Four corners of a good deal

On March 2, speaking at a conference in New Delhi, the head of United States Pacific Command issued a clarion[kla-ree-un(loud,जोरदार)] call for more robust[row'búst(strong,मजबूत)] U.S.-India cooperation in the Asia-Pacific. Admiral Harry Harris observed that India is “beginning to exert its leadership” in the region, which he referred to as the “Indo-Asia-Pacific”. His appeal for partnership was strikingly direct. “We are ready for you,” he declared. “We need you. Let’s be ambitious together.”

Of particular note was Admiral Harris’s pitch for greater cooperation between the U.S., India, Japan, and Australia. The U.S.-Japan-India trilateral has gained momentum in recent years, with regular meetings and a variety of collective exercises. Conversely, the four-way arrangement has made much less progress and has largely been limited to some meetings and naval exercises several years back.

This quadrilateral relationship is typically depicted in defence terms. It is undoubtedly a national security-based arrangement. It is therefore a sensitive matter, particularly given the message it sends to Beijing. This helps explain why Indian officials have not reacted warmly to Admiral Harris’s proposal.

Michael Kugelman
Raymond Vickery
However, something significant gets lost amid all this loud talk of national security and China concerns: a closer relationship between these four key democracies can also boost India’s tenuous[ten-yoo-us(weak,कमज़ोर)] energy security in a big way.

Growing energy appetite

India’s yawning energy needs are well-known. Economists say that for Indian economic growth to return to double digits, energy supplies must increase by three to four times over the next few decades. Deficits, however, are immense — including, for electricity alone, peak demand deficits of 25 per cent in some southern States.

This helps explain India’s addiction to overseas energy. Eighty per cent of its oil is imported, as is about 20 per cent of its coal — though in recent years, coal imports have increased by as much as 56 per cent in a single year. India also imports 40 per cent of its uranium. And it is increasingly importing natural gas.

Import-dependent energy policies are always fraught with peril[pe-rul(risk,जोखिम)], and India’s is no exception. Many, if not most, of its hydrocarbon imports come from unstable or faraway regions; two thirds of its oil comes from West Asia, and distant Venezuela is also a key source of oil. Additionally, India sees great potential in gas-rich Central Asia. However, because Pakistan denies India transit rights to Afghanistan, India lacks direct access to the region.

Though New Delhi has scored some successes in Central Asia — including uranium cooperation with Kazakhstan — it has largely lost out on many opportunities, even while China has seized them. New Delhi seeks to enhance its access to Central Asia by developing the Chabahar port in southern Iran; however, so long as Afghanistan remains coseismal[kow'sIs-mu(unstable,अस्थिर)], access to Central Asia via Chabahar will be difficult. Afghanistan’s security problems also make the TAPI gas pipeline an unlikely prospect.

Meanwhile, the lifting of sanctions on Iran following its nuclear deal with the U.S. opens up energy possibilities for India, which has reduced its imports from Iran in recent years. However, New Delhi faces serious competition from other importers rushing to cash in.

Enter the quad

Australia can provide immense energy benefits to India. It already provides sizeable quantities of coal. The two sides have explored uranium cooperation. And most importantly, Australia is a top global producer of LNG. In recent weeks, New Delhi has telegraphed a strong desire to capitalise on Australia’s gas riches. With LNG prices having fallen by 75 per cent since 2014, the timing could not be more ripe to explore deeper energy cooperation — particularly given the volatile location of Qatar, the top current source of India’s LNG imports. The quadrilateral would boost India-Australia relations overall, and better position New Delhi to negotiate workable LNG agreements with Canberra.

Additionally, India could leverage a closer relationship with Australia to engage more deeply with the latter’s neighbour, Indonesia, which provides India more than 60 per cent of its current coal imports. This would help advance New Delhi’s “Act East” policy. Cultivating deeper energy relationships with these two relatively close-by Southeast Asian countries — an objective that the quadrilateral relationship can help bring about — would ease the encumbrance[en'kúm-brun(t)s(burden,भार)] on India’s naval forces of protecting energy assets in areas more far-flung than Southeast Asia.

Additionally, Indonesia and Australia — despite their proximity to the South China Sea and their susceptibility to Islamist militancy, including attacks by the Islamic State — are far more stable than West Asia, which would ease concerns about the security of Indian energy assets and imports originating in these two countries.

