The HINDU Notes – 08th July 2019 - VISION

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Monday, July 08, 2019

The HINDU Notes – 08th July 2019

πŸ“° Reclaiming the Indo-Pacific narrative

The ASEAN’s intent to be in the driving seat is clear as it seeks to manage the emerging regional order with policy moves

•At the 34th summit of the Association of Southeast Asian Nations (ASEAN) in Bangkok in June, its member states finally managed to articulate a collective vision for the Indo-Pacific region in a document titled “The ASEAN Outlook on the Indo-Pacific”. At a time when the geopolitical contestation between China and the United States is escalating, it has become imperative for the ASEAN to reclaim the strategic narrative in its favour in order to underscore its centrality in the emerging regional order.

•Though there were divisions among ASEAN member states in the run-up to the summit, they managed to come up with a non-binding document. It underlines in the document the need for an inclusive and “rules-based framework” to “help to generate momentum for building strategic trust and win-win cooperation in the region”. An awareness of the emergence of a great power contest around its vicinity pervades the document as it argues that “the rise of material powers, i.e. economic and military, requires avoiding the deepening of mistrust, miscalculation and patterns of behaviour based on a zero-sum game”.

•Despite individual differences and bilateral engagements ASEAN member states have with the U.S. and China, the regional grouping can now claim to have a common approach as far as the Indo-Pacific region is concerned and which the Prime Minister of Thailand, Prayuth Chan-ocha, suggested “should also complement existing frameworks of cooperation at the regional and sub-regional levels and generate tangible and concrete deliverables for the benefit of the region’s peoples”.

Conduct in the China Sea

•What has been interesting also is the ASEAN member states agreeing to push for a quick conclusion of a Code of Conduct in the South China Sea, an increasingly contested maritime space which is claimed largely by China and in parts by the Philippines, Vietnam, Indonesia and Malaysia. Tensions continue to rise over the militarisation of this waterway; in June, a Philippine fishing boat sank after it was rammed by a Chinese vessel. It is hoped that the first draft of the code for negotiations will see the light by this year end. With these moves, the ASEAN is clearly signalling its intent to be in the driving seat as it seeks to manage the geopolitical churn around it.

•Engaged with the Indo-Pacific concept for some time now, it has now been pushed into articulating its formal response with a sense of urgency after other major regional players began laying their cards on the table. The release of the U.S. Free and Open Indo-Pacific (FOIP) strategy report in June — it focusses on preserving a “free and open Indo-Pacific” in the face of a more “assertive China” — was perhaps the final push that was needed to bring the ASEAN discussion on the subject to a close. Japan had already unveiled its Free and Open Indo-Pacific concept in 2016, while Australia released its Foreign Policy White Paper in 2017, detailing its Indo-Pacific vision centred around security, openness and prosperity. Prime Minister Narendra Modi articulated India’s Indo-Pacific vision at the Shangri-la Dialogue in 2018, with India even setting up an Indo-Pacific wing in the Ministry of External Affairs (MEA) earlier this year.

•For a long time, the ASEAN has been reluctant to frontally engage with the Indo-Pacific discourse as the perception was that it may antagonise China. But there was soon a realisation that such an approach might allow others to shape the regional architecture and marginalise the ASEAN itself. And so the final outlook that the ASEAN has come up with effectively seeks to take its own position rather than following any one power’s lead.

The framework

•While the ASEAN outlook does not see the Indo-Pacific as one continuous territorial space, it emphasises development and connectivity, underlining the need for maritime cooperation, infrastructure connectivity and broader economic cooperation. The ASEAN is signalling that it would seek to avoid making the region a platform for major power competition. Instead its frame of reference is economic cooperation and dialogue. The fact that the ASEAN has gone ahead and articulated an Indo-Pacific outlook is in itself a seeming challenge to China which refuses to validate the concept. But the ASEAN’s approach is aimed at placating China by not allowing itself to align with the U.S.’s vision for the region completely.

