to make caste certificates on the basis of such orders because they will be dismissed by the courts and it will be of no help to anyone,” he added.

•Mr. Misra said under Article 341 sub clause (2) of the Constitution, the power to make changes in the SC list lay only with Parliament. “Even President [of India] does not have the power to tinker, alter or make changes [in the list],” he said. These 17 castes would neither get the benefits meant for OBCs nor SCs since the State government had no power to make any alteration to the SC list.

•He said that when the BSP was in power, it had tried to include the 17 castes in the SC list but could not manage to do so in Parliament. “The power of Parliament cannot be usurped by a state,” he pointed out. Mr. Misra said the Union government should issue an advisory, clearly stating that the State government’s order was “unconstitutional” and should be withdrawn with immediate effect. 

πŸ“° Hong Kong protests undermine rule of law, social order: China

Calls the violence an “undisguised challenge” to ‘one country two system’ model

•China on Tuesday condemned violent protests in Hong Kong as an “undisguised challenge” to the formula under which the city is ruled, hours after police fired tear gas to disperse hundreds of protesters who stormed and trashed the legislature.

•A representative of China’s Hong Kong affairs office denounced the demonstrators, who are furious about proposed legislation allowing extraditions to China, and said Beijing supports holding criminals responsible, state media said.

•The former British colony of Hong Kong returned to China in 1997 under a “one country, two systems” formula that allows freedoms not enjoyed in mainland China, including freedom to protest and an independent judiciary.

•Monday was the 22nd anniversary of the handover.

•Beijing denies interfering, but for many Hong Kong residents, the extradition Bill is the latest step in a relentless march towards mainland control.

•“Seriously violating the law, the act tramples the rule of law in Hong Kong, undermines social order and the fundamental interests of Hong Kong, and is an undisguised challenge to the bottom line of ‘one country, two systems’,” Xinhua news agency quoted a Hong Kong affairs office spokesman as saying.

•“We strongly condemn this act.”

•Debris, including umbrellas, hard hats and water bottles was among the few signs left of the mayhem that had engulfed parts of the city on Monday and overnight after protesters stormed and ransacked the Legislative Council, or mini-Parliament.

•Police cleared roads near the heart of the financial centre, paving the way for business to return to normal.

Offices closed

•However, government offices, where protesters smashed computers and spray-painted “anti-extradition” and slurs against the police and government on chamber walls, were closed.

•The government’s executive council meeting was due to be held in Government House, officials said, while the legislature would remain closed for the next two weeks.

•Millions of people have taken to the streets in the past few weeks to protest against the now-suspended extradition Bill that would allow people to be sent to mainland China to face trial in courts controlled by the Communist Party.

•Lawyers and rights groups say China’s justice system is marked by torture, forced confessions and arbitrary detention. China has been angered by Western criticism of the bill.

•The bill triggered a backlash against Hong Kong leader Carrie Lam, taking in the business, diplomatic and legal communities that fear corrosion of the legal autonomy of Hong Kong and the difficulty of guaranteeing a fair trial in China.

•Hong Kong leader Carrie Lam has suspended the bill and said it would lapse next year, but protesters want it scrapped altogether and have pressed her to step down.

•Ms. Lam, Hong Kong's self-styled Iron Lady, has created a fresh crisis for Chinese President Xi Jinping, who is already grappling with a trade war with Washington, a faltering economy and tension in the South China Sea.

•Regina Ip, chairwoman of Hong Kong's pro-China New Peoples Party, said the protests had brought shame on Hong Kong. “In the long term, (this) will impact Hong Kong’s business environment. I believe various negative consequences of damages in our economy and prosperity will soon emerge.”

•Starry Lee, chairwoman of the Democratic Alliance for the Betterment and Progress of Hong Kong, also condemned the violence. “This is an insult to LegCo (Legislative Council), an insult to Hong Kong rule of law,” she said.

•Chinese censors have worked hard to erase or block news of the Hong Kong protests, wary that any large public rallies could inspire protests on the mainland.

