Comprehensive News Analysis – 14 June 2016

Table of Contents:

A. GS1 Related:
B. GS2 Related:

1. Chinese violate border in Arunachal Pradesh

2. Ghana for civil nuclear cooperation with India

3. U.N. rights body rues ‘shrinking democratic space’ in Maldives

C.GS3 Related:

1. RBI revises debt recast norms

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

The Hindu

1. America’s new terror reality

2. Public land and private treatment

3. Dual diplomacy for Mission NSG

4. To Read: Breaking the Israel-Palestine logjam

The Indian Express

1. It isn’t odd, January and April were even

Others

1. PIB

a) Gist of the Recommendations of the Group of Ministers on Road Safety

b) FASTag Roll-out and Facilitation

2. The Financial Express:

a) India needs bold measures to end tax terrorism

b) Unleash reforms in the Budget exercise to power growth

3. The Business Line:

a) What Industrial Internet can do for India

b) India and the new great game

c) Must Read: All you wanted to know about…KrishiKalyan Cess

4. The Economic Times:

a) Declining output: Investment revival is the main challenge

5. Quick Bits

a) National Forest Skill Development Centre set up in Dehradun

b) Working group to examine issues on Mauritius DTAA

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

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Useful News Articles

A. GS1 Related

Nothing here today folks! J

 

B. GS2 Related

 

  1. Chinese violate border in Arunachal Pradesh

Topic: China

Category: India’s Neighbourhood

Location: The Hindu

Key points:

  • 250 Chinese troops crossed into the Indian side on the Line of Actual Control (LAC) and went back in a few hours on June 9
  • The incident happened at Yangtse which is located 25-30 km east of Bum La pass in western Arunachal Pradesh
  • The incident coincides with India’s efforts at securing membership of the Nuclear Suppliers Group (NSG) which China has openly opposed
  • In March, Chinese troops had entered Indian territory in Ladakh, Jammu and Kashmir

 

2. Ghana for civil nuclear cooperation with IndiaTopic: India-Ghana Relations

Category: International Relations

Key points:

  • Ghana sought India’s civil nuclear cooperation to explore the possibilities of reducing its dependence on traditional energy sources to cut costs as well as focus on cleaner environment during the President of India is on his first ever visit to Ghana
  • Ghana is signatory to COP 21 (Paris Climate deal) and want to move towards clean energy as present energy mix is based on fossil fuels
  • The three agreements signed with Ghana, after delegation level talks between Mr. Mukherjee and his Ghanaian counterpart, included one for visa waivers for holders of diplomatic and official passports and one for setting up a Joint Commission
  • India is the largest foreign investor in Ghana today, with more than 700 projects. More than 222 of these projects are in the manufacturing sector

 

3. U.N. rights body rues ‘shrinking democratic space’ in MaldivesTopic: Maldives, Sri Lanka and Bangladesh

Category: India’s Neighbourhood

Key points

  • The United Nations High Commissioner for Human Rights gave his global update to the U.N. Human Rights Council which began the 32 session in Geneva
  • Maldives: He expressed concern about the “shrinking democratic space” in Maldives. The application of terrorism-related charges against Opposition leaders of Maldives, and “a number of new rules which have negative impact on fundamental freedoms” were the causes for concern
  • Bangladesh:He expressed concern about the “dramatic increase” in murders, including that of people belonging to religious minority groups

(Since the beginning of a crackdown on terrorists and extremists on Friday in Bangladesh, law enforcement officials have arrested a total of 5,287 people, of which 85 have suspected militant links)

  • As for Sri Lanka, the U.N. High Commissioner, who would make an oral update later in the session, said the government’s efforts to implement its commitments in the resolution, adopted during the 30 sessions in September-October 2015, would require “a comprehensive strategy on transitional justice that enables it to pursue different processes in a coordinated, integrated and appropriately sequenced manner.” This would need an “inclusive and meaningful engagement” with all Sri Lankans

Note:Transitional justice consists of judicial and non-judicial measures implemented in order to redress legacies of human rights abuses. Such measures “include criminal prosecutions, truth commissions, reparations programs, and various kinds of institutional reforms”

 

C. GS3 Related

 

  1. RBI revises debt recast norms 

Topic:

Category: Banking

Key points

  • The Reserve Bank of India (RBI) revised the norms for banks to undertake debt restructuring if they feel the project is viable in the long run
  • Under the scheme titled ‘Sustainable Structuring of Stressed Assets (S4A),’ at least 50 per cent of the debt should be serviced in the same period as that of the existing loan. The balance can be converted into equity or quasi-equity instruments
  • The scheme is applicable to projects that have commenced commercial operation and where the banks’ exposure is over Rs.500 crore
  • According to the norms, an advisory body called Overseeing Committee (OC) will be constituted by the Indian Banks Association (IBA) in consultation with the RBI
  • Banks have to submit the resolution plan to the OC. The OC will review the processes involved in preparation of the plan, etc. for reasonableness and adherence to the guidelines and give an opinion , RBI said

 

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

 

The Hindu

  1. America’s new terror reality

Topic: Terrorism

Category: Security

Key points

 