•India has welcomed the ASEAN’s outlook on the Indo-Pacific as it sees “important elements of convergence” with its own approach towards the region. During U.S. Secretary of State Mike Pompeo’s visit to India in June, India was categorical that it is “for something” in the Indo-Pacific and “not against somebody”, seeking to carefully calibrate its relations with the U.S. and China in this geopolitically critical region. As External Affairs Minister S. Jaishankar has suggested “[and] that something is peace, security, stability, prosperity and rules”. India continues to invest in the Indo-Pacific; on the sidelines of the recent G-20 Summit in Osaka, Japan, Mr. Modi held discussions on the Indo-Pacific region with U.S. President Donald Trump and Japan Prime Minister Shinzo Abe with a focus on improving regional connectivity and infrastructure development.

•With the ASEAN finally coming to terms with its own role in the Indo-Pacific, the ball is now in the court of other regional stakeholders to work with the regional grouping to shape a balance of power in the region which favours inclusivity, stability and economic prosperity.

πŸ“° Crimes that India’s statute books have failed to define

No law adequately deals with mass atrocities

•Neither ‘crimes against humanity’ nor ‘genocide’ has been made part of India’s criminal law, a lacuna that needs to be addressed urgently. This was the lament of Justice S. Muralidhar of the Delhi High Court, while pronouncing the judgment in State v. Sajjan Kumar (2018).

•The case concerned the mass killing of Sikhs during the anti-Sikh riots in 1984 in Delhi — and throughout the country. The court categorically stated that these kind of mass crimes “engineered by political actors with the assistance of the law enforcement agencies” fit into the category of crimes against humanity (CAH).

•Internationally, CAH are dealt with under the Rome Statute of the International Criminal Court (ICC). They are defined as offences such as murder, extermination, enslavement, deportation, torture, imprisonment and rape committed as a part of “widespread or systematic attack directed against any civilian population, with knowledge of the attack”.

•India is not a party to the Rome Statute, which means that it is under no obligation at present to enact a separate legislation dealing with CAH. Even after ratification of the Genocide Convention (1948), India has not enacted it in domestic legislation.

Reasons for reluctance

•The most probable reason for India’s reluctance to actively participate in the negotiation process on a separate Convention on CAH, which started in 2014, could be the adoption of the same definition of CAH as provided in the Rome Statute. The Indian representatives at the International Law Commission (ILC) have stated that the draft articles should not conflict with or duplicate the existing treaty regimes.

•India had objected to the definition of CAH during negotiations of the Rome Statute on three grounds.

•First, India was not in favour of using ‘widespread or systematic’ as one of the conditions, preferring ‘widespread and systematic’, which would require a higher threshold of proof.

•Second, India wanted a distinction to be made between international and internal armed conflicts. This was probably because its internal conflicts with naxals and other non-state actors in places like Kashmir and the Northeast could fall under the scope of CAH.

•The third objection related to the inclusion of enforced disappearance of persons under CAH. It is pertinent here that India has signed but not yet ratified the UN International Convention for the Protection of All Persons from Enforced Disappearances as it would put the country under an obligation to criminalise it through domestic legislation.

•Can these objections be seen as providing the basis for India’s objections/silence to the ILC’s ongoing work? Does India have objections to the very definition of CAH based on the Rome Statute or does it have concerns with the contextual elements of the crime?

A familiar pattern

•In State v. Sajjan Kumar, the Delhi High Court also said that “a familiar pattern of mass killings” was seen “in Mumbai in 1993, in Gujarat in 2002, in Kandhamal, Odisha in 2008, and Muzaffarnagar in Uttar Pradesh in 2013”, where the criminals “have enjoyed political patronage and managed to evade prosecution”.

•India’s missing voice at the ILC does not go well with its claim of respect for an international rules-based order. Turning a blind eye to the mass crimes taking place in its territory and shielding the perpetrators reflect poorly on India’s status as a democracy. It would be advisable for India to show political will and constructively engage with the ILC, which would also, in the process, address the shortcomings in the domestic criminal justice system.