•Screens went black on the BBC and CNN when they showed related reports in mainland China, as has happened during previous Hong Kong protests. Foreign news channels are only available in luxury hotels and a handful of high-end apartment complexes in China.

‘Love of the motherland’

•State news agency Xinhua wrote an upbeat Chinese-language report about a government-arranged concert in Hong Kong to celebrate the handover anniversary, complete with descriptions of the audience singing the national anthem and how the performers showed their “ardent love of the motherland”.

•A state newspaper in China called for “zero tolerance” after the violence in Hong Kong.

•“Out of blind arrogance and rage, protesters showed a complete disregard for law and order,” the Global Times, published by the Communist Party's People's Daily, said in an editorial.

•The protests generated lively discussion on Chinese social media.

•“Hong Kong shows that China cannot follow a Western political system. It's too easy to be manipulated and to bring chaos,” wrote one user of the Twitter-like Weibo.

•Another wrote, “When the children don't listen, their mothers should give them a smacked bottom.”

•Britain warned China that there would be serious consequences if the Sino-British agreement on Hong Kong was not honoured. China has dismissed Britain's concerns, saying Hong Kong was none of its business.

•The U.N. human rights office in Geneva called on all sides to avoid violence.

•“We ask protesters to demonstrate and express their grievances in a peaceful manner,” spokeswoman Marta Hurtado said in an email. “We urge HK authorities to immediately open a proper channel for dialogue and for the police and other members of the security forces to manage demonstrations according to international human rights norms and standards.”

πŸ“° U.S. brands Balochistan Liberation Army terrorist group

•The U.S. on Tuesday designated militants fighting Pakistani rule in Balochistan as terrorists after it carried out deadly attacks targeting Chinese interests.

•The State Department said it was classifying the Balochistan Liberation Army as a global terrorist group, making it a crime for anyone in the United States to assist the militants and freezing any U.S. assets they may have.

•The Balochistan Liberation Army “is an armed separatist group that targets security forces and civilians, mainly in ethnic Baloch areas of Pakistan,” the State Department said.

•Pakistan has been fighting insurgents in the southwestern region since 2004, with the militants recently finding a new focus in rallying against China’s investment that is part of its major Belt and Road initiative.

•The Balochistan Liberation Army has targeted China in Pakistan multiple times, including a brazen attack on the Chinese consulate in Karachi that killed four people in November.

•In May, five people were killed after gunmen stormed the only five-star hotel in Gwadar, the port city which Pakistan is hoping to develop into a commercial hub.

πŸ“° Senate Bill grants India NATO ally-like status

House to take it up later in July

•The U.S. Senate has passed a legislative provision that brings India at par with America’s NATO allies and countries such as Israel and South Korea for increasing defence cooperation.

•The National Defense Authorisation Act, or NDAA, for the fiscal year 2020, which contained such a proposal, was passed by the U.S. Senate last week.

•Introduced by Senate India Caucus co-chair Senator John Cornyn with the support of Senate India Caucus co-chair Senator Mark Warner, the amendment provides for increased U.S.-India defence cooperation in the Indian Ocean, in the areas of humanitarian assistance, counter-terrorism, counter-piracy and maritime security.

•Last week, House India Caucus Co-Chair Brad Sherman, along with Congressmen Joe Wilson, Ami Bera, Ted Yoho, George Holding, Ed Case and Raja Krishnamoorthi, introduced a similar legislative proposal to the House FY2020 NDAA that would greatly enhance relationship between both the countries.

•The Bill would be signed into law after both the chambers of the U.S. Congress — the House of Representatives and the Senate — passes it.

•The House is expected to take up its version of the NDAA sometime in July before legislators adjourn for the month-long August recess on July 29.

•In a statement, the Hindu American Foundation commended Senators Cornyn and Warner for their efforts in advancing the U.S.-India strategic partnership.

