Comprehensive News Analysis - 08 June 2016

Table of Contents:

A. GS1 Related:
B. GS2 Related:

1. U.S will push for India’s admission to NSG later this month

2. India-Japan nuclear deal stuck on technical details

3. Centre plans alternative to Bt cotton

4. Telecom panel for weighted average tariff on spectrum

C.GS3 Related:

1. ‘We are in the midst of recovery but it is uneven’

2. India to submit services trade plan to WTO

3. RBI committee to study Fintech business in India

D. GS4 Related
E. Important Editorials : A Quick Glance

The Hindu

1. A cautionary note

2. Modi’s West Asian odyssey

3. The ambiguities of gurudom

Indian Express

1. Employment Data

2. On paper, 1 in 4,000 are fake: Notes on India’s huge currency problem

3. Controversy over Karnataka RS polls is an opportunity to bring in crucial electoral reforms

4. To Read: For Criminal Defamation


1. PIB

a) Shri Shankar Aggarwal, Secretary (Labour and Employment), Government of India

b) Shri Piyush Goyal Launches “SURYAMITRA” Mobile App

2. The Financial Express:

a) To Read: Infra push: With road, power sectors gaining traction, here’s what govt must now focus on

b) Here’s what leads to tax evasion in India

3. The Business Line:

a) Bank on the poor

b) The state at your doorstep

4. The Economic Times:

a) Economy still a gamble on rains

5. Quick Bits

a) Government looks to take share of water transport to 15% in 5 years

F. Concepts-in-News: Related Concepts to Revise/Learn:
G. Fun with Practice Questions 🙂
H. Archives



Useful News Articles

A. GS1 Related

Nothing here today folks! J


B. GS2 Related


  1. U.S will push for India’s admission to NSG later this month

Topic: International Relations

Category: Indo-US Relations

Location: The Hindu

Key points:

US administration official statement:

  • US keen to have India voted as a member of Nuclear Suppliers Group (NSG) at this year’s plenary – which will be taking place in the last week of June in South Korea
  • U.S have finalised the text of the Logistics Exchange Memorandum of Agreement (LEMOA), and the document is ready for signing
  • The United States reaffirms its commitment to join the Paris Agreement as soon as possible this year.India similarly has begun its processes to work toward this shared objective
  • India and the U.S have a drawn up a detailed action plan for its cooperation in Asia Pacific, based on the Joint Strategic Vision that was unveiled by the PM and the President when the latter visited India in January 2015
  • In another significant step forward in India’s push for accessing high-end technology, all members of the Missile Technology Control Regime (MTCR)have agreed to India being admitted into the exclusive club

(Entry to the Missile regime, which regulates nuclear proliferation by restricting export of missiles carrying more than “500-kilogramme payload with a range of at least 300 kilometres”, as well as “unmanned aerial vehicles (UAV) with mass destruction capabilities”, is expected to clear the way for India to export high-tech missiles and purchase hardware like the U.S. Predator drones)


2.India-Japan nuclear deal stuck on technical detailsTopic: International Relations

Category: Indo-Japan Relations

Key points

  • The civil nuclear agreement firmed up during the visit of Japanese Prime Minister Shinzo Abe in December 2015 is awaiting the legislative approval of the National Diet of Japan
  • the National Diet failed to take up the agreement in the summer legislative session which ended on June 1 as the “technical details” of the deal were yet to be finalized
  • India and Japan have been are negotiating the purchase of 12 ShinMaywa built US-2 amphibious aircraft since 2014. It was to open up high technology cooperation between the two countries
  • However the deal is held up due to technology transfer issues as India had proposed assembling 10 of the planes in India as part of its ‘Make in India’ initiative


3. Centre plans alternative to Bt cottonTopic: Governance

Category: Agriculture

Key points

  • The Union government is working to develop a suite of Bt cotton genes that can be integrated into traditional varieties and be made available to farmers as a viable alternative to the current technology, which is largely sourced from Mahyco Monsanto Biotech India Ltd
  • this project would be led by the Council of Scientific and Industrial Research (CSIR) and the Department of Biotechnology (DBT)
  • Institutes such the National Botanical Research Institute, the Centre for Cellular and Molecular Biology and the National Bureau of Plant Genetic Resources will be among the key agencies for identifying and developing new genes


4. Telecom panel for weighted average tariff on spectrumTopic: Governance

Category: Telecom sector

Key points

  • The Telecom Commission has approved the use of a weighted average formula for calculating the annual fee that telecom operators need to pay for using airwaves.The weighted average will be calculated on the basis of when the spectrum was acquired and in which band
  • With the weighted average, the (Spectrum Usage Charge) SUCs as a percentage of revenue would come down for the operators that bought spectrum in the 2300 MHz band in 2010 auctions
  • However, in order to protect government revenue the operators will have to pay as SUC a minimum floor price, which will be the latest charges paid by the company

(The govt. earns Rs 7000 crore per year as SUCs)