πŸ“° Quota politics: on U.P.'s move to confer SC status on 17 backward castes

The Adityanath regime’s move to confer SC status on 17 backward castes has no legal basis

•The Uttar Pradesh government’s latest attempt to extend the benefits available to Scheduled Castes to 17 castes that are now under the Other Backward Classes (OBC) list has no legal basis and appears to be aimed at making political gains ahead of a round of by-elections to the State Assembly. It is fairly well- known that Parliament alone is vested with the power to include or exclude any entry in the SC list under Article 341 of the Constitution. Union Minister for Social Justice and Empowerment Thawar Chand Gehlot has clarified this position in Parliament, while suggesting that the State government follow due process. Uttar Pradesh has unsuccessfully tried to get some backward castes declared as Scheduled Castes in the past, once during the tenure of Mulayam Singh, and again during the rule of Akhilesh Yadav. In 2016, a notification was issued stating that 17 castes were to be treated as Scheduled Castes. The matter reached the Allahabad High Court, but in an interim order in March 2017, the court observed that in case any certificates were issued on the basis of the notification, these would be subject to the outcome of the litigation. More than two years later, this order has been utilised by the Yogi Adityanath government to restore the proposal in an oblique manner. Though it is quite apparent that it is not a judicial directive, the State government has asked authorities in all districts to issue certificates to those from these castes.

•No doubt, these 17 castes comprise the most disadvantaged among the backward classes. Categorising the backward classes into two or three sections has been seen as one way to apportion the benefits of reservation among many social groups. In such an exercise, these castes may qualify for a compartment within the OBC quota. However, treating them as Scheduled Castes is beset with problems. For one thing, they may not qualify to be treated as SCs because they may not have suffered untouchability and social discrimination. Given the legal limitations on the State government’s power to expand the SC list, it is not difficult to discern a political motive behind any move to confer SC status on sections of the OBC. When the Samajwadi Party was in power, one could say moving them to the SC list would have freed up more opportunities for the influential and politically dominant Yadavs in the OBC category. For the present BJP regime, the move could help carve out a vote bank from the newly declared SC groups. The Bahujan Samaj Party, which has opposed the move both in Parliament and outside, understands that new additions would shrink opportunities for the existing castes in the SC list. That is why its leader, Ms. Mayawati, has hinted that the reservation pie can be shared among more claimants only if its size is increased. The U.P. government would be well-advised to avoid misleading vulnerable sections with the promise of SC status.

πŸ“° Economic Survey has based Aadhaar impact on MGNREGS on false assumptions, say researchers

•Researchers and activists studying the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) data have refuted the argument made in this year’s Economic Survey regarding the positive causal impact of Aadhaar-linked payments (ALP) on the scheme, especially in drought affected districts. The argument is riddled with false assumptions, they say.

On timeliness

•The Survey used the rural jobs scheme as a case study to show the benefits of the use of technology in improving targeting and efficiency in welfare schemes, especially for the most vulnerable groups. One of the strongest pieces of evidence cited dealt with timeliness: the percentage of wage payments generated within 15 days improved from 27% in 2014-15 to more than 90% by 2018-19. The Survey credited this to the introduction of ALP in 2015-16.

•“That’s just a false assumption,” said Rakshita Swamy, a member of the People’s Action for Employment Guarantee, a network advocating for better implementation and accountability of MGNREGA. She explained that the payment process occurs in two stages, one where the State verifies the work done and the muster roll and generates a fund transfer order, and the other where money is actually credited into the worker’s bank account.

•The improvement in timeliness data cited by the Survey deals with stage 1. However, Aadhaar could only play a role in stage 2, Ms. Swamy pointed out.

•Another area of contention is the Survey’s comparison of MGNREGS performance in drought affected districts — used as a proxy for distressed areas — and regular districts before and after the introduction of ALP. In supply and demand for work as well as in worker attendance, the scheme’s performance in drought areas improved at a much faster rate after ALP in comparison to other areas.

