Editorials, Uncategorized

Is India Ready For A Universal Basic Income Scheme?

Even after three decades of sustained economic growth and a proliferation of welfare schemes, roughly one in three Indians still live below the poverty line, according to the last report on poverty estimates submitted by the Rangarajan committee in 2014. While those estimates have been questioned, the fact remains that there is little dispute over the fact that too many Indians remain trapped in poverty.

  • There are hundreds of poverty alleviation programmes in India, from housing to food, from maternity benefits and child-welfare to old-age support. However, these schemes are beset with problems that limit their effectiveness.

 

Some of the problems faced by these schemes include:

  • Problem of eligibility: There are always inclusion and exclusion errors. Often, those who should not be getting a benefit, get it (inclusion errors), while those who should be getting it, don’t get it (exclusion errors).
  • Leakage problem: Problem of leakage, wastage, and corruption in the delivery process also affect many welfare schemes.
  • Implementation problem: There is no uniformity in implementation across states. This eats up considerable manpower and resources.
  • Subsidies problem: Some of these schemes involve subsidies that benefit the non-poor relatively more, since they consume more of the relevant good or the service. Power subsidy is the best example for this.

 

The persistence of poverty and significant leakages in welfare schemes that aim to alleviate it has prompted many academics and policymakers to explore more efficient alternatives to India’s creaky and leaky welfare architecture. One of the suggestions has been to move towards a “universal basic income”.

 

Universal Basic Income:

The idea is already gaining currency in the developed world, as fears of automation and consequent job losses have spurred thinkers in the West to devise ways wherein all individuals would be guaranteed some income.

 

What is Basic Income?

A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:

  1. It is being paid to individuals rather than households;
  2. It is paid irrespective of any income from other sources;
  3. It is paid without requiring the performance of any work or the willingness to accept a job if offered.

 

Background:

Although it has gained popularity in recent years, the idea itself is several centuries old. One of the earliest proponents of some form of basic income was Spanish philosopher Johannes Ludovicus Vives, who proposed that the government should ensure the minimum level of subsistence for all, but only to those who showed willingness to work. Thus, Vives’s idea of a basic income was not unconditional.

  • Subsequently, many other philosophers explored variants of the idea of basic income, not necessarily always drawing inspiration from or building upon previous work.
  • Thomas Paine, one of the US’s founding fathers, argued that every person was entitled to an equal basic endowment because “the earth, in its natural, uncultivated state was the common property of the human race”.
  • However, this concept of equal endowment was, in his view, somewhat violated by the system of landed property. Therefore, property owners ought to contribute to a fund that could be redistributed to everybody, including the rich and the poor, Paine wrote.
  • Years later, British philosopher and mathematician Bertrand Russell, in his 1918 book Roads to Freedom. Socialism, Anarchism and Syndicalism, argued that “a certain small income, sufficient for necessaries” should be unconditionally provided to all.

 

The universal basic income, as it is understood today, has three distinguishing characteristics:

  • First, it is universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services. Apart from the standard arguments against targeting—that it often excludes a lot of the deserving households from receiving subsidies, people often fall in and out of poverty and therefore it becomes difficult to ascertain who are rightfully entitled to receive such benefits. Thus, a “universal” programme would not only be more appropriate, it will also reduce the burden of the bureaucracy in so far as it is engaged in identifying the deserving beneficiaries of any targeted programme.
  • The second feature of any proposed universal basic income scheme is cash transfer in lieu of in-kind transfer. There are standard arguments in favour of cash transfers over in-kind transfers (food stamps or grains provided through the Public Distribution System) as they are supposed to be much less market-distorting than in-kind transfers.
  • The third distinguishing feature is that it is unconditional. Cash transfers are not tied to exhibiting certain behaviour, and the people are free to spend the cash as they want. An example of conditional in-kind transfer in India would be the mid-day meal scheme, where the meal—an in-kind transfer—is conditional upon attending school.

 

Thus, the universal basic income seeks to provide unconditional cash to every individual, or household, and the individuals would be free to use the cash as per their discretion and spend according to their own preferences. Thus, the movement for a universal basic income has attracted support from both the left and right ends of the political spectrum.