  • The toxic forces of global jihadist terror, lax gun control laws and pernicious homophobia converged at a gay club in Orlando, Florida. The outcome was the worst mass shooting incident in U.S. history. Omar Mateen, 29, a U.S.-born son of Afghan immigrants, killed 50 people and injured at least 53 using both a handgun and a “long gun”, thought to be an AR-15-style assault rifle
  • Gun proliferation was bolstered by constitutional protection under the Second Amendment, and relentless lobbying on Capitol Hill by the National Rifle Association, with its deep pockets
  • Mateen, who was known to have ranted about gay people in the past, meticulously targeted the gay nightclub, reflecting the persistence of deep prejudices about the community, notwithstanding the U.S. Supreme Court’s landmark decision nearly a year ago upholding marriage equality
  • While the latest attack is another grim bookmark in the annals of gun control reform and hate crimes against the LGBT community, the standout dimension of the incident is without doubt the creeping menace of “lone wolf” attacks linked to Islamic State (IS), and the prognosis for the American security state
  • Mateen said on a call he made to the 911 emergency line that he swore allegiance to IS. Experts have noted that such a pledge has come to be considered a core element of the IS “protocol”
  • In December 2015, the San Bernardino, California, attackers posted such an oath of allegiance on Facebook. In May 2015, the shooter at a cartoon exhibit displaying images of the Prophet Muhammad in Texas posted tweets pledging loyalty to IS
  • These public pledges prior to a violent attack eerily mesh with the recent exhortations of IS spokesman Abu Muhammad al-Adnani, who called on supporters to kill innocents in the U.S. and Europe during the holy month of Ramzan
  • the U.S. surveillance and security apparatus would have to respond with a high level of creativity to deal with lone wolf strikes. Significantly, the Federal Bureau of Investigation had interviewed Mateen twice but found no evidence of any terror links. In the U.S. it is all too easy for a psychotic, bigoted or otherwise unstable individual with leanings towards jihadist extremism to act out his beliefs in the land that has one gun for every human being

 

2. Public land and private treatmentTopic: Executive action/Health

Category: Polity/Governance

Key points:

  • By asking five prominent private hospitals in the national capital to deposit nearly Rs.600 crore to compensate for their failure to treat poor patients, the Delhi government has drawn attention to the social obligation of healthcare providers in the corporate sector as well as the need for timely enforcement of applicable regulations
  • According to the Delhi government, trusts and registered societies to which public land was allotted to establish hospitals were required to earmark a percentage of their medical facilities and services for indigent patients. The administration is now moving against institutions that failed to comply with the provision
  • As early as in 2007, the Delhi High Court had acted on a public interest litigation to lay down that 10 per cent of inpatient facilities and 25 per cent of outpatient services be provided free of cost to the poor. The effect of non-compliance was the repayment of the allegedly “unwarranted profits” the hospitals had made
  • The hospitals that have now been fined dispute any failure to treat the required number of indigent patients and plan to challenge the order. While the courts will have the final say on the dispute, the principle of opposing profiteering in the health sector cannot be faulted
  • The World Health Organisation (WHO) estimates that government accounts for only one-third of India’s healthcare spend — well below what is desirable. As a result, we have a situation in which the private sector accounts for a significant part of healthcare services. Given the low penetration of health insurance, about 86 per cent of expenditure on health comes out of people’s pockets. This strengthens the case for private hospitals to dedicate a part of their services to those who cannot afford treatment. However, there is no national legislation that makes this mandatory
  • In the case of Delhi, it is enforced as a condition on which land is allotted to private hospitals. Wherever such regulations can be legally enforced, it is best that they are monitored on a real-time basis and rigorously enforced. In the present case, it has taken years to assess the audited accounts of the hospitals and initiate action to recover their profits
  • Enforcing social obligations of private service providers must go hand in hand with other measures to achieve the real goals of health policy: universal health coverage and protection for all sections against excessive out-of-pocket medical expenditure.

 