πŸ“° Bangladesh seeks to synergise ties with India

Urges dignified return of Rohingya refugees from camps in Chittagong to Myanmar

•Bangladesh on Tuesday said the government of Prime Minister Sheikh Hasina wishes to continue cooperation with the re-elected Narendra Modi government and urged for dignified return of the Rohingya refugees from camps in Chittagong to Myanmar. The statement from High Commissioner of Bangladesh Syed Muazzem Ali came a day after Ms. Hasina began her outreach to China seeking Beijing’s support to resolve the Rohingya issue.

•Delivering a keynote speech at the Indian Institute of Management (IIM)-Rohtak, Mr. Ali called for bilateral synergy and closer cooperation between Dhaka and New Delhi. He reiterated Dhaka’s demand for bringing international pressure on Myanmar to end the Rohingya crisis and said, “What we are working on is the early, safe and dignified repatriation of the Rohingyas to their home in Myanmar.”

•The comments are the first since Mr. Modi took charge in May. Bangladesh President Abdul Hamid participated in the swearing-in of the Modi government.

•Ms. Hasina, who did not participate, congratulated Mr. Modi on phone and both the leaders had agreed to identify dates for a meeting at the earliest.

•Mr. Modi is soon expected to travel to various South Asian capitals. He visited Maldives and Sri Lanka in June and reports suggest that he will travel to Bhutan in the coming weeks, though the exact date is yet to be announced. Diplomatic sources pointed out that External Affairs Minister S Jaishankar met the Bangladeshi envoy.

Outreach to China

•Prime Minister Sheikh Hasina’s five-day visit to China that began on Monday is aimed at seeking Beijing’s assurances to resolve the Rohingya crisis.

•Dhaka and Beijing are expected to sign energy deals that are connected to the Belt and Road Initiative (BRI).

πŸ“° Teachers and quotas

Bill on reservation in central academic cadre provides relief to disadvantaged sections

•Legislation to overcome the effects of court verdicts is not always a good idea. However, sometimes an exception ought to be made in the larger public interest. One such law is the Centre’s Bill to ensure that reservation for scheduled castes, tribes and other backward classes in appointments to central educational institutions is preserved. The Central Educational Institutions (Reservation in Teachers’ Cadre) Bill, 2019, passed by the Lok Sabha, replaces an ordinance promulgated in March. Its main object is to restore the system of treating an institution or a university as a single unit to apply the reservation roster, and thus help fill 7,000 teaching vacancies. It seeks to get around a 2017 judgment of the Allahabad High Court striking down University Grants Commission regulations that treated the institution as the unit for determining the roster, and directing that each department be the relevant unit. In short, reservation should be department-wise, and not institution-wise, the court ruled. The Supreme Court rejected the Centre’s appeal against the order. But the narrower basis for applying quotas would mean fewer aspirants from OBC and SC/ST sections would be recruited as assistant professors. In the interest of social justice, it had to restore the system of having a wider pool of posts in which the quotas of 27% for OBC, 15% for SC and 7.5% ST could be effectively applied. From this perspective, the Bill provides welcome relief for aspirants from the disadvantaged sections of society.

•It is not that the court was manifestly wrong in applying the roster based on a smaller unit, that is, a department in a university or institution. The High Court noted that having the whole institution as a unit would result in some departments having only reservation beneficiaries and others only those from the open category. But the counterpoint is equally valid. Having the department as the unit would mean smaller faculties would not have any reservation. In the roster system, it needs 14 posts to accommodate SC and ST candidates, as their turn would come only at the seventh and 14th vacancy. There may be no vacancies in many departments for many years, with none from the reserved categories for decades. On the other hand, taking the institution as the unit would give more opportunities for these sections. According to the UGC’s annual report for 2017-18, nearly two-thirds of assistant professors in Central universities are from the general category. Their representation would go up further, as the present Bill also applies the 10% quota for the economically weak among those outside the reservation loop. Applying the court’s department-wise roster norm would have deepened the sense of deprivation of the backward classes and SC/ST communities. To that extent, the new enactment will serve a vital social purpose.

