UPSC Newspaper Clips
Eight Steps To Revive Economy
These measures won’t require many resources, other than a strong political push
Ritesh Kumar Singh , [ The writer is CEO of Indonomics Consulting ]
Faced with its worst economic crisis in decades prompted by the corona outbreak, India’s GDP growth is likely to shrink by 5% in FY 2020-21, according to Goldman Sachs. That will lower tax collection, and cap government’s ability to spend and support growth. No wonder, despite strong pressure from India Inc for large fiscal stimulus, Modi government has primarily relied on loan guarantees and liquidity support as there is little room to relax fiscal deficit target without inviting ratings downgrade.
Thus, India can’t spend its way out of the current economic mess, made worse by the pandemic. That however, doesn’t mean nothing can be done. There are at least eight things that Modi government can still do and that won’t require much money, just a genuine political intent.
First, doles for the poor will certainly help but there is a limit to how much the government can afford to spend. Thus, our best bet would be to support SMEs as debt-laden large companies would be more interested in paring down debts, postponing capex and cutting jobs to protect their margins and avoid punishment by stock markets. As of now, in addition to cash flow issues, small businesses are troubled by increasing compliance burden involving multiple filings, licensing and reporting requirements, especially those related to GST. If there is a political will, the government can substantially reduce regulatory cholesterol that hampers the prospects of small businesses.
Why should a micro enterprise, with two to three employees, need to file monthly, quarterly and yearly GST returns in addition to several others such as TDS and income tax returns? Cutting these requirements to a bare minimum will not cost any money, and it will free up a substantial part of government machinery that can be put to better use. Small exporters, most of whom survive on as low as 3-4% operating margins, are shamelessly being exploited by banks that extract as much as 2-3% of export earnings as currency conversion charges. Making RBI’s retail forex trading platform (opposed by commercial banks) work effectively and allowing the likes of TransferWise can stop this exploitation.
Second, the government should focus on helping industries that have strong backward and forward linkages with multiple industries such as automobile and real estate, and not the processors of globally over-supplied commodities such as aluminium and steel. The country’s automobile industry was already struggling due to excessive regulatory rent seeking and a rush to adopt tighter emission norms. Corona-induced disruptions will further dampen its prospects, and in turn those of thousands of component suppliers.
Thus, the government could consider relaxing the implementation of BS-VI emission norms for a year in non-metropolitan areas. It will support struggling automobile manufacturers, component suppliers and dealers employing millions of workers, without any monetary or fiscal stimulus. Moreover, automobile demand is highly elastic so cutting GST on vehicles will increase their sales without adversely impacting tax collections. So it’s worth a try, not only for vehicles but other discretionary goods and services in the top GST brackets.
Third, helping real estate will help dependent industries starting from cement, steel, electrical appliances to interior decoration. Thus, substantially reducing circle rates, stamp duty and registration charges, and helping complete incomplete projects by government taking them over and selling land parcels of defaulting builders make sense. The overall tax revenue gains will fully compensate for the loss from cutting stamp duties and registration charges.
Fourth, remove all restrictions on e-commerce, even if a trader’s body like CAIT thinks that Amazon and Flipkart will devour its members but Big Bazaar, DMart and JioMart won’t. E-commerce will help keep the growth engine running by supporting all kinds of manufacturers and yet ensure social distancing needed to fight corona.
Fifth, address our huge policy distortion pile up on urgent basis. Thus, the government should put an end to price cap in medicines and medical devices barring a small list of essential medicines. Price cap has failed to make masks and sanitisers cheaper and it hasn’t brought the overall cost of knee and cardiac surgeries down. The government should also junk the practice of imposing different import duties on different categories of fibres to ensure a fibre neutral regime. That will give a big push to textile industry.
Sixth, it’s time New Delhi got serious about ensuring a predictable business environment. Unpredictable rules with respect to investment, trade and taxes, and difficulties in enforcing contracts continue to deter existing and potential investors. Similarly, an impartial regulatory regime that doesn’t discriminate between domestic and foreign investors will be helpful at a time we’re trying to lure away top global manufacturers to India from China.
