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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

Niti Aayog’s recommendation on strategy for making electronics products in India

Niti Aayog’s recommendation on strategy for making electronics products in India

  • In a bid to boost manufacturing of electronic products in India, Niti Aayog has recommended a strategy for making electronics products in India
  • It said that the govt should not shy away from pushing production of low value products in India that add value due to huge volumes o If produced on a large scale, low value addition per unit translates in a large total value addition & large number of jobs
  • It has also proposed that the Dept of Electronics & IT (Deity) & the Dept of Revenue should work towards ending tax uncertainty & simplify the tax regime
  • It also pitched for a 10-yr tax holiday for a firm that invests a substantial sum & generates a large employment within coastal economic zones. For this purpose an investment threshold of $1 bn with the employment of 20,000 may be considered o While this is part of the Aayog’s recommendations to spur exports, it has suggested a similar sop to substitute imports by offering a 10-yr tax holiday to anyone investing about $1 bn & creating around 15,000 jobs in the electronics industry
  • It also made a proposal to modify preferential market access policy of Deity to allow preference in govt procurement, especially in the area of defence o The preferential market access policy mandates all state depts, organisations & agencies to procure at least 30% of their equipment from the domestic market

Draft National Water Framework Bill

Draft National Water Framework Bill

  • The draft law, prepared by the Water Resources Ministry, is being proposed as a model legislation that can be adopted by states, since water is in the jurisdiction of the state govts
  • The draft law tries to build a comprehensive governance structure on water, dealing with its conservation & preservation, regulation of use, pollution prevention & abatement, pricing, administration, & river & aquifer management
  • “It shall be the duty of the state at all levels, the citizens, & all category of water users to protect, preserve & conserve water sources, & pass them on to the next generation,” it says
  • It says that the state “at all levels” would hold water “in public trust” for the people, & “water for life” would take precedence over all other uses, including agricultural, industrial & commercial
  • The proposed law wants to introduce a “graded pricing system” for domestic water supply, with full cost recovery pricing for high-income groups, “affordable pricing” for middle-income, and a “certain quantum of free supply” to the poor. Alternatively, a minimal quantum of water may be supplied free to all o It says every person would be entitled to “water for life” that shall not be denied to anyone on the ground of inability to pay
  • It defines this “water for life” as that basic requirement that is necessary for the “fundamental right of life of each human being, including drinking, cooking, bathing, sanitation, personal hygiene & related personal & domestic uses”. This would also include the additional requirement for women “for their special needs” & the water required by domestic livestock
  • This minimum water requirement would be determined by the “appropriate” govts from time to time
  • A “binding” national water quality standards for every kind of use is proposed to be introduced
  • A “binding” national water footprint standards for “every activity or product” are also sought to be evolved. The draft law says it would be the “duty” of everyone to strive towards reducing their “water footprint” o Industries, in particular, will be asked to state their water footprint in their annual reports, along with an action plan to progressively reduce it over time o “There shall be prohibitive penalties to discourage profligate use, with denial of water supply services beyond a threshold…,” a provision related to industrial use of water says
  • Recognising that water in all its forms “constitutes a hydrological unity”, the draft law asks govts to strive for rejuvenation of river systems by ensuring Aviral Dhara (continuous flow), Nirmal Dhara (unpolluted flow), & Swachh Kinara (clean & aesthetic river banks) o An integrated river basin development & management plan in each of the basins is supposed to be drawn up, & all water-resource projects in that basin or its sub-basins need to conform to that plan o To deal with inter-state water disputes, the draft law proposes the establishment of “appropriate institutional arrangements”. “The upper basin state shall adopt a cautious & minimalist approach to major interventions in the inter-state rivers…,” it says, while stressing that none of the states in a basin “owns the river”

Judicial activism & overreach

Judicial activism & overreach

  • Supreme Court is increasingly, & controversially, asserting control over the executive & legislature
  • The Union Finance Minister recently cautioned legislators against ceding more powers to the judiciary
  • When the Emergency came to an end in 1977, the Supreme Court, as if to refurbish its image in a new political climate, became more responsive to socio-economic changes in legislation o The right to property was deleted from the chapter of Fundamental Rights in the Constitution (44th Amendment

Act, 1978), leaving no scope for invalidation of property laws by the courts o Thereafter, by a process of reinterpretation of two fundamental rights — the Right to Personal Liberty in Article 21 & the Right to Equality before Law in Article 14 — the court gave the judiciary an enlarged power of review to protect the basic rights of citizens o The Supreme Court, in Maneka Gandhi (a minor case of the govt not granting a passport in 1978) & other cases, overruled Gopalan v State of Madras (1950)

