Comprehensive News Analysis - 23 June 2016

A. GS1 Related

B. GS2 Related

1. Army comes out against road work on China border

Topic: India and China

Category: International Relations

Location: The Hindu

Key points:

• A 1,500-km India-China frontier highway which would run parallel along the China border (McMohan Line) is being proposed by the Home Ministry. The Ministry of Road Transport and Highways, which was approached for the project, had declined to work on it citing that it was financially not viable
• The project is said to cost anywhere between Rs. 30,000 and Rs. 40,000 crore. The Home Ministry is now looking to rope in an international contractor to execute the project
• The Army is opposed to constructing any road close to the disputed border with China.It has also opposed the demand of opening advance landing grounds for civilian use

2. India has to complete a long process for SCO membership

Topic: SCO

Category: International Groupings

Key points:

• A long-drawn process lies ahead for India to complete its entry into the Shanghai Cooperation Organisation (SCO) which will begin its annual summit on June 23-24 at Tashkent, confirmed the Ministry of External Affairs (MEA)
• At the upcoming summit at Tashkent, the process of India’s accession to the SCO will start with a signature on the ‘base document’ which is called the ‘Memorandum of Obligations’
• The Memorandum of Obligations, however, will begin a process of more intense engagement with the SCO members on several fronts like anti-terrorism, transport, cultureetc

3. Fingers crossed as Modi set to meet Xi in TashkentTopic: India and China

Category: International Relations

Keypoints:

• Prime Minister Narendra Modi will leave for Tashkent on Thursday to attend the annual summit of the Shanghai Cooperation Organisation (SCO)
• He will meet Chinese President Xi Jinping on the sidelines of the summit and is expected to seek China’s support for India’s bid for NSG membership

C. GS3 Related

1. ‘NPAs dragging down credit growth, not rates’

Topic: Banking

Category: Economy

Key points

• The RBI Governor said the slowdown in credit growth was not on account of interest rates being high but because banks were averse to lending in the backdrop of a mountain of bad loans
• The good news is that banks are getting into the spirit of the cleanup, and pursuing reluctant promoters to take the necessary steps to rehabilitate projects,” he said. The bank investors, after initially getting alarmed by the size of the disclosures, have backed PSB bank shares and there is still room for an upward valuation if the banks can improve the prospects of recovery, said Mr.Rajan
• The Economic Survey has suggested the RBI should capitalize public sector banks. This seems a non-transparent way of proceeding, getting the banking regulator once again into the business of owning banks, with attendant conflicts of interest,” he said

3. Not all is bright and shining with LED light: Study

Topic: Health

Category: S&T

Key points

• Compared with conventional street lighting, the blue-rich white LED street lighting is five times more disruptive to sleep cycle,an American Medical Association (AMA) Council on Science and Public Health report said. Although more research is needed, evidence available suggests a long-term increase in the risk for cancer, diabetes, cardiovascular diseases and obesity caused by chronic sleep disruption due to exposure to blue light
• Contrary to the popular notion that bright LED lighting increases road safety, the report says discomfort and disability glare caused by unshielded, bright LED lighting negatively impacts visual acuity, thus “decreasing safety and creating road hazards”.

Glare forms a veil of luminance that reduces the contrast, thus in turn reducing the visibility of a target.Intense blue spectrum can even damage the retina

3. Textiles get tax sops in output impetusTopic: Textiles

Category: Economy

Key points

• The Centre announced a Rs.6,000-crore special package, with tax and production incentives, for the textile and apparel sector to enable domestic firms to compete globally
• The package which will be implemented soon aims to help in creating one crore jobs, mostly for women, in the next three year
• The initiatives may lead to $30 billion increase in exports and attract Rs.74,000 crore investments

D. GS4 Related

E. Important Editorials: A Quick Glance

The Hindu

1. The 10-crore rollback

Topic: Taxation

Category: Economy

Key

• The Prime Minister had reportedly asked tax administrators to bring 10 crore households into the tax net. As a target, rough or otherwise, it is an ambitious goal for a country where the direct tax base has grown at a snail’s pace over six decades — from six per cent of GDP in 1950-51 to 16.6 per cent in 2013-14. Just four per cent of voters are individual income taxpayers, well short of the government’s desired 23 per cent. Given that the Prime Minister had not set a deadline for the target, any fears of taxmen scouring the streets menacingly to widen the tax net are misplaced
• India’s tax-to-GDP ratio is far lower than the 21 per cent average of its emerging market peers; its public spending-to-GDP ratio is also the lowest among BRICS nations
• The country cannot scale up necessary infrastructure and social spending without widening its tax base. About 85 per cent of the economy is outside the tax net. Even among those who pay taxes, the number of individuals who earn more than Rs.1 crore a year or pay tax in the 30 per cent tax bracket is unrealistically low
• The Finance Minister has taken some steps to expand the tax base — replacing the wealth tax with a surcharge on super-high incomes, taxing luxury car sales to build a database of potential evaders, and even bringing advocates into the tax net
• But a more proactive strategy is needed to widen the tax base while prioritising public spending on services that all citizens use — such as infrastructure, law and order, health and education — in a way that the earning classes find value from their tax payments
• Tackling corruption and developing an effective property tax regime to curb speculation would not only close avenues for tax evasion but also nudge fence-sitting, potential taxpayers towards the straight and narrow
• The FM had promised that the government would adopt non-intrusive methods and employ information technology to widen the tax base. With several more transactions now requiring PAN card details, an intelligent data-mining exercise could bring more people into the tax net faster. By doing away with the 10-crore target, the Centre has perhaps missed a trick

