We have launched our mobile app, get it now. Call : 9354229384, 9354252518, 9999830584.  

Current Affairs

Filter By Article

Filter By Article

The Hindu Editorial Analysis | PDF Download

Date: 02 February 2019

Distributing the rewards of reform

  • The expansive Budget reflects the fruits of fiscal consolidation, tax reform and streamlined delivery of subsidies
  • Since Budget 2019 is the last before the general election this year, it was widely expected to be an assessment of the government’s performance. There was a debate on whether the Budget should have announced any substantive measures since they would bind the next government, post-election.
  • It turns out the report card is good enough to create space for some substantial measures. Painstaking fiscal consolidation, tax reform, more efficient delivery of subsidies, and a rise in the share of capital expenditure, have created the space to reward tax-payers as well as announce a relief measure for farmers in distress without substantially compromising fiscal consolidation.
  • It is fair that this government, which imposed the painful reforms and undertook difficult action, should also distribute some rewards of that reform.
  • Rewards of higher growth
  • It may be asked how payment of ₹20,000-₹75,000 crore can be made to farmers and the tax benefits given with only a marginal impact on the fiscal deficit.
  • But a larger size economy can afford to spend larger absolute amounts with only a small rise in deficit ratios and borrowing requirements.
  • The fact that India is the sixth largest and fastest growing economy in the world has some advantages as well as responsibilities to equitably share the rewards of growth.
  • Demonetisation, the goods and services tax (GST) and other steps towards formalisation increased the tax base, and it follows that tax rates can themselves be cut.
  • Again it is fair that the aam aadmi, who bore some of the costs of reform, should now benefit from the success of these.
  • It makes good economic sense to move towards a system of a wider base and lower rates.
  • Tax receipts have grown from 10% of GDP — a level at which they had stagnated since the tax cuts after the global financial crisis — to 12%.
  • Although the GST has not yet resulted in a rise in indirect tax ratios above 5.5%, it is likely to do so in the future as it stabilises. The transfers to farmers and tax cuts amount to only 0.4% of GDP this year and are partially funded by a 0.3% rise in tax ratios.

Rewards of lower inflation

  • A slight rise in fiscal deficits to fund transfers to farmers does not threaten macroeconomic stability when inflation is low and food prices are crashing. In fact they are likely to help stabilise prices so that farmers do not cut production in the next crop cycle.
  • Moreover, this year, the revenue deficit has been maintained, the primary deficit been reduced, and expenditure on capital account been increased.
  • Better quality of government expenditure as well as the GST tax cuts, reductions in obstacles to inter-State trade, and soft commodity prices will keep inflation low.
  • The Budget points out that highways are being built at the rate of 27 km per day, which makes India the fastest builder in the world.
  • Railway safety has improved. Better implementation and reduction in waste brings down costs across the board.
  • The shift in the Budget date to earlier in the year and the focus on spending in the first half have resulted in a better achievement of sectoral spending targets this year.

 Government borrowing

  • The size of government borrowing is larger than what the market anticipated, and this has raised G-Sec rates.
  • The rise in gross borrowing is because of higher redemptions but net borrowing is similar to that last year.
  • There was a sharp rise in G-Sec yields that year. As a result, interest payments as a ratio to GDP rose to 3.2 against the budgeted 3.
  • But 3.4% of GDP is not a large fiscal deficit, and market conditions are likely to be more supportive of government borrowing this year.
  • First, the international rate rise has peaked, with the U.S. Fed turning dovish and indicating that there will be no more rise; it is likely to maintain its balance sheet.
  • Emerging market inflows are set to rise, creating demand for G-Secs up to the current cap of 6% of the domestic market.
  • Soft oil prices will encourage foreign investors to return to Indian markets. But since global growth is slowing, inflows are unlikely to be as large as they were in 2017.
  • Therefore, there will be more room for open market operations (OMO) from the Reserve Bank of India that support the debt market. Softening interest rates will also make banks more willing to hold G-Secs.
  • When international demand is slowing, it is important to maintain domestic demand. Therefore, tax cuts, more income to farmers and various schemes to improve demand for housing, which has been under stress, are all appropriate.
  • While the budgetary contribution to capital expenditure remains at about 1.6% of GDP there is a rise in internal and extra-budgetary resources, which are now larger than gross budgetary support. But public enterprises must be able to raise and use internal resources.
  • This is a healthy sign of efficiency, market viability and reduced dependency on the government.
  • Even market borrowing by such enterprises used for investment when private investment remains low, is likely to crowd in (rather than crowd out) private investment.
  • It will raise demand which will induce more private investment. The latter remains still constrained by low demand at present, except for a few sectors where capacity constraints are appearing.

