1.A road map for renewal (The Hindu)

2.A wider net (The Hindu)

3.No Eminence by Diktat (The Indian Express)

 

1.A road map for renewal (The Hindu)

Synoptic line: It throws light on the findings of the Economic Survey 2017-18. (GS paper III)

Overview

  • Recently the Department of Economic Affairs, Finance Ministry of India presents the Economic Survey, which is a statutory document has been tabled in Parliament, is meant to be a scorecard of the economy for the current fiscal year. Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
  • But over the years, it has morphed into a sourcebook for data and policy analysis.

Realities presented by the Economic survey

  • Previous Survey’s preamble stated that the Indian political economy was not capable of big bang reforms. Instead, reforms would be persistent, creative and incremental. But in 2016 India got the world’s biggest bang announcement in the form of demonetisation. Last year the Survey introduced the catchphrase JAM (the Jan Dhan, Aadhaar and Mobile trinity) indicating their potent combination of enabling direct benefit transfers and using technology to deliver subsidies as well as trim leakages.
  • This year’s Survey highlights some new facts about the Indian economy like- the finding that demonetisation and more formalisation of the economy have led to a huge jump in the number of taxpayers, for both direct and indirect taxes.
  • India’s export sector is more diversified in comparison to other peer countries; that is, the top 1% of exporting firms account for a much smaller share of total exports, compared to East Asian countries. It is heartening to note the important role of small and medium enterprises in industrial employment and exports.
  • But some are inane facts, for example, the fact that adverse weather affects agricultural yields and that parents in India have a preference for male children are hardly new “facts”.

About farming sector

  • Some of the sobering facts in the Survey have been on the rural and agricultural sector. Farm incomes have remained stagnant for the past four years, hit by a drop in crop prices, output glut, and possibly demonetisation. This raises question like-what is the prospect of doubling farm incomes in the next few years.
  • The Survey hints that some slippage from pre-announced fiscal deficit targets, are to be expected in this pre-election Budget. As the bond markets hate fiscal slippage and already there is sell-off of bonds. This will lead to a rise in interest rates.
  • Even an increase of 0.5-0.6% rate over one year is an increase in the interest burden of more than ₹40,000 crore, equivalent to the full budget of the Mahatma Gandhi National Rural Employment Guarantee Act.
  • The Survey also points out that India’s stock markets have a different dynamic when compared to global markets. Stock markets all over the world are at record highs and there is concern about a bubble formation. In fact, a new phrase in the international lexicon is melt-up, which is the opposite of melt-down. So whether it’s oil prices or commodity prices, and now stock markets, it’s all going up and this may be the big surge before a crash, big or small.
  • The Survey mentions key macroeconomic headwinds from global factors, such as- oil prices are going up, also the tightening stance of the world’s most influential central bank, the U.S. Fed. As rates are being tightened in the U.S., it is likely to lead to a reversal of dollar flows, which can impact India’s domestic liquidity situation, the stock market, and perhaps the exchange rate.

Domestic challenges

  • The Budget priorities are clearly in the problematic areas, such as- job creation; revival of private investment spending; revival of exports; focus on rural and agricultural economy; and bringing the banking sector back to a healthier condition.
  • World Economic Forum’s Oxfam released a report provided that 1% of India owns 73% of its wealth.. One cause of inequality is the strain of indirect taxes, which tend to be regressive because they affect the poor disproportionately. The goods and services tax is an indirect tax. Excise duties on petrol and diesel are indirect taxes. In the last three years, the share of indirect taxes in total taxation has gone up steadily, which needs to be reversed. So there is an expectation that there will be action on the direct tax front to correct this trend.
  • The Survey points out that India’s rank in ease of doing business has jumped significantly, but an area which remains a cause for concern is the settlement of disputes or litigation. A telling statistic is the large amount stuck in tax litigation.
  • Also the Economic Survey points out that a high rate of pendency and the huge amounts stuck in litigation are hurting India’s ease of doing business. Another telling statistic is the pendency in settling or granting of patents.

Way ahead

  • The survey is overall an excellent document which doesn’t shy away from painting a realistic picture whether it is about jobs, investments, growth outlook or burdensome litigation. The budget should address concerns raised in the Survey.

