The HINDU Notes – 29th August 2019 - VISION

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Thursday, August 29, 2019

The HINDU Notes – 29th August 2019




📰 Age of third-degree torture is over, Amit Shah tells police

Home Minister stresses on need for a robust forensic set-up that will make it impossible for criminals to escape the clutches of law.

•The age of third-degree torture was over and the police should stay a step ahead of crime and “criminal-minded people” through better investigation and forensic evidence, Union Home Minister Amit Shah said on Wednesday 

•He was speaking at the 50th foundation day of the Bureau of Police Research and Development (BPRD), a think-tank under the Ministry of Home Affairs. 

•Mr. Shah said old police concepts should be revived for investigation and mere “reliance on phone tapping” was not going to yield results. He stressed on need for a robust forensic set-up that would make it impossible for criminals to escape the clutches of law.

•“Modernisation plan for police forces should be made for at least 10 years... This is not an age of third- degree [torture], police should stay ahead of crime and criminal-minded people,” Mr. Shah said. “It should use forensic science to get irrefutable evidence against the suspect that would lead to conviction in court,” he said.

•The BPRD should work on a proposal to amend various sections of the Indian Penal Code and the Code of Criminal Procedure (CrPC) after seeking suggestions from the people. “If a Class XII student wants to join police force, he should be properly guided and arrangements should be made. The BPRD has submitted a proposal for this and it will be placed before the Union Cabinet soon,” he said.

•Mr. Shah said that in the British era, the police were raised to protect their interests, but now the duty of the police was “protection of the people.” Since Independence, more than 34,000 policemen had lost their lives in the line of duty.

📰 Common code of conduct proposed for legislative bodies

Aims at checking interruptions: Speaker

•“A common code of conduct will be framed for legislative bodies to check interruptions and for this a committee of presiding officers will be formed, which, after due consultations with Speakers of Legislative Assemblies and the Chairmen of Legislative Councils, will present its report later this year,” said Lok Sabha Speaker Om Birla here on Wednesday.

•He released this statement after presiding over the meetings of the executive committee of Commonwealth Parliamentary Association (CPA) India Region and Presiding Officers of Legislative Bodies in India held in Parliament House Annexe earlier in the day.

•The Speaker added that the presiding officers were of the unanimous view that Parliament and State Legislatures, the representative institutions, are accountable to the people and matters concerning different regions need to be constructively discussed and debated in the House.

•“There was a consensus among the presiding officers to increase the number of sittings of the State Legislatures and also to increase the productivity of legislative work. It was also felt that there is a need to have extensive and healthy debates in the Legislatures for passing the laws and the House needs to function without any interruptions,” the Speaker said.

📰 What is China’s One Country Two Systems policy?

This decades-old policy is linked to the ongoing protests in Hong Kong.

•Protests in Hong Kong, now in its 13th consecutive week, have brought a decades-old policy of the People’s Republic of China back into focus — One Country Two Systems.

•The protesters, who started occupying the city’s streets in April after the local government proposed a controversial extradition law, say Beijing is trying to violate this policy by infringing on Hong Kong’s autonomy. They want China to end its interference, while Beijing has likened the protesters to terrorists and have said that it won’t tolerate any challenge to its sovereignty over Hong Kong.

•So, what’s this One Country Two Systems approach?

Origin of policy

•To put it simply, it means that the Hong Kong and Macau Special Administrative Regions, both former colonies, can have different economic and political systems from that of mainland China, while being part of the People’s Republic of China.

•The One Country Two Systems policy was originally proposed by Deng Xiaoping shortly after he took the reins of the country in the late 1970s. Deng’s plan was to unify China and Taiwan under the One Country Two Systems policy. He promised high autonomy to Taiwan. China’s nationalist government, which was defeated in a civil war by the communists in 1949, had been exiled to Taiwan. Under Deng’s plan, the island could follow its capitalist economic system, run a separate administration and keep its own army but under Chinese sovereignty. Taiwan, however, rejected the Communist Party’s offer.