πŸ“° Trump in North Korea

The U.S. President appears committed to diplomacy in dealing with North Korea

•U.S. President Donald Trump made history on Sunday when he stepped on to North Korean soil from the demilitarised zone (DMZ) that separates the two Koreas. He is the only American President to have visited North Korea, the isolated, nuclear-armed dictatorship that is historically seen as an enemy in Washington’s policy establishment. The President’s surprise announcement, via Twitter, that he was ready to visit the DMZ to meet with North Korean leader Kim Jong-un was typical of Mr. Trump, who enjoys conducting off-the-cuff personal diplomacy. North Korea seized the opportunity, and both leaders met at the DMZ, held talks for nearly an hour and decided to resume parleys that have stalled since the two leaders’ failed summit in Hanoi. Mr. Trump deserves credit for infusing fresh life into the nuclear negotiations. His intervention came at a time when North Koreans were growing impatient over lack of progress in the matter of ties. In recent weeks, they had personally attacked U.S. Secretary of State Mike Pompeo and targeted the South Korean leadership over the sanctions and the logjam in talks. Now that both Mr. Trump and Mr. Kim have met and decided to set up teams on both sides to hold negotiations, the impasse is broken. But key challenges remain.

•Mr. Trump appears to be committed to diplomacy in addressing the North Korean issue. Pyongyang, though often cryptic in its responses, has also shown interest in staying engaged with the U.S. Mr. Kim has, in principle, agreed to denuclearise the peninsula, which is the goal of the U.S. as well. But the critical question is when and how it should be done. The Hanoi summit collapsed chiefly as the U.S. considered the compromise that North Korea offered insufficient to warrant reciprocation with sanctions relief. North Korea had agreed to close down the Yongbyon facility, its main nuclear fuel production site, but the U.S. rejected the offer, saying the North’s nuclear capability is now much more diversified and goes beyond that one plant. When they resume talks, the question of how much the North should compromise to get at least a partial reprieve from sanctions will be back. If the U.S. sticks to its maximalist demands such as complete denuclearisation, the talks are likely to run into trouble again. For Pyongyang, nuclear weapons are its insurance against potential external aggression, and it would accede to total denuclearisation only if its security concerns are ensured and sanctions are fully withdrawn. Both sides should learn from their failure in Hanoi. They can take small steps towards the final goal. The U.S. could demand a total freeze on North Korea’s nuclear activities, besides shutting down Yongbyon, which the North has already agreed to, in return for providing partial reprieve from sanctions. Constructive and reciprocal confidence-building measures would mean that Mr. Trump’s personal diplomatic outreach and the momentum it created won’t be in vain.

πŸ“° Healthcare’s primary problem

It is imperative to promote community-based care rather than relying only on hospital services




•The deaths of 154 children in Bihar due to acute encephalitis syndrome (AES) has laid bare the precarious capacity of the State’s healthcare apparatus to handle outbreaks. AES has been linked to two factors: litchi consumption by starving children and a long, ongoing heat wave. As promises of bolstering the health infrastructure are being made, it is important to analyse what could have formed the ideal line of action.

•AES is largely preventable both before and just after the onset of the disease, and treatable with high chances of success on availability of medical intervention within 2-4 hours of symptoms. Therefore, the first signs of an outbreak must prompt strong prevention measures. These include, apart from a robust health education drive and replenishing primary health centres (PHCs) with essential supplies, extensive deployment of peripheral health workers (ASHA workers) and ambulance services to facilitate rapid identification and management of suspected cases. Vacant doctor positions in PHCs must be urgently filled through deputation. Furthermore, short-term scaling-up of the Poshan Abhiyaan and the supplementary nutrition programme — which makes available hot, cooked meals for pre-school children at Anganwadis along with take home ration for mothers and distribution of glucose/ORS packets in risk households — are imperative. Nearly every one of these elements lies undermined in Bihar.