Improving efficiencies

  • Coming back to the issue of binding the next government, post the election, it is necessary that sharing of growth benefits is done in ways that sustain growth, reduce distortions, and improve capabilities to participate in growth.
  • Well-targeted transfers can be made without destroying fiscal consolidation and creating macroeconomic vulnerabilities. As competitive populism creates talk of unfunded universal income schemes, or farm loan waivers that hurt growth of farm credit, it is better to bind the next government to schemes that are less distorting.
  • The Budget continues the effort to reduce transaction costs and improve compliance incentives. Stamp duty amendments that seek to tax just one transaction, which will be shared across State governments, on the basis of the domicile of the buying client, will reduce a major market irritant, increase transactions and take the country further toward becoming one effective market.
  • As income tax returns rise, a less than 0.05% will be selected for scrutiny in non-discretionary, machine-based ways without any interface between the tax-payer and the examining officers, thus reducing potential tax-payer harassment.
  • India is a very difficult country to change. Problems remain, but the rewards are beginning to appear and should be greeted with cheers.

The return of targeted cash transfers

  •  Schemes promising cash to the poor absolve the state of its responsibility to provide basic services like health
  • With the announcement of a Minimum Income Guarantee (MIG) scheme by the Congress president, the agenda of universal basic income (UBI) has moved from an academic discussion to the political arena.
  • As of now the proposal of MIG is only an electoral promise with no further details available.
  • On Friday, the general budget announced a scheme, Pradhan Mantri Kisan Samman Nidhi, under which vulnerable landholding farmer families, having cultivable land up to 2 hectares, will be provided direct income support of ₹6,000 a year.
  • The appeal of some form of income transfer is now seriously being discussed by all political formations.
  • The idea is not new and has been in discussion for some time among academics in India but attracted attention after it was proposed in the Economic Survey of 2017.

Who will benefit?

  • In simple terms the proposal of transferring some income to every citizen is built on the twin principles of universality and a notion of minimum basic income to those living at the poverty line.
  • The principle of universality is at the core of it given the problems of targeting.
  • But some form of income support to those who are unable to participate in labour market has been there in most countries in some form or other including in India, like the National Social Assistance Programme (NSAP) pensions for widows, elderly and disabled.
  • Although the idea of UBI has been in discussion for decades, no country has implemented it.
  • While a proposal for UBI was rejected by a threefourth majority in Switzerland, Finland which started a pilot has now discontinued it.
  • But even in Finland, the pilot was not a strict UBI but a social protection scheme aimed at only the unemployed.
  • While there have been some pilots by NGOs in developing countries in Asia and Africa, they have varied in content of transfer and coverage with only few being fully universal and only the Namibia pilot experiment provided income transfer to people in the poverty line.
  • The proposals in the Indian context have mostly been for a targeted income transfer scheme and not UBI.
  • In Developed Countries, the UBI is supposed to supplement existing social security provisions and a top-up over and above universal provision of health, education and so on.
  • In the Indian context, most arguments in favour of UBI are premised on the inefficiencies of existing social security interventions and seek to replace some of these with direct cash transfers.