More broadly, for India, the quadrilateral relationship could enhance energy engagement with the U.S., Japan, and Australia across the board. These three countries have signed on to the India-led International Solar Alliance. Japan and India are offtakers for U.S. LNG projects. And all four countries have an interest in energy infrastructure development.

In recent years, a major roadblock to the quadrilateral relationship was Australia, which withdrew from the arrangement in 2013, citing concerns about China’s reaction. Today, however, Canberra has a different government and has expressed support for resurrecting[re-zu'rekt(revive,पुनर्जीवित)] it. For New Delhi, reviving the quadrilateral relationship may not make much sense from a national security perspective. However, viewed through the lens of energy security, it arguably makes very good sense.

Courtesy:the hindu

Download monthly pdf of February

Read more »

Good economics is good politics

The backdrop to Finance Minister Arun Jaitley’s third Budget was a domestic economy confronted with a rather adverse global environment, an agricultural sector reeling from two successive years of drought, and a manufacturing sector that has been limping along. Although the gross domestic product (GDP) growth rate has been relatively impressive at over 7 per cent (though this figure has been contested as unduly high by many who attribute the “overestimate” to the shift in the method of computing GDP), there was a universal feeling that the economy was in a vulnerable[vúl-nu-ru-bul(weak,कमज़ोर)] state and that even a relatively minor shock could cause a big downward slide. The believers in impending doom for the economy felt that an expansionary Budget designed to stimulate aggregate demand was the only way out. Ranged against this school were the fiscal conservatives who believed with equally strong conviction that the Budget must keep the fiscal deficit under control.

Bhaskar Dutta

Economic sense seemed to suggest that the Finance Minister would have to choose one or the other option. However, Mr. Jaitley seems to have achieved the impossible. He has definitely embraced[em'breys(adopt,स्वीकार)] fiscal prudence[proo-d(u)n(t)s(intelligence,समझदारी)] . He has announced that the budgetary deficit for the current year will not exceed 3.9 per cent of GDP, and has promised to lower the fiscal deficit for 2016-17 to 3.5 per cent of GDP. Since these are figures that were mentioned last year, the intention is clearly to ensure that there is no financial slippage in so far as the Central government is concerned. Surprisingly, fiscal prudence does not seem to have come at the cost of a cut in government expenditure. Mr. Jaitley has announced a significant increase in the allocation to agriculture and rural development, as well as infrastructure. He has also made a large budgetary provision for payments arising out of the Seventh Pay Commission awards and the modified pension scheme for the military. Moreover, the tax measures are anything but draconian[dru'kow-nee-un(strict,कठोर)] . So, how has he managed to square the circle?

Banking on assumptions

The government has benefited a great deal from the windfall gain arising from the steep fall in crude oil prices. The price of crude oil is less than half of what it was a year ago. However, the government has not passed on the substantial savings achieved on the import bill to consumers — the retail prices of petrol and diesel have come down by only a few rupees! Clearly, the government is hoping to continue its reliance on this source of non-tax revenue. Of course, this strategy carries with it the risk that the government estimates of revenue on this account during 2016-17 will be hit for a six if the global economy recovers from its current slump. This would result in an increase in the demand for oil and hence a rise in crude oil prices.

Mr. Jaitley has also made some rather optimistic assumptions about the volume of resources available to finance the government’s expenditure. He is hoping for a significant increase in revenue from personal income tax. The bulk of this increase must come from better tax compliance since there has been only a modest increase in taxes for the super-rich. What is more questionable is his assumption that disinvestment and the strategic sale of public sector enterprises will fetch the exchequer the sum of Rs.56,000 crore. This is surely quite unreasonable in view of the fact that the revised estimate for 2015-16 is less than half this figure. The stock market will have to improve considerably if disinvestment proceeds are going to be anywhere close to Mr. Jaitley’s estimate.