 

What are the main arguments against a universal basic income?

  • It would reduce the motivation for work and might encourage people to live off assured cash transfers.
  • It is simply unaffordable. As it is estimated paying a basic income equivalent to the poverty line, to each and every adult in India, would entail a cost of 11% of GDP, which is way above the 4.2% of GDP that the government currently spends on explicit subsidies. (Explicit subsidies mean the subsidy cost under the Public Distribution System, fertilizers, railways, electricity, sugar, LPG, kerosene and water).
  • It is also argued that unconditional cash transfers might raise wages due to the decline in the supply of casual labourers.
  • There is also question of whether a shift towards it should be a substitute for all existing subsidies or whether it should complement the existing ones.

 

In discussing the merits and demerits of the UBI or any other development policy, it is important to avoid some standard pitfalls.

  • First, all policies have some pros and cons, and so just picking a problem with or highlighting a nice feature of a particular policy is not good enough. That traps us in an elusive search for “win-win” policies. The focus should be on relative costs and benefits of different policies.
  • Second, one size does not fit all. We should be open to the possibility that different policies could work well in different contexts. Cash transfers only make sense if you have ready access to markets, which is not true if you live in remote rural areas in which we have to rely on in-kind transfers.
  • Third, there is no magic pill that will cure all problems. Different policies are needed to address different problems. So yes, a UBI or a cash transfer as envisaged by JAM or the MGNREGA will provide some relief to the poor, but will not provide a long-term solution to the problem of poverty. For that one needs investment in health, education, and skill-formation to enable the poor to take advantage of growth opportunities, and investing in infrastructure and regulatory conditions to facilitate private investment for employment generation.

 

Way ahead:

While some of the challenges of implementing a basic income can be met with the better use of technology and an expansion in banking services, the challenge of affordability remains. How far existing welfare schemes can be trimmed without hurting the poor, and how much public resources can be saved to implement the scheme remains an open question.

  • The required budgetary resources could be raised by trimming the implicit and explicit subsidies to the rich (often in the form of tax breaks or subsidies given to goods largely consumed by the relatively well-off), or by raising additional taxes by improving property tax collections (currently extremely low).

 

Conclusion:

Few regard UBI as a simple and potentially comprehensive antidote to poverty. It is also viewed as a means to demolish complex welfare bureaucracies while recognizing the need for some social transfer obligations in a way that doesn’t weaken incentives significantly

Essay, Uncategorized

Debate: Is GDP a true and accurate measurement of growth?

A new book, The Great Invention by Ehsan Masood, unveils the genesis of the Gross Domestic Product (GDP) and how it shaped the modern economic paradigm. It comes at a time when a growing number of people are questioning this flawed metric. Is GDP a true and accurate measurement of growth? Exclusive excerpts from the book, followed by a cross-section of views on the efficacy of GDP

The only hint of caution that morning came, ironically, enough, from Green-span {Alan Greenspan, former chairperson of the US Federal Reserve Boa-rd}. This was still some years before the crash of 2008, and the Federal Reserve Board chairman was at the height of his powers and regarded as the chief architect and steward of America’s see-mingly unending run of prosperity. “I cannot say what the size of the economy will be 1 year from today or 100 years from now,” Daley joked {former US commerce secretary}. “But I can say that when we reach the next milestone—$10 trillion —will depend a lot on… Chairman Greenspan.”

Amid the celebrations, however, the Federal Reserve Board chairman had a warning for his audience. In the very mildest of terms, he said that it would be wrong to conflate GDP with quality of life, and he cautioned that an increase in one did not necessarily mean an increase in the other. Just because a country such as the United States has high rates of economic growth, it doesn’t automatically mean it will enjoy a high quality of life, Greenspan said. To illustrate what he meant, Greenspan asked his audience to compare how people in the northern states cooled themselves during the summer months compared with folks in the South. While the northern residents were fortunate to enjoy cool sea breezes, those down south had to turn up the air-conditioning. While both, you could say, enjoyed an equally high quality of life, in GDP terms, the air-conditioning group would come out on top. “The wonderful breezes you get up in the northern Vermont during the summer, which eliminates the requirement for air conditioning, doesn’t show up in the GDP,” Greenspan added.

