TABLE OF CONTENTS
A. GS1 Related B. GS2 Related GOVERNANCE 1. Govt. to invoke Benami Act for failure to link Aadhaar? 2. Govt. mulls GST hike for farmers’ welfare fund C. GS3 Related ENVIRONMENT 1. Odisha beach is Asia’s first to get ‘Blue Flag’ tag D. GS4 Related E. Editorials POLITY 1. Federalism that’s not cooperative HEALTH ISSUES 1. Fire without smoke ECONOMY 1. Fuel fractions F. Prelims Fact G. UPSC Prelims Practice Questions H. UPSC Mains Practice Questions
A. GS1 Related
Nothing here for today!
B. GS2 Related
- Goods and Services Tax (GST) rates could rise by 1% to finance a Farmer Welfare Fund, according to a proposal under consideration of a Group of Ministers (GoM) set up by the GST Council.
- The hike is seen as an alternative to a sugar cess that had been proposed by the government to alleviate distress among sugar cane farmers.
- The ministerial group, tasked with considering the sugar cess and a reduction in the GST rates on ethanol, held its second meeting in Mumbai on Sunday.
- The proposal to hike GST rates entails sharing of the additional revenue between the Centre and States to finance a farmer welfare fund to benefit all farmers not just sugar cane farmers. However, a decision was deferred as the GoM is awaiting a legal opinion from the Attorney General on the original proposal to levy a sugar cess.
- The five-member GoM, led by Assam Finance Minister Himanta Biswa Sarma, also explored a reduction in the GST on ethanol to 5% from the existing 18% levy and increasing the government subsidy for export of sugar.
- Out of it, 0.5% can be kept with the Centre and rest with the State. That money can be used to fulfil the needs of all farmers, not only sugar cane, by respective States in the form of welfare fund and even the Centre can chip in when necessary. But imposing a cess would mean betraying the very principle of GST. At present, the GST rate slabs are pegged at 5%, 12%, 18% and 28%, while certain goods are zero-rated.
- The fund would be to extend financial aid to farmers in case of situation that has arisen for sugar cane farmers and the States will have control over their share for disbursal .
- Kerala had already expressed dissent to the move to impose a sugar cess at the GST Council’s meeting on May 4.
- GoM has decided to submit its report to the Council within a month, and is awaiting the Attorney General’s opinion on whether cess on GST can be imposed for welfare purposes, since it can only be imposed for compensation purposes.
- The Council will take a final call on the GoM’s report.
C. GS3 Related
- The Chandrabhaga beach on the Konark coast of Odisha will be the first in Asia to get the Blue Flag certification — the tag given to environment-friendly and clean beaches, equipped with amenities of international standards for tourists.
- It will be awarded the honour on World Environment Day on June 5, Environment Ministry sources say.
- Twelve more beaches in the country are being developed by the Society for Integrated Coastal Management (SICOM), an Environment Ministry’s body working for the management of coastal areas, in accordance with the Blue Flag standards.
- Among them are the Chiwla and Bhogave beaches in Maharashtra and one beach each from Puducherry, Goa, Daman and Diu, Lakshadweep and the Andaman and Nicobar Islands.
- To achieve the Blue Flag standards, a beach must be plastic-free and equipped with a waste management system. Clean water should be available for tourists, apart from international amenities.
- The beach should have facilities for studying the environmental impact around the area. To achieve the Blue Flag standards, a beach had to strictly comply with 33 environment and tourism-related conditions.
- The standards were established by the Copenhagen-based Foundation for Environmental Education (FEE) in 1985. The Environment Ministry embarked on the Blue Flag project in December 2017.
D. GS4 Related
Nothing here for today!!!
- A reliable system of intergovernmental fiscal transfers is the key to a viable and stable federal polity.
- In India, the design of a sound intergovernmental transfer system that will balance the mismatches in resources and expenditure responsibilities of the various levels of government has been statutorily left to the Union Finance Commission (UFC).
- After the abolition in 2014 of the Planning Commission, which played a critical role in the Indian transfer system, the UFC has emerged as the principal agency to handle this delicate task.
- Article 280(3) and its first three clauses clearly spell out the core duties of the UFC: tax devolution, grants-in-aid, and augmenting the resources of panchayats and municipalities.
- Over the years, the open-ended subclause, 280(3)(d), that provides for “any other matter… in the interests of sound finance”, has been exemplified in the Terms of References of recent UFCs.
- The Terms of Reference of the 15th FC have attracted considerable public debate. Some States even held ‘conclaves’, and six of them submitted a memorandum to the President to alter clauses which allegedly violate constitutional propriety, long-standing precedents, and the “fiscal rights” of States.
Working out terms of reference
- The Terms of Reference controversy could have been averted under the dispensation of a truly cooperative federalism.
- The rationale of Article 280, which establishes the UFC, is derived from the acknowledged mismatches between the resources of the Centre and the expenditure responsibilities of the States.
