The HINDU Notes – 28th December 2019 - VISION

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Saturday, December 28, 2019

The HINDU Notes – 28th December 2019

πŸ“° Fuel to the fire: On Cabinet announcement on NPR

The burden of proof must not be on the people to prove their citizenship

•The Union Cabinet announcement on Tuesday that the National Population Register (NPR) would be updated across the country, barring Assam, at an expense of over ₹3,941.35 crore, would have been considered a routine administrative measure but for the myriad concerns among the public about the government’s intentions. The announcement on the NPR came amid continuing protests against the recent Citizenship (Amendment) Act (CAA), 2019, in many parts of the country and lingering uncertainty regarding the National Register of Indian Citizens (NRIC), on which senior government functionaries have given conflicting statements. Prime Minister Narendra Modi said on Sunday that the NRIC had not been discussed in the government, but that did not mean that it would not be taken up. His assurance that no Indian of any religion will be adversely affected by the controversial CAA rings hollow, when the government has not cleared the air in unambiguous terms that it has no plans for an elaborate plan to tabulate citizens. The NRC, as it was rolled out in Assam, puts the burden of proof on citizens to establish that they are indeed citizens. The undocumented and the poor will bear the brunt of this approach. The proposed format for enumerating the NPR only exacerbates this concern and adds a third axis to the ongoing confusion and turmoil. It is correct that the NPR is not about citizenship but only about residency. However, when additional questions such as “place of birth of father and mother”, etc are being proposed for the forthcoming exercise, the concern that this may be a prelude to the NRIC is logical.

•Instead of coming clean and reassuring the public on its plans, the ruling Bharatiya Janata Party (BJP) has sought to muddle the debate further by pointing out that the Congress-led United Progressive Alliance (UPA) had prepared the NPR in 2010. It is nobody’s argument that the state should not enumerate the population or collect data on the people — which are all essential for providing good governance. Never in the past, including when a part of India broke away as Pakistan on the basis of religion, did the prospects of a religious test for citizenship appear even remotely in this country. In 2014, the BJP election manifesto explicitly stated that India was a natural homeland for “persecuted Hindus”, and Mr. Modi made the now-familiar, and extremely problematic, distinction between “infiltrators” and “refugees”. With the passage of the CAA, and the announcement of the NRIC, there is enough factual basis for doubting the government’s claim that the NPR has nothing to do with the NRIC. In the current climate of panic among a significant section of the country’s poor and the Muslim minorities, the government, at the highest levels must speak up to bolster their confidence in India’s constitutional democracy. Equivocation, and polarising grandstanding on the CAA, the NRIC, and now the NPR, may yield political dividends for the government but at a very high cost to the nation. This is the time to douse the fire, not add fuel to it.

πŸ“° Decisive shift: On Chief of Defence Staff

The Chief of Defence Staff could finally bring about unison among the armed forces

•The government has acted with reasonable alacrity to create the post of the Chief of Defence Staff (CDS), who will head the Department of Military Affairs (DMA). It was only four months ago, on August 15, that the Prime Minister stressed the importance of creating this post, whereas two Defence Ministers came and went after Manohar Parrikar promised that this move was very much on the government’s agenda. To be fair, the delay has been more a result of fears in the minds of the three services — the Indian Army, Indian Navy and Indian Air Force — of how such a development could impact on the role and functioning of the three arms of the armed forces, in terms of curtailing or inflating their importance. There must have been a parallel thought in the bureaucracy how such a shift would affect them too. This move will install the CDS, in the rank of a four star general, as Secretary, DMA.

•There is no doubt that the job of the CDS will be exceedingly challenging, a task which is easier set than done. The job calls for total transformation of traditional military mindset. The CDS has to restructure the military commands into appropriate theatre or joint commands for which a critical prerequisite is ‘jointness’ — a term that envisions the various arms of the armed forces working in unison towards a goal. This is a very tall order, considering India’s experience. Since Independence, the armed forces have been working separately, with no concept of jointness. The only jointness that comes into play effectively is when officers of the various services go to courses in, say, Wellington, at the Defence Services Staff College, or at the National Defence College, Delhi. All that will have to change, and change quickly, for a variety of reasons, not least the security environment in the region, with the Americans preparing to move out of Afghanistan and the restiveness consequent to the dilution of Article 370. According to the cabinet release, the new incumbent will have three years to achieve this. It flows from this urgency therefore that the name of the next CDS will have to be soon announced. It is also necessary that the first incumbent is given a term of three years so as to be able to carry the ambitious vision laid out in the cabinet note through to its conclusion. The job is strategic, requires personal supervision, and cannot be left unfinished for the successor to finish. Given the challenges and the limited time-frame within which to accomplish it, allowances will have to be made for attendant hiccups.