Greenspan was correct. GDP is neither a measure of welfare nor an indicator of well-being. That is because it is not set up to recognize important aspects of our lives that are not captured by the acts of spending and investing. There is no room in GDP for volunteering or housework, for example; nor does it recognize that there is value in community or in time spent with families. More measurable things such as damage to our environment are also left out, as is job satisfaction. GDP doesn’t even measure the state of jobs.

Greenspan’s was by no means a lone voice cautioning against reading too much into GDP beyond what it says about the state of production, or spending, or incomes. From the earliest days, its inventors, including Simon Kuznets and the British economist John Maynard Keynes, understood that it is not really a measure of prosperity, and Kuznets in particular become skeptical of the way in which his invention was being used as a proxy for this. As far back as 1922, the English banker and statistician Josiah Stamp questioned why national income did not include the value of housework or volunteering and remarked that the trend seemed to be to value those things that are important to rich people.

Today, such voices have been joined by many more, including the leaders of the developed and developing nations. Together with government ministers and civil servants, academics, campaigners, and business folk, they recognize that GDP has strengths but also flaws, and they want change. But they cannot agree on what could or should change, and they are even less certain about how change could happen.

AND THE DEBATE…
Never heard about GDP

I have never heard about GDP. Our world is confined to our daily income, which is decreasing by the day.

In the last 45 days, I could get work for only seven days, and earned Rs 6,000.

I live under the Sarai Kale Khan Bridge along with my nine-member family, including three children and three women. Earlier, only men from our village worked as migrant labourers to support the family income. Now women are also working. Men are paid Rs 400 per day and women earn Rs 300 at construction sites in Noida. It is our only source of income.

We own about 0.8 hectares of land in our native village. But due to water scarcity and drought, we migrated to Delhi. We are eagerly awaiting the monsoon, so that we can return to our village.

It is the least ªinaccurateº method

When former president A P J Abdul Kalam was in the Central Board of Directors of the Reserve Bank of India, he posed a question to the then governor, Bimal Jalan, during a meeting: “What is this GDP business? Sometimes it goes up and sometimes it goes down?” Jalan responded in a lighter vein:

“If you hire a maid servant and pay her salary, the GDP will go up. But if you get married to the maid servant and stop giving her salary, then the GDP will go down.”

GDP is not the perfect way to measure growth. But among the alternatives, it is the least “inaccurate” method to compute the growth rate of the country. Goods and services which cannot be valued at market prices are not included. This is the first major lacuna. Take for instance the household services of housewives. They are not paid for the services, but the value of the work they are generating is not accounted.

Let’s take the second lacuna. If the vegetables and fruits a farmer is growing in his/her garden are for domestic consumption, it is not added to the GDP. Does that mean the farmer has not added value? This means all value additions for self consumption, which are not put out in the market, are not accounted in the GDP.

One alternative that has been much discussed is the Gross Domestic Happiness (GDH).

It emerged in Bhutan. However, it is based on an extensive survey and is a subjective indicator. It lacks objectivity.

Important to qualify the GDP

There is a close linkage between the growth of output and the growth of income, but it is not exact. There are situations where the two can differ significantly. For instance, think of a situation where the energy efficiency of the production process improves because of technological progress. This means that the same level of output can be produced with less energy being purchased. As a result, the growth rate of output will be zero, but the growth rate of GDP will be positive.

This distinction is important in assessing the appropriateness of GDP as an indicator of growth. Output in itself does not necessarily contribute to human well-being. What does contribute very significantly is the income generated in the process of production. The GDP is, by far, the most comprehensive measure of income that exists today, and is therefore central to any measurement of growth.

Having said this, it should also be acknowledged that the GDP gives no indication of either the distribution or the sustainability of income growth. As a result, a high rate of GDP growth can easily be associated with higher inequality or with serious degradation of natural resources. There are efforts to address these lacunae through concepts such as “inequality-adjusted GDP” and “green GDP”. The important thing to note, however, is that in all these efforts the objective is to qualify the GDP, and not to replace it.