2. Limits of the big freezeTopic:Europe, Asia, Russia and America

Category: International Relations

Key points:

• Russian President Vladimir Putin last month threatened retaliation against U.S. missile defence system deployments in Romania and Poland
• Geopolitics abhors “unipolarity”. Post-Cold War Europe sought to emerge from the American shadow into an independent global personality. In anticipation of its forthcoming expansion, the European Union (EU) unveiled an ambitious agenda in 2000, to make EU “the most competitive and dynamic knowledge-based economy in the world” by 2010
• Reinforcing this “Lisbon Agenda” was a Common Security and Defence Policy, envisaging inter alia an autonomous EU military force to respond to international crises beyond Europe’s borders. Europe thus declared its ambition to become a dominant global power by 2010
• The European resurgence coincided with the rise of Mr. Putin in Russia, with his declared goal of restoring Russia’s political, economic and military strength
• European and Russian aspirations were compatible. Russia needed European technologies and investment. Europe needed cheap Russian gas and could use Russia’s technical manpower. A broad-based mutually beneficial Russia-Europe engagement appeared in prospect
• These first challenges to “unipolarity” collided with U.S. neo-conservatism, which aimed to scotch any threat to U.S. global power
• In 2002-03, the EU conceded NATO’s (and the U.S.’s) primacy in its defence and security policy. The U.S. invasion of Iraq divided EU politically even before it expanded in 2004. The Eurozone crisis then created new fault lines. The EU formally buried the Lisbon Agenda in 2010
• Putin restored stability and growth in Russia but encountered headwinds in the external environment. Russia saw NATO’s eastward expansion and missile defence systems in Central Europe as an American drive to box it in. The democratic “colour revolutions” in Georgia, Ukraine and Kyrgyzstan — in which Western non-governmental organisations and foreign mercenaries were allegedly active — were similarly viewed
• Russia was particularly incensed when NATO moved (in 2008) to offer membership to Georgia and Ukraine: NATO in the Black Sea and on the fringe of the Caucasus threatened its national security and strategic ambitions. Mr. Putin’s military response to Georgian operations in South Ossetia (2008) signalled that Russia was prepared to use force to protect its vital interests
• Tensions peaked with the Ukraine crisis in 2014. Russia saw a “foreign hand” in the unseating of the Ukrainian government. Fearing a threat to its naval fleet in Crimea and to its vulnerable Black Sea coastline, Russia acted swiftly. Crimea “acceded” to Russia after a hastily organised referendum. Demands for independence then arose in two regions in Eastern Ukraine, which degenerated into fighting between the separatists and the Ukrainian army
• S. and EU sanctions for “annexation” of Crimea included Russia’s international isolation and restrictions on finance and technology transfers. Russia retaliated with an embargo on agro-product imports from Europe
• A propaganda war continues. Accusations of Russian sponsorship of separatism are countered by allegations of Western manipulation of Ukraine’s actions. Russia accuses the U.S. of arm-twisting the Europeans to sustain tensions; a sanctions-induced collapse of the Russian economy is a Western refrain
• The edge of sanctions has blunted, as technology and finance, as well as European agro-products found alternative channels to Russia. The International Monetary Fund predicts restoration of Russian growth in 2017. A fragile ceasefire prevails in Eastern Ukraine. Russia’s “isolation” has been diluted by U.S.-Russian collaboration on Iran and Syria
• However, Russia-NATO relations remain tense and could have far-reaching implications for Asia and Europe
• For India, political, defence and strategic relations with Russia retain great importance. We do not want Cold War-like pressures to curtail this relationship as the price for strengthening another. Some areas of India-Russia relations cannot yet be substituted by other relationships. Our Russian collaboration strengthens our leverage with other partners
• Of wider concern is the recent intensification of Russia-China cooperation. Until lately, a history of strategic rivalry ensured that, notwithstanding flourishing trade, Russia calibrated its cooperation in strategic sectors. This reserve progressively weakened as tensions with the West increased and China’s political and economic support (particularly as a permanent member of the UN Security Council) acquired critical importance. Such support obviously comes at a price: reports of recent Russian military transfers to China are not coincidental
• In a single-minded drive to cut Russia down to size, the full implications of its intimate Chinese embrace appear to be underestimated. The thesis that historical rivalries (and Russia’s unwillingness to be a junior partner) will limit Russia-China bonds may not have permanent validity as ground realities transform. Asia and Europe should worry about the geopolitical impact of a Russia-China strategic alliance, but so should the sole superpower: in seeking to vanquish a waning superpower, it may be accelerating the rise of another
• Europe has to be the catalyst for this change, since most action is in Europe which also bears the brunt of its consequences. During the Cold War, Europe played a moderating role in East-West tensions. Today, an expanded Europe has economic disparities between north and south and ideological divergences between east and west
• In the EU’s present course, the pace has been set by its eastern and northern members. Moderating voices have been drowned in the quest for EU unity. A coherent approach is needed in the long-term interests of its entire membership. The transformation of eastern Europe could be pursued in a calibrated manner, minimising confrontation and accommodating interests of Europe and Russia
• The point is not to “legitimise” Russia’s “annexation” of Crimea, but that the present confrontational approach is not achieving its purpose and its wider consequences are unpalatable
• There are signs of a pragmatic approach. European Commission President Jean-Claude Juncker (strongly endorsed recently by Germany’s Foreign Minister) has advocated an independent European position on Russia. These sentiments are echoed in many European political and business circles
• This approach requires statesmanship from leaders of Europe, the U.S. and Russia. Leaders of countries like India and Japan could use their considerable influence to nudge them in this direction