3. Dual diplomacy for Mission NSG Topic: NSG

Category: International Groupings

Key Points

  • Last week, the special meeting of the Nuclear Suppliers Group (NSG) held in Vienna, to consider the issue of India’s application for joining the group, ended inconclusively. The matter will now be taken up at the plenary meeting scheduled for June 21-24 in Seoul. In mid-May, India formally applied to join the NSG, reflecting the political distance it has travelled
  • The NSG (initially known as the London Club) came into being in 1974, in response to India’s peaceful nuclear explosion. Its original members were the U.S., U.S.S.R., U.K., France, West Germany, Canada and Japan. Realising that the Nuclear Non-Proliferation Treaty (NPT) was not robust enough and in any event, France was not party to the NPT and exporting sensitive nuclear technology (including to Pakistan which it then cancelled), these seven countries adopted stringent guidelines for nuclear exports. Today, the NSG has grown to 48 countries
  • After the first few years, the NSG remained dormant and, in fact, did not meet after 1977 till 1991, when concerns about Iraq’s nuclear programme surfaced following the first Gulf war. By this time, the NSG had expanded to 26 countries and moved quickly to expand controls to cover dual-use items and technologies that had contributed to Iraq’s programme
  • The second key change was that for non-nuclear weapon states, full-scope safeguards became the conditionality for nuclear transfers. Since then, it has had regular meetings, both at the technical and policy levels. Legally though, it remains an informal grouping of like-minded states committed to nuclear non-proliferation, implemented through a system of harmonised export controls. Decisions in the group are taken by consensus
  • Contrary to popular perception, India has never been an ‘outlier state’ and though not a member of the nuclear non-proliferation regime, has maintained an impeccable non-proliferation record coupled with a strong commitment to controlling exports of nuclear materials, equipments and technologies
  • After the 1998 nuclear tests when India became a nuclear weapon state, India tightened its systems further by introducing new laws and for nearly a decade, has been a voluntary adherent to the NSG guidelines. For over five years, it has been engaged in a formal dialogue with the NSG before deciding last month to apply formally to become a PG(Participating Government)
  • Since 1998, the India-U.S. dialogue has gone through three phases. The first phase was to obtain relief from the sanctions imposed on India by the U.S. and other countries
  • Following its conclusion, the push was towards restoring bilateral civil nuclear cooperation. This needed changes in U.S. law which, in turn, required waiver from the NSG guidelines since as a nuclear weapon state, India could not accept full-scope safeguards. This challenging third phase took three years and finally, in 2008, the NSG provided an exceptional waiver to India clearing the way for India to enter into civilian nuclear cooperation agreements. Agreements with the U.S., France and Russia relating to setting up of new nuclear power plants and long-term agreements for supply of uranium fuel with nearly a dozen countries have since been concluded
  • The exceptional waiver provided by the NSG in 2008 was an acknowledgement of India’s non-proliferation record
  • Wanting to put an end to the myth of India being an ‘outlier’ to the non-proliferation regime, and as a potential exporter of nuclear, missile and other related sensitive technologies, India declared its intention to join NSG, MTCR (Missile Technology Control Regime), Australia Group (set up to control exports of chemical and biological agents), and Wassenaar Arrangement (covering exports of munitions and dual-use goods and technologies)
  • The U.S. backed India’s decision and the joint statement issued following President Barack Obama’s visit in 2010 stated “the U.S. intends to support India’s full membership in the four multilateral export control regimes”; this has been reiterated at subsequent summits. The reality is that joining NSG offers political advantage because the 2008 waiver has already enabled India to engage in civil nuclear cooperation. Today, India is a voluntary adherent to NSG guidelines; as a PG, this will become a legal obligation
  • Since the NSG is an informal grouping consisting of PGs (and not member states), it has set out five factors for considering applications of prospective PGs. These are — the ability to supply items on NSG control lists; acting in accordance with NSG guidelines; a legally based export control system; support international non-proliferation efforts; and finally, membership of treaties like the NPT that require full-scope safeguards. Evidently India more than fulfils the first four but cannot meet the last ‘consideration’; however, these are not mandatory criteria but factors for consideration
  • Since Pakistan put in its application a week after India, China has been open in voicing its opposition
  • China maintains that an exception for India would weaken the non-proliferation rules; since there is Pakistan’s application too, a criterion-based approach should be developed; and finally, nothing should be done in hurry that would upset the South Asian balance. The first argument is designed to appeal to some of the smaller countries who had resisted in 2008; China’s real objective is to delay India’s joining, keep it hyphenated with Pakistan and restricted to South Asia
  • China joined the NSG in 2004; at that stage it had two power reactor projects in Pakistan, Chashma I and II, of 325 MW and 340 MW capacity, respectively. Chashma I was already operational and Chashma II went online in 2011. After the India-U.S. agreement was announced in 2005, China declared that it would also be building new reactors in Pakistan. Since this was a clear violation of NSG guidelines (Pakistan does not enjoy a similar exception like India got in 2008), China ‘grandfathered’ the announcement by citing an earlier commitment that it had omitted to mention in 2004! A contract for Chashma III and IV was signed in 2009 and an announcement for Chashma V made in 2013. Given its proliferation record, Pakistan is unlikely to obtain nuclear cooperation from other NSG members but China would find Pakistan a useful ally in the NSG
  • In Vienna, knowing that the meeting would be inconclusive, India’s objective was to gauge opposition and ensure that the matter be discussed in Seoul. Meanwhile India needs to pursue two diplomatic tracks simultaneously. One track should focus on those countries that reportedly raised concerns about the impact of an India exception on the regime. Ireland, Switzerland and Mexico have been brought around; South Africa, New Zealand, Austria and Turkey still need to be persuaded
  • The second track should focus on China. The reality is that Pakistan is not ready to join the NSG. It has not separated its military and civilian nuclear programmes; safeguard agreements with the International Atomic Energy Agency for its civilian programme are yet to be negotiated; and accession to the Additional Protocol is pending. China knows this and is employing dilatory tactics. The question is whether an assurance that India would refrain from blocking Pakistan’s subsequent bid will work
  • In a move reminiscent of the old Chinese strategy game Go, India also pushed through its MTCR membership earlier this month. China’s application has been on hold since 2004 on account of its missile proliferation activities with North Korea. This would not have gone unnoticed in Beijing

 

 

The Indian Express

 

a) It isn’t odd, January and April were evenTopic: Pollution Control

Category: Environment

Key Points:

  • Odd-Even led to a reasonable reduction in traffic congestion, which was remarkably stable across the two rounds. Compliance with the policy was high, yet many drivers bypassed it legally by using other private vehicles. While noteworthy, these behavioural responses did not completely offset the policy impact
  • This entire experience points to several clear recommendations going forward
  • Policy experiments are useful insofar as they are analysed carefully based on reliable data, and the Odd-Even policy is no exception. The stakes are high, as the lessons drawn from this short-term but largescale initiative will influence transportation policy decisions in Delhi and beyond.
  • Evidence suggests a balanced, cautiously optimistic view on the Odd-Even policy. The consistent impact on traffic congestion over both rounds and the lack of major disruptions, recommend it strongly as a short-term or emergency measure in the future. However, suggestive warning signs in terms of driver adaptation and disrupted economic activity imply that the Delhi government should proactively explore other policies to improve traffic congestion, both in the short and medium run
  • In the medium run, Delhi should set the stage for a system of electronic road pricing (ERP). Jakarta, another megacity battling severe traffic jams, recently declared road pricing the only viable solution to sustainably reduce traffic congestion, and is taking active steps to implement it by the end of 2017. After successful tests of the automatic enforcement technology, the city government is setting up the legislative framework and starting the bidding process for implementing ERP. In the short term, they are looking for othermeasures to reduce congestion, and Odd-Even is on their radar. They have analysed Delhi’s experience; however, the government is clear that only an ERP-type solution can bring sustainable, long-term relief on the city’s most congested roads
  • In the short term, the Delhi government could also explore and rigorously evaluate traffic policies tailored to specific corridors and areas in Delhi, and focus specifically on the rush hour intervals. Compared to the sweeping Odd-Even policy, which applied across Delhi and throughout the day, these design tweaks will allow drivers more options to avoid congestion — for example, by changing their routes or travel times
  • Critics will contend that measures such as Odd-Even or more tailored policies will not make a large difference, so it is not worth wasting time on them. Of course, high-impact policies should always be explored, for example through competitions such as the Urban Labs Innovation Challenge that supports original interventions
  • At the same time, it is essential to develop realistic expectations of what traffic reduction policies can achieve, and enthusiastically support those that bring real and proven gains to tackle congestion and pollution exposure

Note:

The Electronic Road Pricing (ERP) system is an electronic toll collection scheme adopted in Singapore to manage traffic by way of road pricing, and as a usage-based taxation mechanism to complement the purchase-based Certificate of Entitlement system

 

Others:

 

1. PIB

 

a) Gist of the Recommendations of the Group of Ministers on Road Safety

3rd Interim Report dated 13th June, 2016
25 Improving mechanism for helping accident victims and trauma care facilities

a.       Comprehensive scheme for improving capacity development for trauma centres

b.      Expedite setting up of Trauma centres

c.       Cashless treatment of accident victims on all stretches of NH

d.      Special cell for road accidents within Non-Communicable diseases wing in MoH&FW

e.       Incentives for attracting professionals in trauma centres

f.       Explore possibility to use CSR Funds

26 Implementation of e-tolling across the country on a common RFID card-

a.      Expand E-Tolling on all lanes of toll booths

b.      Provide for integration with State and other toll Roads

27 Facilitating Barrier free movement of freight transport across States

a.      States should relax transit time provisions

b.      Integrated border check posts may be created

c.       Centralised Transportation Information and Payment Network (CTIPN) to allow smooth movement, Task force to be set up to work out the modalities

28 Liberalizing intra-city taxi permit system and other automobile aggregation policy

a.      Liberalise City Taxi permit scheme

b.      They should follow the rules relating to fares, fuel and safety as mandated by Transport Department.

c.       Upper cap for the fares be fixed by Transport deptt.

d.      Aggregators may be permitted but they have to aggregate only taxis which have legally valid permits.

29 Improving parking facilities for taxies and other public transport vehicles in the cities

a.      Reserve atleast 20% space in Public parking lots for Taxis.

30 Steps for promoting low cost last mile connectivity solution

a.      Allow e-rickshaws and two wheeler taxis as they are safe and low cost solutions for the passengers

b.      Allow seat sharing in taxis & auto rickshaws.

31 Strengthening rural transportation

a.      Scheme may be launched by Central Government for rural transport vehicles

b.      States may allow permits for such vehicles

32 Strengthening public transport systems

a.      Central Government may introduce scheme to strengthen STUs

b.      Exempt STU buses from taxes

c.       Deregulate luxury segmentto motivate people to shift from personalised transport to public transport

d.      Address to the problems of insurance in STU sector

33 Public Transport in Hill Areas

a.       Create a sub group to address to the problems of transport in hill areas

34 Higher Compensation in accident cases

a.       Include accidental insurance for drivers in third party insurance

b.      Rationalise Insurance provisions in accident cases

c.       Cover loss to property in accidents cases in insurance

 

b) FASTag Roll-out and FacilitationIn order to promote cashless payment through FASTag at Toll Plazas on National Highways, NHAI has decided to provide FASTag to existing monthly pass holders by absorbing the one-time cost of their FASTags.