The government also hopes to exploit non-budgetary sources of financing infrastructure projects. First, there is the hope that some infrastructure projects will be funded through public-private partnerships. Second, the National Investment and Infrastructure Fund (NIIF) has been allocated Rs.4,000 crore in the 2016-17 Budget. The government hopes that the NIIF can leverage this to raise additional funds through the bond market. Third, there are approved market borrowings of around Rs.30,000 crore for several financial intermediaries. Of course, the government cannot be completely certain that the targeted volume of resources will materialise from these sources. There is also the danger that public borrowings will crowd out private borrowing if the overall credit scenario is not satisfactory.

Focus on the farms

As far as budgetary allocations are concerned, the emphasis has definitely been on agriculture and the rural sector in general, with a huge increase in the allocation to the sector. A key policy instrument will be a large increase in investment in irrigation, with the emphasis on completing several projects very soon. The Budget also provides for an increase in funds allocated to gram panchayats. This is part of a huge increase in outlay on rural development, including rural road construction. Somewhat surprisingly, the Budget has dramatically increased funding for one of the previous United Progressive Alliance government’s flagship programmes — Mahatma Gandhi National Rural Employment Guarantee Scheme. Other benefits to farmers include smoother credit flow, insurance against crop failures, and improved marketing facilities.

Echoing[e-kow-ing(repeat,दोहराना)] the Prime Minister’s recent promise, Mr. Jaitley too has announced the target of doubling farm incomes within five years. This can be nothing more than a pipe dream. Farm incomes would have to record an average annual growth rate of about 14 per cent in order to achieve this target. The annual growth rate of agricultural output in India during any five-year period has not even touched half this level. What magic wand does the Finance Minister have to achieve this miraculous feat? And even if this could be achieved, who will buy double the current volume of agricultural output given the low income elasticity of demand for agricultural output? Of course, there are many countries where farmers’ incomes are several times that of Indian farmers. But, in order for Indian farmers to reach these levels of income, agricultural productivity has to increase dramatically and far fewer people have to depend on agriculture for a livelihood. This in turn requires massive migration of people from the rural to the urban sector. There is no mention in the Budget speech of whether this is expected to take place.

Steady structure of taxation

There has been very little change in the structure of taxation. The Finance Minister has stayed away from overt[ow'vurt(open,खुल्लमखुल्ला)] populism such as raising the income tax exemption limit. There is clearly no justification for such a move when barely 5 per cent of households pay personal income tax. Direct tax rates for the vast majority of taxpayers remain unchanged, but those with taxable income above Rs.1 crore will pay a higher surcharge. Moreover, tax compliance is sought to be increased by levying a penal tax on undisclosed incomes. Some minor concessions have been provided to small taxpayers and new companies. Taxes on diesel cars have been increased in order to discourage their use. Diesel itself is difficult to tax since this has an adverse knock-on effect on the entire transport sector. However, it has always been a mystery why Mr. Jaitley’s predecessors have not imposed a disincentive tax on diesel cars. After all, indirect taxes are also supposed to serve an allocative purpose.

Viewed in its entirety, an admittedly simplistic characterisation of the Budget is that it is pro-poor rather than pro-rich. Certainly, there is very little in the Budget to label it as one for the “suited-booted”. It is debatable whether the quantitative targets claimed during the Budget speech will be achieved. However, the qualitative stance in the Budget is praiseworthy — increase investment in the rural sector and infrastructure, particularly road construction, hope that these relatively labour-intensive investments will have both a magnified effect on employment as well as output. The cynical[si-ni-kul(distrustful,दोषदर्शी)] will claim that this shift in emphasis from pro-business reforms to the somewhat old-fashioned strategy of stimulating agriculture has been brought about by the Bharatiya Janata Party’s electoral defeats in the Bihar and Delhi Assembly elections. But good politics is not necessarily bad economics. This Budget may well be an example of this.

Courtesy:the hindu

Download monthly pdf of February

Read more »

The antibiotic red line of control

A much-needed public awareness campaign to highlight the dangers of misuse and irrational use of antibiotics was recently launched by the Ministry of Health and Family Welfare.

Called ‘Medicines with the Red Line’, it comes at a time when the consumption of antibiotics in India has increased sharply while the effectiveness of these drugs to treat bacterial infections has been steadily declining.