πŸ“° How not to counter economic stagnation

The government has to garner resources and give a boost to the economy by increasing its investments

•The Centre and the States are so short of resources that their fiscal deficit is burgeoning. The Prime Minister, at a function of the Associated Chambers of Commerce and Industry of India recently, was optimistic but the Reserve Bank of India (RBI) Governor was less positive, admitting that the country’s economic problems are also structural. The government has argued that its structural reforms would pay dividends in the long run. Whether or not that happens, action is needed now. So, what should the government do?

Impact on tax revenues

•It has to give lead to the economy since the private sector, in its reaction to the slowdown, has lost confidence and is investing less, which is only aggravating the economic crisis. An RBI report suggests that business confidence, consumer confidence and capacity utilisation are down. So, there is no escaping the fact that the government has to garner resources and give a boost to the economy by increasing its investments. But the slowdown has adversely impacted growth of tax revenues.

•The government calculated tax revenues on the assumption of a 12% nominal growth. But, it has been around 9%, both last and this year. So, in 2018-19, tax revenue was short by about ₹1.5 lakh crore. But this was not reflected in the planning for the 2019-20 Budget. Therefore, given that the base for calculating tax revenue this year was wrong and the rate of growth is incorrect, the revenue shortfall for the Centre will be even larger than last year — around ₹2 lakh crore.

•The States get 42% of this revenue so they will get ₹84,000 crore less. Further, the concessions in corporate taxation of ₹1.45 lakh crore will also mean ₹58,000 crore less revenue for the States. While the Centre has obtained ₹1.76 lakh crore from the RBI’s reserves, no such succour is available to the States. The Centre will also get the proceeds of disinvestment but that is not shared with the States. In brief, the States will have a larger shortfall in resources than the Centre. So, what can they do?

•The Goods and Services Tax (GST) Council met on December 18, where it was expected to help raise more indirect taxes by raising rates. Mercifully, that did not occur. So, revenue from indirect taxes cannot fill the resource gap. The States have also been complaining that they are not getting the funds that are due to them from the Centre. The Centre has partly responded to this by transferring more, but that raises its deficit.

•The Centre is required to give the States: their share of Integrated Goods and Services Tax (IGST) and compensate them if the revenue growth of State Goods and Services Tax is less than 14%. This last is to come from the cess collected on sin goods and luxury goods. One of the big contributors to GST has been the auto sector, but with sales falling over the last 10 months collections have declined. The Centre is apparently holding back the States’ share of IGST and arguing that the cess collection is inadequate to compensate the States for their shortfall.

•The dilemma is that if the GST rates are increased, prices would rise and demand would further slump, further aggravating the slowdown and shortfall in revenues. One of the suggestions has been to raise the 5% slab to 6% or 10%. It has also been suggested that taxes on petro goods and liquor for human consumption are under the purview of the States, and they can raise tax rates on these items. But these will be inflationary moves and demand would fall.

•The problem is compounded by the shortfall in direct tax collections. This is both the result of corporate tax concessions and the slowing economy. Income-tax rates cannot be raised now since that would be seen as inequitable — rich corporates will pay a lower tax rate than the middle classes, who pay income-tax.

Effect of I-T reduction

•There is pressure to reduce income-tax rates to boost demand in the economy. But a cut in income-tax rates will largely benefit less than 2% of the citizens who pay a significant amount of income-tax. They are well-to-do and unlikely to increase consumption. Similarly, the cut in corporate tax rates will not boost demand since neither investment nor consumption will rise. Investment will rise only when capacity utilisation improves. Much store is being laid at the doors of multi-national corporations relocating their factories from China to India but this will be too small to arrest the current declining trend in investment in India.

Unorganised sector missed

•The problem has been that government has been in denial and delayed action till after the Budget in July 2019. Even then it catered to the corporate sector slowdown and not where the problem originated from: the unorganised sector. The concessions to the corporate sector have narrowed the fiscal space available without raising demand.

•If the unorganised sector is separately accounted for, the economy is in a recession — it is not just a slowdown as official data based only on the organised sector indicates. The fiscal deficit at all levels of government is already high so a policy decision is needed on how much more it can be. If the fiscal deficit is allowed to rise further, extra resources can be used to boost incomes in the unorganised sectors through greater public investments. In the 150th year of Gandhiji, his talisman, “last person first” is the need of the hour.

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