Bottom-line: Europe and Asia should unite to disallow Chinese domination with Russian collaboration

3. Finding the centreTopic:India , US , China and Russia

Category: International Relations

Key Points:

• Fresh from the PM’s visit to Washington, where the Logistics Exchange Memorandum of Agreement (LEMOA) on defence has been finalised, and India declared the U.S.’s major defence partner, Mr. Modi must fly to Tashkent to finalise documents for India’s accession to the Shanghai Cooperation Organisation (SCO), a “political, economic and military alliance” spearheaded by Russia and China
• While non-alignment, a term that has yet to find a mention in the Prime Minister’s speeches, it may still be a necessity in his actions, especially with India’s desired Nuclear Suppliers Group (NSG) membership hanging in the balance
• Many assume that India’s push for the Non-Aligned Movement (NAM), formed in Belgrade in 1961, came as a result of its disillusionment with the U.S., China, and colonial powers, but actually, non-alignment was spelt out a year before independent India’s first bilateral relations were declared. In a radio broadcast in September 1946, Jawaharlal Nehru said India’s foreign policy would rest on eight pillars: non-alignment with “power groups” was the third
• India’s break with the U.S. came in 1951 when Prime Minister Nehru refused to attend a peace conference in San Francisco hosted by U.S. President Harry Truman after calling the war reparations for Japan too meagre. The strain grew from there on as India refused an alliance, possibly because of its own attempts at better ties with China and the Soviet Union, which were themselves at loggerheads at the time
• History is indeed strange, former enemies became the best allies, and India today stands once again in a place somewhere in the middle (albeit more to the right than the left). It has close defence exchanges like Operation Malabar with the U.S. and Japan on one side, and on the other, joining a conference that has Russia and China at the helm. The alliance with the U.S. and Japan is yet to be spelt out, but it is clear from the Indo-U.S. joint vision statement of 2015 that Mr. Modi now envisages closer military cooperation with the U.S., and as a corollary its allies, both in the seas and on its military bases, airspace and cyber centres as well. Of particular importance will be the lines in the joint vision statement for Asia-Pacific and the Indian Ocean region, signed by Mr. Modi and President Obama last year, on “ensuring freedom of navigation and over flight throughout the region, especially in the South China Sea”
• It is worthwhile to see what SCO membership for India entails. The 2001 declaration on the establishment of the SCO clearly states that its aim is “jointly preserving and safeguarding regional peace, security and stability; and establishing a democratic, fair and rational new international political and economic order”. Analysts have always believed that the reference to the “new order” juxtaposes the Eurasian SCO as a counterpoint to the transatlantic North Atlantic Treaty Organisation. It was further spelt out vividly at the Astana SCO summit declaration in 2005, a summit in which India, Pakistan and Iran were admitted as observer countries
• At Astana the members formulated joint mechanisms for regional security, joint planning and conduct of anti-terror activities, and jointly contributing to security issues “on land, at sea, in air space and in outer space”. The SCO also has a formulation on ‘Asia Pacific’, with members making a declaration “against fault lines appearing both in the Asia Pacific region and in its separate constituent parts”
• Clearly, adherence to the terms spelt out in both the western and eastern alliances would be absurd, as they could conceivably see the Indian Navy in joint patrol with the U.S. and its allies, challenging China in the South China Sea, even as it cooperates with China and Russia to counter U.S.-backed forces across the “fault lines”
• Equally strange is the possible vision of the future this brings: one of India discussing nuclear safety and non-proliferation on an equal footing with known proliferator Pakistan at the NSG, and also sharing counter-terror operations with it as part of the SCO’s Regional Anti-Terrorist Structure (RATS)
• In this scenario, even NAM, with its inherent confusion and often “lip service-only commitment” to neutrality, isn’t fraught with as much contradiction, and is a group that India has leadership of. The fact that the next host of the NAM summit, Venezuela, hasn’t been able to declare a date for it also gives the government some time to consider Mr. Modi’s position on attending it, which he has not indicated so far
• At her annual press conference a few days ago, the External Affairs Minister said that non-alignment is “India’s heritage”. Given the stormy waters and multiple criss-crossing alignments India now envisions, it may be a safer shore for India’s future as well