Seventh, better to reverse corporate tax cuts temporarily that haven’t led to any big bang investment. Instead, cut personal income tax. Improvement in purchasing power of the poor is no doubt helpful, but it will mostly support demand for essentials such as food and clothing. That is needed, but not enough. It’s the relatively affluent households who drive consumer demand for high value discretionary items such as consumer durables, education, health and recreation services, and homes. Unless, they get relief on direct and indirect taxes they have to pay on their consumption, it will continue to cap households’ demand and in turn the country’s GDP growth rate.
Eight, between raising import duties and letting rupee weaken, we should opt for the latter. Let us welcome 80 rupees to a dollar. That will check unnecessary imports, support indigenous manufacturing, and yet will encourage exports.
Unlocking The Farm
Amendment of Essential Commodities Act, end of monopoly of APMC mandis, send out a heartening message.
With agriculture coming out relatively unscathed amidst the current economic carnage — retail fertiliser sales nearly doubled in May over last year, marking the seventh consecutive month of double-digit growth — the Narendra Modi government has done well to introduce long-delayed supply-side reforms in the sector. The ordinances issued last week to amend the Essential Commodities Act (ECA) and end the monopoly of agricultural produce market committee (APMC) mandis in farm products trading will send out a positive message. Agriculture’s value for policymakers has primarily been for controlling inflation or supplying wage goods and surplus labour for industrialisation and urbanisation. Few have viewed it as a sector in its own right and farmers as businessmen who must first earn for themselves rather than only fulfilling goals defined by others.
Of the two major reforms, the ECA amendment has more immediate significance. It does away with the government’s powers for imposing stockholding limits in foodstuffs, except under “extraordinary conditions” of war, famine and natural calamities. Such powers can also be invoked if retail prices increase more than 50 per cent over the average of the last five years in the case of non-perishable produce (cereals, pulses and edible oils) and 100 per cent for perishables (onions and potatoes). The latter provisions are unnecessary, given recent evidence that points to inflation in most foodstuffs being episodic and also the vastly improved supply response of farmers to any price rise. This has been seen in onions, potatoes, pulses and sugar — commodities where stockholding and export restrictions have been clamped during the Modi government’s own tenure. The injury to producers from cutting off market access has proved far more severe and long-lasting than any relief from temporary pain to consumers.
The second reform — allowing buying and selling of farmers’ produce outside of the physical boundaries of APMC mandis, along with the freedom to trade both within and from one state to another — is unlikely to yield immediate gains. The example of milk, where only a handful of cooperative and private dairies procure directly from farmers despite no APMC regulations governing it, is worth citing here. Dismantling of APMC monopoly will not stop big agro-processors and traders/retailers from relying on mandi intermediaries to source their produce. But it gives them, and also farmers, an alternative marketing channel that can force the mandis to do a better job.
The healthcare gap
State is staging a comeback in context of COVID- 19 crisis.In India , it needs to urgently step into domain of healthcare
Christophe Jaffrelot & Utsav Shah , [ Jaffrelot is senior research fellow at CERI-Sciences Po/CNRS, Paris and professor of Indian Politics and Sociology at King’s India Institute. Shah is a student of International Economic Policy at Sciences Po ]
As epidemiologists tend to consider that the peak of the COVID-19 epidemic may not come before July, the question of the resilience of the Indian health system becomes more pressing, especially in cities like Mumbai, Delhi and Ahmedabad. The limitations of the country’s public health system are well-known. India’s public hospitals have only 7,13,986 beds, including 35,699 in intensive care units and 17,850 ventilators, according to a recent study by the Center for Disease Dynamics, Economics & Policy (India) and Princeton University. Why does it matter? Not only because the country has already registered 1,24,981 active cases, but also because these figures are a reflection of the lack of interest of the government of India, for decades, in developing a welfare state.
