Gist of EPW March Week 4, 2023

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective.

TABLE OF CONTENTS

1. A Plea for Marriage Equality
2. Balancing Growth and Stability
3. Agriculture and Rural Areas in Budget 2023–24
4. Independent Fiscal Councils
5. China in West Asia and Beyond

1. A Plea for Marriage Equality

Introduction

• A plea was filed in the Supreme Court (SC) for the recognition of same-sex marriages as a fundamental right for LGBTQ+ citizens.
• In an affidavit filed in the SC, the Union Government has opposed the recognition of same-sex marriages.
• It is argued that this might potentially disrupt the harmony between prevailing personal laws and social customs in India.

Details

• It can be noted that SC struck down Section 377 of the Indian Penal Code and decriminalized homosexuality in 2018.
• The plea regarding the legal status of same-sex marriage challenges Hindu Marriage Act, Foreign Marriage Act, and Special Marriage Act.
• It is argued by the petitioners that denying marriage rights to people based on their sexual orientation alone is discriminatory and violates Article 15 of the Constitution.
  • Article 15 explicitly mentions that the state shall not discriminate against any citizen based on the grounds of sex.
• The government argued that the “legislative understanding of marriage in the Indian statutory and personal law regime” covers only unions between “bio­logical” men and women.
• It further said that the issue should be deliberated and decided in the legislature and not the Judiciary.

Associated Concerns

• Notably, the petitioners are claiming their rights on the basis of the constitutional values of equal rights and protection under the law, whereas the government is using vague “societal values”.
• It is suggested that arguments should be made on the basis of constitutional morality instead of prevailing social and customary morality.
• The government has used various communal personal laws in the country for its defence, as all of them recognize only heterosexual couples as legitimate for marriage.
• Moreover, the government is demanding a Uniform Civil Code that will remove the incoherencies of existing communal personal law regimes and bring in a common law governing marriage, adoption, divorce, inheritance, etc. This shows that the government is taking a contradictory stance.
• The government also took a regressive stand in the official guideline from 2017 that prohibited transgender people, gay men, and female sex workers from donating blood.
  • The medical experts clearly pointed out that donated blood is carefully checked for the presence of dangerous diseases, like AIDS, HIV, and Hepatitis C and B.

Conclusion

• The legal recognition of same-sex marriages and marriage equality will go a long way in opening new societal horizons toward alternative ways of living that are not bound by heteropatriarchal norms and standards.
• The traditional heteropatriarchal practice does not recognize homosexual unions or ways of living together.
• Moreover, it does not offer any solace to those who have been unfortunately estranged from familial love and kinship due to their sexual identity.

Also read: Same-sex Marriages in India

2. Balancing Growth and Stability

Details: 

• Economic growth and fiscal stability are the two pillars of inclusive growth. But achieving these two tasks simultaneously is easier said than done. The current budget aims to achieve these two tasks in order to keep the momentum of economic growth intact and at the same time achieve fiscal discipline. 

Challenges highlighted in the budget session: 

• With interest payments exceeding 40% of the net revenues, the total liabilities of the union are estimated at 63% of GDP. 
• The growth rate of the economy is still 7% below the pre-pandemic gross domestic product (GDP) trend.
• With the aggregate fiscal deficit of the union and state governments hovering around 9%–10% of GDP and the household sector financial savings constrained at just about 8.5% of GDP, there is hardly any borrowing space for the private sector. 
• The Russia–Ukraine conflict and COVID-19-induced restrictions in the ­major production centres in China have led to severe supply-chain disruptions adversely impacting the manufacturing sector.
• The surplus liquidity released to fight the pandemic, the war, and the accompanying sanctions have led to sharp increases in global commodity prices in most advanced countries leading to increases in interest rates.
  • This has led to a significant outflow of foreign institutional investment, exchange rate depreciation, and increases in interest rates to fight the bouts of inflation exceeding the upper tolerance limit of the inflation target.
• In addition, India had to face severe imported inflation due to the sharp increases in global commodity prices caused by the war and excess ­liquidity released to fight the pandemic across the world.
• Investment (gross capital formation) to GDP ratio and the growth rate of GDP were showing a steady deceleration right through the decade beginning in 2010. The growth of GDP declined from over 10% in 2010–11 to 4.2% in 2019–20, which was the lowest in 11 years.

Image: Trends is gross capital formation and GDP

Source: EP&W

Change in deficits 

• The aggregate revenue deficit, which was hovering around 2.5% of GDP during 2015–18, shot up to 9.4% in 2020–21 before declining to 5.4% in the next year.
• The aggregate fiscal deficit increased from 7.1% in 2019–20 to 13.3% in 2020–21 due to the pandemic and total liabilities shot up from 74.3% in 2019–20 to 90% in 2020–21. 