1. Lessons for India in Thailand’s experience on universal healthcare

Topic: Health

Category: Governance

Key Points:

• Recently, Thailand prime minister, accompanied by a high-level delegation, visited India to enhance partnership between the two countries in the areas of trade, defence, security, education, science and technology and people-to-people contacts. Although not included in this list, healthcare is an area where India has much to learn from Thailand
• Thailand is a good example of how a middle-income country can provide healthcare cover to its entire population (almost!) in a relatively short period of time. Thailand achieved this in 2002, when its per-capita national income was almost the same as that of India today. It could extend healthcare coverage to its entire population also because of certain critical reforms, that preceded this achievement
• Two measures that Thailand initiated were: One, the establishment in 2001 of the National Health Security Act, which entitled the Thai population to health services of certain standard and efficiency as given in the Act, and; two, the creation of the National Health Security Office (NHSO), an autonomous state agency that administered healthcare fund received from the government and was responsible for registration of beneficiaries and healthcare providers and making payments as per the regulations
• This second reform led to a separation of the role of purchaser of care from provider of care, which was earlier vested with the same agency, that is, the Ministry of Public Health (MOPH) that allocated budget to healthcare providers based on facility size, staff numbers, and historical performance
• Now, the NHSO contracts services from healthcare providers — the MOPH and its network of providers being the main contractor of the NHSO. This separation brought explicit focus on what the NHSO was getting for the money it was giving to the contractors. Further, the method adopted by the NHSO to pay healthcare providers — age adjusted per-capita payments (called “capitation based method”) for every registered person for out-patient care and case-based payment with a global budget ceiling for in-patient care — incentivised healthcare providers and hospitals to be efficient and cost conscious
• At the time of these reforms, Thailand already had a strong healthcare infrastructure even in rural areas, where two-third of its 70 million population live. The rural infrastructure was the result of a conscious decision taken in mid-1980s to shift public health investments away from secondary and tertiary care in urban areas to primary care infrastructure in rural areas. So, the public health delivery system was already available. As a result, high immunisation coverage and availability of essential drugs were already being observed, with a strong culture of public service among the health workforce. Further, determinants of health such as nutritional status of children, accessibility to clean water were addressed to a great extent
• One could argue that the two country contexts are very different. Thailand being much smaller in terms of geographical spread (equal to the size of Rajasthan and Orissa combined!), it is relatively easier to manage administratively. Being a unitary government, Thailand doesn’t face the Centre-state challenges observed in India. Besides, the Bangkok spends substantially more on healthcare than New Delhi
• Today, if Thailand’s health indicators are far better than India’s — average life expectancy at birth is 75 years in Thailand compared to 66 years in India and infant mortality rate is 11.3 compared to 41.4 in India — it is because Thailand has prioritised healthcare unlike most Indian states. Despite Thailand’s political instability, successive country leadership did not de-prioritise healthcare
• Surely, Indian states could try out the twin reforms of purchaser-provider split and performance-based payment system in districts that have decent health infrastructure and manpower. It will enable states to understand the possible impact of such reforms as well as what it would take to scale up

2. How India’s National Education Policy evolved over the yearsTopic: Education

Category: Governance

Key Points

• The government began the process of drafting a new National Education Policy last year with extensive grassroots consultations. The effort culminated in an expert committee assimilating the feedback and submitting about 90 inputs for the policy document
• What purpose does a National Education Policy serve? Why is the government so invested in drafting one?
• It serves as a comprehensive framework to guide the development of education in the country. A new policy has come along every few decades and has been a milestone — comparable, say, to the 42nd Amendment to the Constitution in 1976 through which education was moved from the State to the Concurrent List, or the 86th Amendment in 2002 under which education became an enforceable right. It offers the government of the day an opportunity to leave its imprint on the country’s education system. The Janata Partyhad attempted to draw up a policy in 1979, but it was not approved by the Central Advisory Board for Education (CABE), the most important advisory body to the government in the field of education

Are the states bound to follow it?

• The policy provides a broad direction and state governments are expected to follow it. It’s not mandatory. Tamil Nadu, even today, does not follow the three-language formula prescribed by the first education policy in 1968

How many such policies have we had?

• Two — in 1968 and 1986, under Indira Gandhi and Rajiv Gandhi. The National Education Policy (NEP) of 1986 was revised in 1992 when P V Narasimha Rao was PM. The NDA II government is currently drafting a new one “to meet the changing dynamics of the population’s requirement with regards to quality education, innovation and research”.

Under what circumstances was the first NEP announced in 1968?