The general perception behind the inadequate provision and availability of healthcare services is attributed to the country’s developing nation status. However, India lags behind its BRICS peers on the health and quality index (HAQ index). As per the National Health Profile 2018, India’s public health spending is less than 1 per cent of the country’s GDP, which is lower than some of its neighbours, countries such as Bhutan (2.5 per cent), Sri Lanka (1.6 per cent) and Nepal (1.1 per cent). In fact, according to the World Health Organisation, India finishes second from the bottom amongst the 10 countries of its region for its percentage spending of GDP on public health. Maldives spends 9.4 per cent of its GDP to claim the top spot in the list, followed by Thailand (2.9 per cent).
Similar trends for India are observed on indicators like hospital beds per 1,000 people. As per the OECD data available for 2017, India reportedly has only 0.53 beds available per 1,000 people as against 0.87 in Bangladesh, 2.11 in Chile, 1.38 in Mexico, 4.34 in China and 8.05 in Russia. The numbers have not changed in the last four years of available data, showing India’s stagnant allocation to the public health care budget.
The subnational HAQ differences in India are of critical importance. While the best performing states, Kerala and Goa, scored more than 60 points, the worst performing states of Uttar Pradesh and Assam scored less than 40 points. Further, the gap between these highest and lowest scores increased from a 23.4 point difference in 1990 to a 30.8 point difference in 2016. Upon comparing state populations with the number of available beds, Kerala with a population of only 3.5 crore (2018) has over 22,300 available beds in public hospitals/government medical colleges. Whereas, bigger states like Gujarat and Maharashtra with populations of over 6.82 crore and 12.22 crore (2018) respectively, have only 16,375 and 6,970 beds respectively. These differences across states also speak for the differing capacities to contain the virus at a subnational level wherein Kerala has emerged as a successful model.
One of the obvious reasons why public healthcare has not been a priority for successive governments of India lies in the fact that India’s middle class did not need it. The CDDEP/Princeton study shows that the private hospitals have 11,85,242 beds, 59,262 ICU beds and 29,631 ventilators. Currently in India, most of the COVID-19 treatment is being done in public facilities but as the epidemic progresses, it will be critical to expand the outreach of healthcare services by involving the private sector as an equal partner and stakeholder. Despite private hospitals accounting for 62 per cent of the total hospital beds as well as ICU beds and almost 56 per cent of the ventilators, they are handling only around 10 per cent of the workload and are reportedly denying treatments to the poor. This is seen in Bihar, which has witnessed an almost complete withdrawal of the private health sector and has nearly twice the bed capacity of public facilities. In states where private hospitals have not opened their doors to the poor to enhance and supplement the governments’ efforts to ensure public health, the governments in question have taken control of some of them. As the Modi government has invoked the National Disaster Management Act of 2005, authorities are empowered to take over the management of private institutions.
Maharashtra is a case in point: It has taken control of 80 per cent of all private hospitals’ beds in the state till August 31. For the patients of these beds, rates have been capped at Rs 4,000 in the case of simple ward and isolation beds, Rs 7,500 per day for ICU beds without ventilator and Rs 9,000 for those with ventilator. Will other states follow? For the moment, the Delhi government has asked 117 private hospitals to allocate 20 per cent of beds for coronavirus patients. And how will the private hospitals be compensated? One way to do it, for the governments (Union and state), would be to pay crores of dues they owe to private hospitals for treating patients under the Central Government Health Scheme (CGHS) and the Ex-servicemen Contributory Health Scheme (ECHS).
Similar policies should apply to testing, a key priority, as India continues to test less than it should in a post-lockdown scenario where testing is one of the most obvious ways to flatten the curve. Here, the Supreme Court, after ruling on April 8 that private labs should conduct free testing, modified its decision five days later to fix the rate of one of the most dependable tests at Rs 4,500 — which is costlier than in Bangladesh, and which allows private labs to make some important profits, it seems. Anyway, why should this issue be the business of the Supreme Court and not part of the crisis management by the state?
The state is staging a comeback everywhere in the world in the context of the COVID-19 crisis. In India, one of the domains where it has to step in is public health. A debate on the lack of investments in public health is bound to take place in the country after the dust has settled. But the return of the state does not necessary mean more centralisation. Some state governments are doing a better job than the Centre today and the most effective ones are the most decentralised ones — see Kerala.