High disease encumbrance[en'kúm-brun(t)s(burden,भार)], rising income, cheap, unregulated sales of antibiotics and poor public health infrastructure are some of the reasons for the sharp increase in antibiotic use. A report (August 2014) in the journal The Lancet Infectious Diseases, said that in 2010, India consumed 13 billion units of antibiotics, the highest in the world. Between 2005 and 2009, consumption shot up by 40 per cent.

A case of contradictions

And the impact of this unregulated usage is already showing. Between 2008 and 2013, E.coli bacteria resistant to third-generation cephalosporins increased from 70 to 83 per cent; it went up from 8 to 13 per cent in the case of carbapenems and 78 to 85 per cent in the case of fluoroquinolone, notes a paper published on March 3, 2016 in PLOS Medicine.

The consequences[kón-si-kwun(t)s(result,परिणाम)] of increased prevalence[pre-vu-lun(t)s(widespread,प्रचलन)] of antimicrobial resistance are best illustrated in the case of neonatal sepsis. On average 57,000 neonates die each year in India, the highest in the world, due to sepsis infection that is resistant to first-line antibiotics; in 2012, India had the highest neonatal deaths (nearly 7,79,000).

The irony is that at the same time, the lack of access or delayed access to effective antibiotics is causing more deaths in India than from drug-resistant bacteria. This is best revealed in the case of pneumonia in children under five years of age. Most of the 1,70,000 pneumonia deaths that occurred in this age group in India in 2013 could have been averted[u'vurt(prevent,रोकना)]. had these children had access to effective antibiotics, notes a paper published on November 18, 2015 in the journal The Lancet. Only 12.5 per cent of affected children received antibiotic treatment for pneumonia.

One way to reduce the dependence on antibiotics, particularly in the case of pneumonia, is by increasing the coverage of immunisation, which is currently hovering around 72 per cent for DTP (diphtheria-tetanus-pertussis).

So like many other developing countries, India has to turn the spotlight on ensuring sustainable access even while maintaining sustainable effectiveness of all antibiotics. The only way to achieve this twin objective is by ensuring that all stakeholders — government, patients, veterinarians, doctors, pharmacists, pharmaceutical companies and health-care facilities — play their respective roles more responsibly.

First, people should be made cognizant[kóg-ni-zunt(aware,जागरूक)] that stopping antibiotics midway, missing doses, taking suboptimal dosages, or consuming antibiotics for cold and other viral infections, to name a few, makes them resistant to antibiotics; when ill the next time, their only recourse will be more expensive drugs or probably nothing at all. This is best exemplified in the case of multidrug-resistant tuberculosis that requires longer period of treatment using very toxic drugs that are more expensive.

Cracking down

For the government, the top priority should be to crack down on drug companies manufacturing irrational fixed-dose combination drugs. “A recent study reported fixed dose combinations and loose antimicrobials for tuberculosis. Loose antimicrobials come without packaging and do not mention the name of the drug, its manufacturer, the date of manufacture, or the date of expiry,” notes the PLOS Medicine paper.

The government should also urgently regulate drug companies discharging antimicrobial waste into the environment and regulate the use of antibiotics in animal feed to combat antibiotic resistance and obtain healthier animal products — misuse of antibiotics in food animals is linked to the antibiotic resistance problems we face today. Better sanitation and trenchant[tren-chunt(effective,प्रभावी)] infection control measures in health-care settings will also drastically cut the spread of drug-resistant strains.

As a 2013 study in Indian Journal of Medical Ethics revealed, knowledge of antibiotic resistance was “reasonable among doctors, but low in priority”. Inadequate[in'a-di-kwut(insufficient,अपर्याप्त)] diagnostic facilities, lack of antibiotic guidelines and patients’ demand for quick relief often determined doctors’ prescription habits, besides incentives from drugs companies and chemists to push certain products.

The collusion of drug companies and chemists is also apparent in the rampant[ram-punt(uncontrolled,अनियंत्रित)] over-the-counter (OTC) sale of antibiotics, particularly carbapenems (that is among the highest in the world), even for ailments where they are not indicative. The introduction of Schedule H1 category from March 2014 to prevent the sale of 24 third- and fourth-generation antibiotics without prescription is a step in the right direction. Licences of 213 retail pharmacies have been cancelled for non-compliance.