•The island has since been run as a separate entity from the mainland China, though Beijing never gave up its claim over Taiwan.

Return of colonial territories

•The idea of two systems in one country resurfaced when Beijing started talks with Britain and Portugal, who were running Hong Kong and Macau, respectively.

•The British had taken control of Hong Kong in 1842 after the First Opium War. In 1898, the British government and the Qing dynasty of China signed the Second Convention of Peking, which allowed the British to take control of the islands surrounding Hong Kong, known as New Territories, on lease for 99 years. London promised Peking that the islands would be retuned to China after the expiry of the lease, in 1997. Macau, on the other side, had been ruled by the Portuguese from 1557. They started withdrawing troops in the mid-1970s.

•In the 1980s, Deng’s China initiated talks with both Britain and Portugal for the transfer of the two territories. In talks, Beijing promised to respect the region's autonomy under the One Country Two Systems proposal. On December 19, 1984, China and the U.K. signed the Sino-British Joint Declaration in Beijing, which set the terms for the autonomy and the legal, economic and governmental systems for Hong Kong post 1997.

•Similarly, on March 26, 1987, China and Portugal signed the Joint Declaration on the Question of Macau in which China made similar promises for the region of Macau after it was handed over to Beijing.

•Hong Kong returned to Chinese control on July 1, 1997, and Macau’s sovereignty was transferred on December 20, 1999. Both regions became Special Administrative Regions of China. The regions would have their own currencies, economic and legal systems, but defence and diplomacy would be decided by Beijing. Their mini-Constitutions would remain valid for 50 years — till 2047 for Hong Kong and 2049 for Macau. It is unclear what will happen after this term.

What triggered the current crisis?

•In recent years, there has been a growing outcry from Hong Kong’s pro-democracy civil society against China’s alleged attempts to erode the city’s autonomy. This has created tensions between the city’s youth and the local government, which is effectively chosen by Beijing.

•In 2016-17, six legislators critical of Beijing were debarred. In 2018, the Hong Kong National Party, a localist party that has been critical of Beijing, was outlawed. This year, Carrie Lam, the Chief Executive of Hong Kong, proposed the extradition Bill, which sought to extradite Hong Kongers to places with which the city doesn’t have extradition agreements. Critics said it would allow the city government to extradite Beijing critics to mainland China where the judicial system is subservient to the ruling Communist Party.

•This triggered the protests, and they went on despite Ms. Lam’s decision to suspend the Bill. The protesters, who often clashed with the police, now want the Bill to be formally withdrawn, Ms. Lam to resign, the arrested protesters to be released and the city’s electoral system to be reformed.

📰 Message delivered: On Biarritz G7 Summit

Not everything went right at the G7 summit, but PM Modi got the ear of President Trump

•Prime Minister Narendra Modi’s twin missions as a special invitee to the G7 summit in France over the weekend was to address the world’s seven most advanced economies on Climate Change and Digital Transformation, but it was his meeting with U.S. President Donald Trump that wound up taking centre-stage. Mr. Modi took the initiative to clear the air about Jammu and Kashmir. This was necessitated by the repeated references that Mr. Trump has made about U.S. mediation between India and Pakistan over Kashmir, as well as a briefing by a senior administration official last week, who said that Mr. Trump would “want to hear from Prime Minister Modi on how he plans to reduce regional tensions and uphold respect for human rights in Kashmir”. Both U.S. statements run counter to the Indian position that the withdrawal of special status to J&K under the Constitution is an “internal matter”, and the issue of Kashmir will be resolved bilaterally with Pakistan. In the event, Mr. Modi appeared to have driven the message home, and Mr. Trump backed away from both statements. The two leaders also appeared to have made some headway on deadlocked trade talks between India and the U.S., and have decided that their trade representatives, USTR Robert Lighthizer and Commerce Minister Piyush Goyal, will meet ahead of the Modi visit to the U.S. in September.