The only genuine alternative to GDP as an indicator of growth is to measure the change in the asset base of the economy. In this approach, assets should be defined not as financial assets, but in the most comprehensive possible way, including physical, natural, human and intellectual assets. The difference between the change in assets and GDP is that the former measures the potential growth of the economy, whereas the latter measures actual income growth. Conceptually, this is a very attractive alternative, but its data needs are formidable and simply not possible at the current state of play.

Dragging ourselves towards ecological oblivion

GDP is a deeply flawed measure of economic progress. It has three large problems: It miscounts costs as benefits. Money spent to fix damage, as from strong weather and human accident, adds to its bottom line, though these are costs we seek to avoid, not benefits we want to increase. It ignores many costs, as when it overlooks the healthcare costs and early deaths wrought by air pollution or the decreased productivity, poorer health, lost sleep and lost life pleasure caused by noise pollution. It doesn’t count some economic values at all, such as the benefits we get from volunteer work, do-it-yourself household production and barter.

Simon Kuznets, the economist who led the development of GDP’s precursor statistic, Gross National Product, warned against mistaking it for a measure of general economic wellbeing. It’s an estimate of the nation’s gross monetary transactions, nothing more. As every businessperson knows, an enterprise stands or falls on its net, not its gross. Because climate change and other environmental catastrophes add to GDP when we spend money trying to fix or prevent them, if we blindly take growth in GDP as our goal we can grow ourselves right into ecological oblivion.

In contrast, the Genuine Progress Indicator (GPI) was designed as an estimate of net economic benefit. More than two decades of scholarship, research and development stand behind it. Two US states, Maryland and Vermont, have adopted it as a policy tool and several others actively support its compilation and make varying degrees of use of it.

As you’d expect there’s usually a gap between GDP and GPI. Vermont GPI was about 57 per cent of state GDP in 2011. In Missouri, the GPI was just 27 per cent of GDP in 2014. This means that in 2014, every dollar of GDP growth in Missouri brought only 27 cents worth of actual economic benefit. The rest was cost, mostly environmental cost.

Editorials, GS-3, Indian Economy, Uncategorized

The ease of living in India: 25th Anniversary of 1991 Reform

The Hindu

25th anniversary of the 1991 reforms approaches, it would be legitimate to take stock of what has been achieved.

The crisis of 1991

  • In 1991, the focus of the reforms had been on trade, exchange rate and industrial policies.
  • This had everything to do with the immediacy of the balance-of-payments crisis the economy then faced.
  • When the Rao government took charge, it was estimated that foreign exchange reserves would cover up to two weeks’ imports. A rule of thumb is that a country should aim at a cover of about six months.
  • To contain the external deficit, Finance Minister Manmohan Singh had devalued the rupee and reined in public expenditure.
  • He then went to the International Monetary Fund for balance-of-payments support.
  • This would have required courage. Retrenchment, belt-tightening, and devaluation were unpopular across the political spectrum, even within the Congress party — though on the question of how the foreign exchange needed to finance international payments was to be acquired, the critics of the strategy had little credible to offer.
  • Within three years the crisis was surmounted and the programme with the IMF ended.

Forex today:

  • There can be no doubt that the reforms have eased India’s balance-of-payments constraint.
  • India’s reserves today exceed $350 billion, compared to less than $6 billion in March 1991.
  • Moreover, the period since is the longest recorded when the country has gone without a foreign exchange shortage.
  • Earlier one had arisen in every decade, starting with the 1950s.
  • It is also significant that this new-found resilience has been achieved while the economy has got increasingly integrated with the rest of the world.
  • This outcome has gone against the pessimistic prognosis of the time that eliminating controls would suck in imports and jeopardise the balance of payments.
  • This did not happen as exports also rose, though mainly in a sector unimagined in 1991, that is, software services.
  • Of course, the rupee has depreciated very substantially after it was floated.

