Courting the rankings
Making health insurance work
(The Hindu and The Economic Times)
For more equity
Courting the rankings
Synoptic line: It throws light on the road map to improve India’s reputation for ‘enforcing contracts’.
(GS paper III)
- The World Bank in 2017 announced that “India Jumps Doing Business Rankings with Sustained Reform Focus” moving from 130th to 100th overall.
- But in the recent news India’s position in the World Bank’s annual ‘ease of doing business’ index could be affected as the Washington-based institution moves to recalculate its rankings of the last four years amid suspicion that their sanctity might have been compromised due to the reported use of politicised methodology. India can concern about the dismal ranking, and it is the one about “enforcing contracts”.
About the report
- The ease of doing business index is an index created by Simeon Djankov at the World Bank Group. The academic research for the report was done jointly with professors Oliver Hart and Andrei Shleifer.
- Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the economic growth impact of improving these regulations is strong.
- The World Bank’s “ease of doing business” index is based on the average of 10 sub-indices which are: Starting A Business; Dealing With Construction Permits; Getting Electricity Connections; Registering Property; Getting Credit; Protecting Minority Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; And Resolving Insolvency.
- India broke into the top 100 in the World Bank’s latest ‘ease of doing business’ rankings, notching up the biggest improvement among all countries on the back of big gains on a number of measures. The rise to the 100th position from 130th the previous year made India one of the top 10 best-improved countries, which the government celebrated as an emphatic endorsement of its economic reforms.
- The bank’s index ranks nations on parameters like the number of days it takes to open a business, or the cost of getting construction permits. Countries that make their business environment worse, for instance by drawing out the permitting process, get penalised in the rankings. The World Bank first published this report in 2002.
- Our performance is bound to be dampened, if there is acknowledgement of our dismal performance in one key component in the indices that make up these rankings; if there is a component that still has a dismal ranking it is the one about “enforcing contracts”.
- Enforcing contract is directly dependent on a country’s ability to provide an effective dispute resolution system. In the World Bank report which covers 190 economies, evaluating them on 10 specific parameters required for doing business, India’s ranking in the ‘enforcement of contract’ component is 164 as in addition to an overall ranking, each component also has a separate ranking.
- According to the report, it takes an average of 1,445 days (or nearly four years) to enforce a contract in India. In this, the distance to frontier (DTF) ranking score is 40.76. The all-told cost to a litigant to recover amounts legitimately due to him is 31% of the value of the claim. This is a shocking state of affairs.
- Though India’s DTF score was 56.05 in 2017 and is projected to improve to 60.76 in 2018 in the overall ease of business rankings, unfortunately, in ‘enforcing contracts’ our score was a dismal 38.90 in 2017, projected to improve feebly to 40.76 in 2018.
- The dismal ranking can be threat for India’s business environment, for this purpose Parliament even passed the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act. But when the implementation of an Act is left to State governments, there is generally a hiatus in enforcement.
- The purpose behind the Act is to provide a forum with upgraded infrastructure to resolve a certain class of disputes, classified as “commercial disputes” in the Act, in a time-bound and effective manner. The legislation also requires establishment of appropriate infrastructure and manpower training on a constant basis.
- In identifying disputes above a specified value to qualify as commercial disputes, it has ensured that these courts are not cluttered up with small claims. The Act essentially paves the way for the setting up of commercial courts at the district level and a commercial division in High Courts that have original jurisdiction along with a commercial appellate division in the High Courts to hear appeals arising under the Act.
- By mandating that High Courts must show levels of disposal of such claims on their website, the Act also ensures transparency. However, for this statutory scheme to work, many players must play their respective parts.
- For working of the act some immediate consideration are required, firstly the Act contemplates the “appointment” of commercial court judges in districts, in most States the government there has merely vested the presiding district judge with powers to act as a commercial court. Given that the workload of principal district judges is already quite staggering, vesting them with the powers of commercial courts in districts strikes the first blow against the intent and purpose of the Act.
- Secondly, and this flows from the first aspect, whenever presiding officers are appointed to commercial courts, it must be ensured that they have experience in dealing with commercial disputes, as Section 3 of the Act ordains. Merely the fact that an incumbent is a district judge supplies no such experience.
- Thirdly, under Section 19 of the Act, the respective State governments must, in consultation with the High Courts, establish necessary infrastructural facilities to run these courts.
- Fourthly, under Section 20, the State government is to establish facilities providing for the training of judges who may be appointed to these courts.
- And finally, and possibly most importantly, in terms of Section 17, statistical data regarding the functioning of these courts are to be displayed on the website of the respective High Courts.
Question- Explain what measures can been taken to improve India’s reputation for ‘enforcing contracts’. Sothat India’s overall ranking in World Bank’s Ease of Doing Business improves.
Making health insurance work
(The Hindu and The Economic Times)
Synoptic line: It throws light on the National Health Protection Scheme as announced in budget 2018-19.
(GS paper III)
- Health programme has become the most prominent feature of a Union Budget 2018-19, which is quite unusual, the recommendations of the High-Level Expert Group on Universal Health Coverage (2011) resonates in the Budget, with commitment to universal health coverage, strengthening of primary health care, linking new medical colleges to upgraded district hospitals, provision of free drugs and diagnostics at public health facilities, and stepping up financial protection for health care etc.
- The Budget sends a strong message that health is now in the spotlight of politically attractive policy pronouncements. From now on, no government can ignore people’s legitimate aspiration to get the health services they desire and deserve.
