28 Jun 2022: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: ECONOMY

1. States, freebies and the costs of fiscal profligacy

Syllabus: Government Budgeting.

Prelims- Extra budgetary borrowings

Mains- Concerns with freebie political culture and recommendations to curtail it.

Background:

• A growing number of political parties have resorted to a freebie political culture and have been successful in winning elections by building vote banks.
• This issue has been raised by senior bureaucrats at a meeting with the Prime Minister.

Concerns:

• The freebie culture brings with it the threat of serious financial unsustainability. This could push the state into unsustainable debt.
• There are also doubts over whether such populist expenditure amounts to the best possible use of public money and the opportunity costs of such expenditure. Such expenditure often comes at the cost of diversion of expenditure on physical capital, which can potentially improve growth and generate jobs.
• Despite some arguments that the State finances are in good health and are found to be in conformance to the Fiscal Responsibility and Budget Management (FRBM) targets, this aspect is misleading since much of the borrowing that funds these freebies happens off-budget (extra-budgetary borrowings), hence remains concealed. This aspect has been also pointed out by the Comptroller and Auditor General of India (CAG).

Recommendations:

• There is a need to have institutional checks and balances to curtail the freebie culture. Given the limited role that the opposition can play in this regard, constitutional bodies like the CAG through its audits should be empowered to play a bigger role. In this regard, the article makes the following suggestions.
  • The FRBM Acts of the Centre as well as States need to be amended to ensure more transparent disclosure of their liabilities. The disclosure provision under the current FRBM provisions should be made extensive and should be expanded to cover all liabilities whose servicing obligation falls on the Budget or could potentially fall on the Budget, regardless of any other condition.
  • The Union government should consider imposing conditionalities on States on their borrowing regime. This should be based on well-defined and objective criteria lest this could lead to a political blame game between the centre and the states.
    • As per the provisions of the Indian Constitution, States are required to take the Centre’s permission when they borrow.
  • To get states into following a financially sustainable expenditure, the Union government through the President might also consider using the weapon of imposing a financial emergency in any State if the financial stability of that state is threatened.
• Instead of spending public money on freebies, governments should ideally invest such money in physical and social infrastructure. Such expenditure will be able to create a virtuous cycle of higher growth and higher revenues in the future and such expenditure will pay back for itself unlike in the case of populist giveaways.

Category: INTERNATIONAL RELATIONS

1. Modi’s two summits: UAE trumps G7

Syllabus: Bilateral, Regional and Global Groupings and Agreements involving India and/or affecting India’s interests.

Mains: Significance of the India-UAE bilateral relationship and recommendations to strengthen this relationship.

Context:

• Indian Prime Minister is scheduled to attend two summits in the coming week – the 48^th G7 summit in Germany and a bilateral summit in Abu Dhabi with the UAE President. Though the G7 summit is being highlighted in the media, the article argues how the bilateral summit with UAE is also equally important given the significance of the India-UAE relationship.

Significance of India-UAE bilateral relationship:

• UAE is a large trading partner of India. The bilateral trade between the two countries has grown by 68% in 2021-22 to $72.9 billion, a new record. India is the UAE’s second-largest trading partner, and largest source of tourists and manpower. Notably, the UAE market is an important export market for Indian goods and services.
• UAE is a substantial investor in India. In fact, UAE is a bigger investor in India in 2021 than Germany and France combined. Notably, UAE has signed a bilateral Comprehensive Economic Partnership Agreement (CEPA) with India.
• A large Indian diaspora stays in UAE and they account for the largest share of inward foreign remittances for India.

Way forward for the India and UAE relationship:

• The Abu Dhabi summit should be used to recalibrate the bilateral ties between India and UAE. In this regard, the article makes the following recommendations.
  • Opportunities for mutual benefits should be prioritized.
  • India offers a lucrative market for investments from UAE. UAE would find it financially rewarding to invest in one of the world’s fastest-growing major economies, India. This would be a win-win opportunity for both countries.
• Given the large employment opportunities available for Indian emigrants in UAE, India should consider adequately skilling and training such emigrants to enlarge the job opportunities for Indians.
• At the international level, India and UAE must collaborate and co-operate for reconstruction efforts in war-ravaged regional countries such as Yemen, Syria, Somalia, Iraq, Libya and Afghanistan. This would help increase the regional standing of the two countries and also ensure peace and security in the region.
• At the bilateral level, the two countries should seek more collaboration in the domain of internal security and anti-terrorism.