 

In another important decision, a dedicated FASTag lane will be ensured at 48 toll plazas on Delhi – Mumbai, Mumbai-Chennai Corridors wef 20.06.2016.  To facilitate purchase of FASTag by road users, Points of Sale (POS) on 23 Toll Plazas are available on these corridors

 

2.The Financial Express:

 

a) India needs bold measures to end tax terrorismTopic: Taxation

Category: Economy

Key Points

  • In the case of Cairn and Vodafone, where the taxman has raised multi-billion dollar demands, is not even the tip of the iceberg. Both Cairn and Vodafone have invoked international arbitration against the government and neither of the disputes looks likely to be settled anytime soon. While the ‘Dispute Resolution Scheme’ was introduced in this Budget to reduce litigation, it may be a non-starter as one of the conditions is for the taxpayer to accept the primary tax liability, and the only concession one gets is a waiver of penalty, that too only when the disputed tax amount is less than Rs 10 lakh
  • It is unrealistic to expect that victims of high-pitched assessments due to the retrospective tax will just pay up and not contest the tax because penalty could be partially waived. Can there legally be interest and penalty on a retrospective tax at all?
  • The CBDT also made a welcome move, warning action against I-T officers found guilty of high- pitched/unreasonable assessments. But until the Board takes action in a few cases and sets an example, it is unlikely that the CBDT’s circular will have any deterrent effect
  • The high-pitched assessments of the past are winding their way slowly through the tax system. Nobody knows when they will be finally settled—one reckons, in a minimum of 10-15 years

graph3-1

  • A whopping Rs5 lakh crore demanded by the taxman is contested by the taxpayer and is stuck at various levels of the litigation chain (see accompanying graph).Over the last five years, many high-pitched demands have been driven by the unreasonable targets set by the government
  • Where the taxpayer does not get a stay from appellate authorities, she has to pay atleast a significant portion of the demand upfront, thereby contributing to the government coffers but with a big sword hanging over the final outcome of the disputes
  • These piled up litigations have another important consequence—they rob the tribunals and courts of valuable time, which could have been used to hear cases having ramifications for an entire industry. For instance—the IBM case, that has repercussions on the entire software sector (taxability of packaged software payments) is awaiting a hearing from the apex court for over 3 years, despite being granted special leave
  • While the ITAT has brought down pendency by a few thousand cases, the figure of 1 lakh outstanding cases means it shall take several years to reduce this by even half.
  • One of the laudable measures taken by the ministry last year was to give retrospective effect to its circular increasing the monetary threshold for Revenue to appeal against CIT(A) and ITAT orders. But the limit of Rs 5 lakh and Rs10 lakh is too low and needs to be atleast tripled to drastically cut the litigation pile up
  • A recent report by Deloitte &Taxsutra, shows that 76% of the 670 transfer pricing cases in FY16 were decided in favour of the taxpayer at the Tribunal/HC level
  • This should be an eye-opener for the CBDT as to how poor the assessments have been. It is high time that it takes a policy decision not to file appeals in all and sundry matters and gives some primacy to the ITAT—the final fact finding body. Only cases involving a substantial amount or an important question of law, should be appealed against to the HC & SC.
  • Why is it that a majority of the tax controversies involve MNCs and IT companies?
  • Most of them are governed by strict laws in their home countries and therefore have no room to make any compromises during the assessment proceedings in India. The advance pricing agreements (APA) regime, introduced over three years ago, to settle the transfer pricing disputes, has found lot of takers among MNCs
  • While the signing of 50+ APAs is great news, the piling up of pending applications—500 as of date should be a cause for worry. The FM, in his Budget Speech in July 2014 raised expectations when he announced the setting up of benches of the Authority for Advance Ruling (forum for non-residents to seek tax clarity on a particular transaction). But the benches are not yet functional and meanwhile the pendency has crossed over 1,000 cases. Applications filed in 2011 are coming up for hearing now, making one wonder whether it should any longer be called ‘advance’ ruling
  • Record number of circulars issued by the CBDT last fiscal is signal to the right direction. Add to it the fact that 17 recommendations of the Justice Easwar Committee (appointed to recommend simplification of I-T Rules ) have been accepted in this Budget.A high powered Committee led by Ashok Lahiri (on same lines as Shome Committee) was given the task of interacting with trade and industry to solve vexed tax issues concerning their specific sectors
  • One expects the Lahiri Committee to take up 3-4 sectors this year and clarify on the tax issues
  • Overall there has been some improvement; tax terrorism has come down marginally. But unless the sins of the past are cleared expeditiously, investment flows, trust in the tax system and in promises will be low. We can see the impact in a declining investment/GDP ratio. We need bold measures to set right a broken tax assessment and appeal system

 

b) Unleash reforms in the Budget exercise to power growth Topic: Budget

Category: Economy

Key points:

  • A major reform is needed in the system of fiscal governance by the government of India itself, which has not been given due importance. One of the major pillars is the Budget exercise and the reliability of accounts prepared by the government. The Budget, in fact, draws huge interest from across the country and its importance in terms of economic planning is acknowledged by all
  • For such an important exercise, the government still follows the archaic cash accounting based on a single entry system. Accordingly, the revenue physically received by the government in a year is taken as revenue of the government and expenditure physically incurred is treated as expenditure
  • * Move accounting and budgeting to double-entry system and accrual-based accounting: It is common knowledge that, at the end of a fiscal year, the pressure from the tax department—be it income tax, service tax, customs duties or excise—mounts for not only taxes which may be due, but also those which are demanded to be paid in advance so as to enhance revenue figures and to show lower fiscal deficit
  • The reason for this tax collection initiative is cash accounting system. The worst part is that, to show growth in successive years, advance collections need to be compounded. As a result, any meaningful estimate of revenue for the next year becomes impossible. It is important that India moves to a double-entry and accrual method of accounting to avoid such intentional misstatements and wrong accounting, and presents a more transparent picture of the state of the economy annually. Needless to say, as long as this practice of ‘extortion’ persists, we can forget about ease of doing business in India
  • Most developed countries have already moved to accrual accounting; about 40 countries have already adopted it
  • This matter has been under the purview of the government since 2002 when the Government Accounting Standards Advisory Board (GASAB) was set up. The 12th Finance Commission recommended the transition to accrual-based accounting in 2004
  • However, even after a decade, little progress has been made in fulfilling either of the mandates. The advantage of moving to double-entry based accrual accounting system is obvious. On one hand, it would give a correct position of the government’s revenue and revenue expenditure based on the amount committed, even though they may not be fully received or paid, respectively. On the other, the government would be able to prepare a balance sheet, showing not only the various assets and investments made by it based on accounting standards, but would also account for the many commitments made but not paid as its payables at year end. The preparation of the balance sheet based on double-entry system would show total liabilities of the government—both long- and short-term
  • This would enable correct reflection of revenue deficit or surplus, capital expenditure/investments for the year and overall debt. These three need to be separately seen as percentage of GDP (which would be calculated as before)
  • This move would provide necessary transparency in respect of government accounts and enable it to better plan for the coming year as well as for a longer period. All analysts, including rating agencies, would be in a better position to work out expected ratios like net debt-to-GDP and other productivity indicators for the economies, which would enable India to invest more and attract more investments by way of debt and equity
  • * Audited accounts and variance analysis: The government must complete the audit of its accounts based on double-entry system in a timely fashion, just like it expects corporates to do within a specified period. It should separately, as part of its annual report on fiscal performance, present the said audited account versus the Budget that had been presented along with reasons for variances. It would be ideal if this is made part of the Budget presentation by the finance minister where he could take the actual for three quarters of the previous year and the last quarter estimates. The full year audited accounts versus Budget should be separately presented in Parliament session in July of next year or in the monsoon session
  • * Five-year rolling Budgets: The government must introduce a five-year rolling Budget to provide longer visibility of plans and provide for requisite resources needed to fulfil those. For a growing economy like India, such a rolling Budget is of vital importance. It should be amended each year to reflect actual performance and revised estimates along with reconciliation of the original Budget and revisions with reasons for such deviations
  • These measures would not only bring greater transparency, but also better discipline on the part of the government
  • This would ensure the government is in a position to undertake significant capital expenditure that is required from time to time to accelerate growth without worrying about high fiscal deficit, as long as those investments are projected to produce revenue in the coming years and enhance GDP. With such measures in place, the Indian economy would be among the most preferred destinations for global investors in the years to come

Note:Under the accrual basis of accounting, expenses are matched with the related revenues and are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period

Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. For instance, recording earnings of $100 would require making two entries: a debit entry of $100 to an account called “Cash” and a credit entry to an account called “Revenue.”

 

3. The Business Line: 

 

a) What Industrial Internet can do for IndiaTopic: ICT Intervention

Category: Economy

Key points:

  • For all the hype and current technology constraints, consumer IoT promises to be a technology that will largely benefit urban consumers and entities, as over 3 billion of the world’s citizens still do not have access to the internet
  • In India, a billion people still do not have access to the internet, most of them in rural India. Given the issues of both broadband and power unavailability in rural India, in all likelihood consumer IoT will continue to be an urban phenomenon for the foreseeable future
  • Despite being rather low-key in comparison, it is IoT’s industrial applications, or the ‘Industrial Internet’, which may well and ultimately eclipse its consumer counterpart, both in terms of business relevance as well as socio-economic impact
  • The Industrial Internet closely linked to enterprise IoT is likely to radically transform and overhaul business segments including manufacturing, oil and gas, agriculture, defence, mining, transportation and healthcare, to name a few. Collectively, these sectors account for over two-thirds of the global economy
  • The Industrial Internet is still at an early stage, similar to where the Internet was in the late 1990s
  • Proponents agree with one thing — that industrial internet applications in the sectors mentioned above will grow by leaps and bounds, requiring not just huge amounts of bandwidth but more importantly, absolutely reliable and real-time responses
  • Consumer internet, i.e. terrestrial internet (through fibre, cable or WiFi) is not quite the solution. With its 99.999 per cent reliability, it will be satellite broadband to the rescu Next generation satellite technologies are becoming available providing high speeds, much lower latency, smaller form-factor satellite devices and satellite mobility
  • The other issue is of cost. For the purpose of IoT, satellite broadband especially with high-throughput satellites would also be available at a fraction of the cost of terrestrial broadband (no setting up of expensive towers and powering them day and night or digging up the ground to lay expensive fibre or cable)
  • The next internet revolution will have humans as bystanders. Machines will engage with each other, talk to each other and learn from each other while humans will observe, analyse and act upon the outcomes
  • IoT is the glue that is shaping this new M2M world and it is here — very much upon us. In the past three years alone, the number of sensors shipped for enterprise use has increased more than five times from 4.2 billion in 2012 to 23.6 billion in 2014
  • IoT, which excludes PCs, tablets and smartphones, will grow to 26 billion units installed in 2020, representing an almost 30-fold increase from 0.9 billion in 2009
  • IoT product and service suppliers would generate incremental revenue exceeding $300 billion, mostly in services, in 2020. It will result in $1.9 trillion in global economic value-add through sales into diverse end markets
  • The verticals that are expected to lead its adoption are manufacturing, healthcare and insurance, among others. Companies such as Cisco, GE, Intel, Qualcomm and Huawei are among those leading the pack
  • While manufacturing, transportation, oil and gas, defence, healthcare and BFSI will be benefiting from IoT, opportunities emerging in sectors as varied as, say, agriculture also portend huge change and possible impact
  • As climate change disrupts old cycles and patterns of farming, disrupting production, impacting livelihoods and threatening food security, the agri-sector is turning to mechanisation in a big way and both satellites and IoT will be there to make the change happen
  • By connecting farm equipment to geo-location data, agricultural companies and farmers will coordinate and optimise farm production in ways never before possible. For instance, automated tillers can inject nitrogen fertiliser at precise depths and intervals, as seeders follow, placing corn seeds directly in the fertilised soil
  • Ultimately, turning such data into actionable insights will improve crop yield to help feed the world’s growing population
  • The enterprise segment is already the largest consumer of satellite broadband technologies — largely because of its ubiquitous availability and inherent reliability. From the middle of the ocean, to the top of a mountain, the middle of a desert or the centre of a forest, VSAT (very small aperture terminal, a satellite communication system) connectivity is always on. It stands to reason that enterprise IoT and VSAT broadband is a match literally made in heaven!

 

b)  India and the new great gameTopic: India-Pak-China Triangle

Category: International Relations

Key points:

  • The signing of the Chabahar agreement has set in motion a great game between India and China
  • China has emerged as the Asian champion and with the help of a nuclear-armed Pakistan, is beginning to assert its dominance in the Indian Ocean Region (IOR). By announcing the massive $46 billion CPEC (China Pakistan Economic Corridor) project, due to be completed in three years, the Chinese have made their intentions clear of a permanent entry into the IOR. CPEC also makes sure that China’s entry in POK is pervasive and powerful
  • The CPEC project cuts the 12,000-km sea voyage from Tianjin to the Persian Gulf through the Strait of Malacca and around India, to a 2,500-km road journey from Kashgar to Gwadar
  • COEC has left out Afghanistan
  • Leaving out Afghanistan could work to India’s benefit in the long run; India could use this opportunity to solidify its relationship as an all-weather partner. While the Chinese encircle India, India may end up encircling Pakistan
  • India will never allow China to dominate the IOR but instead would like to play the role of its guardian
  • The Chabahar project which was proposed to be developed by India in 2004 suffering inordinate delays may have come to see the light of day at the nick of time.By announcing the much-delayed Chabahar agreement, India has seemingly outflanked the Chinese
  • Chabahar port is less than 200 km from the port of Gwadar. India aims to connect the Chabahar port to the 218-km Zaranj-Delaram highway in Afghanistan which it built at a heavy cost
  • While it is likely that the mammoth CPEC project may affirm Pakistan’s position as a vassal state in the new great game, India, on the other hand, has Iran as an equal partner. This status will put the onus of its security in the hands of the Iranians to a large extent but India too will have to protect its investments and supply routes across the region
  • Although India’s security role on the ground remains to be determined, India will most certainly have a formidable naval presence to keep an eye on the maritime supply routes on which India’s energy needs will be heavily dependent in the future. India has been steadily augmenting its maritime aircraft and submarine fleet as well as aircraft carrier groups. It has also put in place its own satellite navigation system, GAGAN (GPS aided geo augmented navigation), and operates the Farkhor airbase in Tajikistan
  • India has also cleared the sale of the highly potent standoff Brahmos missile system to Vietnam, indicating that India is willing to take on China head on
  • The emerging power play between the rising Indian and the Chinese blue water navies will give a new meaning to the phrase ‘gunboat diplomacy’ in the early decades of the 21st century
  • The Obama administration has not opposed the Indian investments in Chabahar: clearly the US is aware that India will assert its foreign policy to suit its economic and geopolitical ambitions. Perhaps the US is beginning to see India as a credible deterrent to aggressive Chinese expansion in the IOR
  • Pakistan’s role is perhaps the most important in this new game. Its role as the most important US ally in the war on terror lasting well over a decade, give it a leverage that no other nation can hope to achieve soon with respect to Afghanistan
  • It is hoped that Pakistan will focus on economic benefits rather than use this as an opportunity for one-upmanship against India. After all, Pakistan still retains its stranglehold on the deep factional divisions within Afghanistan and is likely to use them to disrupt Indian ambitions in the region
  • The new Taliban chief MawlawiHibatullahAkhundzada and the all-powerful Haqqani network are heavily influenced and controlled by the Pakistani leadership.
  • The Pakistani army is not known to support peace initiatives or even think about the great economic potential for the two countries to move in tandem on promoting economic growth
  • How will the two deals impact Afghanistan which has to give right of way for the success of both projects?
  • Afghanistan will have to do a balancing act and should demand its share in the CPEC project. Afghanistan cannot continue to remain a murky battle ground perpetually, it must make sure the approach is dictated only by the long-term goal of peace and prosperity of the Afghan people. Iran, after decades of sanctions, is eager to join the comity of nations as a full partner. It, too, must utilise this opportunity to promote its economic development long mired in sanctions and controversies
  • These two projects will benefit the entire global community by fostering trade and easier movement of people at greatly reduced cost. Therefore the world must view them in this context, rather than objects of power play in a troubled region
  • It must be recognised that after the loss of so many lives here, the world owes to them an opportunity for development and peace