Not leakage proof

  • It is not just the fascination for targeting the poor which is at the core of these proposals but also a belief that all existing forms of social security transfers are inefficient.
  • While there is certainly some exaggeration in such claims, it is not true that the system of cash transfers is efficient and therefore leakage proof.
  • Several studies on cash transfers including one by JPAL South Asia for NITI Aayog found that cash transfers are not greatly superior in terms of leakages compared to other schemes of in-kind transfer such as the public distribution system (PDS).
  • On the other hand, numerous studies have documented that a move towards universalisation and use of technology enabled Chhattisgarh and Tamil Nadu to reduce leakages in the PDS.
  • But the real message from these experiments is also that universalisation is the key to efficient delivery of services against targeting proposed by these cash transfer schemes.
  • The obsession with cash transfers also comes with an understanding that these will take care of all problems. The current sets of proposals claim these as silver bullets for agrarian crisis to malnutritionto educational deficit and also a solution for the job crisis. This is a tall order with different reasons for persistence for some of these.
  • A good example is the public distribution system (PDS) where it is clearly established that in-kind transfers are twice as effective in increasing calorie intake compared to equivalent cash transfer.
  • The real issue with the approach of a targeted cash transfer scheme is that it envisions the role of the state to only providing cash income to the poor.
  • This kind of ‘Robin Hood’ approach seeks to absolve the state of its responsibility in providing basic services such as health, education, nutrition and livelihood.
  • But it is also iniquitous since it seeks to create demand for services without supplying the services, leaving the poor to depend on private service providers.
  • There is now sufficient evidence which shows that privatisation of basic services such as health and education leads to large scale exclusion of the poor and marginalised.
  • In any case, India is among the countries with lowest expenditure to GDP ratio as far as expenditure on health, education and so on are concerned.

Jobs, best antidote

  • The best antidote to poverty is enabling citizens to earn their living by providing jobs.
  • For those who are willing to work, schemes such as the Mahatma Gandhi National Rural Employment Gurantee Scheme should be strengthened to enable then to earn decent incomes.
  • Similarly, the crisis in agriculture is unlikely to be resolved by income transfers.
  • But even with free and universal access to public services and access to livelihood opportunities, there may be a role for cash transfers, particularly for those who are unable to access the labour market or are marginalised due to other reasons.
  • The NSAP seeks to do exactly that by providing pensions to elderly, widows and disabled.
  • But even for these vulnerable and marginalised groups, the Central contribution to pensions has been only ₹200 per month. If governments cannot ensure decent incomes to the poor, then the issue is not of details of minimum income transfers but that of intent of those who are promising to eradicate poverty through income transfers. On this, there is no ambiguity.

Shopping for votes

  •  The interim budget casts away established conventions and targets votes with sops
  • As election-eve budgets go, Interim Budget 2019-20 must rank as one of the most politically expedient ones this country has seen. The shadow of the general election falls squarely on the budget proposals, which are aimed at seeking votes in the name of various schemes that rain cash on beneficiaries. Whether the strategy will work at the hustings remains to be seen.
  • But there is no denying that a lot of thought has gone into identifying and targeting the sections of population across social segments that are in distress and unhappy with the Centre for a variety of reasons. There is an income support scheme for farmers who are reeling under the impact of falling realisations for their crops, and a pension scheme for informal sector workers earning up to ₹15,000 a month.
  • There are income tax concessions for the middle class that have been carefully framed to target the lower rung.
  • The ₹6,000 a year income support to farmers will benefit 12 crore households, which is almost half of the total number of households.
  •  Similarly, the increase in standard deduction from ₹40,000 to ₹50,000 may be small but it will cover three crore taxpayers, which is again almost half of the 6.8 crore taxpayers.
  • The income tax rebate on those with taxable annual income of up to ₹5 lakh a year will benefit three crore middle class voters that includes traders, small businesses, those who have just joined the formal workforce and pensioners.
  •  While these sops will benefit sections of the population, the question is whether it is correct for a government that will be in power for less than two months in the next financial year to write into the statute books proposals that are permanent.
  • Though some past governments have announced sops in their interim budgets with an eye on elections, this budget has gone much further by announcing very significant measures.
  •   In political terms, the strategy cannot be faulted as it appears to have put the Opposition in a difficult spot — protesting too much about the concessions given to those in distress may be counter-productive.
  •   That said, some of these ideas may actually work in economic terms as they put money in people’s hands.
  • The housing-related tax proposals can give a leg-up to the real estate sector, which is a job-creator and is now in trouble.
  •  The sops come with a cost, though. The Centre will miss the glide-path for reducing the fiscal deficit, yet again.
  •  The estimated slippage of 0.10 percentage point is not significant if we assume that the concessions will spur spending by the beneficiaries. This is, of course, assuming that the gross tax revenue projection of ₹25.52 lakh crore, which is a 13.5% growth over the revised estimates of 2018-19, is achieved. But this arithmetic will be the headache of the next government.