• In 1964, a 17-member Education Commission headed by UGC Chairperson D S Kothari was set up. Based on the suggestions of this Commission, Parliament passed the first NEP in 1968

How did NEP II differ from NEP I?

• The 1968 policy had called for a national school system, which meant all students, irrespective of caste, creed and sex, would have access to education of a comparable quality up to a given level. It envisaged a common educational structure (10+2+3) which has been accepted across the countr It also advocated the use of mother tongue as the medium of teaching in the early school years. Strengthening of research in the university system was another major recommendation
• The 1986 policy reflected Rajiv’s modernisation project, and focussed on the role of Information Technology in education. It paid more attention to restructuring of teacher education, early childhood care, women’s empowerment and adult literacy. It also accepted some ideas that had met resistance in the past, such as selective development of educational institutions and autonomy of universities and colleges. But emphasis on equality in educational opportunity and relationship between education and development remained the backbone of both NEP I & II.

How has the implementation been?

• NEP 1986 was implemented better. For the first policy, the government failed to bring out a proper Programme of Action, and implementation was hamstrung by the shortage of funds. Education in 1968 was a State subject, and the Centre had little role in how the policy would be implemented. The second NEP came after the Constitutional Amendment of 1976 — and the Centre accepted wider responsibility and introduced a number of programmes in line with the policy.
• What are the key legacies of NEP I and II?
• The 10+2+3 (10 yrs secondary school + 2 years high school + 3 yrs of undergraduate education) structure of education as we know it today, and the three-language formula followed by a majority of schools are among the most enduring legacies of the first national education policy. The prioritisation of science and mathematics in education is another
• The SarvaShikshaAbhiyan, Mid Day Meal Scheme, NavodayaVidyalayas (NVS schools), KendriyaVidyalayas (KV schools) and use of IT in education are a result of the NEP of 1986.

How long before the next NEP?

• A committee headed by former Cabinet Secretary TSR Subramanian was asked by HRD Ministry to collate public feedback and give inputs for the policy. The five-member panel submitted its report to the government in May. The central government will now draw up a draft policy document based on the recommendations, and share it with state governments to seek their views. The government will also put it in the public domain for feedback. The policy is expected to be finalised in a year’s time

What has the TSR Subramanian panel recommended?

• The report is in two volumes. The first, in 230 pages, contains nearly 90 suggestions; the second has over 100 pages of annexures. The panel has recommended significant interventions such as amending the Right to Education (RTE) Act to bring back detention of students after Class V, and making minority schools reserve 25% seats for candidates of economically weaker sections (EWS). It has called for restrictions on campus politics, and recommended extending the scope of RTE to cover pre-school education, and of the Mid Day Meal Scheme to secondary education. The report has criticised governments for interference in important appointments, especially that of Vice-Chancellors

1. PIB

a) Withdrawal of the Drugs and Cosmetics (Amendment) Bill, 2013 The Union Cabinet has decided to withdraw the Drugs and Cosmetics (Amendment) Bill, 2013, which had been introduced in the Rajya Sabha on 29.08.2013

Keeping in view the objective of make in India, it has been decided to comprehensively review the existing law with two fold objectives viz. to facilitate the ease of doing business and substantially enhancing the quality and efficacy of Indian products. The Ministry of Health and Family Welfare has, accordingly, undertaken an exercise at two levels namely (i) to frame separate rules under the existing Act for regulating medical devices; and (ii) to bring out separate legislations for regulating medical devices and Drugs and Cosmetics

b) Cabinet approves MoU between India and Germany The Union Cabinet has been apprised of signing of a Memorandum of Understanding (MoU) with Steinbeis GmbH Co.KG, Germany for Technology transfer and Technology resourcing in manufacturing, including sub-sectors of Capital Goods. The MoU was signed on 25th April, 2016 during the Industrial Exhibition Hannover Messe 2016 in Hannover, Germany

c) Cabinet approves Protocol amending the Agreement for avoidance of double taxation and prevention of fiscal evasion with Belgium The Union Cabinet has approved today the signing of a Protocol amending the Agreement between India and Belgium for avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income.

The amendment in the Protocol will broaden the scope of the existing framework of exchange of tax related information between the two countries, which will help curb tax evasion and tax avoidance. The Protocol will also revise the existing treaty provisions on mutual assistance in collection of taxes.

d)Establishment of Fund of Funds for funding support to Start-ups The Union Cabinethas approved the establishment of “Fund of Funds for Startups” (FFS) at Small Industries Development Bank of India (SIDBI) for contribution to various Alternative Investment Funds (AIF), registered with Securities and Exchange Board of India (SEBI) which would extend funding support to Startups. This is in line with the Start up India Action Plan unveiled by Government in January 2016