Great power ambitions

  • However, the reforms were not envisaged as merely staving off a balance-of-payments crisis. In Dr. Singh’s words, spoken in Parliament, they were meant to be the harbinger of “the emergence of India as a major economic power in the world”.
  • This is a worthy aspiration and the crude nationalism at times on display today should not discourage us from nursing it.
  • The question is whether we are on the right path to the goal.
  • If per capita income is taken as the measure then we are still some distance away from ‘great power’ status.
  • The most recent World Bank data show that over 2011-15 GDP per capita — measured in PPP dollars — was 5,700 in India, 11,108 in Albania, 13,206 in China and, yes, 25,638 in Malaysia.
  • Though India’s economy may not at present compare well with that of other countries, it could yet be that its rate of growth has increased after the reforms.
  • While the rate of growth of the economy accelerated after 1991, it had done so twice earlier, first in the 1950s and then in the late 1970s.
  • So the reforms have only maintained an existing history with respect to economic growth.

What of poverty?

  • Here the record is the same as that of economic growth. Absolute poverty has declined since 1991, but this has been the trend since the early 1970s.
  • Essentially, the decline in poverty has kept pace with growth.
  • Thus, mirroring growth of the economy, while the rate of decline in poverty accelerated since 2004, it had already accelerated on the cusp of the 1970s and the 1980s.
  • However, even after a quarter century of economic reforms, approximately a quarter of the country remains poor according to a poverty line that is low by international standards.

It is important to note that poverty measures are dependent upon the definition of poverty.

  • The official index in India, on which the above cited trends are based, measures access to food a little more accurately than it does access to other conditions of life which are at least as vital.
  • Even beyond health and education, the conditions of life are affected by physical infrastructure, which determines livelihood chances and well-being.
  • Major components of this infrastructure would include transportation, water supply and sanitation.
  • It is not as if successive governments have not recognised their significance, but they fail to convince that “more reforms” — incidentally called for by both the Finance Minister and the Governor of the Reserve Bank — will be able to provide them.
  • Structural reforms as liberalisation aim to provide access to and raise the profitability of the private sector. This may be essential at times, but there is a wide swathe of an economy where the market fails to deliver.
  • This it does in the presence of what are referred to as externalities and public goods.
  • Public goods are important as they mitigate the impact of income poverty and inequality.
  • We can think of health, education, public infrastructure and recreational facilities as constituting the space in which we actually lead our lives.
  • A significant transformation of it in India would require both a strengthening of the public finances and a generation of political will.

Natural capital

  • Then there is natural capital.
  • In many spheres of the economy controls had proliferated over the decades to the detriment of both growth and welfare, and their dismantling has resulted in an increase in both.
  • But markets are not always the best way to deal with nature.
  • Deep and smart regulation is necessary if we are to deal with depleting natural capital, of which this is only one instance.

Conclusion:

  • Widespread liberalisation of the economic policy regime was long overdue in 1991, and has played a positive role since, but its impact has run its course and the policy has recognisable limits.
  • Liberalisation cannot address all aspects of the man-made environment and now climate change threatens to change everything forever.
  • We do not have another quarter century to deal with these imperatives.
  • Government must be prevailed upon to match their concern for the ease of doing business with a commitment to the ease of living in India.
  • The official poverty index in India measures access to food a little more accurately than it does access to other conditions of life which are just as vital
  • A quarter century of economic reform has transformed the economy. But governments have been less mindful of addressing social and natural capital.
Essay, GS-3, Uncategorized

A work in progress

The Hindu

GDP:

  • GDP since 1930’s has been used to measure the economic performance of a nation, and has been shaping the debate on the performance of countries for the past 80 years or so.
  • Today, almost every country maintains GDP statistics.
  • GDP? Click here

What are the relative merits and demerits of GDP and has it outgrown its utility?

  • GDP growth over time enables central banks and policymakers to evaluate whether the economy is in recession or inflation. In that sense it is still required.
  • GDP has held significance as a universal metric over the years. However, with rapid globalization and technology-oriented integration among countries, this metric has become outdated and does not accurately take into consideration other aspects like the wellbeing of the residents of a country.
  • The most significant weakness of GDP is its exclusion of voluntary market transactions. GDP as a measure of economic growth fails to account for productive non-market activities, like a mother taking care of her child, a homemaker doing household chores, a homeowner doing maintenance of his house, leisure (paid vacation, holidays, leave time), improvement in product quality, etc.
  • GDP also ignores important factors like environment, happiness, community, fairness and justice. To be fair, it was not intended to measure these. But these are important aspects of development.
  • Thus, there is a need for alternative measures which can take into consideration other key factors like hunger and malnutrition, safety parameters, literacy rate and tolerance.