But restricting OTC sales of antibiotics, particularly the commonly used ones, is a double-edged sword. Any intervention to limit access by enforcing prescription-only laws unwittingly cuts off a vast majority of the population, particularly in the rural areas, that lacks access to doctors.

Courtesy:the hindu

Download monthly pdf of February

Read more »

Cooling the earth down

The Paris Conference last year primarily discussed plans to reduce carbon emissions, which is understandable as this is the most immediate item for action. But other measures for dealing with global warming, in particular climate engineering, may soon acquire more importance.

Today, climate engineering efforts are viewed either as secondary measures to be undertaken alongside reducing emissions or as technologies which have not matured enough to warrant discussion by world leaders. But the situation can change dramatically in the future. Even if all the national commitments made in Paris are fulfilled, the effects of global warming will inevitably[i'ne-vu-tu-blee(necessarily,जरुरी)] worsen in the near term. As nations struggle to reduce emissions even further, alternative solutions using engineering innovations will increasingly gain currency.

R. Rajaraman

A variety of such proposals for battling global warming are already on the table — a few are being tried out and others are being seriously researched. Unfortunately, some of them also carry the risk, if things go wrong, of causing unintended environmental disasters. Climate engineering experts have been addressing these problems for years but such awareness has not trickled down to the larger intelligentsia to form a body of educated opinion that can help governments decide on which techniques to adopt and how best to govern and regulate them.

Control carbon or sunlight or both?

Most climate engineering efforts can be divided into two categories which address, respectively, the management of carbon and the management of sunlight. The first category is directed towards removing greenhouse gases from the atmosphere. A prominent example is carbon capture and storage (CCS), where some of the carbon dioxide (CO) being emitted by coal-fired power stations is recaptured by physically sucking it in and transporting it elsewhere to be sequestered[si'kwe-stud(separate,एकांत)] underground. The first 115 MW CCS retrofitted coal power plant commenced[ku'men(t)s(start,शुरुवात)] operation at Boundary Dam in Canada in 2014. The CO captured there is transported and pumped into nearby oilfields for enhanced oil recovery. This has reduced its CO emission by one million tonne each year. Studies are on in the U.K. and other nations on the feasibility of similar installations there.

Another method for removing CO from the atmosphere is to increase forest cover as plants will absorb some of the unwanted CO. Increased forestation is part of India’s strategy for reducing CO .

It is not clear whether CCS, reforestation and other carbon removal methods can make sufficient impact at the global level to significantly slow down global warming. But they seem relatively benign[bi'nIn(harmless,सुरक्षित)] at the scale at which they are being considered now and will at least lower CO pollution locally.

More ambitious, but also more worrisome, is the second category of climate engineering: solar radiation management (SRM). Here the plan is to reduce global warming by cutting down the heat absorbed by our planet from the sun. Among the techniques being considered are marine cloud brightening, cirrus cloud manipulation and stratospheric aerosol injection (SAI). SAI, the boldest and also the most risky of climate engineering interventions, involves spraying into the stratosphere fine, light-coloured particles designed to reflect back part of the solar radiation before it reaches and warms the earth. SAI proponents claim that this could bring down the global temperature by as much as 1°C — a substantial amount in the climate change context.

This is neither science fiction nor fantasy. Much preliminary research has already been done on this technique and reviewed in major journals. The optimal gases for injection, such as sulphur dioxide (SO), can be produced in abundance[u'bún-dun(t)s(more than enough,अधिकता)] . Furthermore, just a few airplanes specially redesigned for the purpose may suffice for injecting the required aerosol into the stratosphere. There are also precedents from nature. The 1991 volcanic eruption of Mount Pinatubo in the Philippines injected 20 megatonnes of SO into the stratosphere, cooling the globe significantly for a couple of years.

But SAI also has the potential for disastrous side effects, crossing national boundaries. The Pinatubo volcanic eruption is also said to have reduced precipitation[pri,si-pu'tey-shun(downfall,पतन)], soil moisture, and river flow in many regions. Injection of sulphur compounds into the stratosphere is likely to increase acid deposition on the ground and also contribute to ozone layer depletion. Apart from such “known unknowns”, there could also be, to use the catchphrase, the “unknown unknowns”.