It does not mean that civil society has no role to play either: In fact, the situation would be much worse if NGOs and private foundations (using CSR money sometimes) did not play such a huge part at the grassroots level. But the most effective interventions seem to take place when there is a high degree of coordination with the state apparatus.
The critical role of decentralised responses
Strategies in tackling the COVID-19 crisis must include local governments being equipped and fiscally empowered
M.A. Oommen is an Honorary Fellow, Centre for Development Studies, Thiruvananthapuram
The novel coronavirus pandemic has brought home the critical role of local governments and decentralised responses. In terms of information, monitoring and immediate action, local governments are at an advantage, and eminently, to meet any disaster such as COVID-19. While imposing restrictive conditionalities on States availing themselves of the enhanced borrowing limits (3.5% to 5% of Gross State Domestic Product, or GSDP) for 2020-21 is unwarranted, the recognition that local governments should be fiscally empowered immediately is a valid signal for the future of local governance. This article makes some suggestions to improve local finance and argues that the extant fiscal illusion is a great deterrent to mobilisation.
COVID-19 has raised home four major challenges: economic, health, welfare/livelihood and resource mobilisation. These challenges have to be addressed by all tiers of government in the federal polity, jointly and severally. Own revenue is the critical lever of local government empowerment. Of course the several lacunae that continue to bedevil local governance have to be simultaneously addressed. One, the new normal demands a paradigm shift in the delivery of health care at the cutting edge level. Two, the parallel bodies that have come up after the 73rd/74th Constitutional Amendments have considerably distorted the functions-fund flow matrix at the lower level of governance. Three, there is yet no clarity in the assignment of functions, functionaries and financial responsibilities to local governments. Functional mapping and responsibilities continue to be ambiguous in many States. Instructively, Kerala attempted even responsibility mapping besides activity mapping. Four, the critical role of local governments will have to be recognised by all. A few suggestions for resource mobilisation are given under three heads: local finance, Members of Parliament Local Area Development Scheme, or MPLADs, and the Fifteenth Finance Commission (FFC).
Property tax collection with appropriate exemptions should be a compulsory levy and preferably must cover land. The Economic Survey 2017-18 points out that urban local governments, or ULGs, generate about 44% of their revenue from own sources as against only 5% by rural local governments, or RLGs. Per capita own revenue collected by ULGs is about 3% of urban per capita income while the corresponding figure is only 0.1% for RLGs. There is a yawning gap between tax potential and actual collection, resulting in colossal underperformance. When they are not taxed, people remain indifferent. LGs, States and people seem to labour under a fiscal illusion. In States such as Uttar Pradesh, Bihar and Jharkhand, local tax collection at the panchayat level is next to nil. Property tax forms the major source of local revenue throughout the world. All States should take steps to enhance and rationalise property tax regime. A recent study by Professor O.P. Mathur shows that the share of property tax in GDP has been declining since 2002-03. This portends a wrong signal. The share of property tax in India in 2017-18 is only 0.14% of GDP as against 2.1% in the Organisation for Economic Co-operation and Development (OECD) countries. If property tax covers land, that will hugely enhance the yield from this source even without any increase in rates.
Land monetisation and betterment levy may be tried in the context of COVID-19 in India. To be sure, land values have to be unbundled for socially relevant purposes.
Municipalities and even suburban panchayats can issue a corona containment bond for a period of say 10 years, on a coupon rate below market rate but significantly above the reverse repo rate to attract banks. We are appealing to the patriotic sentiments of non-resident Indians and rich citizens. Needless to say, credit rating is not to be the weighing consideration. That the Resurgent India Bond of 1998 could mobilise over $4 billion in a few days encourages us to try this option.
MP fund scheme
The suspension of MPLADS by the Union government for two years is a welcome measure. The annual budget was around ₹4,000 crore. The Union government has appropriated the entire allocation along with the huge non-lapseable arrears. MPLADs, which was avowedly earmarked for local area development, must be assigned to local governments, preferably to panchayats on the basis of well-defined criteria.