Image: Trend in deficit and debt in India

Source: EP&W

Analysis of Budget 2023–24 Proposals

• The revenue projections have been realistic, and most off-budget liabilities have been included in the consolidated fund to make the budgets more comprehensive.
  • More realistic revenue forecasting helps to avoid unrealistic expenditure allocation and the estimate of fiscal adjustment. More importantly, it avoids setting ambitious revenue targets for various tax collections and making unreasonable demands on taxpayers.
  • For 2023–24, the growth in nominal income is estimated at 10.5% over 2022–23 and the growth in tax revenue is higher than 2022–23 by 11.2% which is quite realistic.
• The budget proposes to red­uce revenue expenditure from 12.7% in 2022–23 to 11.6% in 2023–24. A considerable part of this is due to the compression of food and fertiliser sub­sidies. 
  • The food subsidy is estimated lower by Rs 90,000 crore, mainly, as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKY) has been withdrawn and the fertiliser subsidy is estimated at Rs 50,000 crore due to the lower price of fertilisers.
  • The most important reduction that has attracted much attention is the allocation to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) from Rs 83,000 crore to Rs 60,000 crore. 
• The capital expenditure in 2023–24 is budgeted to increase by over 37% from 7.3 lakh crore to 10 lakh crore and this will increase the incomes above the 25% increase of 2022–23.
  • A considerable part of the increase in spending is on road and railway infrastructure and that should help crowd in substantial private investment as well.
• The interest payment of the union government accounts for 40% of their net revenues. 
  • The union finance minister had committed to reduce the centre’s fiscal deficit to 4.5% of GDP by 2025–26 from 9.2% in 2020–21. For 2022–23, the fiscal deficit was budgeted at 6.4% and it was able to hold it at that level in the revised estimate despite a sharp increase in revenue expenditures, particularly on food and fertiliser subsidies.
• On direct tax proposals, the move towards broadening the base and reducing the rate attempted in the first option is important.
  • Hardly 4% of the people pay income tax and an overwhelming proportion is paid by the “over 30%” category.

The budget seems to achieve many tasks for greater fiscal consolidation. But, it would be able to uphold those goals only if the specified tasks are met.

3. Agriculture and Rural Areas in Budget 2023–24

Introduction:

• Over the past six years, Indian agriculture has experienced a noteworthy average annual growth rate of 4.6%, according to the Government of India in 2023.
• It has been resilient with 3.3% and 3.5%, res­pectively during the pandemic years of 2020–21 and 2021–22, and the projected rate is 3.3% for 2022–23. 
• However, agriculture and rural incomes are under stress for several reasons. 
  • The incomes of farmers from cultivation, in constant prices, have declined over time.
  • The rural areas have seen a decline in the purchasing power, along with a negative real rural wage growth due to high inflation.
  • The post-pandemic economic recovery appears to follow a K-shaped pattern, with large corporations and significant segments of the corporate sector managing to withstand the crisis, while informal workers, migrants, micro, small, and medium enterprises (MSMEs), among others, have experienced significant setbacks.
  • Demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) remains high, reflec­ting a continued stress in the rural areas.
• At the macro level, in the budget, the capital expenditure increased substantially. This rise is important as it has a multiplier effect of 3.25 as compared to that of 0.45 for revenue expenditure. 
  • While its impact is gradual, it cannot serve as a substitute for private consumption in the short term. To boost current consumption, an increase in revenue expenditure is required.

Food and Fertiliser Subsidy:

• The budget estimate for food subsidy in financial year 2024 is estimated to be 1.97 lakh crore against the revenue estimate of 2.87 lakh crore for FY 2023. 
  • This was due to the discontinuation of 5 kilograms of additional foodgrains, to around 81 crore population, under the Pradhan Mantri Garib Kalyan Anna ­Yojana (PM-GKAY) from January 2023. 
• As India is yet to recover from the imp­act of the pandemic, reduction of food subsidy may have adverse implications for food security. 
• Fertiliser subsidy dec­lined from 2.25 lakh crore in FY 2023 to 1.75 lakh crore in FY 2024.
  • This reduction could be due to the recent ­decline in global fertiliser prices, in spite of the ongoing Ukraine –Russia war. 