Erroneous conflation

•“For this kind of statistical comparison to be valid, there must be a single intervention whose impact can be measured before and after it occurred. But in this case, very different interventions are being conflated,” said Rajendran Narayanan, Assistant Professor, Azim Premji University, who has been studying the treasure trove of MGNREGS data from the last decade.

•He noted that around the same time that Aadhaar was introduced to MGNREGS, a Supreme Court ruling mandated special measures for the scheme in drought affected areas, such as providing 50 additional days of work per household, reducing wage delays, and clearing pending wage payments. Central and State governments issued orders to comply with the ruling, leading to interventions which also impacted the situation at the same time as Aadhaar.

Unproven assumption

•“Another critical assumption is that MGNREGA outcomes in drought and non-drought districts were parallel before and after the introduction of Aadhaar. But that has not been proven,” said Sakina Dhorajiwala, a researcher with the LibTech group, who is also working closely on the MGNREGS dataset with Prof. Narayan. She added that the Survey has cherry-picked data by choosing to use trends from only one year before the introduction of Aadhaar, and from household-level instead of individual level outcomes. Widening the dataset showed different outcomes, she said.

πŸ“° U.S. curbs, Chabahar downgrade choke Indo-Afghan trade

2019-20 Budget also cuts Chabahar funding

•The government’s decision to slash its allocation for Iran’s Chabahar port by two-thirds, as announced by Finance Minister Nirmala Sitharaman in the latest Budget will be a further blow to India-Afghan trade, already hit by Pakistan’s decision to ban airspace rights to most flights to and from India, and U.S. sanctions on Iran, officials and diplomats in Delhi and Kabul said.

•The government, which had been allocating ₹150 crore for the port each year for the past few years, has slashed its allocation to just ₹45 crore in the Budget for 2019-2020. When asked for reasons, Ministry of External Affairs (MEA) sources said the figure reflected a “readjustment in the budgetary allocation based on a realistic assessment of likely expenditure to be incurred this financial year,” in comments indicating that India does not anticipate developing Chabahar port at the same pace as earlier.

Waiver of little help

•Technically, the U.S. has issued India a waiver to develop Chabahar port, to promote trade with Afghanistan as a part of its “South Asia” strategy. In practice, however, the cancellation of all waivers for oil and crippling economic sanctions imposed by the Trump administration, have all but frozen deals. Afghan banks are hesitant to open credit lines for shipments, and shippers and cargo handlers are staying away from servicing the Iranian port.

•“During the last months (February-May), Chabahar had flourished for transportation of goods and commodities to Afghanistan and central Asia with the volume of loading and unloading twice as much as before,” Iran’s Ambassador to Delhi Ali Chegeni said. “But the U.S. officials’ hostile statements on Iran’s sanctions naturally and indirectly has negative impacts and led to worry amongst companies about working with Iranian ports including Chabahar,” he told The Hindu.

•Speaking to journalists last week, Afghanistan’s new head of mission Tahir Qadiry said they hoped Pakistan’s airspace ban, which had been extended until July 12, would be lifted shortly. Aside from trade, urgent travel for Afghan medical patients, students and businessmen has become virtually impossible, with most direct flights cancelled.

•“A flight from Delhi to Kabul that used to take one-and-a-half hours now takes five hours,” Mr. Qadiry explained. Ariana Afghan, SpiceJet and Air India suspended their operations to Kabul after Pakistan imposed its airspace curb in the wake of the Balakot Strikes on February 26th. Afghan-owned Kam Air operates only three times a week from New Delhi, taking a detour via Surat and southern Pakistan to enter Afghanistan. As a result of the ban, Afghan fruit and agricultural products that had made up a bulk of the cargo on flights between Kabul and Delhi are being shipped to other international markets.