It is where some of the recent approaches have tried to go beyond GDP and incorporate most of these factors into the measurement of the well-being within the society.

  • Some of these include GINI coefficient, HDI (Human Development Index), and GNH (Gross National Happiness).
  • GINI coefficient which was introduced in 1912 by Corrado Gini and adopted by World Bank, and measures the income inequality among a country’s citizens — but it fails to measure social benefits or interventions that reduce the gap or inequality between rich and poor.
  • GNH, which was introduced in the 1970s by the king of Bhutan similarly measures the happiness levels of the citizens in a country while it ignores other important elements like gender equality, quality education and good infrastructure.
  • HDI, devised and launched in 1990 by Pakistani economist Mahbub ul Haq, is computed and published by the United Nations Development Programme and overcomes most of the shortcomings of the Gini coefficient and GNH.
  • After this, Millennium Development Goals and Sustainable Development Goals were also built along various dimensions based on the work done in understanding human development.
  • However, HDI, as a measure, falls short in its capture of the unequal distribution of wealth within the country and the level of infrastructural development.
  • Many prospects of a healthy society, such as environmental sustainability and personal rights, are not included in HDI.
  • It is not successful in tracking the apparent progress of countries, nor is it sufficiently factored into primary level parameters to indicate many important areas of policy.
  • These are some of the limitations of the approaches in finding a composite measure of well-being to date.

SPI as complementary index

    • The next stage in the measurement of well-being went into creating what is termed as the Social Progress Index (SPI).
    • It goes beyond the traditional measure of GDP and has most parameters that are required to fulfil SDGs.

 

  • SPI is based on three fundamental pillars:

 

    • Basic needs for survival;
    • Access to the building blocks to improve living conditions
    • Access to opportunity to pursue goals and ambitions.

What is the difference between GDP and SPI?

  • SPI focuses on outcomes rather than inputs that are used in GDP.
  • For example, the quality of life and longevity are measured instead of spending on health care, and people’s experience of discrimination is looked at instead of focussing on whether there is a law against discrimination.
  • SPI also reframes the fundamentals about development by taking into consideration not just GDP but also inclusive, sustainable growth that will lead to a significant improvement in people’s lives.
  • SPI can best be described as a complementary index to GDP and can be used along with GDP to achieve social progress.

Measurement and present scores on the index:

  • If the world is considered as one country, it would score 61.00 on the SPI on a population-weighted basis.
  • India ranks 101 with a social progress score of 53.06 among 133 countries, according to SPI 2015.
  • One significant find is that all countries doing well in GDP/capita are not always the ones at the top of SPI. For example, New Zealand has GDP per capita almost half that of the top performing nations, according to GDP per capita figures, but performs better than most nations on SPI.
  • The U.S., which has significantly higher GDP than New Zealand, ranks lower than New Zealand on SPI.
  • Another example is Costa Rica which may be called a social progress superpower because it is on a par with some west European countries in spite of a much lower GDP per capita.
  • West Asian economies like Kuwait, the United Arab Emirates and Saudi Arabia perform contrary to this pattern as they have high GDP per capita, but secure significantly inferior positions in SPI.

Conclusion:

  • SPI can bring substantial betterment in the policy discourse on development.
  • With the move to getting it introduced at a sub-national level, the index is expected to help development practitioners and other stakeholders in analysing well-being in a better manner.
  • Ideally, the development project should start with a bottom-up approach, from a grass-root level to city, then from district to State and, finally, to the national level. SPI, when introduced in India — a beta index will be launched in September — can this way lead to a better understanding of well-being and prosperity within the country.
Editorials, GS-3, Indian Economy, Uncategorized

A taxing agenda

Summary:

India’s income tax department recently released time series data for the period 2000-01 to 2014-15. This was an attempt to enhance transparency and encourage analysis which could provide insights for policymakers. This is also being seen as an attempt by the government to sensitize many on the need for the affluent to contribute more at a time of growing disparities.