•The interaction between Mr. Modi and Mr. Trump appeared to be in line with the broader themes that characterised this year’s G7 summit, where bilateral meetings appeared a little more successful than the multilateral meeting itself. As host, French President Emmanuel Macron decided to invite Iranian Foreign Minister Javad Zarif, but the other G7 members rejected any suggestion to include him in their conclave to discuss the future of the JCPOA nuclear deal. Mr. Trump’s push to invite Russia back into the club (it was called the G-8 until Russia was suspended in 2014), which represents more than half the world’s wealth also came a cropper as the other members did not agree to Russian President Putin’s re-entry. As one of nine special guests invited to address various sessions, Mr. Modi spoke on how India is keeping its climate change commitments, but it was a session where Mr. Trump, whose presence was vital given the U.S.’s walkout from the Paris accord, didn’t make an appearance. G7 members also discussed the Amazon fire crisis and pledged over $20 million to Brazil, but were rebuffed after a spat broke out between Brazilian President Jair Bolsonaro and Mr. Macron. It came as no surprise that the summit ended as it did: for the first time in the grouping’s 44-year old history, there was no joint communiqué.

📰 Democracy and its discontents

India needs to strengthen institutions that lie between the public sphere and formal government institutions

•Civilisation progresses with the evolution of institutions designed by humans to govern their affairs. Institutions of electoral democracy have evolved over the centuries, with notable innovations in the U.K., France and the U.S. that provided models for electoral democracies everywhere. These models have been vigorously exported by Western countries to promote democracy around the world. Now, the system of democracy invented in the West and exported to the rest is failing in the West. “Are Western democracies becoming ungovernable?” asks The Economist. Elected governments are in office, but not in power, it says. Many countries in Europe cannot form stable governments because the largest party does not command a majority. Coalitions are unstable. Parliaments are unable to pass laws. “The home of failure to pass meaningful laws is the United States”, it says. Americans will point a finger back to The Economist’s home country: the performance of political parties in the British House of Commons has not been edifying either.

Democracy in India

•By these yardsticks, democracy is shining in India. With a strong government at the Centre, Parliament has passed a slew of big laws recently. The most recent is the change in the governance set-up of Jammu and Kashmir, which has been haunting India’s constitutional arrangements.

•However, democracy consists of much more than elections and passage of laws. India has a great Constitution. It conducts free and fair elections. Its Parliament has passed many landmark laws since Independence. Yet failures of governance (and democracy) in India can be seen on the ground, in so-called ‘backward areas’ in the heartlands. Indeed, the Indian government has justified its bold reduction of powers of Jammu and Kashmir’s elected Assembly on the grounds that democracy was not functioning within the State and benefits of good governance were not reaching the citizens.

•Democracies need an architecture of institutions. Some institutions provide the vertical pillars. Other institutions provide the lateral binders that give strength and stability to the democratic structure. In the popular discourse about democracy, too much attention has been given to the vertical institutions required for people to elect their leaders, and too little to the lateral institutions required to create harmony amongst people.

•Universal franchise, elections, and political parties fighting each other to win elections enable a society to determine who is in the majority and has the right to govern. The problem with a majoritarian democracy is that it is not designed to find solutions for complex problems with many points of view. A government with a majority, especially a large one, can become as authoritarian as a dictatorial one. It can deny minorities their rights for their views to be considered while framing laws and resolving contentious issues. The people have spoken once in the election; that should be enough. Now, they must leave it to the government in power. Thus, a government elected by a majority can justify the exclusion of the minority.

•However, by excluding the views of the many that did not vote for it — and quite often these may even be the majority in the first-past-the-post system — a government reduces its own effectiveness. Those dissatisfied with the governments’ decisions go to courts wherever courts are independent, like in India. However, courts are not set up to find policy solutions to complex problems and must interpret the laws as written. In India, many have complained that courts are venturing into matters of governance that they should not. This is a sign that something is missing in India’s democracy.

•When problems are complex, good governance requires effective methods for people’s participation. Referendums of the entire electorate give an illusion of good democracy — that the people have been consulted. Politicians on both sides of a referendum will run populist campaigns appealing to the basest of instincts to sway the opinions of the masses. Whereas, when the issue is complex, voters should be educated about what they are voting for. And then, when a small majority determines how all must go (52% wanted Britain to leave the European Union versus 48% that did not), referendums become yet another example of the problem with a majoritarian democracy rather than a good solution.

