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Month: December 2017

India’s black economy shrinking – Study

India’s black economy shrinking – Study

  • Pegging India’s ‘black economy’ at over Rs 30 lakh crore or about 20% of total GDP, a new study says it has been contracting gradually over the years
  • The size of the India’s black economy expanded rapidly over the 1970s & 1980s, but since then had been contracting at a gradual pace o Majority of this black money is locked up in physical assets such as real estate & gold o Physical savings instruments have been historically preferred to financial savings instruments in India bcz purchase of physical assets can be funded using black money, while the purchase of financial assets can not be funded in such a manner due to a strong paper trail o Experts suggest that > 30% of India’s real estate sector is funded by black money
  • The term ‘black economy’ typically refers to the economic activities outside formal banking channels & include cash transactions in high-value assets like gold & real estate
  • Due to various measures taken by the govt to tighten the noose around black money, there has been a clear drop in the prices of land & real estate & a decline in the appetite in gold o Since the new govt assumed power in 2014, there has been a clear step-up in checks around gold transactions & it has become increasingly difficult to park unaccounted cash in the form of jewellery or bullion o The crackdown has also resulted in increase in the preference for cash in physical form & notable decline in the usage of formal banking channels as evinced by the decline in bank deposits as well as usage of debit cards

Improving the health care delivery system

Improving the health care delivery system

  • India fairs poorly in comparison to its peers in govt health spending regardless of the indicator used — as a share of

GDP (1.3%) or as a share in total govt spending (4.8%) or as a per-capita govt health spending (< $20)

  • Health experts are demanding govt health spending by doubling the govt’s share in GDP from 1.3% at present to upwards of 2.5% of GDP over the next few yrs
  • Undoubtedly, the govt needs to increase its health spending. But for a huge step-up in its health spending, it needs to get the delivery system — particularly at the primary care level right
  • Low govt health spending in India is the result of the faulty design of its delivery system, particularly the primary care system, on at least 3 counts:
    1. the system is not designed to address much of the health-care needs of the population at the primary care level; it is totally oblivious to the emerging burden of non-communicable diseases (NCDs)
    2. there are huge vacancies across all cadres of health workers. For eg., the share of vacant positions of doctors in primary health centres is over 25%
    3. the govt health delivery system in many States has a reputation of poor management & governance bcz of weak incentives & loose accountability mechanisms; the system is designed to focus on inputs instead of on quality care & improving health outcomes
  • Therefore a vast majority of the cases (70-80%) go to private providers for non-hospitalised care, with all its pernicious consequences notably high household spending
  • Thus, the govt health delivery system is trapped due to low confidence in the primary care system is resulting in low funding of the sector

Primary care system needs a radical transformation

  • A primary care system acts as the first point of contact for all medical needs (preventive, promotive & curative care), of the population, & also serves as the referral point for higher level health facilities
  • There is a need for higher level of political commitment to redesign the primary care system
  • The primary care system has to provide care at the household, community & health facility levels for a wide range of services including early screening & detection of NCDs, & management of its risk factors
  • Further, the new design ought to be paramedic-centric & performance-oriented
  • It should leverage the power of Information Technology (IT) that has the potential to overcome access barriers, economise on the scarce factors such as doctors & improve patient satisfaction o IT-based interventions, such as eg., tele-consultation, telemedicine, & teleradiology, are fast becoming the reality

States in the driver’s seat

  • States play a major role both in the delivery & financing of health services
  • Following the 14th Finance Commission recommendations, the role of States in the financing & delivery of primary health care has become even more important
  • While learning from the experience of countries such as Thailand & Turkey, States need to do their own experiments o The idea that States test Universal Health Care (UHC) pilots was actually mooted in the 12th Five Year plan but it never got off the ground o States could partner with the international development agencies to test a few primary care pilots
  • States should prioritise health, get on with pilots, & come up with their own design blueprints & road maps before a huge step-up in their health spending

How amending the Mauritius tax treaty will boost India’s domestic tax reform agenda?

How amending the Mauritius tax treaty will boost India’s domestic tax reform agenda?

  • India signed a tax treaty with Mauritius in 1983 that gave Mauritius the sole right to tax investment gains made by investing in India. Mauritius’ tax rate on such gains was zero o Therefore, a large majority of investments into India chose this attractive route. This was perhaps necessary then for India’s foreign reserves-starved economy, but it led to several unintended consequences over the yrs o The high profile tax disputes are well known along with illegal round tripping of domestic money & other malfeasance. But this treaty also distorted India’s domestic tax reform agenda

How this treaty structurally damaged India’s economy & tax structure?

