07 Jul 2022: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: INTERNATIONAL RELATIONS

1. Words from Bandung to relive in Bali and Delhi

Syllabus: Bilateral, regional and global groupings and agreements involving India and/or affecting  India’s interests.

Prelims: BRICS, Group of Seven (G7), G20 and NATO

Mains: Outcomes of the latest summits of different international organisations, India’s stand on the current global order and recommendations.

Context

This article discusses the polarisation of the world after the Russia-Ukraine conflict and the options for India.

Details

• Three back-to-back summits of different organisations took place recently, which include the BRICS summit (June 23-24), the G-7 summit (June 26 and 27), and North Atlantic Treaty Organization (NATO) Summit in Madrid (June 29).
• The outcomes of these summits have provided clarity about the stand of various countries on the Russia-Ukraine war.

India’s participation in various summits and their outcomes

BRICS summit 

• The Brazil-Russia-India-China-South Africa (BRICS) Summit hosted by China gained significance as it was the first such multilateral grouping attended by the Russian President since the invasion of Ukraine.
• In the BRICS Beijing Declaration document, each of the members was seen citing different stances on the Ukraine conflict. 
• The BRICS economic initiatives, which were applauded by India as “practical”, mention various challenges to the western-led sanctions against Russia. 
• Further, the New Development Bank (NDB) of BRICS, approved nearly 17 loans worth $5 billion for Russian energy and infrastructure projects, the Contingent Reserve Arrangement (CRA), and a BRICS Payments Task Force (BPTF) for better coordination between the central banks of the member countries and creating an alternative to the SWIFT payments system.
• At the summit, Russia also proposed creating a global reserve currency based on a basket of currencies and trading in local currencies. 
• Russia also assured the BRICS members of providing more oil and coal supplies which will be closely watched by the Western countries.

G-7 Summit

• The Indian PM attended the G-7 ( (the U.S., the United Kingdom, Canada, France, Germany, Italy, Japan and the European Union) summit of the “most industrialised nations” in Germany as a special invitee with other countries like Argentina, Indonesia, Senegal and South Africa.
• The various statements issued at the summit targeted Russia’s aggression on Ukraine and China’s economic aggression. 
• However, the only documents which were signed by India and other invitees namely “Resilient Democracies” and “Clean and Just Transitions towards Climate Neutrality” did not have any mention of the aggression of Russia or China.

Know more about – Outcomes of the summit in CNA dated Jul 1, 2022

NATO meeting

• India was not a part of the NATO summit, which included the United States’s Indo-Pacific treaty allies like Japan, South Korea, Australia and New Zealand.
• In this meeting, the U.S., Canada and European countries decided to increase NATO’s actions against Russia.
• They also referred to the “systemic competition” from China as a challenge to NATO’s interests, security and value.
• The leaders of countries such as Finland, Georgia, Sweden, Ukraine, and Bosnia Herzegovina attended the meeting which showcased that NATO would no longer consider Russia’s concerns about NATO’s expansion.

India’s stand in the current geopolitical context

• The outcomes of these summits highlight the fact that there is increasing polarisation between the western allies and Russia-China. 
• India’s stand on the Ukraine war is the one that does not accept Russia’s attack on Ukraine but also does not criticise it either. 
• India along with China has increased their purchase of oil from Russia, and also continues to import fertilizers, cement and other commodities from Russia using different means such as paying in the Chinese Yuan to evade the sanctions. 
• India is also looking to diversify its defence purchases from Russia and there is a strategic tilt towards the U.S. and Quad partners in the Indo-Pacific. 
• India along with Brazil and South Africa has played a balancing role wherein, India in the BRICS Beijing declaration ensured that it does not carry any criticism of the West and also ensured that G-7 outreach documents did not contain criticism of Russia and China.

Recommendations for India

• Experts feel that this balancing act of India is unlikely to work in the long term and India requires to take some bold decisions.
• It is important for India to take up the role of a leader in the backdrop of increasing polarisation and the disruption due to the Ukraine conflict.
  • India will take over the G-20 presidency in December 2022 and India must ensure that the G-20 stays intact.
• It is also crucial for India to gather the support of like-minded countries from South America, Africa, the Gulf, and South and Southeast Asia which will help India to voice its position on various issues in international organisations.
• India must try and repeat the role it played during the Non-Aligned Movement (NAM).

Nut graf: With the increasing polarisation and ever-changing dynamics in the global order due to the war in Ukraine, there is a need for India to bring a balanced outlook to its strategic policy.

Category: HEALTH

1. A ‘no’ to pharma freebies, a ‘yes’ for public good

Syllabus: Issues relating to development and management of Social Sector/Services relating to Health

Mains: Supreme Court’s ruling on pharma freebies

Context

The Supreme Court judgment in Apex Laboratories Pvt. Ltd. v/s Deputy Commissioner of Income Tax case.

Details

• The Supreme Court bench dismissed the Special Leave Petition filed by Apex Laboratories to claim deduction on freebies given to doctors.
• The bench upheld the Madras High Court judgement and held that the act of pharmaceutical companies giving freebies to doctors is prohibited by the law and cannot be claimed as a deduction under Section 37(1) of the Income Tax Act, 1961.