Three layers of institutions

•Healthy democracies need three vibrant layers of institutions. At the bottom is the public space and the media in which people must be free to speak up if they want to. On the top is the layer of constitutional institutions — parliaments, courts, etc. Social media has enlarged the public space enormously. Many more people are speaking up and many issues are being raised. Social media provides a good platform for opposing views, but is glaringly inept at reconciling them. On the contrary it is heightening divisive walls. Therefore, more problems require the attention of constitutional institutions above, and they have more on their plate than they can digest.

•When elected representatives are expected to vote in their assemblies only according to the wishes of their own constituency and to also follow party whips, they cannot open their minds to listen to the views of other constituents. Thus, assemblies of elected representatives, in which framers of the U.S. Constitution hoped representatives would deliberate upon what is best for the whole system and not just for their parts of it, have become incapable of performing the role they should perform, The Economist laments.

•With democratic governance slipping into ineffectual log-jams, it is tempting to close down the public space at the bottom, or to impose a majoritarian view from above to strengthen the government. There is fear that India may be slipping down this path, which may strengthen government on the ground, while stifling democratic governance. It is the road to ‘maximum government, minimum governance’.

The weak intermediate layer

•Political middles are thinning in democracies everywhere. People want change. Radical parties of the Right and Left are gaining support. The solution for strengthening governance and democracy at the same time is to strengthen the middle layer of institutions within democracies that lie between the open public sphere and formal government institutions. These are spaces where citizens with diverse views can listen to each other, and understand the whole system of which they are only parts. Neither elected assemblies nor social media provide such spaces. Sadly, even think tanks have become divided along ideological and partisan lines.

•It is imperative for India to build intermediate level, unofficial or semi-official institutions for non-partisan deliberation amongst concerned citizens. The government must give more space for such institutions to form and operate. When there is global despair about the ability of democratic institutions to deliver the benefits of good governance to citizens, this innovation must become India’s invaluable contribution to the history of democracy’s evolution.

📰 New ₹9.3 crore study to check antibiotic resistance in Ganga

The project, expected to last two years, will identify sources of Eschericia coli.

•The government has commissioned a ₹9.3 crore study to assess the microbial diversity along the entire length of the Ganga and test if stretches of the 2,500 km long river contain microbes that may promote “antibiotic resistance”.

•The project, expected to last two years, is to be undertaken by scientists at the Motilal Nehru Institute of Technology, Allahabad; the National Environmental Engineering Research Institute (NEERI), Nagpur; Sardar Patel Institute of Science & Technology, Gorakhpur, as well as start-up companies, Phixgen and Xcelris Labs. The latter two provide genome sequencing services, which in this case will involve mapping the genomes of the microbes sampled.

•The aims of the research project, according to a note by the National Mission for Clean Ganga under the Jal Shakti Ministry is to indicate the type of “contamination” (sewage and industrial) in the river and “threat to human health (antibiotic resistance surge)”, identifying sources of Eschericia coli, a type of bacteria that lives in the gut of animals and humans. While largely harmless, some species have been linked to intestinal disease as well as aggravating antibiotic resistance.

‘Entire stretch’

•There have been several studies that have looked at microbial diversity in the Ganga but these have been isolation. No study has looked at the “entire stretch” of the river, according to Atya Kapley, a scientist at NEERI and part of the project.

•In 2014, researchers from Newcastle University in the U.K. and IIT-Delhi sampled water and sediments at seven sites along the Ganga in different seasons. They reported in the peer-reviewed Environmental Science and Technology that levels of resistance genes that lead to “superbugs” were about 60 times greater during the pilgrimage months of May and June than at other times of the year.

•A 2017 report commissioned by the Union Department of Biotechnology and the U.K. Research Council underlined that India had some of the highest antibiotic resistance rates among bacteria that commonly cause infections.