C. GS3 Related


  1. ‘We are in the midst of recovery but it is uneven’ 

Topic: Economy

Category: Monetary Policy

Key points

Excerpts from interaction with the RBI Governor and media:

  • On crude oil:$50/barrel tolerable for India
  • About tight liquidity:Fundamentally, if the demand for credit picks up as well as deposit growth picks up it will create conditions for banks to pass through more
  • We are looking at how banks compute MCLR (marginal cost of funds based lending rate) and whether they are following the spirit of the guidelines.
  • The assessment of GDP:We have seen the revisions which confirm our belief that we are in the midst of recovery but it is uneven
  • Timeframe for granting bank licences:We took about six months for granting licence (after filing of application) during the last round. I would say whatever time we took then would be the basic benchmark and we will try to meet that
  • On payments bank licensees: The typical payments banks could be the mobilecompanies (cos that offer  mobile payment service platforms)  which have outlets already available so that the incremental cost of access points are relatively low and the mobile can work as a wonderful transmission device with a kiosk that they have as cash in, cash out points. Building on an existing business seems to be the way to go to benefit from scale and scope of economies


2. India to submit services trade plan to WTOTopic: Economy

Category: Trade

Location: The Hindu

Key points

  • India will soon submit a formal proposal before the World Trade Organisation (WTO) on a Trade Facilitation Agreement (TFA) in services
  • The objective of the proposed TFA in Services is to ease the flow of global services trade, including temporary movement of software, accounting, medical and consulting professionals as well as similar skilled workers
  • India and the US are currently engaged in a dispute at the WTO level after Washington increased visa fees for H-1B and L-1 categories which are extensively used by Indian IT companies
  • A global pact on services trade facilitation will also help in providing greater clarity in case of disputes arising out of visa-related restrictions


  1. RBI committee to study Fintech business in India

Topic: Economy

Category: Fintech

Location: The Hindu

Key points

  • The Reserve Bank of India is in the process of setting up a multi-disciplinary committee to study the FinTech business in India
  • FinTech, which means using technology to offer financial services to end customers at a lower cost, has been a buzzword across the world in recent years, with little or no regulation over their functioning
  • Among the kinds of FinTech that the RBI is promoting are the Unified Payments Interface and the Bharat Bill Payments System. Some areas in which FinTech has emerged include payments, peer-to-peer lending, and the use of automated algorithms to offer financial advice


D. GS4 Related
E. Important Editorials: A Quick Glance

The Hindu

Topic: Economy

Category: Monetary Policy

Key points

  • Reserve Bank of India has opted for caution, citing the uncertainty surrounding the future trajectory of inflation and signs of an upside bias to expectations. In leaving interest rates unchanged while retaining an “accommodative” monetary policy, he has chosen to leave all options on the table and wait to see how various global and domestic factors pan out
  • That the RBI has opted for watchfulness, notwithstanding the prospect of an “above normal” and well-distributed monsoon that has the potential of being “a source of disinflationary pressure”, is testimony to the central bank’s concern about keeping inflation expectations well-anchored
  • Consumer price inflation posted a surprisingly rapid acceleration to 5.39 per cent in April on the back of a more-than-seasonal jump in the prices of food items including vegetables, fruits, sugar, meat, fish, pulses and edible oils
  • Separately, international prices of commodities have started to strengthen, including that of crude oil; this has begun feeding through into higher transport and communication costs
  • The overall impact of these trends has been that the inflation expectations of households, projected three months ahead, moved up marginally in May after the previous survey had shown a decline
  • And the elephant in the room is the anticipated implementation of the Seventh Central Pay Commission’s recommendations: to what extent the increased payouts will fan inflation has yet to be quantified, and will ultimately depend on the Centre’s timetable for implementation
  • The RBI has also flagged the challenges to sustaining India’s economic momentum: global growth is uneven and struggling to gain traction, world trade is floundering for want of demand, the U.S. is weighed down by contracting industrial activity and exports, deflationary pressures are building in Japan, and the slowdown in China shows no signs of reversing
  • Besides, if Britain votes to leave the European Union, there is a real risk of “some turmoil in the financial markets”, according to the RBI governor, who added that the RBI is armed with adequate reserves to weather any volatility that may emerge
  • On the domestic front, green shoots are visible on many fronts. Cargo traffic at major ports, commercial vehicle sales, cement output and steel consumption are leading an upturn that point to a more broad-based expansion. The RBI’s own surveys reveal healthier order books and a pick-up in capacity utilisation that can help trigger a revival in private investment
  • Ultimately though, a lot will hinge on how the monsoon fares, and how much the Centre is willing to invest by way of capital to bolster public sector banks. The central bank, in the end, can only do so much.