Not really bullish on native cow breeds

  • Goyal bumps up revised budget for Rashtriya Gokul Mission, slashes it for 2019-20
  • Farmers who rear the best indigenous breeds of cattle win prizes from the government. So when Finance Minister Piyush Goyal announced the allotment of ₹750 crore to the Rashtriya Gokul Mission (RGM) on Friday, everyone was listening.
  • The outlay was, it emerged, the revised estimate for 2018-19. But when it came to funds for 2019-20, it was only ₹302 crore, nearly the same as the original allocation of ₹301.5 crore in last year’s Budget.
  • The Mission is managed by the Department of Animal Health and Husbandry (DAHD).
  • Budget documents show that the Department only managed to spend ₹187.73 crore under the scheme in 2017-18, although Gopal Ratna and Kamdhenu awards were instituted for breeders since that year, and 43 winners have been chosen. ‘Superior’ stock
  • The RGM aims to develop ‘Gokul Gram’ care centres for indigenous breeds of high “genetic merit” as well as other lesser breeds.
  • The objective is to get native breeds to produce more milk, be more fecund, and to raise the quality of Indian cows and bulls to eventually outdo Jerseys and Holsteins. Though Mr. Goyal talked of "cow welfare" and farmer distress, the RGM doesn't look at ageing and unproductive cattle, posing a problem for farmers.
  • The RGM was launched in December 2014 with an outlay of ₹500 crore (2014-15 to 2016-2017) for developing and conserving indigenous breeds through selective breeding and genetically upgrading ‘nondescript’ bovine population.

 Indus Dolphin to be State aquatic animal of Punjab

  • The Punjab government has declared Indus River Dolphin — found only in the Beas — as the State aquatic animal. Chief Minister Amarinder Singh said the rare aquatic animal would be the flagship species for the conservation of the Beas eco-system.

₹500 crore for pension for unorganised labour

 Allocation for existing scheme slashed

  • The Centre has allocated ₹500 crore for a new pension scheme .The new scheme, to be called the Pradhan Mantri Shram-Yogi Maandhan, will benefit unorganised sector workers who have a monthly income up to ₹15,000. It will provide them a monthly pension of ₹3,000 from the age of 60.
  • The Centre expects 10 crore workers to get the benefit within the next five years.
  • “Half of India’s GDP comes from the sweat and toil of 42 crore workers in the unorganised sector…We must provide them comprehensive social security coverage for their old age,” said Finance Minister Piyush Goyal, while announcing the scheme in Parliament.
  • However, the Budget documents show that an existing pension scheme, which already benefits more than 3 crore poor people who are senior citizens, disabled or widows, has had its allocation slashed. The National Social Assistance Programme (NSAP), a pension scheme administered by the Ministry of Rural Development, had originally been allocated ₹9,975 crore in the 2018-19 Budget. For 2019-20, the scheme’s allocation has been cut to ₹9,200 crore, a drop of ₹775 crore.
  • The NSAP featured in last year’s Budget speech, when then Finance Minister Arun Jaitley had said the government was “implementing a comprehensive social security and protection programme to reach every household of old, widows, orphaned children, divyaang and deprived as per the Socio Economic Caste Census (SECC).”
  • Using the SECC criteria as opposed to the existing Below Poverty Line criteria would have doubled the pension coverage to more than 6 crore people. However, Mr. Jaitley’s Budget allocation remained unchanged. This year, Mr. Goyal made no mention of the NSAP, but reduced next year’s allocation from the current year’s estimates.