•“The original cargo corridor is not operational as of now,” Barun Birla of Aero Trek International, the cargo company that operated the inaugural cargo charter on the corridor, confirmed to The Hindu. However, Afghan officials said 221 flights, including commercial passenger airlines had carried cargo between the two countries since June 2017, according to an arrangement where the Afghan government subsidises about 80% of the transport costs to promote India-Afghan trade.The downturn in trade, for which figures are yet to be released, will dampen hopes that had been raised by the introduction of the “air corridor” service between the two countries in June 2017, as well trade through Chabahar port that began in February 2019. Since then Afghanistan had exported goods worth more than $150 million to India through the air corridor and goods worth $2 million through Chabahar, a spokesperson for the Afghan Embassy in Delhi said. In July last year, the former Afghan Ambassador to India had projected trade of “$2 billion between both countries by 2020”. However,

•Officials say that with trade through both air and sea routes restricted, as well as Pakistan’s refusal to give Afghan trucks passage to the Wagah land route, trade may come to a standstill for now.

πŸ“° Outlay for child welfare sees a meagre increase

Health allocation has shown a decline of 0.39%

•The outlay for children in the Union Budget has shown a marginal increase of 0.05%, going up from 3.24% in the last fiscal to 3.29% in the current fiscal with a grant of Rs. 91,644.29 crore.

•The share is less than the low share of 5% that the National Plan of Action for Children, 2016, has recommended, notes the HAQ Centre for Child Rights.

•A detailed analysis of the budgetary grant carried out by Child Rights and You for four thematic areas of child rights, including education, health, development and child protection, shows that the first two categories have registered a decline while the money allocated for the ambitious plan for nutritional development may be insufficient.

Minor rise

•The share of education has increased marginally to 68.54% from 68.2%, but has declined by more than 10 percentage points from 79.02% in 2015-16. These include schemes such as Samagra Shiksha, National Programme of Mid Day Meal in Schools and Navodaya Vidyalaya Samiti.

•Health-related financial allocation as a share of the child health budget has shown a decline of 0.39% — from 3.9% last fiscal to 3.51%.

•The Anganwadi services and the Poshan Abhiyan (Nutrion Mission) are among the most important government programmes aimed at reducing stunting, under-weight, anaemia and low birth weight. While the former has registered an increase of 19% and the latter of 14% in this latest Budget announcement, experts have argued it is inadequate.

•Activists are unhappy with the cut back of 16% for the National Child Labour Project Scheme.

πŸ“° Production of Vande Bharat Express comes to a grinding halt

Design of India’s first semi high-speed train will go back to the drawing table

•The production of India’s first semi high-speed train has come to a grinding halt at the Integral Coach Factory (ICF) in Chennai. The work on rolling out ten trains this fiscal remains a non-starter despite floating of tenders. Reason: the design of the successfully running Train18 has been found to be violative of certain specifications and will go back to the drawing table. Investigation is also on into allegations that one company was favoured in the making of the ₹97 crore train set, railway sources said.

Indigenously built

•Indigenously built by Team ICF in record time, the Train18, later christened as Vande Bharat Express, was launched by Prime Minister Narendra Modi between New Delhi and Varanasi on February 15, 2019. Celebrated as one of the most successful products of the ‘Make in India’ initiative, Vande Bharat Express is running with no reported issues in the last six months.

•Acting on the instructions of the Railway Board, vigilance officials have taken away hundreds of files relating to the making of Train18 from the ICF. The primary issue was that making of Train18 had dozens of deviations from the specifications prescribed by Research Designs and Standards Organisation (RDSO). After the vigilance enquiry, engineers are now hesitant to use the traction transformer and other electrics procured to make the first train. The ICF has now decided to follow the RDSO specifications for electrics and go for fresh tendering, the sources said.