Towards Higher Agricultural Incomes:

• The budget has given importance to agriculture and allied activities and strengthening their cooperative model, digital infrastructure, and the production of millets.
• For the Department of Agriculture and Family Welfare, the allocation was 1.16 lakh crore in FY 2024 . This is 6.5% less than the BE of FY 2023 and 5.5% higher than RE of FY 2023. 
• For research and development (R&D) under agriculture, the allocation is only `9,504 crore in FY 2024—it was higher by only 9.8% as compared to revised estimates of FY 2023. 
• This is only 0.4% of agriculture gross value added (GVA) while other countries spend 1% to 2% of agriculture gross domestic product (GDP). 
• The budget has reduced allocations for rural development schemes. The expenditure for the Department of Rural Deve­lopment declined from `3.04 lakh crore in FY 2023  to `2.37 lakh crore in FY 2024—a decline of 22%. 
• The allocation for MGNREGA declined from `89,400 crore in FY 2023 (RE) to `60,000 crore in FY 2024—a decline of 33%. 
• The allocation to Pradhan Mantri Awas Yojana was increased but it is not a substitute for the decline in funds for ­MGNREGA. 
• All the above schemes and other measures introduced in the budget will be helpful in increasing the supply and input side of the agricultural value chain, along with a push to rural infrastructure. 
• Although these steps are a move in the right direction, a lot more still needs to be accomplished. Going forward, budgets must chart a course for the sustained development of the agricultural sector leading up to 2047.

Farmer’s Income:

• The Situation Assessment Surveys show that the average monthly income of agricultural households in current prices increased from rupees 2,115 in 2003 to 10,218 in 2018–19.
• The share of cultivation in total income is the highest at 46% in 2003 and 48% in 2013.
  • But, the share declined to 37% in 2018–19. 
  • The share of income from animal husbandry rose from 4.3% in 2003 to 15.5% in 2018–19. 
  • The share of wage income increased and is the highest source of income for agricultural households in 2018–19.

Growth, Inclusion and Sustainability: Future Policies

• The 2022-23 Economic Survey calls for the reorientation of agriculture due to challenges like climate change, rising ­input costs, fragmented landholdings, suboptimal farm mechanisation, low productivity, and disguised unemployment. 
• The Reserve Bank of India report on currency and fin­ance says that “the agriculture sector suffers from low capital formation, dec­lining R&D, low crop yields, inadequate crop diversity and intensity, with excessive dependence on subsidies and price support schemes.” 
• To attain agricultural development, there are three main objectives: increasing productivity for high growth, prioritising lagging regions, small farmers, and women for inclusivity, and ensuring sustainability.
• In order to reach these goals, we need a medium-term strategy and an action plan, as well as a practical public policy. Some of the suggested steps towards achieving these objectives are listed below.
• Investments in rural areas need to focus on improving livelihoods and promoting a gradual shift towards non-farm sectors, as the rural economy undergoes changes.
• Government must focus beyond farming and develop a value chain comprising farming, wholesaling, warehousing, logistics, processing, and retailing. 
• Policies must focus on increasing and diversifying exports with long-term policy on exports and ­futures markets. 
• There is a need to focus on small and marginal farmers, women, youth, rain-fed areas, and the lagging regions. Small farmers require special support and links to ­input and output markets. 
• More emphasis should be given on climate-smart agriculture, which aims to reduce greenhouse gas emissions and enhance resilience.
• Strengthening India’s MGNREGA, public distribution system (PDS), nutrition programmes like the Integrated Child Development Services, mid-day meal schemes, can improve income, livelihoods, and nutrition for the poor and vulnerable groups. 

Conclusion:

The measures proposed in the 2023-24 budget are a step in the right direction but require further impetus to elevate rural incomes, stimulate demand, and steer the agricultural sector towards transformation. Public policy should prioritise long-term planning to realise the objectives of sustainability and inclusiveness.

4. Independent Fiscal Councils

Introduction

• In 2017, the Fiscal Responsibility and Budget Management (FRBM) Review Committee proposed a permanent fiscal council with comprehensive fiscal functions.
• It is suggested that the issue of fiscal management in India is basically associated with political economy instead of economic management.

Challenges for Independent Fiscal Council

• There is a need to carefully reassess the inter-relationship between various institutions like the finance commission, the Goods and Services Tax (GST) Council, and the fiscal councils.
• There is a lack of definition of the roles and responsibilities of the fiscal council.
• The application of countercyclical measures by the fiscal council is also a challenge.
• The definition of independence of fiscal council also lacks clarity.
• Determining the functional domain and operational flexibility of the council requires careful analysis of the fiscal–monetary and financial sector relationship.