Crumbling healthcare in Bihar

•In Bihar, one PHC caters to about 1 lakh people rather than the norm of 1 PHC per 30,000 people. Furthermore, it is critical for such a PHC, catering to more than three times the standard population size, to have at least two doctors. However, three-fourths of the nearly 1,900 PHCs in Bihar have just one doctor each. Muzaffarpur has 103 PHCs (about 70 short of the ideal number) with 98 of them falling short of basic requirements outlined by the Health Management Information System. Bihar, one of the most populous States, had a doctor-population ratio of 1:17,685 in 2018, 60% higher than the national average, and with only 2% of the total MBBS seats in the country. There is also a one-fifth shortage of ASHA personnel, and nearly one-third of the sub-health centres have no health workers at all. While the State reels under the highest load of malnutrition in India, a study found that around 71% and 38% of funds meant for hot, cooked meals and take home ration, respectively, under the supplementary nutrition programme, were pilfered. Meals were served for just more than half the number of prescribed days, and only about half the number of beneficiaries on average actually got them.

•This is not all. Even those PHCs with adequate supplies remain underutilised. Perennial subscription to selective healthcare services by PHCs, like family planning and immunisation, have cultivated the perception that PHCs are inept as centres of general healthcare. This leads patients either directly to apex government hospitals situated far away or to unqualified private providers. This results in a patient losing precious time in transit and landing up in a hospital in a critical and often irreversible stage of illness.

•Merely strengthening the tertiary care sector will be inefficient and ineffective. Most attention was focused on the poor state of the Sri Krishna Medical College and Hospital in Muzaffarpur, with 600 beds, already functioning beyond its full capacity. Hospitals in Muzzafarpur have a bed occupancy of over 300%, three times the full occupancy. In such a case, even a significant addition of hospital beds and ICUs won’t solve the problem. ICUs can only deal with the most advanced cases. A narrow focus on the hospital sector will wastefully increase costs, ignore the majority of cases, increase the number of cases that are in advanced stages, while continuing to overstretch public hospitals.

Revamp primary health infrastructure

•The solution lies in building more functional PHCs and sub-health centers; scaling-up the cadres of ASHA workers; strict monitoring of nutrition programmes; and addressing the maldistribution of doctors and medical colleges. The resultant robust primary care system can then be geared towards being more responsive to future outbreaks. We should also bolster our technical capacity to better investigate the causes of such outbreaks and operationalise a concrete long-term strategy.

•Policy documents, while emphasising on financial and managerial aspects of public health, fail to address the aberrant developmental paradigm of our health services. Decades of hospital-centric growth of health services have eroded faith in community-based healthcare. In these circumstances, even easily manageable illnesses increase demand for hospital services rather than PHCs. There is need to work on inculcating confidence in community-based care.

πŸ“° Work on Kondapochamma reservoir nearing completion

With 90% work done, focus is now on digging distributary canals and minors

•As the construction of Kondapochamma reservoir is nearing completion, officials are now focusing on digging connecting canals that would supply water to the fields.

•Water would be supplied from the reservoir to the fields in three phases – main canals in the first phase, by distributaries in the second and sub-minors/ field channels in the third.

•Land acquisition for main canals – Jagadevpur, Ramayampet, Gajwel, Sangareddy, Turkapally, Kishtapur and Upparpally – is complete and work is progressing at a fast pace.

•The canals would be constructed for about 600 km, of which 450 km would be distributary canals. On each distributary, there would be 10 or 20 field channels that would supply water to the fields in the last leg. The canal digging work would be taken up in about 170 villages. However, as the width of the distributary canals would be narrow, officials are hoping that there would not be much opposition from farmers. More so, as the canal would flow close to their fields.

•Further, officials estimate that about 2,000 acres is required for the distributaries and minors, for which survey and land acquisition would commence shortly. Collector P. Venkataram Reddy held a meeting with the officials concerned last week in this regard.

Promise of two crops

•“These canals would benefit each and every farmer in this area and they can cultivate two crops every year with assured irrigation. We want to complete the land acquisition process for distributaries and minors within 45 days. I request every farmer to cooperate with the State government in the land acquisition process and also digging of canals,” he appealed.