Supreme Court’s ruling

• The SC judge said that the pharmaceutical companies by providing freebies to doctors to promote their brands have misused a legislative gap despite this being prohibited under the law formulated by the Medical Council of India (MCI).
• The judge further added that these freebies cannot be claimed as a deduction under Section 37(1) of the IT Act as doing so would subvert public policy. 
• The judge also held that the well-established principle of interpretation of taxing statutes cannot sustain when it causes an absurdity contrary to the intentions of the Parliament.
• Highlighting the fiduciary relationship between the doctor and the patient, the bench said that a doctor’s prescription is considered the final word on medication by the patient even if the prescribed medications are unaffordable and having prescriptions manipulated by the lure of freebies is immoral. 
• During the judgement, the bench referred to various other guidelines and judgements along with a report named “Savings Available Under Full Generic Substitution of Multiple Source Brand Drugs in Medicare Part D” issued by the United States Department of Health and Human Services Office in 2018.
• According to the report, beneficiaries could have saved about $600 million in out-of-pocket payments if they had dispensed generic equivalent drugs.

The issue of retail price

• Experts feel that the sale of drugs at Maximum Retail Price (MRP) needs a relook as it involves such cases of unreasonable practices because drugs are sold in pharmacies at MRP.
• Despite the presence of the Drug Price Control Order and Drugs and Cosmetics Act, the actions undertaken to keep the retail price of medicines under control are inadequate. 
• The overpricing of the medications significantly affects medical treatment and hence there is a need for a thorough investigation into the R & D costs and the profit margins.
• There is an immediate need to amend the existing laws to mandate the manufacturer to sell the drugs at genuine prices and further, life-saving drugs must be sold at subsidised prices or at cost price only.

Nut graf: The Supreme Court’s Judgement on the pharma freebies has gained significance as it plays a key role in curbing unethical and illegal practices in the pharma sector. This judgment must also be applied to the distribution of various other freebies like free laptops, waived electricity charges, food grains, loan waivers, etc. announced by political parties during elections.

Category: ECONOMY

1. Taking stock of five years of GST

Syllabus: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Mains: Critical evaluation of Goods and Services Tax regime in India 

Context

On account of the completion of 5 years of the Goods and Services Tax (GST) regime, this article evaluates its impact on the economy.

Increase in inflation post GST

• Reports from across the world show that GST initially increases inflation.
• The Consumer Price Index (CPI) inflation stood at 3.66% in the 12 months before the implementation of GST. However, inflation increased to 4.24% after the implementation of GST.
• This pattern of inflation was also seen in the case of Australia, New Zealand, and Canada.

The mechanism of GST

• The revenue-neutral rate (RNR) (is the rate of tax that allows the government to keep earning the same tax revenue, despite a change in the governing tax laws) is calculated in such a method that it does not cause higher inflation. 
  • However, revenue neutrality does not guarantee that prices would not change in the economy as the weight of goods in the consumption basket and their contributions to indirect tax collections are not the same. 
  • Example: Food and drinks (which constitutes 46% of the CPI index), rent, and clothing which are all major parts of the CPI basket are either not taxed or taxed at low rates.
• The impact of GST on the prices of goods and services depends on factors such as the degree of exemptions, the rate structure, the weightage of such goods and services in the basket, the efficiency of the administrative set-up, etc.

Actual impact of GST on the Indian economy

• Before the implementation of the GST, it was expected that the prices would reduce as the GST regime harmonises indirect tax rates and eliminates the cascading effect. 
• According to reports, the actual CPI growth in the study period was seen to be 4.61%. However, the counterfactual estimate of inflation (if GST was not implemented) was found to be 3.24%. 
  • This shows that the GST implementation increased the CPI inflation by 1.37 percentage points (pp).
• The report also pointed out that the CPI core inflation (excluding food and fuel) increased by 1.04pp in the post-GST period.
• GST was found to have had a significantly positive impact on inflation of goods like paan, tobacco and intoxicants, clothing and footwear, housing, and miscellaneous sectors. 
  • In the case of non-exempted food and beverages, the implementation of GST had a negative impact of 4.42% on price levels.
• The increase in inflation after the implementation of GST is mainly attributed to the rise in the tax rate of some goods and services and the inclusion of business activities that were earlier exempted.
  • This fuels inflation because the firms passed on the cost of GST to the consumers.
• According to the Nobel Prize-winning economist Joseph Stiglitz, rising market power is detrimental to the economy as it increases economic inefficiency and reduces the economy’s resiliency. 
  • Further, to take advantage of market power, the firms would pass on the taxes to end consumers, causing a cost-push inflationary impact of the GST.
  • However, the government established the National Anti-profiteering Authority (NAA) to make sure that companies did not use GST as an excuse to raise prices.

Conclusion

The implementation of the GST regime has reduced inflation of food items and has increased the inflation of non-food items like CPI, paan, tobacco and intoxicants, clothing and footwear, housing, miscellaneous, and non-exempt food and beverages.

Nut graf: Before the implementation of the GST regime, it was said that it would positively benefit the economy in terms of higher revenue buoyancy, lower inflation, higher revenue and growth, but statistical reports suggest that the GST implementation has had an inflationary impact on the Indian economy.