 

 

3. The Economic Times:

 

a)Declining output: Investment revival is the main challenge

Topic: Investment

Category: Economy

Key points:

  • The latest monthly estimates of industrial growth for April, originating from the Index of Industrial Production (IIP), reveal declining output. The contraction seems essentially at odds with the gross value-added growth from manufacturing, and supports the charge that industrial figures are riddled with anomalies
  • The quick estimates for April peg overall industrial growth at a negative 0.8%, pulled down by manufacturing, which contracted 3.1% over April 2015. This looks dire, but might not be, given the numbers for 2015-16: growth of manufacturing value-added stood at 9.3%, while IIP grew 2.4%. The statistics office should swiftly make the IIP, which uses 2004-05 as the base year, up to date, in sync with the GDP data that reflects 2011-12 prices. A review of the list of items in IIP and their relative weights is in order
  • As for growth in capital goods, what is posted is a massive decline of 24.9%. The decline, for the sixth consecutive month, is disconcerting for economic recovery. Disaggregated data reveals that the electrical machinery segment suffered a steep decline of 55.9% in April
  • The growth in capital goods output for the previous April was put at 13.5% and the relatively higher base might have distorted the latest estimates. The large consumer non-durables segment posted a steep fall, with growth at negative 9.7%. But consumer durables grew by 11.8%, aided by industries as diverse as gems and jewellery, mobile phones and commercial vehicles
  • Overall, the IIP data suggests that investment has been wilting, even as consumption continues to grow. That’s what recently released GDP data also suggested: gross fixed capital formation slid from 30.8% of GDP in 2014-15 to 29.3% in 2015-16. Therefore, investment revival holds the key

 

4. Quick Bits

 

a) National Forest Skill Development Centre set up in DehradunA National Forest Skill Development Centre has been set up in Dehradun to equip youths for jobs in the forest sector and help mitigate the problem of migration of people from the hills in search of work.It will help youth get employment in the forest sector and rein in large scale migration from the hills in search of livelihood.The Rajaji National Park in Uttarakhand was granted the status of a Tiger Reserve by the Centre to boost tourism .The GovindBallabh Pant National Himalayan Environment Institution is being upgraded as The National Centre For Himalayan Ecology which will conduct studies and researches in the field so that they come in handy for disaster management in times of a crisis

 

b) Working group to examine issues on Mauritius DTAAA month after India redrew its tax agreement with Mauritius, the government has constituted a working group to examine the “consequential issues” arising out of the changes.

Last month, the India-Mauritius Double Taxation Avoidance Convention was amended to introduce a levy to prevent investors using the island nation as a shelter to avoid levies

 

F. Concepts-in-News: Related Concepts to Revise/Learn:
G. Fun with Practice Questions 🙂
Question 1: Which of the following statements is/are correct about the RajyaSabha(RS)?
  1. The allocation of seats in the Council of States(RS) to each State or Union territory is set out in the Fourth Schedule of the Constitution of India
  2. Member elected to the Rajya Sabha will hold office for a period of 6 years
  3. The Council of States shall not be subject to dissolution
  4. A nominated member to the Rajya Sabha is not eligible to vote

a) 1,2 and 3

b) 1,2 and 4

c) 2,3 and 4

d) All the Above

 

Question 2: Which of the following countries share coastlines with the Mediterranean Sea?
  1. Syria
  2. Israel
  3. Jordan
  4. Turkey

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 about Very Small Aperture Terminal(VSAT)?
  1. VSAT can be used for on-the-move communications
  2. VSATs are used to transmit narrowband data and broadband data

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

 

Question 4: Which ofthe followingstatements is/are correct about CPEC Project?
  1. The project includes building a network of pipelines to transport LNG and oil between Gwadar and Nawabshah in Sindh to eventually transport gas from Iran
  2. Pakistan’s railway network will be extended to eventually connect to China’s Southern Xinjiang Railway in Kashgar under the project

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

 

Question 5: Which of the following statements is/are correct?
  1. The Palestinian state was granted a non-member observer state status by the UN in 2012
  2. The State of Palestine claims the West Bank and Gaza Strip,with East Jerusalem as the designated capital

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

 

Check Your Answers

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