2. Modi’s West Asian odysseyTopic: International Relations

Category: India and West Asia

Key points:

  • During the Prime minister’s engagement with Asia in the past two years, every country has applauded its historic and civilisational links with India, and every interaction has yielded substantial agreements which will take bilateral relations into new areas and reshape ties to make them relevant to contemporary times
  • Besides paying tribute to the resident Indian community, the visits attached central importance to boosting energy and economic ties: here the difference is the commitment on both sides to upgrade the existing buyer-seller relations to long-term partnerships based on investments and joint ventures
  • The two sides also agreed to pursue cooperation in new frontier areas, such as space, telecommunications, renewable energy, food security, sustainable development, desert ecology, and advanced healthcare
  • Every country visited expressed its admiration for India’s economic achievements and pledged to become a partner in India’s development efforts, with the UAE even setting aside a fund of $75 billion to invest in India’s infrastructure needs
  • All of them emphasised the value of cultural ties that have shaped our ethos over several centuries, and committed themselves to enhancing people-to-people links through new platforms for interaction, embodying the shared values of moderation and accommodation
  • The joint statement with Iran, titled ‘Civilisational Connect, Contemporary Context’, particularly focussed on sustaining historic cultural ties through interactions among scholars, authors, artists, filmmakers, the media, and sportspersons
  • Every Gulf country expressed anxiety about the threat from terrorism and pledged to work closely with India to combat it, not only through strong armed action but also by countering radicalisation through promotion of a moderate religious discourse espousing peace, tolerance, and inclusiveness
  • Most of the countries have spoken of India as their “strategic partner”, a status that represents a high degree of shared values, perceptions and approaches to matters of security concern
  • Not surprisingly, enhancement of defence ties has been given central importance by all the countries the Prime Minister has visited. This includes frequent dialogue between senior officers, training, joint exercises by the three arms of the military of both countries, joint marine operations, and supply and joint development of arms and ammunition
  • Defence cooperation is complemented by the countries agreeing to intelligence-sharing, counter-terrorism operations, capacity-building and adoption of best practices and technologies by the security agencies on both sides. Cooperation in defence and intelligence affirms that India is seen as a worthy partner in these sensitive areas by countries that face serious domestic and external threats from extremists
  • While the bulk of the joint statements are devoted to bilateral relations, every one of these documents contains a subtext that poses a challenge for India and imposes a new responsibility on it: how to shape an Indian role to promote security in the Gulf?
  • West Asia today is in the throes of the gravest crisis in its modern history. Besides two ongoing wars, there is the scourge of jihad, represented by the transnational al-Qaeda and the Islamic State. The two Islamic giants, Saudi Arabia and Iran, are locked in a competition in which each country sees the other as threatening its nationhood, regime, political order, and doctrinal standing in Islam
  • Saudi Arabia believes that Iran supports terror, interferes in the domestic politics of the neighbouring Arab states, and is a destabilising force that has regional hegemonic aspirations
  • Iran denies these allegations, arguing that the Saudi monarchy faces serious domestic economic and political challenges, particularly from its restless youth who chaff against an order that is on the wrong side of every issue in world affairs — constitutionalism, political participation, human rights, gender and minority sensitivity
  • With the deep doctrinal and political divide between them, the proxy wars in Syria and Yemen, and the attendant proliferation of jihad, the stage is set for their differences to escalate into direct conflict
  • India has every reason to be concerned: its energy security and its economic interests are linked with regional security, as is the welfare of its eight million-strong community. India’s abiding interests require that it get off the fence and contribute actively to regional stability by promoting engagement between Saudi Arabia and Iran, and by working with regional and extra-regional partners with a similar interest in regional security, to structure platforms for dialogue and confidence-building measures
  • This is a daunting challenge, but India is fully equipped to handle it. The ground was prepared by the Indian Foreign Secretary when, speaking of West Asia, he said: “We are no longer content to be passive recipients of outcomes… Our growing capabilities and stronger national branding, in fact, makes us a credible partner. We ourselves have a more nuanced view of developments in the region. The interplay among these nations actually offers us new avenues of cooperation.”
  • The time has come to live up to this commitment


3. The ambiguities of gurudomTopic: Society

Category:  Value System

Key Points

  • Men of god are expected to be renouncers. New-age gurus dress in flashy apparel, travel in luxurious private planes, host celebrations attended by pomp and splendour, and endeavour to arouse shock and awe among devotees
  • This was not always so. In all religions, visionary spiritual leaders have challenged hierarchies and disparities, exploitation and discrimination of the community. From the sixth to the sixteenth century the Bhakti movement launched a powerful attack on caste-based discrimination in Hinduism. Till today the subversive poetry authored by Kabir is remembered, recited and sung. “Pandit,” he addressed the Brahmin, “look in your heart to know. Tell me how untouchability was born — untouchability is what you made so.”
  • Do we see any of this questioning by cults today? Perhaps not. Self-styled gurus can hardly launch a critique of a system of which they are the beneficiaries
  • Indians have bowed their foreheads before gurus, renouncers, holy men, savants and peripatetic sadhus since time immemorial. But these transactions between believers and faith leaders were private, confidential and sacrosanct. These days transactions are public affairs; conspicuously orchestrated mega-events are televised and breathlessly consumed by a global constituency
  • The prime attraction of today’s guru is that he/she is accessible to all. The gates of spiritual wisdom have been thrown open, gatekeepers have been dispensed with, and religious philosophy has been democratised. Whether the leader himself is a democrat is questionable
  • In capitalist society the value of a person is judged by the value of her possessions. Individuals themselves become commodities at considerable cost to their self-esteem and assurance
  • The problem is not with religion, it is with this soulless world that many seek to negotiate with the help of a religious leader
  • It is debatable whether modern gurus teach followers to live in harmony with other fellow beings. At best, they teach instant moksha, at worst they exploit followers
Indian Express