- Although the Constitution borrowed heavily from the Government of India Act, 1935, it was not for a continuation of the past but for building a ‘holding together’ federation where joint action is avowedly the binding ethos.
- The Constitution-makers never asked pertinent questions like who should do what and who should tax where and used the principle of subsidiarity (what can be done best at a particular level should be done at that level and not at a higher level) or other criteria in functional and revenue assignments.
- Given this historical reality, the Terms of Reference of a UFC should have been a joint exercise rather than a Union diktat.
- In preparing the Terms of Reference for a quasi-judicial body like the UFC, it is important not to use it as a platform to impose the Union government’s agenda on the States.
- The Union governments up to the 10th FC were generally circumspect. The fiscal consolidation roadmaps that entail expenditure compression which ultimately reduce vital public spending on health, education, food security entitlements, drinking water, and so on disturb the finer fabric of India’s cooperative federalism — especially in the context of India’s lowest share of direct taxes in total taxes in the world, disreputable tax-GDP ratio, imprudent transgression into States’ autonomy, alarming growth of economic inequality, and so on.
- The litany of “fostering higher inclusive growth” guided by “the principles of equity, efficiency and transparency”, which was echoed by earlier Commissions too, has no operational significance when you go through the entire clause, particularly the requirement to “examine whether revenue deficit grants be provided at all.”
- Another important issue that has been deliberately omitted in the ongoing debate, as also in the memorandum to the President, relates to transfers to local governments.
- That, following the 73rd and 74th Constitutional Amendments, Article 280(3) was amended to incorporate the clauses relating to panchayats and municipalities underscores the organic link in Indian federal public finance. It is instructive to recall that Item No.6 of the Terms of Reference of the 11th FC wanted that commission to take into account constitutional mandates such as creation of institutions of self-government, planning for economic development and social justice, and so on. Later on, such clauses were discontinued.
- The Terms of Reference of the 15th FC introduces “performance-based incentives” which inter-alia want, “Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services.”
- This subclause is not constitutionally neat because grants to local governments constitute a separate core mandate. Further, while including this among the “performance-based incentives”, the strategic efforts made by the 13th FC in this regard and the efforts to link local grants to the divisible pool via Article 275 are apparently ignored.
- Performance-based incentive clauses are valid only as a result-oriented accountability mechanism and also for ensuring constitutional mandates. Padding the Terms of Reference with questionable clauses under this rubric naturally invites resistance from subnational entities.
- The need for an integrated federal public finance that takes local governments into account in macro policymaking and in formulating strategies to ensure regional equity and for evaluating the revenue potential and fiscal capacity does not seem to have occurred to the decision-makers of the country.
- This omission is tantamount to tearing the web of a ‘holding together’ federation which seeks “inclusiveness” as a national goal. The Terms of Reference debate and the memorandum of the State Finance Ministers are silent on this vital issue. While we have a credible budgeting and financial reporting system at the Union and State levels, it is inexplicable why the financial accounting and accountability mechanisms at the local government level are left to fend for themselves.
The real issues
- In the Terms of Reference debate, population was the overarching concern. But the real issues are: (i) that there was a unilateral abrogation of an unwritten covenant or guarantee given to the States in June 1977 in Parliament (and endorsed by the National Development Council in 1979) that the 1971 Census population data will be used in computing devolution shares to the States; and (ii) in mandating the 2011 population, no alternate compensatory device has been envisaged.
- Interestingly, there was no strong protest when all the previous four commissions violated the 1971 population criterion in arriving at local government share.
- Actually, from a larger cooperative federalism perspective, the issue of population should refer to demographic dividend, inter-State migration, ageing population, and the like.
- For example, Kerala reaped its demographic dividend long back in 2001 and now accommodates nearly three million migrants from places like Odisha, West Bengal and Bihar.
- This takes a heavy toll on the State and local government resources. The whole issue of balanced regional development cannot be taken in a casual and illogical manner.
The drawing up of a Terms of Reference of a constitutional body is a serious exercise to be handled with sagacity and skill, based on proper consultations in the true spirit of cooperative federalism.
- A report from the World Health Organisation on the occasion of World No Tobacco Day (May 31) suggests that India’s efforts to cut the prevalence of cigarette smoking are paying off. Between 2000 and 2015, this fell from 19.4% to 11.5%.
- By 2025, the report projected, it could drop to 8.5%, putting India well in line to meeting its 2025 target under a WHO global plan to tackle non-communicable diseases.
- The bigger scourge in the country. The WHO report doesn’t model usage trends in this segment because of the paucity of global data. Other data, however, suggest that India is lagging on this front.
- Even though there is a 2011 government ban on the sale of food items with tobacco or nicotine in them, the consumption of gutkha, khaini and zarda continues to be rampant. The Global Adult Tobacco Survey in 2016, for example, found that 29.6% of Indian men and 12.8% of Indian women were users. Children are victims of this lethal addiction too.