‘Safety ensured’

•However, ICF engineers who were part of the first train say that the Train18 was built to industry standard specifications and readily available equipment to roll out the train in record 18 months. “There was no compromise on safety parameters. The train is successfully running in the last six months at high speed between New Delhi and Varanasi. If we had strictly adhered to RDSO specification, the axle load of Train18 would have been much higher resulting in lesser speed. Also, the cost would have been on the higher side,” a senior engineer involved in the making of Train18 told The Hindu on Sunday.

A game changer

•The objective was to roll out a world-class train at the lowest possible cost and highest output in terms of operational efficiency, safety and comfort. “Team ICF achieved this goal and Train18 was showcased as a game changer in the industry. Now, some turf issues have also cropped up on the ownership of the train that will be the future of the Indian Railways,” the official who preferred not to be named said.

•He quoted the Member Rolling Stock, Railway Board, in a recent meeting of Principal Chief Mechanical Engineers as saying that “Vande Bharat Express has taken the world by storm. It was a herculean job to get the service started and credit goes to all the units who have worked hard in the project.”

MNCs behind stalling?

•“This stoppage of work has caused a gloom among the suppliers in and around Chennai since they had worked equally diligently to make the project a success and had invested crores of rupees in developing new and high tech products. They believe that several multinational firms are behind the repeated stalling of the tender process, which had earlier resulted in development of low cost indigenous alternatives,” another top railway official said.

•When contacted, a senior ICF official confirmed that work in the making of Vande Bharat Express had come to a halt and was not sure when the process would begin since whole project had ran into a controversy. There was no reply to questions to the top management raised through the Public Relations Officer.

πŸ“° Nepal is turning Everest trash into treasure

The waste collected is segregated, processed and recycled as raw materials for various other products

•In a bid to save Mount Everest from trash, Nepal conducted a month-long cleaning campaign and collected around 10,000 kg of rubbish from the region.

•For the mega clean-up drive, government and non-government agencies, along with a dedicated Sherpa team, not only brought the litter down but also removed four dead bodies from the roof of the world, Xinhua news agency reported on Sunday.

•Instead of sending the solid waste straight to the landfill near Kathmandy, the items were segregated, processed and recycled as raw materials for various products. “We segregated the collected materials in different categories such as plastic, glass, iron, aluminium and textile. Of the 10 tonnes of waste collected, two tonnes have been recycled. The remaining eight were soil mixed with wrappers and semi-burned items, which could not be recycled,” Nabin Bikash Maharjan, the head of Kathmandu-based Blue Waste to Value, a social enterprise, said.

•Besides recycling the waste, Mr. Maharjan’s team is also working with municipalities, hospitals, hotels and different offices to maximise value from waste by recycling, reducing the amount of waste sent to landfills and by creating green jobs.

•To make the campaign more effective, the company suggested authorities to set up an initial processing unit in the mountain area itself, so that waste can be segregated immediately and easily managed.

Selling products online

•Though the company does not recycle the materials itself, it collaborates with another firm called Moware Designs to create up-cycled glass bottle products and to sell them online.

•Ujen Wangmo Lepcha from Moware Designs said that glass products are trendy and useful for homes home, offices, restaurants and hotels. They are used as decorative items as a flower vase, candle cover, plates, travel cups, regular drinking glasses or as an accessory.

•These products, which range from 350 Nepalese rupees to 2,000 Nepalese rupees ($3 to $18), are bacteria free as they are sterilized. These glass items have also been a means of livelihood for local women who shape them into trendy designs.

πŸ“° Plan for district eco-panels draws fire

Making District Magistrates head expert authority causes ‘conflict of interest’

•State-level officers tasked with environmental assessment have objected to several clauses in a draft law that proposes the creation of district-level environment impact assessment authorities. A perusal of documents byThe Hindu shows that these objections point to the fact that these authorities may have a conflict of interest and may not be technically competent.

•The proposed Environment Impact Assessment Notification, 2019, makes the District Magistrate (DM) the chairperson of an expert authority, or the District Environment Impact Assessment Authority (DEIAA), that will accord environment clearance for “minor” mining projects.