Question– ‘It is often the case that the Budget does not address the problems presented in the Economic Survey ‘.Highlight how budget can address these problems?

 

2.A wider net (The Hindu)

Synoptic line: It throws light on the issue of increasing in the taxpayers’ base for both direct and indirect taxes. (GS paper III)

Overview

  • Tax to gross domestic product (GDP) ratio is the ratio of taxes collected by a government and the GDP of the nation. Taxes constitute an important component of revenue and the aforesaid ratio is a key barometer that indicates the ability of the government to invest in various development initiatives. India has had a comparatively low tax-to-GDP ratio due to low direct tax base, parallel economy and unorganised sectors that adversely impacted tax collections.
  • The economic survey highlights that the demonetisation of high-value currency notes and the advent of the goods and services tax regime have triggered a surge in the number of those filing taxes in the country.

Assessment

  • The two big reform measures undertaken by the government through demonetisation and GST are expected to improve the tax-to-GDP ratio and one can expect the government to exceed its estimated tax-to-GDP ratio, as mentioned in medium-term fiscal policy statement.
  • The Economic Survey argues that the large gains on the indirect and direct tax fronts indicate that the primary intentions behind the two big-bang economic strides -of formalising the economy and bringing more income into the tax net have been met to some extent. From about 59 million individuals who filed income tax returns or whose tax was deducted at source in 2015-16, the number of tax-filers rose by 10.1 million since the note ban.
  • Personal income tax collections are expected to rise to a historic high of 2.3% of GDP in 2017-18, compared to 2% between 2013-14 and 2015-16. This may seem glacial progress but could be considered a tipping point in a country where just 4% of adults pay personal income tax, though the government reckons that number should be 23%.
  • The Survey finds a 50% increase in unique indirect taxpayers in the first six months of GST, with around 10 million registered taxpayers now compared to an estimated 6.5 million pre-GST. The Survey has noted that both of India’s underlying macro weaknesses -The fiscal and current account deficits tend to get exacerbated when oil prices move up. A wider tax base could at least help tackle the former.

Way ahead

  • The government needs a road map to expand the direct tax pie by pruning blanket exemptions for vocations such as farming and using a more proactive Big Data-driven approach to target evaders. The government must reward this tax base expansion by offering the ‘compliant’ some relief in the Budget, even if it means slashing high duties on petroleum products.

QuestionThere has been substantial increase in the taxpayers’ base for both direct and indirect taxes in last few years due to various government initiatives and reforms. Explain the impact of the widen tax GDP ratio on overall economy.

 

3.No Eminence by Diktat (The Indian Express)

Synoptic line: It throws light on the issue that Universities cannot be made world-class if the desire doesn’t come from within. (GS paper II)

Overview

  • India has ambitious plans to increase graduate numbers in a way which would give it the size and status of an education superpower. The government is aiming at having many universities with a global footprint are good, but there is need to fund them.

Assessment of universities  

  • If the funds are scarce then universities can do without much money because systems in any case need improvements and unit costs will fall, the disappointment will be crushing. It has been suggested that if the government pays, it will also intervene in the processing.
  • The governments themselves are responsible to Parliament for funds spent in the public domain. A possible way of solving this conundrum is to think of rules-based systems to operationalise autonomy and accountability.
  • Accountability is emphasised at the level of the student, the teacher and the karamchari. This is, at best, partial and at worst irresponsible. Registrars and vice-chancellors have to be accountable. If we want to compete with good universities globally, we have to develop a culture where a vice-chancellor or president can pack his bag at short notice and go for a collaborative meeting or a scientific discussion anywhere in the world.

Way ahead

  • The President, in consultation with the HRD minister, can set up a group of eminent Indians from the world of science, scholarship, business and scholarly politicians, which would receive the plans of universities that aim at global eminence and support them. As the idea of aiming for the best in the world of education is great, we need to liberate it from the shackles of routine and aim high.

Question – Universities cannot be made “eminent” on a global plane by diktat. The urge has to come from within; the larger system can only assess the urge and support. Analyse.