26 Aug 2023: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: INDIAN POLITY

1. Rethink the dynamics of India’s fiscal federalism

Syllabus-Functions and Responsibilities of the Union and the States, Issues and Challenges Pertaining to the Federal Structure, Devolution of Powers and Finances up to Local Levels and Challenges Therein.

Prelims- Per Capita Income, Human Development Index, 73rd and 74th Constitutional Amendments

Mains- Fiscal Federalism, Sixteenth Finance Commission, Reform of Panchayati Raj Institutions

Introduction: 

• India’s fiscal federalism has evolved significantly due to a number of factors such as the shift from a planned economy to a market-mediated economy, the 73rd and 74th Constitutional Amendments, the passage of the Fiscal Responsibility and Budget Management Act, the Goods and Services Tax (GST) Act, and the use of cess and surcharges.
• As seen in the works of Chancel and Piketty, top 1% earners in India corner 22% of the income. Various incentives offered for corporations and individuals such as tax exemptions and concessions have favoured the rich disproportionately and reduced the divisible pool of the government. 

Read more on Fiscal Responsibility and Budget Management Act.

• Major issues to be addressed for improving the fiscal governance  are: 

1. Equity in intergovernmental transfers: 

• The per capita income (PCI) of 16 major Indian states (from 1970-71 to 2020-21), has been diverging over time meaning that the gap between the rich and poor states is getting wider. 
• Human Development Index (HDI) data on the other hand indicated that there is a narrowing of the gap between rich and poor states (from 1991 to 2018). However, since 2005, the rate of convergence has been slowing down. 
• This has major implications on the ability of poorer states to cater to the needs of education, healthcare and ensure a decent standard of living.
• For the 16th Finance Commission, HDI can be considered as one of the criteria for horizontal distribution of tax devolution. 

Read more on Human Development Report.

      2. Division of powers between Union and states:

• Due to the changing polity, society, technology, demographic structure and the development paradigms in different states, one size fits all approach will be difficult and not sustainable.
• Legislations like Mahatma Gandhi National Rural Employment Guarantee Act 2005, the Right of Children to Free and Compulsory Education Act 2009, and the National Food Security Act 2013 also impose extra burden on state finances. 
• A new scheme of division of power that aids decentralisation and autonomy to states will help address the local needs better. 
• Article 246 and the Seventh Schedule that deals with the division of powers, functions and responsibilities between Centre and the states should be revisited accordingly. 

Also read RTE Act 2009.

      3. Role of local governments:

• The third tier of government in India has not been given its due place in the fiscal federal map of the country.
• The 73rd and 74th Constitutional Amendments have added to the confusion with the introduction of Schedule XI and Schedule XII.
• These schedules deal with the subject matters already mentioned in the state list.
• Without functional mapping and delineation of the responsibilities of the panchayats for the various sub activities on these subject matters, quality of service delivery of public goods is affected. Principle of subsidiarity i.e right delivery of services at the appropriate level of government is also lacking. 
• There is no uniform financial reporting system (uniform budgeting rules, accrual based accounting etc). 
• A new local list that will map out the functional and financial responsibilities of the panchayat raj institutions and municipalities is the need of the hour.
• Terms of reference for the 16th Finance Commission should include provision of  services of standard quality in local bodies as one of the criteria. 

      4.  Off-budget borrowing: 

• Off-budget borrowings are borrowings not accounted for in the Budget but whose repayment liabilities eventually fall on the Budget. These are usually not part of public scrutiny.
• For example, if public sector units have any debt obligations, it will eventually fall on the government but is not transparently accounted for in the Budget.
• Loans from the National Small Savings Fund (NSSF) to central government ministries and public sector undertakings are not counted in the Union’s fiscal deficit.
• Transparency and public accountability demand that the Union, States and local governments bring all extra-budgetary transactions to the public domain.

Conclusion: 

• The 16th Finance Commission provides an opportunity to rethink the dynamics of fiscal federalism in India and help achieve the development goals of the constitution.

Nut Graf: India’s fiscal federalism has evolved significantly in recent years, but there are still major issues to be addressed, such as equity in intergovernmental transfers, division of powers between Union and states, role of local governments, and off-budget borrowing.

Category: INDIAN ECONOMY

1. Cleantech, for an inclusive green future in India

Syllabus- Clean Technology in the aid of farmers

Prelims- Pradhan Mantri MUDRA Yojana, Pradhan Mantri Formalisation of Micro food processing Enterprises (PM­FME) scheme, Agriculture Infrastructure Fund

Mains- Cleantech in Agriculture, India’s Climate Change Adaptation, Rural Employment creation, Doubling Farmer Incomes

Context: 

• Prime Minister Modi has discussed India’s efforts to combat climate change in his Independence Day address. 
• This has shown that climate action can be sustainable if it aligns with the development aspirations and contributes to economic growth. For example,  infrastructure such as solar parks and EV charging stations can help combat climate change while also aiding growth.
• The challenge lies in integrating this green economy paradigm into broader development goals, such as providing job opportunities for youth, income opportunities for women, and diversifying farmers’ incomes.

Case Studies on adoption of Green tech in rural areas

• Examples of successful cleantech solutions include solar dryers for tomato preservation in Andhra Pradesh, biomass-powered cold storage for farmers in Maharashtra (has helped make profits three to five times that of the original price) and solar silk reeling machines in Odisha.
• The rural economy in India faces challenges including unreliable electricity access and reliance on expensive diesel, which clean technology solutions powered by renewable energy could help address.
• According to research by CEEW, 12 specific cleantech solutions such as solar pumps, cold storages have the potential to impact 37 million livelihoods or 16% of the rural population.
• Despite these successes, there is still a need for a “structural boost” to fully realize the potential of clean technology in rural India. 

Three-fold approach to scaling up the adoption of cleantech solutions in rural areas:

1. Leveraging existing government programs that support livelihoods, such as the Pradhan Mantri MUDRA Yojana and the Pradhan Mantri Formalisation of Micro food processing Enterprises (PM­FME) scheme, to provide collateral-free loans and support for the adoption of cleantech solutions. Agriculture Infrastructure Fund which has only 15% fund utilization can also support the expansion of biomass powered cold storage.
2. Enabling large-scale financing of cleantech solutions by building capacities of bankers to assess creditworthiness, providing partial guarantees to mitigate risks, and structuring loan products to suit the needs of self help groups, farmers etc. For example, ‘Powering Livelihoods’ initiative has helped with 300 ­plus loans for cleantech solutions to women, self help groups and farmers by adopting the above principles. 
3. Creating partnerships between technology innovators, manufacturers, distributors, service providers, financiers, and market-linkage players to build an overall ecosystem that enables access to technology, after-sales service, and market connectivity for rural entrepreneurs.

Conclusion: 

By focusing on cleantech for livelihoods and jobs, especially in rural areas, India can make its green future inclusive and achieve its development goals.

Nut Graf: India is adopting clean technology solutions in rural areas to address climate change and create jobs. A three-fold approach to scaling up the adoption of these cleantech solutions will make the development trajectory of India green and inclusive