📰 Cabinet eases FDI rules in retail, media

Norms for single brand retail diluted.

•The Union Cabinet on Wednesday announced a number of decisions designed to attract increased foreign direct investment into the country, including easing local sourcing norms for single-brand retail companies.

•Currently, the FDI policy says that a single-brand retail company with more than 51% FDI needs to source 30% of its goods from within India. The new decision says that this 30% can be calculated over the first five years of operation.

•Further, sourcing for exports will also count towards the local sourcing requirement, the government said.

•“With a view to provide greater flexibility and ease of operations to SBRT (single brand retail trade) entities, it has been decided that all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported,” the government said in a release.

•The current FDI policy provides for 100% FDI under the automatic route in the manufacturing sector. There was no specific provision for contract manufacturing in the policy. It has now decided to allow 100% FDI under the automatic route in contract manufacturing in India as well.

•The government has also updated the FDI policy in keeping with prevalent business practices in India, it said.

•The existing policy says that incremental sourcing for global operations by non-resident single brand retail trading, either directly or through group companies, will also be counted towards the local sourcing requirement for the first five years.

•“However, prevalent business models involve not only sourcing from India for global operations by the entity or its group companies, but also through an unrelated third party, done at the behest of the entity undertaking single brand retail trading or its group companies,” the release said.




•“In order to cover such business practices, it has been decided that ‘sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement,” it added.

•Another change the Cabinet has approved is that single-brand retail companies can now start selling online before setting up a brick and mortar store as long as they set one up within two years of starting online sales. Earlier, they had to set up a brick and mortar store before selling online.

•“Online sales will lead to creation of jobs in logistics, digital payments, customer care, training and product skilling,” the government said.

•Apart from single brand retail, the Cabinet also approved some changes to the FDI rules for digital media and coal mining.

•It has decided to permit 26% FDI, with government approval, for uploading and streaming news and current affairs using digital media, on the lines of print media.

•“It has been decided to permit 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure subject to provisions of Coal Mines (special provisions) Act, 2015 and the Mines and Minerals (development and regulation) Act, 1957 as amended from time to time, and other relevant acts on the subject,” the government said.

📰 Star tortoise, otters get higher protection at CITES

A complete international ban will be enforced on their trade as part of efforts to boost numbers

•India’s proposal to upgrade the protection of star tortoises (Geochelone elegans), the smooth-coated otter (Lutrogale perspicillata) and small-clawed otters (Anoyx cinereus) in CITES (Convention on International Trade in Endangered Species on Wild Fauna and Flora) have been approved.

•These species have been listed under Appendix I of CITES and will now enjoy the highest degree of protection as there will be a complete international ban enforced on their trade.

•The upgradation was approved at the Conference of the Parties (COP18) held at Geneva.

•Appendix I of CITES lists species that are the most endangered among CITES-listed animals and plants. “They are threatened with extinction and CITES prohibits international trade in specimens of these species except when the purpose of the import is not commercial, for instance for scientific research,” the CITES website states.

•‘It’s very encouraging to see that India’s proposals received overwhelming support from other parties as well and got approved,” Saket Badola, head of TRAFFIC India told The Hindu. TRAFFIC is an international wildlife trade monitoring network.

For fur and as pets

•Agni Mitra, deputy director, Wildlife Crime Control Bureau, Eastern Region, said that 90% of trade of star tortoises occurs as part of the international pet market.

•The species is categorized as ‘vulnerable’ by the International Union of Conservation of Nature and a decline greater than 30% was predicted by 2025 if the exploitation continued or expanded.

•In case of the small-clawed otter and smooth-coated otter, which are traded for their fur in the international market, numbers are also declining due to habitat loss.

•Mr. Mitra welcomed the inclusion of Tokay geckos in Appendix II of CITES. “Tokay geckos are sold in the open in some south Asian countries. Its inclusion in CITES Appendix II will bring some restriction on the sale,” he said.

