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GS Paper II- International Relations.

Russia makes big military push in Arctic

What’s Happening-

  • Nearly three decades after nuclear icebreaker Lenin was taken out of service to be turned into a visitor attraction, Russia is again on the march in the Arctic and building new nuclear icebreakers.
  • It is part of a push to firm Moscow’s hand in the High North as it vies for dominance with traditional rivals Canada, the United States, and Norway as well as newcomer China.

Key Points discussed were:

Biggest since Soviet fall

  • Officials and military analysts and reviews of government documents show Russia’s build-up is the biggest since the 1991 Soviet fall.
  • In some areas, Moscow building more military capabilities than the Soviet Union once had.
  • The expansion has far-reaching financial and geopolitical ramifications.

Why all these?

  • The Arctic is estimated to hold more hydrocarbon reserves than Saudi Arabia and Moscow is putting down a serious military marker.

New Military Bases:

  • Under President Vladimir Putin, Moscow is rushing to re-open abandoned Soviet military, air and radar bases on remote Arctic islands and to build new ones, as it pushes ahead with a claim to almost half a million square miles of the Arctic.
  • Russia is building three nuclear icebreakers, including the world’s largest, to bolster its fleet of around 40 breakers, six of which are nuclear.
  • No other country has a nuclear breaker fleet, used to clear channels for military and civilian ships.
  • Russia’s Northern Fleet, based near Murmansk in the Kola Bay’s icy waters, is also due to get its own icebreaker, its first, and two ice-capable corvettes armed with cruise missiles.

Causing Jitters:

  • The build-up is causing jitters elsewhere.
  • Some 300 U.S. Marines landed in Norway this month for a six-month deployment, the first time since World War Two that foreign troops have been allowed to be stationed there.

Sources- The Indian Express, The Hindu, MEA.

GS Paper II-Government Budgeting.

Economic Survey wants modification of FRBM Act

What’s Happening-
India has “changed utterly” over the last 13 years since the Fiscal Responsibility and Budget Management (FRBM).
It was enshrined in law for prudent fiscal management and therefore, the FRBM operational framework designed in 2003.
It “needs to be modified to reflect the India of today and even more importantly, the India of tomorrow,” according to the Economic Survey.

Key Points discussed were:

Fiscal policy principles:

  • India’s economic experience shows that the fiscal activism embraced by advanced economies — giving a greater role to counter-cyclical policies and attaching less weight to curbing debt — was not relevant for India.
  • The Survey said India’s fiscal experience has underscored the fundamental validity of the fiscal policy principles enshrined in the FRBM Act.
  • The pre-Budget document pointed out that since the 2008-09 global financial crisis, internationally fiscal policy has seen a paradigm shift from the emphasis on debts to deficits, arguing for greater activism in flows (deficits) and minimising concerns about sustainability of the stocks (debt).

Fiscal deficit rules:

  • However, India’s experience has reaffirmed the need for rules to contain fiscal deficits because of the proclivity to spend during booms and undertake stimulus during downturns, it observed.

New Methods for FRBM:

  • Mr. Jaitley in his Budget 2016-17 speech, had said: “There is now a school of thought which believes that instead of fixed numbers as fiscal deficit targets, it may be better to have a fiscal deficit range as the target, which would give necessary policy space to the government to deal with dynamic situations.”

Background-
Recently N.K. Singh panel submitted its report on revising the FRBM Act to finance minister Arun Jaitley.
According to data released by the Controller General of Accounts, fiscal deficit in the April-December (2016-17) period was 93.9% of the Budget target against 87.9% for the same period a year ago. The April-December fiscal deficit in value terms was Rs. 5.01 lakh crore.

Governments Target:
The government has set a target for fiscal deficit (the gap between expenditure and revenue for the financial year) of 3.5% of GDP for FY’17, a lower target than the 3.9% set for 2015-16 which was achieved. In value terms, the 3.5% is Rs. 5.33 lakh crore.

Sources- The Indian Express, The Hindu. Page 1

GS Paper II-Government Budgeting.

Push to solve India’s twin balance sheet problem

What’s Happening-
The Economic Survey called for a need to set up a government-owned asset reconstruction company, PARA (Public Sector Asset Rehabilitation Agency) in an attempt to resolve India’s twin balance sheet problem – over-leveraged companies and the rising bad loans in public sector banks.

Key Points discussed were: The economic survey opinions that

PARA:

  • PARA agency could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt. And solve Twin Deficit Problem of India.
  • Advocating PARA to resolve the problem of twin-balance sheets (corporates and banks) to be funded by the windfall gain to the government (from the unreturned old demonetised notes).
  • public discussion of the bad loan problem had focused on bank capital, under the assumption that the main obstacle to resolving the twin balance sheet (TBS) concern was finding the funds needed by the public sector banks.

Limited success:

  • Since other approaches to resolve the TBS problem had failed or had limited success.
  • The Economic Survey noted that international experience shows that a professionally-run central agency with government backing – while not without its own difficulties — can overcome the difficulties that have impeded progress.
  • stressed debt was heavily concentrated in large companies.
  • Concentration creates an opportunity, because TBS could be overcome by solving a relatively small number of cases. But it presents an even bigger challenge, because large cases are inherently difficult to resolv

Background-
What is twin-balance sheets problem?
Over-leveraged companies and
The bad loans in public sector banks.

Way Forward:
Cash flows in the large stressed companies have been deteriorating over the past few years, to the point where debt reductions of more than 50% will often be needed to restore viability.
The only alternative would be to convert debt to equity, take over the companies, and then sell them at a loss.
The twin balance sheet problem is a serious drag on credit growth. The setting up of a centrally-assisted rehabilitation agency will help in taking difficult decisions which the public sector banks are unable to take. Over the past few years NPAs of public sector banks have been rising and is a cause for concern warranting large write downs.

GS Paper III – Indian Economy and issues relating to planning, growth, development and employment.

Finance Minister unveils string of measures towards Ease of Doing Business

What’s Happening-

  • While presenting the General Budget 2017-18 in Lok Sabha the Union Finance Minister, Shri Arun Jaitley announced a slew of reliefs in the Government’s continuing policy towards providing an environment of “Ease of Doing Business”.

Key Points discussed were:

  • The Finance Minister Shri Jaitley raised the threshold limit for audit of business entities that opt for presumptive income scheme from Rs. 1 crore to Rs. 2 crores.
  • Similarly, the threshold for the maintenance of books for individuals and HUF is proposed to be increased from turnover of Rs. 10 lakhs to Rs. 25 lakhs or income from Rs. 1.2 lakhs to Rs. 2.5 lakhs.

FPI:

  • Foreign Portfolio Investor (FPI) Category I & II will be exempt from indirect transfer provision under the IT Act.
  • Besides, indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.
  • This will remove apprehensions over taxation upon transfer of stake of investors of India-based funds located abroad but investing in India-based companies.

Insurance Agents:

  • Bringing relief to individual insurance agents, they have been exempted from the TDS provision of 5% being deducted from commission payable after filing a self-declaration that their income is below taxable limit.
  • Professionals with receipt upto Rs. 50 lakhs p.a. can pay advance tax towards presumptive taxation in one instalment instead of four.

Tax Return Refund:

  • In order to allow the people to claim the refund expeditiously, that the time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return.
  • Also the time for completion of scrutiny assessments is being compressed further from 21 months to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20.