A special COVID-19 containment grant to the LGs by the FFC to be distributed on the basis of SFC-laid criteria is the need of the hour. The commission may do well to consider this. The local government grant of ₹90,000 crore for 2020-2021 by the FFC is only 3% higher than that recommended by the Fourteenth Finance Commission. For panchayats there is only an increase of ₹63 crore. The commission’s claim that the grant works out to 4.31% of the divisible pool and that it is higher than the 3.54% of the FC-XIV is obviously because the size of the denominator is smaller. Building health infrastructure and disease control strategies at the local level find no mention in the five tranches of the packages announced by the Union Finance Minister. The claim for a higher award to LGs is loud and clear.
The ratio of basic to tied grant is fixed at 50:50 by the commission. In the context of the crisis under way, all grants must be untied for freely evolving proper COVID-19 containment strategies locally. Further the 13th Finance Commission’s recommendation to tie local grants to the union divisible pool of taxes to ensure a buoyant and predictable source of revenue to LGs (accepted by the then Union government) must be restored by the commission.
Flood, drought, and earthquakes are taken care of by the Disaster Management Act 2005 which does not recognise epidemics, although several parts of India experienced several bouts of various flus in the past. The new pandemic is a public health challenge of an unprecedented nature along with livelihood and welfare challenges. ThefirstReport speaks of mitigation funds and even prepared a disaster risk index, to map out vulnerable areas. These are redundant in the present context. The 2005 Act may have to be modified to accommodate the emerging situation.
COVID-19 has woken us up to the reality that local governments must be equipped and empowered. Relevant action is the critical need.
Resume dialogue with Nepal now
India should take the lead in ending a deadlock that goes against the interest of bilateral ties with Nepal
Yashwant Sinha & Atul K. Thakur , [ Yashwant Sinha is former Minister of Finance and Minister of External Affairs; Atul K. Thakur is a policy professional and columnist]
The time of a pandemic is not the time to have a hostile neighbourhood. At this moment, India should ideally lead in creating momentum for deeper regional and sub-regional cooperation in South Asia. Ironically, the recent developments with Nepal have been the opposite of that. India and Nepal have reached a new low in bilateral relations when both countries are facing a humanitarian crisis.
On May 8, the Defence Minister of India tweeted: “Delighted to inaugurate the Link Road to Mansarovar Yatra today. The BRO achieved road connectivity from Dharchula to Lipulekh (China Border) known as Kailash-Mansarovar Yatra Route. Also flagged off a convoy of vehicles from Pithoragarh to Gunji through video conferencing.” The announcement and its timing surprised even the keen observers of India-Nepal relations. No one thought that a road project in this territory would get inaugurated so urgently and through video conferencing. The announcement immediately put the Nepal government, the people and political players there on high alert. The Oli government’s sharp reaction was unexpected — the road was being built for years, so for it to pretend that it was unaware of this development and therefore surprised at its inauguration defies logic.
In a statement, the Nepalese Ministry of Foreign Affairs expressed regret at India’s move. It said, “As per the Sugauli Treaty (1816), all the territories east of Kali (Mahakali) River, including Limpiyadhura, Kalapani and Lipu Lekh, belong to Nepal. This was reiterated by the Government of Nepal several times in the past and most recently through a diplomatic note addressed to the Government of India dated 20 November 2019 in response to the new political map issued by the latter.” It cautioned the Indian government against carrying out “any activity inside the territory of Nepal”. It stated that “Nepal had expressed its disagreement in 2015 through separate diplomatic notes addressed to the governments of both India and China when the two sides agreed to include Lipu Lekh Pass as a bilateral trade route without Nepal’s consent in the Joint Statement issued on 15 May 2015 during the official visit of the Prime Minister of India to China.” Nepal said it believed in resolving the pending boundary issues through diplomatic means. It said that Kathmandu had proposed twice the dates for holding the Foreign Secretary-level meeting between the two countries.