  • The “procedure established by law” of Article 21 now meant that the law or action by the govt must be just, reasonable & fair
  • SC also adopted a revisionist interpretation of “life” in Article 21, by enlarging its dimensions also as an affirmative guarantee for the dignity of the individual & the worth of the human life
  • This interpretation enabled the court to assume jurisdiction in almost all matters for the purpose of ensuring good human existence
  • SC in a new interpretation of the Right to Equality before law in Article 14, imposed the condition of reasonableness on every law & action of the govt
  • The Public Interest Litigation (PIL) was originally conceived as a jurisdiction firmly grounded on the enforcement of basic human rights of the disadvantaged unable to reach courts on their own under Article 32 o The courts’ function was to supplement the other govt depts in improving the social & economic conditions of the marginalised sections o It did not assume the functions of supervising & correcting the omissions & actions of govt or public bodies; it, rather, joined them in a cooperative effort to achieve constitutional goals o This activism, soon came to be widely appreciated & even imitated by other common law jurisdictions o The court’s intervention is now not sought for enforcing the rights of the disadvantaged but to simply correct the actions or omissions of public officials, govt depts or other public bodies
  • For eg. SC was moved by petitioners to lay down rules for the conduct of important public institutions & authorities. It gave directions to the Election Commission to order candidates to disclose their criminal convictions, their assets & liabilities at the time of elections, called for quotas in medical & engineering colleges & issued orders to safeguard women from sexual harassment at workplaces. It ordered control over automobile emissions, mandatory wearing of seat belts & helmets, action plans to control & prevent the menace of monkeys in cities & towns, among others
  • The SC also monitors the conduct of investigating & prosecution agencies, a process which began in Vineet Narain vs CBI (1998)
  • SC also directed the govt to set up a Central Vigilance Commission (CVC), with statutory status, & gave orders for the selection of its commissioner
  • In several PILS concerning the environment & the welfare of those disadvantaged, the court has directed policy changes in administration
  • As a result, over the years, the judiciary in India has acquired the supremacy over the legislature & the executive Conclusion
  • The SC has original jurisdiction only to entertain petitions for breach of fundamental rights under Article 32 of the Constitution. In reality, no legal issues are involved in most petitions; the court is only moved for better governance & administration in such cases, which does not involve the exercise of any judicial function

Centre of gravity of today’s nuclear world is shifting to the Asia-Pacific

  • The New Strategic Arms Reduction Treaty (START) was concluded with Russia in 2010 limiting both countries to 800 launchers (Intercontinental Ballistic Missiles, submarine-launched ballistic missiles & heavy long-range bombers) & 1 550 warheads each
  • But the US has announced ambitious plans to spend $1 trillion for modernisation of its nuclear arsenal over the next 3 decades o In a Nuclear Posture Review, the US has maintained the right of “first-use” of nuclear weapons though limited to

“extreme circumstances”

  • The North Korea’s nuclear programme & the deployment of tactical nuclear weapons by Pakistan are the most worrying aspects of the current global nuclear threat
  • Since 2006, North Korea has conducted 4 nuclear tests, the latest in Jan 2016, claiming it as a hydrogen bomb. Sanctions have not been effective & there are clear limits to which China will push the North Korean regime o But the North Korean threat is indirectly serving a US purpose; the US maintains nearly 30,000 soldiers in South

Korea & deploys modern systems including ballistic missile defences which certainly curbs nuclear ambitions in Japan, South Korea & Taiwan

Total nuclear abolition

  • The horrors of Hiroshima & Nagasaki have helped generate a norm against the use of nuclear weapons though nuclear abolition remains a distant goal
  • The idea of the military utility of nuclear weapons has been a key driver for the pursuit of nuclear weapons & set the stage for the obscene accumulation of > 70,000 weapons by the US & the Soviet Union during the 1970s & 1980s
  • During the Cold War, the idea that the best route to nuclear disarmament was through non-proliferation & the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) o The truth is that the NPT has had no impact on nuclear arms reductions o Bcz though it recognises only 5 nuclear weapon states (the US, Russia, the UK, France & China) but is unable to deal with the reality of India, Pakistan, Israel & North Korea’s weapon programmes

Global Slavery Index 2016

Global Slavery Index 2016

  • According to the 2016 Global Slavery Index released by Australia-based human rights group Walk Free Foundation, an estimated 45.8 million people are subject to some form of modern slavery in the world, compared to 35.8 million in 2014
  • The Index presents a ranking of 167 countries based on the proportion of the population that is estimated to be in modern slavery
  • The countries with the highest estimated prevalence of modern slavery by the proportion of their population are North Korea, Uzbekistan, Cambodia, Cambodia, India, & Qatar
  • India topped the list of countries with the highest absolute number of people enslaved, estimated at about 18 million modern slaves. In the last report in 2014, India had nearly 14.3 million people enslaved
  • Asian countries occupy the top 5 for people trapped in slavery. Behind India was China (3.39m), Pakistan (2.13m), Bangladesh (1.53m) & Uzbekistan (1.23m)
  • Modern slavery refers to situations of exploitation that a person cannot leave coz of threats, violence, coercion, abuse of power or deception
  • But India has made significant progress in introducing measures to tackle the problem o It has criminalised trafficking, slavery, forced labour, child prostitution & forced marriage o The govt is currently tightening legislation against human trafficking, with tougher punishment for repeat offenders. It will offer victims protection & recovery support o Ambitious programmes of legal & social reform are being undertaken across the board, from regulation of labour relations to systems of social insurance for the most vulnerable
  • The prevalence of slavery severely affects the country’s attractiveness as an investment destination o Companies should closely look at their own supply chains & eliminate instances of bonded or forced labour o Eliminating bonded or forced labour is part of corporate governance & is a sound business practice o Companies could suffer in the international market for including a business that even accidentally uses bonded labour


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