e)Union Minister of Human Resource Development announces new UGC foreign academic collaboration regulations Indian Universities and Colleges, having the highest grade of accreditation/ threshold accreditation, will now be able to apply online to the University Grants Commission (UGC) for starting twinning and collaborative arrangement with quality Foreign Educational Institutions (FEIs) in undergraduate and postgraduate programmes leading to the award of a degree. The degree will be awarded by the Indian Educational Institutions (IEIs) alone; joint degrees are not permitted. However, the name of the collaborating FEI can be indicated on the degree, the logo and primacy being of the Indian institution. Credits from collaborating FEI when jointly signed by the IEI shall form part of the transcript. FEI may also sign the transcript/credit issued by the IEI

a) Solar cell breakthrough? Topic: Solar cell

Category: S&T

Key Points

• A team of South Korean scientists have used unconventional materials and processes in a path-breaking project to create ultra-thin and extremely flexible solar cells. Each cell is a micrometre thick (100 times thinner than a single strand of human hair) and can be wrapped around a pencil
• The scientists claim that the technology is both more bendable and less fragile than other ultra-thin solar cells, which are typically 3.5-4 times thicker
• Moreover, the cells require fewer raw materials than the regular panels and thus are more economically viable to mass-produce. Aside from the cost, the pliability of the photovoltaics enables the construction of structures with increased surface area, so that more solar power can be absorbed. While experts are contemplating on their use for powering wearable devices, ultra-thin cells can address the energy problem
• Use of these photovoltaics can also ease the economic burden for reaching the government’s target of 100 GW of solar power by 2022, which is expected to cost approximately $100 billion
• With the country already having inaugurated the world’s first solar-powered airport, Cochin International, the ultra-thin cells can provide a low-cost green solution, powering up more airports across the country
• Thin film solar cells have already entered the private sector as HHV Solar has developed the equipment for setting up a production facility. One can only hope that the government, too, takes notice of the vast capabilities of this advanced technology in order to cost-effectively reach its goal and provide a cleaner future for the nation

b)  What makes apparel sector a great job growth driver, find out hereTopic: Textiles

Category: Economy

Key points:

• India needs to generate jobs that are formal and productive, provide bang-for-buck in terms of jobs created relative to investment, have the potential for broader social transformation, and can generate exports and growth. The apparel (or garment) sector meets all these criteria, making it an excellent vehicle for an employment creation strategy with macroeconomic impact. Cabinet approval on Wednesday for a number of measures to boost the apparel sector is therefore a significant policy initiative.

Why apparels?

• Nearly every successful economic growth take-off in post-war history in East Asia has been associated with rapid expansion in apparels exports in the early stages. During their growth booms that averaged between 7% and 10%, countries registered apparels export growth in excess of 20% per year, sometimes closer to 50%
• Given their high labour intensity—the highest in any manufacturing sector—apparels also have the greatest potential for employment growth. For example, as the accompanying graphic shows, every unit of investment in clothing generates 12 times as many jobs as that in autos and nearly 30 times that in steel. Drawing upon World Bank employment elasticities, we estimate that rapid export growth could generate about half a million additional direct jobs every year

• Most significantly, from a social transformation perspective, apparels generate large number of jobs for women, substantially more than in any other sector. In Bangladesh, female education, total fertility rates, and women’s labour force participation moved positively due to the expansion of the apparel sector. India’s low and declining female labour force participation could be similarly boosted by this initiative

Why now?

• India has an opportunity to promote apparels because of rising wage levels in China that has resulted in China losing market share to competitors. India is well positioned to take advantage of China’s deteriorating competitiveness because wage costs in most Indian states are significantly lower than in China
• The space vacated by China is being filled by Bangladesh and Vietnam which have overtaken Indian apparel exports. Indeed, Indian apparel firms are re-locating to Bangladesh, Vietnam, Myanmar, and even Ethiopia. The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in apparels. Hence, the urgency.

Challenges

• But why is India losing out? Several factors play a role.
• First, India’s competitors enjoy better market access by way of zero or lower tariffs to the two major importing markets, namely the US and Europe. The accompanying graphic shows the average tariffs faced by India and its competitors in the US and the EU. In the EU, Bangladesh’s exports enter mostly duty-free while Indian exports face an average tariff of 9.2 %. If the EU-Vietnam deal goes through, a similar disadvantage will arise for India vis-à-vis Vietnam. In the US, when TPP goes through, Vietnam will enjoy duty-free access and India will be disadvantaged in that market, too
• Second, in addition, to the external disadvantage, Indian exporting firms face a number of domestic challenges—logistics and de facto labour costs—that render them less competitive than their peers in competitor countries
• On logistics, India is handicapped relative to competitors in a number of ways. The costs and time involved in getting goods from factory to destination are greater than those for other countries. Further, few large containers come to Indian ports to take cargo so that all exports have to be trans-shipped through Colombo which adds to travel costs and hence reduces the flexibility for manufacturers
• Labour costs, perhaps one of India’s only source of comparative advantage in this sector, also seem not to work in its favour. The problems are well-known: regulations on minimum overtime pay, onerous contributions that become de facto taxes for low-paid workers (documented in Chapter 10 of Volume 1 of the Economic Survey 2015-16), lack of flexibility in part-time work, and high minimum wages in some cases. One symptom of labour market problems is that Indian apparel firms are smaller compared to firms in say China and Bangladesh. An estimated 78% of firms in India employ less than 50 workers with 10% employing more than 500. In China, the comparable numbers are about 15% and 28%, respectively
• Another challenge is that world demand is increasingly shifting toward clothing based on man-made fibres while Indian domestic tax policy favours cotton-based production and tariff policy shields an inefficient man-made fibre sector. These factors undermine clothing competitiveness