πŸ“° Centre ratifies convention to curb company profit shifting

Bid to prevent firms from moving profit out of country

•The government announced on Tuesday that it had ratified the international agreement to curb base erosion and profits shifting (BEPS), a bid to stop companies from moving their profits out of the country and depriving the government of tax revenue.

•“India has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (multilateral instruments (MLI)), which was signed by the Finance Minister in Paris on June 7, 2017 on behalf of India, along with representatives of more than 65 countries,” the Finance Ministry said in a release. Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.

•The MLI is a result of concerted work by the G20 countries to tackle the issue of base erosion and profit shifting, something that affects them all. India was part of the Ad Hoc Group of more than 100 countries and jurisdictions from the G20, Organisation for Economic Co-operation and Development (OECD), and other interested countries, which worked on the finalising the text of the Multilateral Convention.

•“The MLI will modify India’s tax treaties to curb revenue loss through treaty abuse and base erosion and profit shifting strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out,” the government said. “The MLI will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.”Out of 93 tax treaties notified by India, 22 countries have already ratified the MLI so far and the Double Taxation Avoidance Agreement (DTAA) with these countries will be modified by MLI. For the remaining countries with tax treaties with India, the MLI will come into force when they ratify it. The MLI will come into force for India from October 1, 2019.

πŸ“° Not by wishful thinking

fA $5 trillion Indian economy may be attainable if domestic saving and investment are stepped up

•In early June, at a NITI Aayog meeting, Prime Minister Narendra Modi set a clear and bold economic target — to grow India into a $5 trillion economy by 2024. It is now for ‘Team India’, as the meeting was bannered, to translate this target into a plan and policies and programmes. Historically, such goals by popularly elected leaders have voiced the aspiration of voters and energised nations to realise their potential.

How realistic?

•What does the targeted $5 trillion economy mean in familiar economic terms? It is ₹350,00,000 crore of gross domestic product (GDP) at current prices, at ₹70 to a U.S. dollar exchange rate. India’s (provisional) GDP in 2018-19 at current prices is ₹190,10,164 crore (or $2.7 trillion), which means the annual per capita income is ₹1,42,719, or about ₹11,900 per month.

•The target implies an output expansion by 84% in five years, or at 13% compound annual growth rate. Assuming an annual price rise of 4%, in line with the Reserve Bank of India’s inflation target, the required growth rate in real, or inflation-adjusted, terms is 9% per year. To get a perspective, India officially grew at 7.1% per year over the last five years, but the annual growth rate never touched 9%. Hence, the target seems ambitious. Is it doable?

How Asia fared

•How does the target compare with the Asian experience? China, with a historically unprecedented growth record in its best five years, during 2003-07, grew at 11.7%; South Korea, between 1983 and 1987, grew at 11%. So, Mr. Modi’s target is smaller than the best historical records and may seem realistic.

•What would it take to grow at 9%? No country grew at such a pace without mobilising domestic saving and raising fixed investment rates.

•In the last five years, on average, the domestic saving rate was 30.8% of gross national domestic income (GNDI), and the investment rate (gross capital formation to GDP ratio) was 32.5%. Assuming the underlying technical coefficients remain constant, a 9% annual growth rate calls for 39% of domestic saving rate and 41.2% of investment rate. Correspondingly, shares of private consumption need to shrink to about 50% of GDP from the current level of 59% of GDP at current prices, assuming foreign capital inflow remains at 1.7% of GDP.

•In other words, India will have to turn into an investment-led economy as it happened during the boom last decade (2003-08) before the financial crisis, or like China since the 1980s. Granting that rapid technical progress or changes in output composition could reduce the required incremental capital-output ratio (ICOR), it nevertheless will call for a nearly 8-9 percentage point boost to saving and investment rates.

•If, however, the economy has grown at a much slower pace than the officially claimed rate — as the on-going GDP debate suggests and at 4.5% as the former Chief Economic Adviser Arvind Subramanian has pegged it — then Mr. Modi’s growth target would become even more daunting.