  • Cascading effect on India’s tax structure o Investments in publicly listed shares were granted exemption from long-term capital gains tax in 2004. The rationale was to provide a “level-playing field” to domestic investors vis-à-vis Mauritius’ investors o A new tax called the securities transaction tax was imposed on stock market transactions to offset any loss of revenues from the exemption of capital gains. This higher transaction tax on shares triggered a massive shift by investors to investing in risky derivatives vis-à-vis shares
  • The budget of 2016 increased transaction tax on derivatives to create a “level-playing field” with shares o Not to be left behind, investors in real estate through real estate investment trusts want a “level-playing field” with equity investments o This vicious cycle was started by the India-Mauritius tax treaty of 1983, the original culprit o This treaty has led to a long tail of arbitrages across various asset classes (private vs public shares), types of investors (Mauritius vs non-Mauritius), types of income (capital gains vs dividends) etc.
  • This treaty has hampered India’s ability to garner enough tax resources through progressive direct taxes
  • Capital gains almost always & totally accrue to the rich o To make up for the shortfall in tax revenues from such sources, all govts in the past have resorted to increasing indirect taxes, which are more insidious, economically inefficient & ultimately unfair o India’s direct-to-indirect tax ratio including state & central taxes is 35:65, making India’s tax system among the most regressive in the world. In most other similar economies, it is the exact opposite o The French economist Thomas Pikettv has pointed out that this skewed tax structure plays an important role in exacerbating India’s growing inequality
  • Thus, a series of policy measures over the last 3 decades to neutralise the impact of the Mauritius tax treaty, has led to a slew of inadvertent policy mishaps with unintended economic & social consequences


  • The govt’s move to amend the Mauritius tax treaty is not meant to merely curb offshore black money or curtail round tripping of domestic money
  • Judged in the larger context of India’s skewed tax structure & its adverse impact on income inequality, threats of foreign investor pullback from India due to the amendment of this treaty seem trivial. Long-term investment flows chase economic fundamentals, not tax arbitrage
  • This is a first step in eliminating a tall hurdle to change India’s skewed tax structure

“Bionic leaf 2.0” – artificial photosynthesis

“Bionic leaf 2.0” – artificial photosynthesis

A team of scientists from Harvard University has created a unique ” bionic leaf ” that uses solar energy to split water molecules into oxygen & hydrogen, & hydrogen-eating bacteria to produce liquid fuels from C02

Dubbed “bionic leaf 2.0,” the new system can convert solar energy to biomass with 10% efficiency -a number far higher than the 1% seen in the fastest growing plants o This artificial photosynthesis system has gone well over the efficiency of photosynthesis in nature

  • The system also have a platform that can make any downstream carbon-based molecule
  • The team designed a new cobalt-phosphorous alloy catalyst which did not make reactive oxygen species & allows it to “self-heal” -meaning it wouldn’t leech material into solution
  • The new system is already effective enough for possible commercial applications to be considered


Discrepencies in GDP data

CSO estimates overstate GDP: analysts

  • The Central Statistics Office’s GDP figures released recently overstates the extent of growth, according to analysts
  • Analysts found that correcting the CPI- & WPl-prices mix in the deflators, giving them equal weights, suggests India’s

Gross Value Added (GVA) grew 6.2% in the Jan-March quarter, slower than the official estimate of 7.4%

  • The main issue is that not all of the growth that the figures show is on account of real growth o Much of it is purely on account of the increase in prices, which ought to have been deflated out adequately o The gap in the methodology arose from the use of smaller-than-appropriate weights for CPI inflation in the GDP deflators. Hence price changes that boost nominal earnings are being ascribed to real growth o Input prices are falling more than output prices, boosting the nominal margins, & inflating much of the valueadded in the manufacturing sector. In the absence of adequate deflation, manufacturing growth was exaggerated o Similarly, inadequate deflation also affected the way tax changes were incorporated into the GDP data. It led to overestimation of taxes, which drove the GDP well above the GVA
  • GDP is calculated as a sum of GVA & indirect taxes from which the value of product subsidies is deducted
  • The difference in the GDP & GVA growth estimates was striking; it widened to 0.4% from 0.1% in the previous financial year. Separately, data show that contraction in exports is slowing

High levels of “discrepancies” in the GDP numbers for 2015-16

  • Chief Statistician admitted to “discrepancies” in the GDP data & said that the govt is making efforts to minimise them. The recently released GDP figures showed that the discrepancies soared to Rs 2.14 lakh cr in 2015-16 or up to 1.9%, as against (-)Rs 35,284 crore in the previous fiscal
  • ‘Discrepancies’ in the statistical GDP data refer to the difference in national income under production method & expenditure method
  • Some discrepancies in national accounts will always be there bcz of delay in reporting of information by various agencies including state govts but the effort is to report data as accurately as possible
  • The govt is making efforts to minimise discrepancies in computation of the national income or GDP data by relying more on data available under e-governance programmes & corporate accounts

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