•The EIA 2019 aims to be an update of the EIA 2006. This document prescribes the environment clearance process whereby developers of infrastructure projects that have the potential to significantly alter or impact forests, river basins or other ecologically sensitive regions seek permission from the Union Ministry of Environment and Forests (MoEF) and experts appointed by it.

•While expert committees constituted by the MoEF appraise projects, those below a certain size are appraised by State-level authorities called the State Environment Impact Assessment Authority (SEIAA).

•On March 2016, the Ministry further delegated the authority to grant clearances for up to five hectares of individual mining lease of minor minerals and 25 hectares in clusters, to the DEIAA.

•Several provisions in the EIA 2006 over the years have been challenged in the National Green Tribunal (NGT) and led to the MoEF modifying rules. The EIA 2019 aims to be an update that accommodates all these revisions.

•Responding to the draft, the chairman of the Bihar SEIAA said the District Magistrate (DM) in the State is also the ‘District Mining officer’ who is tasked with executing mining licence deeds. These officers usually had a “target” to collect revenues from mining activities, he said.

•“Making the DM the chairman (of the DEIAA) would be self-serving for grant of environmental clearance,” B.N. Jha, Chairman, Bihar SEIAA noted. He also said the DM doesn’t have technical expertise in matters of environment and ecology.

•S. Narayanan, Member Secretary, Harayan State Pollution Control Board, raised similar objections and said that having the DM as a chief would “dilute environmental regulations.”

•The head of the Mizoram SEIAA has said the State couldn’t afford to allocate “human resources” for a DEIAA.

•“Having the DM as head of DEIAA was a mistake,” an official in the Ministry told The Hindu on condition of anonymity. “But we have to empower district-level authorities to assess and monitor projects. The solution is not to do away with district-level appraisal but to have another appropriate competent expert.”

πŸ“° No easy answer to economic slowdown

What happens if higher credit flows don’t revive private investment?

•The most keenly watched number in the Union Budget is, perhaps, the ratio of fiscal deficit to GDP. A decline in the ratio is cheered by commentators and the markets. An increase is a seen as a setback to reforms.

•This year, the number was of greater interest than before thanks to the vision outlined by the Economic Survey for 2018-19 a day earlier. Earlier editions of the Survey had suggested that since private investment was not taking off, there was scope for public investment to pick up the slack.

•The latest Survey leaves no room for such ambiguities. It makes clear that private investment is the key driver of growth and jobs. It follows that the government must make fewer demands on public savings so that more of it is available for private investment. In other words, going by the Survey’s analysis, there is no escape from an even sharper focus on fiscal consolidation.

•Meeting the fiscal deficit target

•It is astonishing, therefore, that Finance Minister Nirmala Sitharaman’s Budget speech did not even mention the fiscal deficit figure, perhaps a first of sorts! Nor did it make any reference to a path towards the fiscal deficit target of 3.3% of GDP. The omission reflects the limitations imposed on the Finance Minister by trends in revenue and expenditure.

•In 2011-12, the fiscal deficit to GDP ratio was 5.9%. By 2015-16, it had declined to 3.9%. Thereafter, it has got stuck at around 3.5%. The Budget for 2018-19 missed the targets set earlier, for 2017-18 and 2018-19. It outlined a revised ‘glide path’ with fiscal deficit targets of 3.3% for 2018-19, 3.1% for 2019-20 and 3% for 2020-21. The Budget for 2019-20 shows that the revised targets too have been missed thus far. The fiscal deficit for 2018-19 has ended up 3.4% of GDP; for 2019-20, it is estimated at 3.3%. It would be a brave soul who believes that the target of 3% for 2020-21 will be met.

•The government has had some success in reining in traditional items of revenue expenditure. Major subsidies (food, fertiliser, petroleum), which used to claim 2% or more of GDP, have stabilised at 1.4% of GDP. But new items of expenditure have emerged. The PM-Kisan scheme, which provides ₹6,000 for each farming household per year, will cost the government ₹75,000 crore in 2019-20. The outlays on the National Rural Employment Guarantee Scheme have crept up with each passing year.