2. On paper, 1 in 4,000 are fake: Notes on India’s huge currency problemTopic: Economy

Category: Fake currency

Key Points

  • At a meeting last month, the RBI Central Board recommended designs for a new banknotes series to the government. A key reason for proposing the new series is that India remains a cash-based economy, and fake currency notes continue to be a huge menace

How big is the fake currency problem?

  • As many as 250 out of every 10 lakh notes in circulation are fake, according to a study conducted by the Indian Statistical Institute. Typically, at any point in time, banknotes with a face value of Rs 400 crore are in circulation in the country. The study revealed that fake currency notes with a face value of Rs 70 crore are infused into the system every year, and law enforcement agencies are able to intercept only a third of them — a fact that is acknowledged by the agencies themselves
  • The detection rates of fake 100- and 500-rupee notes were found to be about the same or 10% higher than the detection rate of 1,000-rupee notes. The study added that fake 1,000-rupee notes constitutes about 50% of the total value of fake notes

How do these notes find their way to India, and who profits from them?

  • Pakistan’s military spy agency, the Inter-Services Intelligence (ISI), has been raking in an annual profit of around Rs 500 crore by circulating counterfeit notes in India, according to a report prepared by the IB, R&AW, Directorate of Revenue Intelligence and CBI
  • The ISI has been making a profit of 30-40% on the face value of each counterfeit Indian note produced in Pakistan, according to the report. The cost of printing aRs 1,000 counterfeit note, for instance, is Rs 39 (the RBI spends Rs 29 to print a Rs 1,000 note), but it is sold at Rs 350-400, according to the report. The total fake notes that came into India in 2010 from abroad was pegged at Rs 1,600 crore, and going by this estimate, the report put the ISI’s total profit at Rs 500 crore

What has the government done to tackle this problem?

  • The government has formed a special Fake Notes Co-ordination (FCORD) Group in the Home Ministry to share FICN information with security agencies of states and the Centre. It has also constituted a Terror Funding & Fake Currency Cell (TFFC) in the National Investigation Agency to investigate terror funding and fake currency cases.
  • Under the Unlawful Activities (Prevention) Act, 1967, effective from February 1, 2013, damage to the monetary stability of India by production, smuggling or circulation of high quality fake Indian paper currency, coin or any other material has been declared an act of terror
  • Apart from this, the government in August 2015 signed an MoU with Bangladesh to prevent the counter-smuggling and circulation of fake currency notes. This, after it found that smugglers were increasingly using the India-Bangladesh border to smuggle in FICN. Under the MoU, the two countries will share intelligence on such cases