Also read: Finance Commission of India

International Practices and Experiences

• In European Union (EU), fiscal councils differ from state to state in terms of membership, mandate, and financial resources.
• According to the International Monetary Fund (IMF), there are 51 operational fiscal councils (2021).
• Notably, in all the federal countries with independent fiscal councils, the functional remit of the council is confined to the central government.
• The fiscal council of Brazil performs wide-ranging functions like macroeconomic and fiscal projections.
• The fiscal council of Australia has only two functions:
  • Long-term debt sustainability assessment
  • Measurement of costing
• It should be noted that countries with an indepen­dent fiscal council do not have an independent finance commission.

Issues for India

• There is an absence of an ex-ante evaluation of fiscal policy in India.
• There are restrictions on state borrowings. For instance, states of India cannot borrow from external sources without the permission of the union government.
• The independent fiscal council at the union level is required to address the imbalances arising out of the existing borrowing power of the ­union and states.
  • However, there is no global evidence that shows the relationship between the fiscal council and macroeconomic stability.
• The exi­sting institutional arrangement for fiscal transparency, budgetary forecast, public expenditure programmes, and debt sustainability is insufficient.
• The establishment of an independent council by the union government can be politically unfair to the states.
• The council does not have a role in suggesting countercyclical fiscal mea­sures.
• India already has an independent constitutional body- the Finance Commission for the division of taxes between the states and the union.
• The GST council is another constitutional body that harmonizes the indirect tax regime in the country.

Conclusion

• There should be a proper balance between fiscal rules and discretionary development expenditure (within the FRBM-mandated borrowing limit).
• The monitoring and compliance of the FRBM at the union and state levels should be left to Parliament and state legislature respectively.

Also read: FSDC – Financial Stability and Development Council

5. China in West Asia and Beyond

Introduction

• The two powerful countries of the extended region of the Middle East and North Africa (MENA) namely Saudi Arabia and Iran have freely used the system of patronage, pro­xies, client states and non-state actors to harm each other.
• Notably, they are the most powerful oil-producing states in the region.
• Moreover, Saudi Arabia is the leader of the Sunni world and Iran is a Shia-dominant country. 
  • This narrative is used for mobilizing support for power legitimation in the Muslim World.
  • The reason is used by both countries, as it provides a convenient veil over the real underlying politics of regional hegemony.
• It is pointed out in the article that Israel is the symbiotic Western protectorate and tries to keep the region disunited.
• The Arabic people, specifically the bottom-most layer, is greatly impacted by such rivalry.
• In March 2023, Saudi Arabia and Iran signed an agreement brokered by China to normalize ties and reopen embassies.

For details on the agreement, read here: Iran-Saudi-China Accord A Wake-up Call For India?

Chinese Agreement Clause

• The agreement has the ability to transform the dynamics of the region if both countries imple­ment it effectively with collective political will.
• The five major clauses of the agreement are:
  • Saudi Arabia and Iran should reopen embassies in each other’s territories.
  • It asks both countries to respect the national sovereignty of states. This implies non-intervention in regional state disputes.
    • Several conflicts in the past were victims of interventions, proxy wars, and zone of influence by Saudi Arabia and Iran.
    • Countries like the United States and Russia have also supported regional conflicts and militia groups.
  • It reactivates the 2001 security cooperation between Saudi Arabia and Iran. It reinforces the idea of cooperative security in the West Asian region instead of competitive security.
    • It is in line with China’s “Global Security Initiative” document released in February 2023.
  • It aims to activate cooperation in trade, economic, scientific, and cultural fields and improve bilateral relations. 
  • Finally, it urges the three countries (China, Iran, and Saudi Arabia) to make all efforts to promote regional and international peace and security.

China’s Role

• China, like many other countries, depends on the Persian Gulf for oil and gas.
• It is affected by disruptions, “forever wars” and price fluctuations.
• China highlighted in a paper that the US interventions, regime change policies, and proxy wars in the region ignite tensions in other parts of the world.
• With changing global political order, Saudi Arabia and Iran are looking forward to Chinese investment in their respective countries.
• Iran and China signed a 25-year strategic cooperation agreement as part of Iran’s engagement with the Belt and Road Initiative in 2021.
• Similarly, Saudi Arabia says that their development vision for 2030 is in accordance with the Chinese “Global Development Initiative”.
• This gives China a unique opportunity to engage and leverage with both of these countries.

Conclusion

• This agreement will further shift the geopolitics of hegemony which was earlier controlled by the U.S.
• It will make China a firm geostrategic player in West Asia.
• However, it should also be noted that the problems and rivalries between Iran and Saudi Arabia will not come to an immediate end.

Also read: Saudi Arabia’s Quest for Strategic Autonomy

Read previous EPW articles in the link.

Gist of EPW March Week 4, 2023:- Download PDF Here