Policy responses and their rationale

• Several measures form part of the package approved by the Union Cabinet. But their rationale is to address the challenges described above. The policies suggested do not address all the challenges highlighted above but will definitely go a long way in strengthening India’s apparel industry. Apparel exporters will be provided relief to offset the impact of state taxes embedded in exports which could be as high as about 5% of exports. This is not a subsidy but really a drawback scheme that should be WTO-consistent because it offsets taxes on exports
• Next, firms will be provided a subsidy for increasing employment. This will take the form of government contributing the employers’ 12 % contribution to the EPF (the government is already committed to contributing 8.3%; so, the new measure will be additional to that).
• Third, the government is taking very seriously the impact of Indian exporters being disadvantaged in foreign markets. India will still need to carefully weigh the benefits and costs of negotiating new FTAs such as with the European Union. But in this calculus, the impact on export- and job-creating sectors such as apparels compared to other sectors that do not share these characteristics (luxury cars, for example) will receive high priority.
• All industrial policy aimed at promoting particular sectors is not without risks. But the externality generating attributes—employment, exports, social transformation—of the apparel sector, India’s potential comparative advantage in it, and the narrow window of opportunity, make the risk worth taking. That is why Wednesday’s decision is important, bold, and very timely 

a) Pitfalls in taxing the digital economyTopic: Taxation

Category: Economy

Key points:

• Brick and mortar shopping platforms are slowly vanishing with the arrival of the digital era and the consequent electronic business platform popularly known as electronic or e-commerce
• However, this digital economy is throwing up tax challenges in all the jurisdictions. The Income Tax Act 1961 and the various Double Taxation Avoidance Agreements (DTAA) envisage cross-border taxation in India only if it is income earned in India or income earned through a permanent establishment in India. Now, a seller of goods or a service provider in Chennai or Delhi earning an income in India, or an overseas vendor setting up a sales outlet to deliver goods to Indian consumers, would pay tax on the income as a resident or as a permanent establishment. A service provider landing in India to offer advice and consultancy services will have to disclose income earned in India and pay tax. But digital e-commerce transactions through e-portals located outside India delivering the same set of activities in India go out of the tax ambit
• The digital era is, therefore, exerting pressure on growing and consuming economies where activities and value get created but are not taxed
• In the Indian context, the report of the committee on taxation on e-commerce succinctly lays out the unfair advantage enjoyed by foreign enterprises over their Indian competitors — both digital as well as brick and mortar — in avoiding payment of tax on income earned in India. It has recommended equalisation levy as a viable option. It clarified that it should not be levied on imported goods merely because orders and payments are made through the internet
• The Government through its Finance Act 2016 (Chapter VIII) has introduced the equalisation levy with effect from June 1, 2016. Equalisation levy is defined as “the tax leviable on consideration received or receivable for any specified service under the provisions of this Chapter”. As on date, “specified service” is restricted to online advertising, digital advertising or other facility or service for the purpose of online advertisement, but it empowers the government to notify any other service. It has imposed a rate of 6 per cent on the amount of consideration where payment is made to a non-resident not having a permanent establishment in India

• The constitutional bench and other judgments of the Supreme Court have mandated identification of the nature and character of a tax as a sine qua non requirement for imposition of a levy. The question that needs to be addressed is: What is the true nature and character of this equalisation levy?
• The definition says it is a levy on the consideration paid for the services received. Does it mean a service tax? It cannot be, since these transactions already suffer service tax at 15 per cent on a reverse-charge basis. It would be a double levy of service tax, which is not permissible. Incidentally, service tax is also levied under the Finance Act
• Is it then an income tax in the nature of withholding? The Government has clarified that the levy is not an income tax and does not form part of the Income Tax Act 1961. The government is bound by various bilateral DTAAs that exclude taxation of digital e-commerce transactions and allow taxation only when it is a business income earned in India, or that portion of the income earned in India through permanent establishment
• When these factors are conspicuous by their absence, India cannot tax the transaction. It is for this reason that unless there is a modification of DTAAs through a multilateral arrangement, equalisation levy cannot be imposed under the domestic laws
• Then what is the true nature of this levy? The Constitution permits a single transaction or activity to be taxed more than once provided there are multiple aspects available in that transaction for each one of them to be taxed. An architect rendering a professional service has to pay both service tax and income tax in view of the presence of two aspects, namely rendition of service liable to service tax and earning of income liable to income tax on the same consideration charged
• This equalisation levy is sought to be defended as one which is neither a service tax nor an income tax. One is unable to find a third distinct aspect other than these two available for Parliament to impose a levy under the residual powers of Entry 97 of List I of the Constitution. Globally, this levy is understood to be part of the income tax structure. The definition evidently makes it look like a service tax, for which levy at 15 per cent is already in force
• The equalisation levy may not have a smooth sail and the court may have to pronounce the last word