Notes on India’s huge currency problem


3. Controversy over Karnataka RS polls is an opportunity to bring in crucial electoral reformsTopic: Polity

Category: Elections

Key Points

  • The sting operation by two TV channels purportedly showing Karnataka MLAs negotiating cash for votes for a Rajya Sabha election has caused a furore over the phenomenon of horse-trading. This is not a first. Election time has become harvest season for voters electing members to the Vidhan Sabha, Lok Sabha and Rajya Sabha
  • A similar case occurred in Jharkhand in 2012 when elections to two RS seats were countermanded
  • It’s important to refer to the Jharkhand case as this is the only precedent we have. On a complaint brought by three senior political leaders about rampant horse-trading among MLAs, the EC countermanded the poll. It may be recalled that Jharkhand had become notorious for rich people from outside the state queuing up to buy RS membership.
  • It was not an easy case for the EC. The biggest concern was that there is no model code of conduct for the RS election as the nature of the election is different. There are no public meetings, rallies, door-to-door canvassing or media campaigns. The constituency is confined to a small electoral college consisting of MLAs. The voting is open so the party MLAs are subject to party discipline but the independents are not
  • The legal dilemma before the EC in the Jharkhand case was how to prove that the Rs 215 crore that was caught was meant for the election
  • The Jharkhand HC not only dismissed the writ petition against the order but hailed it as the most decisive action against corruption in 60 years and imposed a fine of Rs one lakh on one of the petitioners
  • In the instant case, no money was caught but there was conversation between the MLAs and a decoy journalist where offers/demands of Rs 5-10 crore were made. Does it legally constitute a commission of offence of bribe or at least an attempt to do so? The intention to commit an offence is not a crime except in the case of dacoity. As expected, the defence being put up by the concerned players is that no money has changed hands.
  • The rot is deep. Every political party knows it. They also make appropriate noises about it but have no intention to stem the rot. The tone changes when they themselves are at the receiving end
  • What should the EC do? The EC has to ascertain the fullest possible facts. It has asked for a report of the Karnataka chief electoral officer on the recordings of the sting operation. While the reality is clear, the law requires evidence. Expecting the EC to act without a detailed report is not fair. We must remember that the EC’s orders are subject to judicial scrutiny. In any case, there is ample time before polling day. The Jharkhand countermand order was given on the night of the election day, after the polling was over, and counting was withheld
  • If the EC concludes that there is prima facie evidence that corruption has vitiated a free and fair election, it has to act. What action is possible? One, order an FIR immediately. Two, postpone the election till the inquiry is sufficiently complete. Three, countermand the election till a conducive atmosphere for a free and fair election is achieved and notify a fresh poll
  • An unintended consequence of the countermanding will be that the three other seats where the numbers are clear (and the candidates are stalwarts) will also be put on hold. Can this be turned into an opportunity? It may force the two biggest national parties to debate the evil of money power and consider the electoral reforms they have been avoiding
  • What are the desirable reforms? Foremost is the amendment of Section 58 of the Representation of the People Act to make abuse of money a ground to countermand the poll, as the EC has demanded. In the Jharkhand case, we had resorted to the plenary power granted by Article 324 of the Constitution. This is a weapon the EC uses sparingly. It’s important that an enabling legal provision is made
  • Two, political parties must discuss the overall problem of money power vitiating the election process and carry out necessary electoral reforms
  • Three, there must be a ceiling on the expenditure by political parties for candidates. Political parties spend crores. And when they spend crores, they need to collect crores.
  • Four, state funding of political parties, not elections, must be considered while banning private fund collection totally. Based on the number of votes obtained, Rs 100 per vote can be given
  • Five, domicile condition for candidates that was done away with in 2003 must be restored to stop wealthy candidates from outside the state from jumping into the fray
  • Six, to prevent cross-voting by horse-trading, the anti-defection law should be amended to declare the violation of the party whip as defection
  • It’s a defining moment for India’s democracy. Let’s seize the opportunity. When people lose faith in democracy, the consequences are disastrous. We have enough examples in the neighbourhood



  1. PIB


a) Shri Shankar Aggarwal, Secretary (Labour and Employment), Government of India addresses the Plenary session of the 105th Session of International Labour Conference, June 7th, 2016 in Geneva 

  • In September 2015, the world came together to adopt the 2030 Agenda for Sustainable Development. Goal 1 on eradication of poverty and Goal 8 on achieving full and productive employment are at the center of 2030 Development Agenda and ILO has a significant role to play in its success
  • A sustained high rate of economic growth coupled with focused initiatives for employment generation and universalization of social security define the growth strategy for India
  • India’s response for poverty eradication can be seen in our initiative for financial inclusion and social security, improved wage policies, skill development and a comprehensive approach for creating a conducive environment for overall economic growth, infrastructure development, innovation and entrepreneurship. India firmly believes that poverty can be eradicated only by creating jobs at every level: social as well as geographical. India is committed to provide quality jobs to each and every worker in the country. Major initiatives like Make in India, Digital India, Skill India, Start up India and 100 Smart Cities are focused on creating quality jobs for everyone in every corner of the country
  • India’s public employment services are being strengthened to facilitate India’s youth to get job best suited to their qualification and aptitude by providing updated information even in the far flung rural areas.  National Career Service (NCS) Project is being implemented using technology to provide a variety of employment relatedservices like job postings, career counselling, vocational guidance, skill courses, apprenticeship, etc.  The portal has successfully registered over 35 million candidates and 1 million establishments. The NCS portal is collaborating with leading private players in the field to enhance the effectiveness of the portal
  • Ministry of Labour and Employment is committed to protect and safeguard the interests of the workers, in particular the poor, deprived and disadvantaged sections of the society.
  • India is working to ensure better and effective enforcement of Labour Laws and to create a conducive  environment for job creation by bringing in the necessary ease in compliance of provisions related to labour. A portal called ShramSuvidha Portal has been developed augmenting inspection mechanism such that inspection are more objective and targeted to ensure that cases of noncompliance are taken up on priority.
  • In the era of globalization, promoting labour mobility particularly for the youth is essential in order for them to have access to best opportunities across the global value chain. Advocating decent work in global supply chain is also essential for ensuring safe working conditions and protection of labour rights across the entire value chain


b) Shri Piyush Goyal Launches “SURYAMITRA” Mobile App The GPS based mobile app is developed by National Institute of Solar Energy (NISE) which is an autonomous institution of Ministry of New & Renewable Energy (MNRE)