The global climate system is too complex for current computational techniques to predict all possible consequences[kón-si-kwun(t)s(result,परिणाम)] of tampering with it. Once the aerosol has been injected into the atmosphere, it cannot be removed. Yet, if for any reason the injection, once begun, is discontinued prematurely, there can be rapid re-warming. That, ironically, could do more damage than the gradual global warming that we are seeking to combat[kóm,bat(fight,लड़ना)].

SAI research is still at a theoretical and laboratory level. Development of these techniques to large-scale deployment is years away. In that case, why should the larger community worry about it now? The reason is SRM interventions could happen sooner than one thinks. The technology does not seem to be astronomically expensive by standards of national budgets. Using a few airplanes to inject the necessary amount of aerosol to bring the temperature down by one degree could cost only a few billion dollars — well within the reach of even developing countries.

Flashpoints of the future

As climate change worsens, some coastlands could go underwater and other regions could suffer extreme heat and severe droughts causing massive human suffering. Under such pressure, and in the absence of international regulatory regimes, the affected nation, even a small developing one, may well resort to using whatever SAI technology is available by then in the international market. In their desperation, possible harmful effects on other countries may not weigh heavily on their decision-making. Meanwhile, just the fear of possible adverse side effects could lead other nations to take preventive action against the “perpetrator”. Nations have gone to war for less.

One simple way to deal with this problem is to just ban further research in these fields. In fact, some climate scientists have already suggested this. They also fear that even the possibility of SRM interventions may undermine efforts to reduce carbon emissions. But a blanket ban on SRM would be unwise and difficult to implement. Technology, benign or malevolent, has a way of continuing to advance. Besides, banning all SRM research will amount to throwing the baby out with the bathwater. The goal of SRM is to mitigate['mi-ti,geyt(lessen,कमी)] damage done by carbon emissions. If there is some chance of it succeeding safely, it would be unwise to abandon[u'ban-dun(Leave,छोड़ना)] it at this stage. Abandonment would also leave SRM technologies dangling midway, insufficiently tested or refined. That may nevertheless not deter some desperate climate change-afflicted nation from deploying it, leading to disaster.

It is only through continuation of responsible research in climate engineering, done under proper regulatory oversight, that the limitations and risks of such interventions can be fully understood and provide the basis for informed decision-making. That will call for international governance mechanisms for overseeing the research and development and possible deployment of climate engineering techniques. This will take years to negotiate and set up. Criteria for permissible work will have to be developed, along with expertise for verification of compliance.

While active climate engineering researchers have already been conscientiously worrying about these issues, it is not too early for the rest of us to start thinking about it.

Courtesy:the hindu

Download monthly pdf of February

Read more »

Wait for the good days got longer

Even in the best of times, formulating the Budget in India is a challenging task for the Finance Minister. This year, it was particularly daunting[don-ting(fearful,भयप्रद)] as it had to address a number of problems. The difficult global environment has caused a continuous decline in exports. Propelling[pru'pe-ling(motivate,प्रोत्साहित)] the sagging[sa-ging(loose,ढीला)] manufacturing sector and combating[kum'bat(fight,लड़ना)] the poor investment climate required special efforts. The successive droughts have been a cause of much distress and a dampener of rural demand. These had to be addressed while providing adequate[a-di-kwut(enough,पर्याप्त)] resources for the social sector, meeting demands of the government employees for pay and pension revision and the implementation of the ‘One Rank, One Pension’ scheme.

M. Govinda Rao

Before the Budget, there was a chorus of voices to forget the fiscal deficit and go in for higher public investment at a time when private investment has not been forthcoming. The opposing view was that the availability of credit at a reasonable rate to the private sector rested on the government leaving adequate lending space in the financial system. Besides, credibility required that the government adhere[ud'heer(follow,पालन)] to the fiscal targets set in the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. It goes to the credit of the Finance Minister that he stuck to the fiscal consolidation path despite serious compulsions to abandon[u'ban-dun(leave,छोड़ना)] it. In fact, not only does the Budget propose to contain the fiscal deficit at 3.5 per cent of the gross domestic product (GDP), but this will be done by reducing both the revenue and primary deficits.
Little room for private play