There was a long-awaited response to this from the Ministry of External Affairs (MEA). Without giving any specific date, the MEA assured Nepal that talks would begin after the lockdown was lifted. The delay is not understandable. Why can’t discussions take place over video conferencing? India’s response to Nepal’s note said: “The recently inaugurated road section in Pithoragarh district in the State of Uttarakhand lies completely within the territory of India. The road follows the pre-existing route used by the pilgrims of the Kailash-Mansarovar Yatra. India and Nepal have established mechanism to deal with all boundary matters. The boundary delineation exercise with Nepal is ongoing. India is committed to resolving outstanding boundary issues through diplomatic dialogue and in the spirit of our close and friendly bilateral relations with Nepal.” Nepal’s Foreign Minister Pradeep Kumar Gyawali asked why talks on this important matter could not take place under lockdown when the ‘inauguration’ of the road could take place during the COVID-19 crisis. We also believe that it should take place without wasting even a day.
The strain in ties also reflects the tensions in Nepal’s politics. Prime Minister K.P. Sharma Oli stepped out of diplomatic nicety when he indulged in reactionary nationalism and termed the “Indian virus” as more damaging than the “Chinese virus”. He also questioned India’s faith in ‘Satyameva Jayate’.
On India’s part, the problem lies in overlooking the past realities of Lipulekh region. The Army Chief’s statement that “there is reason to believe” that Nepal’s recent objection was “at the behest of someone else”, hinting at China’s possible role, was eminently avoidable. This too drew sharp reactions from Nepal.
A unique relationship
India and Nepal enjoy a unique relationship that goes beyond diplomacy and the governments of the day. Both countries are interdependent through shared social, cultural, economic and other civilisational links. Here, the ties are not between the governments alone. Over three million Nepalese live in India and lakhs of Indians live in Nepal. The Gurkha Rifles, known for the best in warfare, are incomplete without the Nepalese. They fight to keep India secure, so where is the scope for conflict? The people of Nepal fought for India’s independence. B.P. Koirala and many more Nepalese made enormous sacrifices during the freedom struggle. Both countries have open borders and unique ties. This reminds us that both countries have shared interests while respecting each others’ sovereignty. There is no place for a ‘big brother’ attitude. The regimes in New Delhi and Kathmandu have to exercise caution and restraint. The boundary controversy on Lipulekh, Kalapani and Limpiyadhura should be seen in retrospection. It must be admitted that Nepal’s kings had neglected this territory for decades. The area attained prominence only with Nepal’s tryst with parliamentary democracy beginning in 1990. The consistent neglect for the area is evident in the fact that the last official record of any government work that happened there was in 1953. A census was conducted in this area by the royal regime of Nepal and the land records from there were archived at the Darchula district office.
Article 8 of the India-Nepal Friendship Treaty, 1950 says, “So far as matters dealt with herein are concerned, this Treaty cancels all previous Treaties, agreements and engagements entered into on behalf of India between the British Government and the Government of Nepal”, though the treaty does not define the India-Nepal boundary. On the issue of defining the boundary, the Treaty of Sugauli (1816) and the 1960 agreement between India and Nepal on the four Terai districts prevail. The Sugauli Treaty outlines the east of Mahakali River as Nepal’s territory, and the west of it as India’s territory. The dispute today is with regard to the origin of the Kali River. Nepal claims that the origin is in the higher reaches of this hilly territory which would establish its claim on Kalapani and Lipulekh. The Boundary Committee constituted in the year 2000 failed to resolve the issue. There is a need to renew it to end the cartographic tussle between the two countries.
It is time to repose faith in constructive dialogue with empathy to resolve any matter that disturbs the calm between the two countries. In good and bad times, India and Nepal have to live together. Diplomatic dialogue should be resumed at the earliest possible. Embassies on both sides should be allowed to function freely. Nothing of the sort that happened in 2015 should be repeated now. India should not shy away from a dialogue even during the COVID-19 crisis. The MEA’s latest statement should materialise in action and restore trust and confidence through constructive dialogue.