📰 Cabinet nod for sugar export subsidy

Cabinet okays offer of ₹10.45 per kg to incentivise mills to export surplus stocks

•With record sugar production continuing to drive down prices even as cane farmers face huge arrears in payment, the Centre has decided to offer a ₹10.45 per kg subsidy to incentivise mills to export their surplus stocks. The export subsidy package will cost the exchequer ₹6,268 crore, according to an official statement.

•The decision was taken at a meeting of the Cabinet Committee on Economic Affairs on Wednesday.

60 lakh tonnes

•The subsidy package will facilitate the export of up to 60 lakh tonnes in the 2019-20 marketing season, which begins in October. It will benefit millions of farmers in U.P., Maharashtra and Karnataka, as well as other states, Information and Broadcasting Minister Prakash Javadekar told journalists after the Cabinet meeting.

•A month ago, the Food Ministry told the Lok Sabha that sugar mills across the country owed cane farmers a total of ₹17,518 crore, of which ₹9,935 crore was due to U.P. farmers alone.

•However, surplus stocks and crashing prices left mills with a liquidity crisis. The 2019-20 marketing season is expected to start with an opening stock of 142 lakh tonnes, and end with a closing stock of 162 lakh tonnes.

•This surplus will only be partially mitigated by previously announced government measures to create a buffer stock and incentivise diversion of cane for the production of ethanol. Global sugar prices are more than ₹10/kg lower than domestic prices. Hence, the government subsidy to sweeten the deal and persuade mills to export their surplus.The lump sum export subsidy will be provided for expenses on marketing costs including handling, upgrading and other processing costs, costs of international and internal transport and freight charges, the statement said. adding that the subsidy was in conformity with WTO agreements.

•“The subsidy would be directly credited into farmers’ account on behalf of mills against cane price dues and subsequent balance, if any, would be credited to mills’ account,” the statement said.

📰 Hardly the brick and mortar of a revival

The transfer of the RBI’s surplus is only a stopgap measure which will not address the key problem of a lack of demand

•There is no longer any room for doubt on the parlous state of the Indian economy. The automobile industry, seen as a bellwether of activity in the post-liberalisation years, is in crisis, as automakers, parts manufacturers and dealers have laid off about 350,000 workers since April this year, with more job cuts likely. While this could still reflect falling demand only from higher income groups, recently, Parle Products, once the world’s largest selling biscuit brands, announced that it may have to lay off up to 10,000 workers (around a tenth of its workforce). The company blamed falling sales due to the Goods and Services Tax (GST) that led to higher prices of the cheapest small packets of biscuits at a time of extreme price sensitivity because of reduced livelihood, especially among rural consumers.

Home budgets under strain

•Sales in the fast-moving consumer goods (FMCG) sector as a whole grew at only 10% in the April-June quarter of this year, less than nominal GDP growth. The slowdown in sales is across food and non-food items, with the biggest reductions in salty snacks and biscuits, spices, soaps and packaged tea. These represent the more discretionary element of consumer spending even among the poor — the items more likely to be cut down when household budgets are under strain.

•Economists with the government who finally recognised that there is a problem have blamed the current situation on the “financial stress” inherited from the United Progressive Alliance government more than five years ago, which is apparently preventing investment because “no one trusts anyone else”. But this isolates only one factor in the current slowdown: the undoubted mess in the credit system, reflecting both the overhang of bad debts of banks (worse today than in 2014) and the erosion of non-banks after the collapse of the aggressive lender, Infrastructure Leasing & Financial Services Limited.

•This is a factor, but this explanation completely misses the demand side of the story. It is clear beyond doubt now that the slowdown in mass consumption, combined with falling and then subdued rates of investment over several years, have led to what is undeniably a crisis of inadequate effective demand in the economy.

•This scenario has been unfolding for a while because of a medium-term trajectory in which the fruits of growth went disproportionately to a small elite of big capital and rich individuals without translating into broader economic improvement. The increasing inequality associated with jobless growth meant that mass consumption demand did not rise as expected with rapid GDP growth.