Low domestic saving rate

•These stark facts call for a re-thinking in the ruling dispensation that seems to hail India as a consumption-led growth story. There is a belief that greater foreign capital (FDI) inflow would fill in the investment gap, as evident from the NITI Aayog Vice-Chairman’s various pronouncements. History shows that no country has succeeded in accelerating its growth rate without raising the domestic saving rate to close to 40% of GDP. Foreign capital can fill in some vital gaps but is not a substitute for domestic resources. Even in China, FDI inflows as a proportion of GDP never exceeded 5-6%, most of which was in fact round-tripped capital through Hong Kong for securing better property rights at home.

•Gross FDI inflow into India peaked in 2008-09 at 2.7% of GDP, decelerating thereafter. As it increasingly consists of private equity (PE) with a three- to five-year tenure, mostly acquiring capital assets (contrary to the textbook FDI definition as fixed capital formation for the long term) net FDI rate is lower than the gross inflows, standing at 1.5% of GDP in 2017-18. Hence, there is a need for caution against the exuberance (or opportunistic bias) that FDI will help to get to the $5 trillion GDP target.

•What is serious is that the economy has slowed down for a while now. The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in 2016-17; and gross capital formation rate from 33.8% to 30.6% during the same period. The banking sector’s ability to boost credit growth is limited by non-performing assets (NPAs) and the governance crisis in the financial sector. Export to GDP ratio has declined rapidly, with a looming global trade war on the horizon, as has been indicated by the Baltic Dry Index. The highly regarded leading indicator of global trade, currently trading at 1354 is forecasted to decline to less than 1,000 index points by the year-end (a decline from its historic high of 11,793 points in May 2008, just before the financial crisis set in).

•Given the foregoing, the $5 trillion target appears daunting. It may yet be doable, provided policymakers begin with a realistic assessment, by willing to step up domestic saving and investment, and not by the wishful thinking of FDI-led growth accelerations in uncertain economic times.

πŸ“° High trading costs impact liquidity of Indian equities: study

‘Turnover ratio fell by 60% in 10 years’

•With the Union Budget just a couple of days away, a recent study has shown that the turnover ratio of the Indian stock market has fallen significantly in the last 10 years.

•More importantly, the fall has been higher in India compared with some of the other leading markets of the world.

•As per the latest analysis by the World Bank, the turnover ratio of the Indian stock market had fallen from 143 in 2008 to 58 in 2018. To be sure, while the the ratio had managed to move up in the last five years, it is still quite low compared with the earlier highs.

•The turnover ratio, which is a universally accepted parameter to gauge trading volumes, is the total value of the shares traded in a specific period divided by the average market capitalisation of that period.

•This assumes significance as market participants have been lobbying hard with the government to bring down the overall cost of trading in equities in India, which, they feel, is adversely affecting investors’ interest in the stock market.

•Incidentally, the World Bank study comes close on the heels of a recent analysis by the Association of National Exchanges Members of India (ANMI) that highlighted the fact that that India had very high trading costs due to huge margin requirements, especially in the derivatives segment.

•Separately, as part of their pre-budget recommendations to the government, capital market participants had sought rationalisation of the securities transaction tax (STT) apart from bringing back certain exemption benefits that were available earlier.

•In 2007-08, government stopped treating STT as tax paid and treated it as an expense that led to double taxation for the gains assessed under business income. Further, while long-term capital gains (LTCG) tax was made nil while introducing STT in 2004, the transaction tax was not done away with when LTCG was reintroduced in 2018.

India leads decline

•Meanwhile, while India’s turnover ratio fell by nearly 60% between 2008 and 2018, as per the World Bank report, the fall had been the highest among most leading markets of the world, barring the U.S. and the European Union.

•The turnover ratio of China dipped less than 6% in the last 10 years, while Brazil and Korea registered a dip of 12.85% and 31.12%, respectively. Japan and Hong Kong saw the ratio dip between 40-50% between 2008 and 2018, as per the World Bank study.


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