- The WHO report noted that 7.9 million adolescents, between 13 and 15 years, used smokeless tobacco in the South-East Asian region. Given that 66% of the world’s smokeless-tobacco users are in India, a sizeable chunk of this number would be Indian teenagers. Against this background, the drop in cigarette smoking rates gives India little cause to celebrate.
- Gutkha and other chewable tobacco items are equally, if not more, harmful compared to cigarettes. Surveys show that these products are sometimes mixed with carcinogenic compounds called nitrosamines. This is why India banned their sale under the 2011 Food Safety and Standards Regulations.
- Why do they continue to be consumed, then?
- Experts blame their availability on loopholes in the law. The food safety rules target pre-mixed tobacco products, such as gutkha, which contains lime, sugar and other spices.
- This leaves unflavoured items, such as khaini or surthi, out of regulatory purview. Meanwhile, mislabelling of smokeless tobacco is common. Even when a product contains tobacco, it is passed off as being tobacco-free. Worse, one of the tactics of the tobacco industry is to use flavours such as cardamom and saffron to attract youngsters, triggering life-long addiction.
- The WHO report notes that as cigarette usage has fallen in high-income countries, the tobacco industry has targeted younger users to make up for the revenue shortfall. While this trend applies to smoking, there is evidence that children are also a target of the chewable tobacco industry.
- With its war against smoking seemingly on the right track, India must turn its focus to the smokeless tobacco segment. The challenge is bigger, but so will be the reward.
- Last Wednesday, the public sector oil marketing companies cut the prices of petrol and diesel by one paisa a litre — the first reduction for a while in motor fuel prices that had been frozen for 19 days in the run-up to the Karnataka elections, only to creep up thereafter.
- Not surprisingly, the Centre, already under fire for persisting with high fuel taxes despite the rise in the global prices of crude in recent months, faced fresh flak over this cursory cut.
- The same day, the Kerala government approved a reduction in the sales tax on motor fuel products to effect a Rs. 1 cut in prices per litre in the State starting June 1. For the BJP-led government at the Centre, gearing up for several Assembly elections this year followed by the general election in 2019, the pressure to check pump-level fuel prices is intensifying.
- Several formulations are said to be under consideration to soften the blow to the consumer, including a reversion to old-fangled ways such as asking oil producers to bear some of the burden.
- But there still remains great reluctance to consider the option of reducing excise duties that were raised nine times between November 2014 and January 2016 when global crude oil prices had gone down.
- It is in this context that Kerala’s decision to slash the sales tax on fuel changes the narrative of the debate as States have also been raking in easy oil revenue.
- In all, the government raised central excise duties by Rs. 11.77 and Rs. 13.47 for a litre of petrol and diesel, respectively, followed by a Rs.2 a litre cut announced in October 2017, when prices started rising. Additionally, States impose ad valorem duties on fuel products, which go as high as 39.27% (in Maharashtra) and average about 26% — so higher prices mean more tax revenue for them. To make matters worse, they levy value-added tax on the fuel price inclusive of central excise duties, not the base price, leading to double taxation and further price amplification.
- An SBI research report reckons that prices could go down for diesel by Rs. 3.75 and petrol by Rs. 5.75, a litre, if only this tax-on-tax-included-price anomaly was fixed.
- Giving up easy money is never easy, but the recent robust collections from GST should embolden both the Centre and States to bite the bullet now.
- Rising crude prices spike inflation and the trade deficit, putting pressure on the rupee and GDP growth.
- Industry has warned that domestic oil pricing policies are hurting the nascent recovery, and global rating agencies are already slashing India’s growth expectations for this calendar year, citing the oil issue. Two years ago, Petroleum and Natural Gas Minister Dharmendra Pradhan had said that the government was raising excise duties to protect the consumer.
- The logic: consumers could become vulnerable if exposed to low prices and feel a greater pinch when prices went up. The obvious corollary of that stance — that high taxes on fuel need to be cut when prices rise again — has been ignored so far.
G. Practice Questions for UPSC Prelims Exam
Question 1.Consider the following statements:
- The Blue Flag is sought for beaches, marinas and sustainable boating tourism operators as an indication of their high environmental and quality standards.
- The Blue Flag is a certification by the Foundation for Environmental Education (FEE).
Select the correct answer using the code given below.
- 1 only
- 2 only
- Both 1 and 2
- None of the above
Question 2.Consider the following statements:
Nipah is virus that can infect humans as well as animals.
- Fruit bats are the natural hosts of the Nipah virus
Select the correct answer using the codes given below.
- 1 only
- 2 only
- Both 1 and 2
- None of the above
Question 3. Consider the following statements with respect to Gross Domestic Product (GDP):
Asteroids are mostly rocky with no metals inside them.
- Asteroids represent the building blocks of planets and moons, and studying them helps us learn about the early solar system.
Select the correct answer using the code given below.
- 1 only
- 2 only
- Both 1 and 2
- None of the above
H. UPSC Mains Practice Questions
Rising crude prices spike inflation and the trade deficit, putting pressure on the rupee and GDP growth.
Also, check previous Daily News Analysis
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