Impact of demonetisation

•The hugely damaging impact of demonetisation in November 2016 was further accentuated by the poor implementation of the GST barely seven months later. These badly managed policy measures served as body blows to informal economic activity, causing major declines in employment and output. At first, they did not affect formal enterprises so much as they gained at the cost of informal ones. But the resulting loss in livelihoods and wage incomes eventually had an effect on demand for formal sector output, which has worsened over time because there have been no counterbalancing moves by the government. Total employment actually declined by more than 15 million workers between 2011-12 and 2017-18, even as unemployment rates reached their highest levels in nearly half a century.

•This operated in addition to a medium-term trend of wage suppression, something that was even celebrated by the late former Finance Minister Arun Jaitley as a means of combating inflation. Rural wages have been stagnant or declining in the recent period. Meanwhile, the continuing crisis of cultivation has obviously affected the purchasing power of the farming community. Urban wage incomes are also apparently not keeping pace with inflation, even as informal activity and “start-ups” in urban areas have faltered.

•The government could have countered this adverse impact of declining employment and consumption demand, which in turn reduced the profit expectations of producers in formal enterprises, by providing a fiscal stimulus. It did not do so. Instead, it kept assuming or hoping that using optical measures — manipulating “Ease of Doing Business” indicators and offering further incentives to foreign capital to attract more inflows, however volatile — would somehow attract investment into the economy that would counteract all the negative impulses.

•Private investors simply kept demanding more fiscal and regulatory concessions even as they continued to sit on investment plans as they waited for overall demand improvement. More recent complaints of the private corporate sector have been about oppressive tax collection methods of a government desperate to meet its revenue targets. But these along with the greater difficulties of accessing loans from both banks and non-banks are irritants that would have been tolerated in a buoyant economy. They have become serious issues now because of the wider stagnation.

Supply-side approach

•In this context, the Finance Minister’s recent announcements of measures to boost the flagging economy are not a case of “too little too late”; rather, they completely miss the point. They do nothing to address the issue of inadequate demand generation or the underlying tendencies of wage suppression and low employment growth. Instead, they once again reveal a supply-side approach to the problem, which is unlikely to yield much benefit.

•Even these measures are mostly cosmetic or affect only a small segment of the economy, not enough to cause any real change in economic direction. The capital infusion of ₹70,000 crore into public sector banks had already been announced in the Budget; frontloading this inadequate amount is not going to rev up an economy if those whom banks are willing to lend to are hesitant to invest. Giving into demands of foreign portfolio investors with regard to taxation likewise does nothing to increase domestic demand; it simply provides some solace to the stock market. The middle classes repaying home loans may see a minor benefit if banks actually do pass on lower interest rates, but this too will not provide a major boost to the economy. The decision of the government to buy more cars to shore up the automobile industry is bizarre in the extreme, because it undermines the medium-term strategy of shifting to electric vehicles as soon as possible.

•What could the Finance Minister have done instead? If the immediate problem is lack of demand, the immediate response should be to increase it — ideally in ways that provide the desired basis for future economic growth.

Rural focus

•Rural distress is real and deeper and greater than the much-hyped distress of angel investors and high net worth individuals; so a massive increase in rural public expenditure, including in the Mahatma Gandhi National Rural Employment Guarantee Scheme to provide public works as well as in social spending would provide immediate relief. The multiplier effects of such spending would generate more employment, incomes, consumption and, therefore, investment over time — as well as more tax revenues for the government. There is also both scope and need for increases in “green” public investment for a sustainable future.

•But to seize this crisis as an opportunity for progressive change would require more visionary economic policy making, something that this government has been sadly lacking in.

•So does the massive transfer of the Reserve Bank of India’s surplus amounting to ₹1.76 lakh crore suggests that this is the government’s game plan? Unfortunately, because of the mess in public finances, all that this is likely to do is fill the massive gap left by inadequate tax collection, thereby letting the Finance Minister off in the current fiscal year from another embarrassing situation of budgetary discrepancies. The proposed Budget was not particularly expansionary and did not provide for more spending in the areas required. So this stopgap measure may provide more fiscal space than before, without really addressing the basic problem.



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