New panel for welfare of nomadic communities

  •  NITI Aayog to identify ‘most deprived citizens’ The Centre will form a welfare panel for nomadic, semi-nomadic and de-notified communities, Finance Minister Piyush Goyal announced in Friday’s Budget speech. To start with, a committee will be set up under NITI Aayog to complete the task of identifying denotified, nomadic and semi-nomadic communities, especially as they move from place to place in search of a livelihood. The committee will follow up on the work of the Renke Commission and the Idate Commission. A Welfare Development Board will also be set up under the Ministry of Social Justice and Empowerment to design and implement programmes for these hard-to-reach communities, Mr. Goyal said. He said a substantial increase is proposed in the allocation for welfare of the scheduled castes and scheduled tribes.

Goyal unveils Vision 2030, highlighting 10 dimensions

  •  Presenting the Interim Budget, Finance Minister Piyush Goyal on Friday laid out the government’s vision for India in 2030, highlighting “10 most important dimensions.”
  • “Our India of 2030 will have a proactive and responsible bureaucracy which will be viewed as friendly to people. With ten-dimensional vision, we will create an India where poverty, malnutrition, littering and illiteracy would be a matter of the past. India would be a modern, technology-driven, high growth, equitable and transparent society,” Mr. Goyal asserted.
  •  Stating that India aspires to become a $10-trillion economy in the next eight years, he said the first dimension or point of this vision is to build physical as well as social infrastructure for a $10-trillion economy and facilitate ease of living.
  •   “On the social infrastructure side, every family will have a roof on its head and will live in a healthy, clean and wholesome environment.”

Digital India

  • While the second dimension of “our vision” is to create a Digital India, making India a pollution-free nation is the third point which will be driven by electric vehicles and renewables.
  • “Expanding rural industrialisation using modern digital technologies to generate massive employment is the fourth dimension of our vision,” he said. This will be built upon this government’s flagship ‘Make in India’ programme.
  • Under the fifth dimension, Mr. Goyal talked about clean rivers and safe drinking water for all Indians.
  • “India’s long coastline has the potential of becoming the strength of the economy, particularly through exploitation of the Blue Economy…coastline and our ocean waters powering India’s development and growth is the sixth dimension of our vision,” the Minister said.
  • “The seventh dimension of our vision aims at the outer skies… making India self-sufficient in food, exporting to the world to meet their food needs and producing food in the most organic way is the eighth dimension of our vision.
  • Next comes the vision of a healthy India. “By 2030, we will work towards a distress-free healthcare and a functional and comprehensive wellness system for all.”
  • “Our vision can be delivered by Team India — our employees working together with the elected government, transforming India into a minimum government, maximum governance nation. This is the tenth dimension,” the Minister said.
  •  Increased govt. sourcing, 2% subvention for loans a boost for MSMEs

 Rural entrepreneurs to benefit most

  • MUMBAIThe micro, small and medium enterprises (MSMEs) sector, the cornerstone of Indian economy, has got a boost in the Interim Budget, with the government offering 2% subvention for loans up to ₹1 crore and extending the Government eMarketplace (GeM) platform to support domestic services and trade.
  • With the Budget largely focused on the rural segments of the country, this will benefit the MSME sector greatly as 51% of all 634 lakh MSMEs are based in rural areas, consequently being a vital source of rural employment.
  • The government has increased the share of its procurements from MSMEs through GeM to 25%.