Worrying trends shown in the data:

  • There are just 18,359 individuals who have reported earnings in excess of Rs 1 crore in 2011-12 and paid tax on it.
  • Just 1% of individuals, who declared their income in assessment year 2012-13, accounted for almost 20% of the taxable income.
  • Among corporates, a little more than 5% of the companies accounted for a whopping 94% of the taxable income.
  • Direct tax collections have fallen drastically in the last five years, growing at an average annual rate of 8.5% between assessment years 2011-12 and 2015-16, compared to the 14.1% over the previous five years.
  • The drop in the growth rate of direct tax collections was accompanied by an equally dire slowdown in the growth of corporate tax. Corporate tax grew at an average annual rate of 7.1% between assessment years 2011-12 and 2015-16, down from the heady 15.6% seen in the previous five years.

Hence, it can be concluded that Indian income-tax base is very narrow. The problem of large-scale evasion or avoidance continues.

Limitations of Indian tax structure which result in tax evasion:

  • High rate of taxation.
  • Failure to curb bribery.
  • Lack of simplified procedures.
  • Existence of large number of taxes.
  • Complex tax laws and loopholes in the existing taxation policy.
  • Lack of unorganized and systematic administrative structure.
  • Deficiencies in implementing penalty provisions.

What can be done to improve the tax base?

  • The focus has to remain on widening the income-tax base, and recent efforts to phase out exemptions must be speeded up. Meanwhile, the narrowness of the tax base should lead to some introspection on the part of the tax authorities.
  • The tax department has to work out more up-to-date methods of identifying potential taxpayers.
  • The streamlining of various data sources already accessible to the government must be carried out through cross-checking of information from various sources.
  • Using big data techniques, multiple streams of data can be mined for individuals who have consistent spending patterns in excess of their declared income. This will allow for more focused audits.
  • I-T form for those with several sources of income should be made even simpler. Online and paperless filing of returns and payment of tax should be made possible.
  • The government’s approach to tax amnesty must be re-examined in light of this data. The government needs to push through meaningful reform like taxing large farm incomes and rationalising bounties enjoyed by the well-off, to widen the base.

Conclusion:

For a country like India, which needs to spend on health, education and social security and also build social and physical infrastructure, it is critical to address the challenges on the tax policy front swiftly. These include both the widening and deepening of the tax base, whittling down of exemptions and improving compliance, especially by leveraging technology. The release of data offers an opportunity to policymakers to engage in a wider public debate on the current tax policy, including on the capital gains tax — on which the government has kicked off a corrective step in this year’s budget.

GS-3, Indian Economy, Uncategorized

Pradhan Mantri Mudra Yojana: Funding the unfunded

mudra-bank-fact-file

Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to enable a small enterprise come into the formal financial system and get affordable credit to run his/ her business.

  • Who? Any Indian Citizen who has a business plan for a non-farm sector income generating activity
  • Credit need? Less than Rs 10 lakh
  • Possible Creditors? Banks, MFI, or NBFC

Types of Loans provided

Under the aegis of Pradhan Mantri MUDRA Yojana, MUDRA has already created the following products / schemes.

  • Shishu : covering loans upto 50,000/-
  • Kishor : covering loans above 50,000/- and upto 5 lakh
  • Tarun : covering loans above 5 lakh and upto 10 lakh

Note that there is no subsidy for the loan given under PMMY. However, if the loan proposal is linked some Government scheme, wherein the Government is providing capital subsidy, it will be eligible under PMMY also.


 

What is MUDRA Bank and what is its role in the MUDRA Yojna?

  • MUDRA Bank = Micro Units Development and Refinance Agency Bank
  • The Rs 20,000 crore MUDRA Bank aims to provide refinancing to small and medium enterprises, particularly those from SC & ST
  • The idea is to refinance micro-finance institutions through Pradhan Mantri Mudra Yojana
  • This bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to MSME

Are there any concerns regarding the structure or establishment of MUDRA bank?