Under the NABARD scheme of Off grid Solar PV systems, many thousands of off-grid systems have been installed and these systems require regular maintenance. To keep the system in good condition skilled manpower is required, therefore, the proposed technical platform of Suryamitra Mobile App can be very useful. Suryamitra initiative is a part of Make in India. Suryamitra course is a 600 hours (i.e. 3 months) skill development program designed to create skilled manpower in installation, commissioning, and Operation & Maintenance of solar power plants and equipment

Suryamitra Mobile App would come handy with respect to O & M, Repair and maintenance of solar pumps. Trained Suryamitras from several states who opt for entrepreneurship will benefit from the Mobile App


2. The Financial Express:


b) Here’s what leads to tax evasion in IndiaTopic: Economy

Category: Taxation

Key Points

  • Starting from 1951, governments announced at least one income tax voluntary disclosure or bond scheme each decade till the 1990s—the last one being the Voluntary Disclosure of Income Scheme (VDIS), in 1997
  • Compulsions like low tax collections or low foreign exchange reserves made these schemes essentially ones which were driven by government revenue needs
  • After an interval of 18 years, the government has first introduced a one-time compliance window underBlack Money(Undisclosed Foreign Income and Assets) and Imposition of Tax (BMIT) Act in 2015 and now the Income Disclosure Scheme (IDS) 2016
  • The compliance window under the BMIT Act had strong tax-policy logic underlying it. With the ability of the government to access information on assets held abroad greatly enhanced due to the global information sharing and Base Erosion and Profit Shifting (BEPS) initiatives, coupled with its introducing a more stringent law as regards undisclosed income and assets located abroad as compared to income and assets located in the country, it made sense to allow future compliance to be based on a clean slate. The information and compliance asymmetry was, in this case, in favour of the government as reflected in the high tax rate of 60% (30% tax and 30% penalty) for the 90-day compliance window. While the collections at about R2,500 crore from the declarations may not be overwhelming, the base for a higher level of compliance and tax collection has been laid as regards global incomes of high net-worth taxpayers who choose to remain tax residents of India
  • IDS 2016 for domestic taxpayers, introduced in this year’s budget, has a compliance window of 120 days (starting from June 1, 2016) and the tax rate is mandated at 45% (30% tax plus 7.5% surcharge and 7.5% penalty)
  • When compared to VDIS 1997, it avoids many of the pitfalls of that scheme. VDIS 1997 was introduced with the objective of mobilising resources and channelising funds into priority sectors of the economy, had a large compliance window of 180 days and low tax rates (30% for individuals and 35% for companies and firms). These rates were further compromised as the scheme allowed undisclosed income represented by gold and silver jewelry/utensils acquired prior to April 1, 1987, to be disclosed at the market value as on April 1, 1987. This reduced the effective rate of tax to nearly 16.32% as there was a considerable difference in market rates of gold /silver as on April 1, 1997, when compared to April 1, 1987
  • The IDS 2016 avoids these pitfalls with a reduced compliance window, much higher tax rate and mandating disclosure of assets at cost or market value, whichever is higher, as on June 1, 2016
  • It is however difficult to find any strong policy or compliance logic for the Income Disclosure Scheme (IDS) 2016. The budget speech states that the capability of the tax department to detect tax evasion has improved because of enhanced access to information and availability of technology driven analytical tools to process such information, therefore the government wishes to give an opportunity to the earlier non-compliant to move to the category of compliant
  • However, the direct-tax-to-GDP ratio has remained relatively constant in the last five years. It needs to be realised that the overwhelming causes of tax evasion in India lie in evasion of indirect taxes and the generation of income through illegal means
  • While India’s direct-tax-to-GDP ratio is low due to the low collection of personal income taxes, a major reason for this is the low level of employment in the formal sector of the economy. Informal employment contracts to avoid high employer contributions also lead to avoiding the reporting of salary incomes which would be subject to tax withholding
  • Tax evasion due to the prevalence of the informal sector starts with suppression of turnover to evade value-added tax and service tax by small and medium businesses and professionals which automatically results in under-reporting of incomes for income tax
  • The informal sector also absorbs capital from gains made through corruption and violation of regulatory acts which therefore cannot be reported as taxable income
  • The systemic solutions to this are the rapid introduction of digital, mobile-based payment systems to replace cash transactions, a stringent reporting and penalty mechanism for benami transactions and assets (which has been pending for long) and the introduction of the nation-wide invoice based GST which is substantially self-regulating as a business needs a tax-paid invoice to claim credit against its own GST liability
  • There would have been a much stronger logic for a one-time compliance window like IDS 2016 once the GST was introduced or stronger anti-benami provisions had been put in place


3. The Business Line: 


a) Bank on the poorTopic: Economy

Category: Banking

Key points:

  • The last Financial Stability report of the RBI (December, 2015) has stated that India’s financial system remains stable and the relatively stronger macro-economic fundamentals lend it resilience. All the negatives that we hear about Indian banking are manageable, in a macro-sense
  • But on the subject of financial inclusion and deepening and the role of banks, one wonders whether banks have acquitted themselves well, for there are millions of households and small businesses which remain outside the ambit of the formal financial sector
  • In 2014, the NachiketMor committee had pointed out that 60 per cent of the rural and urban population do not even have a functional bank account and that 90 per cent of small businesses have no links with the formal financial sector
  • The government’s intervention has brought in results in terms of opening accounts but doubts still remain about how many bank branches would open basic banking accounts for anybody who walks in without any proof of identity or address. The RBI has mandated that just a photograph and physical presence is enough to open these accounts
  • It is very difficult for a lottery-ticket vendor or rag picker to open a bank account
  • Both these are ideal candidates for loans under the Prime Minister’s Mudra Yojana scheme. But it would be too much to expect any bank to give them loans when they cannot even open a deposit account. There are millions of people like Joseph and Surendran to whom the formal financial sector has not yet pro-actively reached out
  • Corporation license is demanded from small businesses before providing them loans of small amounts
  • But banks would lend hundreds of crores to big businesses, approving deviation after deviation from norms
  • Despite all the pushing and shoving, let us be aware that the Mudra loans have aggregated to only ₹1,32,000 crore (approximately), including renewals of old loans of below ₹10 lakh, against a total outstanding All Scheduled Commercial Banks net credit of ₹66,50,000 crore
  • Retail trade alone, for instance, enjoys credit to the tune of  ₹2,12,500 crore while medium, small and micro manufacturing enterprises together enjoy only ₹4,86,000 crore of loans, as per RBI data on deployment of bank credit by major sectors
  • Medium, small and micro enterprises contribute 37.5 per cent of India’s GDP, with a network of 48 million enterprises giving jobs to about 110 million people, as per the Union Government’s estimates
  • There is vast scope for earning good returns in providing credit to these sectors


b) The state at your doorstepTopic: Polity

Category: Local Self Government

Key points:

  • Almost a quarter-century has passed since India embarked on the world’s largest experiment in decentralisation. The 73rd Amendment to the Constitution established more than 200,000 rural local councils (Gram Panchayats), devolved responsibility for an array of services, and reserved seats for women and scheduled castes and tribes.
  • Many, though, feel the panchayats are now plagued by democratic and bureaucratic deficits, and expect citizens to avoid these local bodies.
  • Research in Rajasthan from the late 1990s, for example, found that an average of just 10 per cent of residents would contact their panchayats for assistance across a range of social issues. Instead, citizens sought more informal pathways to the State, relying heavily on brokers
  • But a survey of over 2,000 individuals from across Rajasthan reveals striking levels of citizen action in and around the panchayats. A significantly large majority (62 per cent) reports contacting these local bodies when seeking services from the state, compared to less than one quarter who turn to political parties or local associations, and just 17 per cent who approach brokers
  • The panchayats, in other words, are emerging as a central site of local citizen-state engagement. This is true, moreover, for the most marginalised: women, the lower castes, and the poor. This marks a ground shift in local governance, particularly in a state with legacies of feudal “princely” rule
  • How can we account for this explosion of local citizen action? These patterns are the product of an increasingly broad but also uneven local institutional presence of the state, assessed in terms of its reach, visibility, and accessibility. Since the 1990s, the Indian state has moved closer to the village
  • But in an environment marked by discretionary rather than rule-bound local administration, the state’s presence is variable
  • Three sets of dynamics drive the state’s uneven local penetration. First, India’s welfare sector is expanding (albeit in relative terms), driven in part by social rights legislation and made visible through rising expenditures and a proliferation of programmes
  • Per capita social spending has increased by more than 50 per cent since the 1990s, and central government spending on core welfare programmes is now equivalent to ₹9,065 (or 40 per cent of the poverty line) per rural household in a year
  • There are, in other words, resources to be had, and citizens are increasingly aware of this fact. They are, moreover, resources that matter; accessing the state is an issue, if not of life or death, of whether and what one will eat, where one will work, and whether one has access to basic protection and care
  • Many, however, remain frustrated in their efforts to secure even basic goods and services. And yet this very gap — visible in the failure of the state to deliver in a uniform fashion – further necessitates and motivates citizen action.
  • Second, the panchayats are becoming more deeply institutionalised over time. While their fiscal autonomy remains limited, greater resources are flowing to and through the panchayats. This is particularly true since the implementation of the National Rural Employment Guarantee Scheme
  • Panchayat members play important roles in the administration of this programme, which exceeds $6 billion in funding and covers one-third of rural households. Panchayat elections are also becoming more competitive; in 2010, an average of 6.6 candidates contested each council president seat in Rajasthan
  • Third, the local governance environment is diversifying. The expanding welfare sector means, in crude terms, that there is a bigger pie to divide. As a result, more and new actors — both formal and informal — have emerged, attempting to link citizens and the state
  • A majority pursues more than one claim-making channel and citizens often mix and match direct and mediated approaches. The panchayat, for its part, plays a gatekeeper role; for example, 90 per cent of those who contact political parties do so in conjunction with the panchayat. The panchayat, in sum, is a critical lynchpin in an increasingly complex local environment
  • The cumulative result of these changes is an increased frequency and intensity of local citizen-state engagement centred around the panchayat. Rural citizens today encounter the state at their doorsteps, visible not only in a growing array of public programmes but also in the form of regular local elections and representatives who hail from their local communities. A growing array of brokers and intermediaries, moreover, provide new and additional channels through which citizens navigate access to the state
  • What, though, are we to make of these high rates of local citizen action? On the one hand, we might see residents of one of India’s poorest regions actively engaging the state in pursuit of services as evidence of a dynamic local democracy. A darker view, though, might suggest that citizens are forced to make claims because of the state’s — and the panchayat’s — failure to regularly provide
  • Institutions are critical to how this story will unfold. Will social movements mobilise and sustain citizens’ claims? Existing groups, such as the MazdoorKisan Shakti Sangathan, are already active in Rajasthan and have effectively generated campaigns around social rights. Their presence, though, remains patchy at the local level
  • Will they grow in their reach and influence? Or could political parties rise to fill the gap? This seems unlikely in the current electoral environment marked by intense competition for votes in a system that has long rewarded patronage. The emergence of new parties, such as the AamAadmi Party (AAP) signals a potentially important departure from the traditional party model
  • As yet, though, such parties are not particularly active in rural settings such as Rajasthan. Perhaps most promising is the Gram Panchayat, which has emerged as a critical site for claim-making. Will they be empowered to play the representative and deliberative roles for which they were designed? Change is slow and uncertain. But there is reason to follow the lead of the myriad citizens who nonetheless place hope in these local institutions