Tax-GDP ratio

•The big disappointment has been in respect of tax revenues. The expectation following demonetisation and the introduction of the Goods and Services Tax (GST) was that both direct and indirect taxes would rise. As a result, the tax to GDP ratio would move to a different trajectory. The Budget for 2018-19 projected the tax to GDP ratio to rise from 11.6% in 2017-19 to 12.1% in 2018-19 and further to 12.4% in 2019-20. The Budget for 2019-20 dashes these hopes. It estimates the tax to GDP ratio at 11.9% in 2018-19 and 11.7% in 2019-20. The shortfall in GST collections in 2018-19 seems to have set the clock back for fiscal consolidation.

•How do we balance the fiscal numbers when the tax to GDP ratio is not coming up to expectations? The Chief Economic Adviser has indicated that the government pins its hopes on capital receipts from disinvestment and the sale of land belonging to the government including public sector enterprises (PSEs). Disinvestment in the sense of strategic sale of PSEs has not really taken off. Much of disinvestment has involved the buying of equity in PSEs by other PSEs. The sale of government land is bound to be a long-drawn-out process and one with fraught with controversy over valuation. Moreover, the sale of government assets to balance the Budget merely defers fiscal problems to the future. It is not the answer to the problem of fiscal sustainability.

•In the short term, the government’s hopes must rest on the Bimal Jalan committee on the economic capital framework for the Reserve Bank of India (RBI). The government’s intention in setting up the committee was to see whether some of the RBI’s reserves could be used to mitigate the fiscal position. The report has been submitted, but is yet to be made public. There are reports that the majority does not favour a one-shot transfer to the government, something the government would have liked.

•Private investment is constrained not just by the crowding out effect of a high fiscal deficit. Earlier editions of the Economic Survey had identified the twin balance sheet problem, that is, high levels of debt in companies and high non-performing assets of banks, as an important constraint on private investment. The Economic Survey of 2018-19 contends that reducing policy uncertainty can somehow overwhelm the drag caused by the twin balance sheet problem. This is questionable. The broad direction of policy has never been in doubt since the onset of economic reforms, even if the pace has varied in response to the situation on the ground. Had policy uncertainty been a serious issue, it would have surely been reflected in inflows of foreign capital, whether foreign institutional investment or foreign direct investment.

•Resolving the twin balance sheet remains the key to reviving private investment. This requires the government to provide adequate capital to public sector banks (PSBs). The Budget’s biggest positive is the allocation of ₹70,000 crore towards capital for PSBs. However, the allocation is meaningful only if it is spent at one go in the current financial year, not staggered over several years. Only then will banks have enough capital to cover provisions for non-performing assets as well as provide loans to firms.

The liquidity problem at NBFCs

•The Budget also makes an attempt to address the liquidity problem at NBFCs. It provides cover for loss of up to 10% on purchase of pooled assets of NBFCs of a total value of ₹100,000 crore during the current financial year. Many see it as a government bailout of private NBFCs. The apprehensions may be misplaced. The loss cover is only for six months and is intended only for well-rated portfolios and NBFCs. Banks may be incentivised to buy more of the portfolios of the better NBFCs, not those of the weaker ones.

•The government expects that by boosting the flow of credit, the recapitalisation of PSBs will help revive private investment. What if it doesn’t? Should the government continue to focus on a single number for the fiscal deficit target? Or would it be more realistic to accept a broad range, keeping in mind the fall in the inflation rate and the decline in the combined fiscal deficit of the Centre and the States? The answer to the economic slowdown may not be as simple as the Survey makes out.

1 comment:

  1. Current Affairs being one of the main subject as far as UPSC is concerned it is important for every candidate to know what is happening in and around the world. Thank you Vision IAS team for posting notes from The Hindu on a daily basis thus helping students grow their intellect as far as current affairs is concerned in a healthy way.