a) There’s no need for a separate Rail BudgetTopic: Budget

Category: Economy

Key points

• A NitiAayog note to the PMO has reportedly called for dispensing with the practice of presenting a separate rail budget. The move makes eminent sense
• Given the policy imperative of closer economy-wide integration of the railways, the way forward is for the Union Budget to include and incorporate rail finances, preparatory to spinning off the Railways as several corporate entities at arm’s length from government finances, on the lines of public enterprises, some of which have a higher turnover than the Railways
• Successive railway ministers have used the annual budget to play populist politics announcing new projects of suspect viability and refusing to raise fares to viable levels needed to augment capacity
• There is no constitutional requirement to do so. And the Railways Act, 1989, anyway grants the central government the leeway to revise tariffs without consulting Parliament. Reforms like the recent parcel train between Delhi and Bengaluru that runs according to a time schedule are most welcome
• Railways must modernise budgetary practices and adopt corporate accounting, to keep better tab on finances. The railways, for instance, need to accurately work out the social costs involved in their operations so that there is transparent subsidy-sharing with the Centre and the states
• The sustained underinvestment in the railways needs to end. The way ahead is to have independent regulatory oversight on the railways, including for fares and freight tariffs, and open up rail infrastructure for much-needed competition and private sector participation to bring qualitative improvement in rail services. A separate rail budget serves no worthwhile purpose

a) Famed qawwalAmjadSabri gunned down in KarachiIn 2014, the Islamabad Hight Court (IHC) had issued a notice in a blasphemy case to Sabri along with two TV channels for the playing of a qawwali during a morning show

b)  RBI assures market of liquidity in case of ‘Brexit’RBI governor RaghuramRajan had said: “Brexit can be quite damaging if it happens.” However, he had added that RBI was prepared for curb any volatility and reiterated that the country has ‘plenty of reserves.’

c)  ‘Special package to help attract investments’The special package for textile and apparel sector approved by the cabinet is expected to attract investments in the garment sector and give a boost to other segments in the textile value chain.Some incentives have a sunset clause, ie till year 2019. Department of Economic Affairs Secretary Shaktikanta Das said,“These are not open-ended incentives which will continue forever. All incentives will be valid for the next three years. We expect industries to make use of it and to create additional jobs.”

d)  After US, France asks NSG members to back India’s bidAmidst stiff opposition by China to India’s entry into NSG, France today strongly backed New Delhi’s case, saying it will bolster global efforts against nuclear proliferation and asking the members states to take a “positive decision” in the Seoul plenary meeting

e) Climate Change: India plans women-friendly agricultural equipmentMen are migrating to cities, leaving behind women in villages. That’s impacting agriculture as women find it difficult to use heavy equipment used for farming. But that is going to change as the government plans to develop women-friendly equipment to sustain agriculture

f)  Innovation, investment rules to figure at G20 Sherpas meet New issues, including innovation, digitisation and investment rules, will figure at the three-day meet of G20 Sherpas at Xiamen in China beginning June 23. The meet will also discuss the global economic situation and review the progress on preparation for Hangzhou summit to be held in September this year

g) Govt to do away with Plan, Non-Plan spending classification from 2017-18From 2017-18, the Central government expenditure will be classified only as capital and revenue spends. The move is a part of the government’s decision to do away with the classification of Plan and Non-Plan expenditure.Economists have for long argued that Plan and Non-Plan classifications should be done away with and the focus should be on improving the quality of government spending by focusing on the end use of the funds.

h) India to tap Israel’s renowned drip irrigation expertise India will tap Israel’s globally recognised drip irrigation skill during the upcoming visit of Water Resources Minister to the country aimed at exploring possibilities of using technological expertise in water management.

i) India, Switzerland enhance cooperation in skill developmentIndia and Switzerland today signed an agreement to establish formal cooperation in the fields of skills development and vocational and professional education and trainingThe Memorandum of Understanding (MoU) was signed in Winterthur between State Secretary Mauro Dell’ Ambrogio and Union Minister for Skill Development and Entrepreneurship Rajiv Pratap Rudy

F. Concepts-in-News: Related Concepts to Revise/Learn:

• McMohan Line
• SCO
• NATO
• Regional Anti-Terrorist Structure
• NAM
• National Education Policy
• DTAA
• Start Up India
• Solar Cell
• Equalisation Levy
• Brexit
• G20 Sherpa Meet

G. Fun with Practice Questions 🙂

Question 1: Which of the following statements is/are correct the Shanghai Cooperation Organisation (SCO)?

Question 2: Which of the following statements is/are correct?

Question 3: Which of the following statements is/are correct?

Question 4: Which of the following countries were part of the former Soviet Union and are now a member of the EU?

Question 5: Which of the following statements is /are correct?

H. Archives:

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