4. The Economic Times:a) Economy still a gamble on rains

Topic: Economy

Category: Environment vs development

Key points:

  • The central bank has held its hand, as the market had been expecting it to. Inflation has shown signs of moving up, particularly of non-grain food articles and of fuels
  • The RBI sees positive factors in the forecast of a good monsoon and deft food management by the Centre. The hardening of the price of pulses and other protein foods is a cause for worry, as their output is not geared to go up with the onset of a good monsoon
  • With economic growth rates having turned out, and forecast, to be robust, inflationary pressures are grounds for a rate hike. The RBI has been able to avoid a hike in rates, thanks to the US Fed dragging its feet on lifting long-repressed policy rates. It would make sense for the government to utilise the grace period so derived to take policy action that boosts output and holds down inflation
  • The RBI expects growth of gross value added (GDP less the net tax burden) to be a robust 7.6% this year. When it says growth will be consumption-led, it is conceding that investment will remain tepid
  • How the government manages the Seventh Pay Commission award disbursal gains added importance. On the one hand, it will add to consumer demand, the prime driver of growth. On the other, too much consumption demand could send inflation soaring, triggering a rate hike or at least preventing any further rate cut
  • What can the government do to supplement RBI action? It has to maintain fiscal discipline but find ways to inject fresh capital in the banks and to reduce the stress on their books. It has to fast forward the proposed national electronic farm market and rural electrification so that climate-controlled storage dampens volatility in fresh produce prices. And it has to step up capital outlays, so that consumption does not have to bear the burden of growth. The RBI can do only so much.


5. Quick Bits
  1. Government looks to take share of water transport to 15% in 5 years

To ensure the success of ‘Make in India’ initiative,  the govt. said it is committed to bring down the high logistics cost to 12 per cent and raise the share of waterways transportation to 15 per cent in the next five years

At present the country’s logistics cost is 18 per cent while barely 3.5 per cent of goods are transported through waterways


G. Fun with Practice Questions 🙂
Question 1: Which of the following statements is/are correct about MUDRA Scheme?
  1. Loans up to 10lakhs are provided to micro units under the scheme
  2. MUDRA bank delivers the loan through nationalized banks only

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2


Question 2: Which of the following is/are assets against which Income Declaration can be made under the Income Declaration Scheme, 2016?
  1. Land
  2. Jewellery
  4. Artistic Work

a) 1,2 and 3

b) 1,2 and 4

c) 2,3 and 4

d) All the Above


Question 3: Which of the following statements is/are correct?
  1. The Election Commission can countermand an election on the basis of abuse of money
  2. The postponement or cancellation of elections by the Election Commission is subject to judicial review

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2


Question 4: Which ofthe following statements is/are correct?
  1. Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances
  2. Bank rate is the at which RBI gives loan to commercial banks keepingc ollateral

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2


Question 5: Which of the following countries share the coastline of the Caspian Sea?
  1. Iran
  2. Turkmenistan
  3. Kazakhstan
  4. Russia

a) 1 and 4

b) 2 and 4

c) 1,2 and 3

d) All the Above


Check Your Answers

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