The National Health Protection Scheme
- The scheme under Ayushman Bharat plan, will provide cost coverage, up to ₹5 lakh annually, to a poor family for hospitalisation in an empanelled public or private hospital. The precursor of the National Health Protection Scheme (NHPS), the Rashtriya Swasthya Bima Yojana (RSBY), which provided limited coverage of only ₹30,000, usually for secondary care and it failed to reduced out-of-pocket expenditure (OOPE), catastrophic health expenditure or health payment-induced poverty.
- The NHPS addresses the concerns of RSBY, by sharply raising the coverage cap, but shares with the RSBY the weakness of not covering outpatient care which accounts for the largest fraction of OOPE. The NHPS too remains disconnected from primary care.
- There is provision that NHPS will pay the hospitalisation costs of its beneficiaries through ‘strategic purchasing’ from public and private hospitals. This calls for a well-defined list of conditions that will be covered, adoption of standard clinical guidelines for diagnostic tests and treatments suitable for different disorders, setting and monitoring of cost and quality standards, and measuring health outcomes and cost-effectiveness.
- Both Central and State health agencies or their intermediaries will have to develop the capacity for competent purchasing of services from a diverse group of providers. Otherwise, hospitals may undertake unnecessary tests and treatments to tap the generous coverage. The choice of whether to administer NHPS through a trust or an insurance company will be left to individual States.
- Reduced allocation for the National Health Mission and sidelining of its urban component raise concerns about primary care, even though the transformation of sub-centres to health and wellness centres is welcome. If primary health services are not strong enough to reduce the need for advanced care and act as efficient gatekeepers, there is great danger of an overloaded NHPS will disproportionately draining resources from the health budget.
- The NHPS scheme operates around the insurance principle of ‘risk pooling’, and it will be financially viable, despite a high coverage offered to the few who fall sick in any year, because the rest in the large pool do not need it that year. However, the NHPS will need more than the ₹2,000 crore presently allocated.
- The State governments have the main responsibility of health service delivery and also need to bear the major share of the public expenditure on health. The National Health Policy (NHP) asks the States to raise their allocation for health to over 8% of the total State budget by 2020, requiring many States to double their health spending and the Central Budget has not signalled a movement towards the NHP goal of raising public expenditure on health to 2.5% of GDP by 2025. The NHPS needs a buy-in from the States, which have to contribute 40% of the funding.
- The NHPS requires a high level of cooperative federalism, both to make the scheme viable and to ensure portability of coverage as people cross State borders.
- As the health care is not just a matter of health insurance, involving as it does many other elements such as the availability of a multi-layered, multi-skilled health workforce., thus there in need to think that health is beyond health care, dependent upon social determinants. Need to have all-party consensus developments around how to design and deliver universal health coverage.
Question – Critically analyse the measures taken in budget 2018 for better health care system under Ayushman Bharat plan?
For more equity
Synoptic line: It throws light on the issue of Centre’s decision to bring back the long-term capital gains tax (LTCG).
(GS paper II)
- The Long term capital gains tax is the tax paid on profit generated by an asset such as real estate, shares or share-oriented products held for a particular time-frame. The definition of Long-term Capital Gains, or LTCG, is different for various products.
- The Finance Bill, 2018 proposes to provide for a new long-term capital gains tax regime for the assets- Equity Shares in a company listed on a recognized stock exchange; Unit of an equity oriented fund; and Unit of a business trust.
- The Centre’s decision to bring back the long-term capital gains tax (LTCG) on equities, which was scrapped in 2004-05. It seems to be a hasty move to plug the widening fiscal deficit ahead of an election year. With investors in equities enjoying terrific returns over the last few years, it is not a surprise that they have become targets for the government to secure additional revenue.
- The long term capital gains tax will be levied only on transfer of the long-term capital asset on or after 1 April, 2018, as defined in clause (47) of section 2 of the Income Tax Act. The long-term capital gains will be computed by deducting the cost of acquisition from the full value of consideration on transfer of the long-term capital asset.
- The decision to announce the imposition of 10% tax on gains of over ₹1 lakh made on any form of investment in listed equities and mutual funds with a holding period of over one year will hit the average middle class investor.
- The one of the legitimate concern is whether raising the tax burden on equities, rather than lowering the tax and other barriers to investing in alternative assets, is the right way to address the distortionary effect of taxes.
- Further, the smaller differential between short and long-term capital gains tax itself will discourage the long-term holding of stocks in favour of short-term trading activity. While this might serve to improve liquidity in Indian markets and add to the government’s revenue, it is also likely to discourage to some extent the growing culture of investing in equities for the long run.
- The securities transaction tax (STT), which was introduced in lieu of the LTCG in 2004 and penalises the buying of stocks for purposes other than just intra-day trading, has been left untouched by the government. The double whammy of the STT and LTCG will further privilege short-term trading in stocks over long-term investment.
- The Finance Secretary of India had explained that the purpose of STT and LTCG is different and that the former only helps the government in keeping a track of equity transactions without any windfall revenue collection.
- India being only country in the world to impose the STT and LTCG, it is also likely to become a little less attractive to foreign investors when compared to its peers. But there is also a view that the proposed structure of LTCG would make it more lucrative for entities to trade through tax treaty countries such as Singapore and Mauritius till the time the treaty benefits exist.
- Though it has been justified the higher tax levy saying that the capital gains accrue from zero effort. Despite the constraints, the government would do well to at least soften the negative impact of the new tax by allowing indexation means allowing a set-off based on inflation rate of capital gains and removing the STT on equity investments.
Question – What is Long term-capital gains tax (LTCG)? Why the government has decided to bring back the long-term capital gains tax (LTCG) ?