With this, the focus is now on the Reserve Bank of India (RBI) to reduce interest rates. Unfortunately, the RBI has a difficult problem at hand. It is not just the fiscal deficit number that matters, but the entire public sector borrowing. Although the fiscal deficit is proposed to be capped at 3.5 per cent, there is additional borrowing by the special purpose vehicles for infrastructure and that includes Rs.31,300 crore to be mobilised by National Highways Authority of India, Power Finance Corporation, Rural Electrification Corporation, Indian Renewable Energy Development Agency and National Bank for Agriculture and Rural Development in addition to Rs.76,000 crore by the Railways as internal and extra-budgetary resources (IEBR) for investment. The household sector’s financial saving is just about 7.6 per cent, and with the Union and State governments borrowing about 6 per cent of GDP (3.5 per cent and 2.5 per cent respectively), cleaning up the balance sheets of discoms claiming another 1 per cent, and additional off-Budget borrowing for infrastructure, there is hardly any savings left to lend to the private sector. Even if RBI Governor Raghuram Rajan shows magnanimity[mag-nu'ni-mi-tee(generosity,उदारता)] by reducing the policy rate, there is hardly any lending space to transmit this by the financial system. As the government seeks to review the FRBM Act, it is perhaps appropriate to move over to the concept of public sector borrowing requirements in addition to focussing on setting the targets in terms of a range to meet countercyclical targets.

If indeed the government has not left much borrowing space to the private sector, it should have at least increased public investment. Unfortunately, the capital expenditure relative to GDP for the next year is budgeted at 1.6 per cent, which is even lower than the current year (1.8 per cent). A slew of measures could have been taken to weed out unproductive revenue expenditures to augment[og'ment(increase,बढ़ाना)] capital expenditures. In particular, the country can ill-afford the subsidy amount of Rs.2.5 lakh crore even when oil prices are at record low levels. It is surprising that the government refuses to take a bold decision on increasing the price of urea, which has remained unchanged for over 10 years. Despite the distortion in terms of discouraging the nutrient-based intake, pilferage[pil-fu-rij(stealing,चोरी)] of cheap urea to neighbouring countries and diversion to other uses as inputs, the reluctance[ri'lúk-tun(t)s(unwilling,अनिच्छुक)] to increase the prices has continued. Similarly, much more drastic surgery is needed in pruning the food subsidies, if public investment has to be augmented.

Muddied GST road map

The third major thrust one expected was to see how serious the Union government is in preparing itself to implement the much-vaunted Goods and Services Tax (GST). The Budget has lost the opportunity to reduce the number of items exempted from excise duty from more than 400. It would have helped to reduce the number of items taxed at lower rates and these include items such as breakfast cereals and packed juices, which cannot be called items of common man’s consumption in this country. There is no move to converge on the threshold for Union excise duty, which is Rs.1.5 crore, and that of service tax, which is Rs.10 lakh. It is not clear whether when the GST is finally introduced, we will have two different thresholds. Finally, while the controversy over capping the tax rate in the GST Bill is raging, the Budget adds an additional half a per cent surcharge on the service tax to make it 15 per cent. If the GST general rate will have to be capped at 18 per cent, will the Union government vacate the space by reducing the rate to 9 per cent so that the States can levy the tax at 9 per cent? Of course that is possible, but the Budget speech is silent on the issue.

Interestingly, while the gross tax revenue collected by the Union government in the revised estimate for 2015-16 is higher than the Budget estimate by just about Rs.10,000 crore, the increase in the net tax revenue to the Union government after devolution to the States is Rs.27,000 crore and the States on the other hand are expected to get Rs.17,000 crore less. This is because the overwhelming proportion of additional resource mobilisation was by levying cesses and surcharges which is not shareable with the States. According to the Budget estimate, the States were supposed to receive 36.2 per cent of the gross tax revenues in 2015-16, but the revised estimate shows that they will receive 34.7 per cent and in 2017-18 too, their share works out to 35 per cent. This is a time-honoured method of diluting the Finance Commissions’ recommendation and despite much talk about cooperative federalism, the practice has not been given up.

As the government is in the middle of its current term, bold decisions were feasible[fee-zu-bul(possible,संभव)]. Unfortunately, decision-making seems to have been overly influenced by the forthcoming State elections and, in the process, the wait for good days got longer.

Courtesy: the hindu

Download monthly pdf of February

Read more »