  • The bank will be financially challenged since inception, if it is funded through non-budgetary support
  • The funds for the bank would be sourced from shortfall in the achievements of the priority sector lending (PSL) targets
  • Currently, the shortfall in the PSL targets of the domestic scheduled commercial banks are deposited in Rural Infrastructure Development Fund (RIDF) and for foreign banks in Small Enterprises Development Fund
  • The fact of the matter is that banks have been surpassing the targets in all years, since 2002, except for the last three years
  • The shortfall lies only in agricultural loans, but it would be unfair to divert the target for agriculture from RIDF to micro units

What are some of the positive points which go in favour of such a scheme?

  • Informal sector accounts for 90% of our non-agricultural workforce, 50% of the GDP & 40% of the non-farm GDP
  • Analysts point that the Indian GDP can be raised by almost 15% if the informal sector data is incorporated in the GDP series
  • The MUDRA bank aims to boost loans and cut borrowing costs for the cash-starved domestic small businesses

But has a direct intervention from government (to facilitate loans) worked in past?

What are some of the prominent concerns in this area?

  • There is always a case for direct government intervention to solve any one of our many chronic problems, to justify the need for MUDRA bank
  • The govt. is trying to ensure equity through determined government action that previously drove the govt. to nationalise banks and bring priority sector lending
  • However, such ‘directed credit’ has not worked successfully in the past
  • The govt. control over banks had led to large-scale corruption and repeated recapitalisation through taxpayers’ money
  • MUDRA bank has been over-burdened with many conflicting objectives and too-many roles, viz. a lender, consultant, regulator, think tank and an agent of social change
GS-2, Social Issue, Uncategorized

Sustainable development Goals

Millennium Development Goals

  • To eradicate extreme poverty and hunger
  • To achieve universal primary education
  • To promote gender equality
  • To reduce child mortality
  • To improve maternal health
  • To combat HIV/AIDS, malaria, and other diseases
  • To ensure environmental sustainability
  • To develop a global partnership for development

    According to UNESCAP ,India has met only four of the eight MDGs.

India has managed to
17

    1. halve poverty rates from the 1990 levels
    2. ensure gender parity in primary school enrolment
    3. reversed incidence of HIV/AIDS, and reduced malaria and TB deaths.

However, India continues to lag behind in checking

    1. maternal mortality and child mortality to expected levels.
    2. prevalence of hunger as well. As per the Census 2011 report, approx. 9 crore children in the age group 0-3 were malnourished, with 3.6 crore of them underweight.
    3. access to sanitation, with half of the country’s households lacking a latrine.
  • Even in areas where India claims to be close to meeting its targets, such as reversing the incidence of malaria and TB, the disease burden continues to be high in terms of absolute numbers. 1000 persons die of TB everyday.

  • Another target was to achieve a significant improvement in the lives of at least 100 million slum dwellers by 2020. But, the report says that it is not “statistically discernible” if the target was met. As per the Census 2011, a 37.14 per cent decadal growth was observed in the number of slum households, making it a significant challenge for the country.
  • As for the other two targets of environmental sustainability and partnerships for development with other countries, official reports say India is on track.
  • Experts, however, dispute the government’s claims and flag the absence of quality data as a challenge in monitoring the country’s progress on the targets.

Sustainable Development Goals:

sustainable-development-goals-united-nations

 

sdgs

Sustainable Goal
Trick to remember these Goals

Sustainable Development Goals versus Millennium Development Goals

  • Includes elders too in case of health, education and benefits
  • SDG — 2015 to 2030  MDG — 2001 to 2015
  • More inclusive
  • More focus on human rights
  • Focus on affordability, reliability and sustainability
  • Aims to reduce disparity between countries
  • Focus on infrastructure and industrialisation
  • More detailed in various aspects covered under MDG(17 SDG  with 169 SDG targets rather than 8 MDG and 18 MDG targets)
  • Focus on justice and accountability of institutions –> Good governance
  • Focus on international partnerships
  • Based on wide consultations not like MDG which were framed by a small group inside UN Head Quarters
  • Climate change, resource production and consumption included.

Criticism

  • Some countries feel that an agenda consisting of 17 goals is too unwieldy to implement or sell to the public, and would prefer a narrower brief.Some believe the underlying reason is to get rid of some of the more uncomfortable goals, such as those relating to the environment.
  • Addis Ababa summit had failed to produce new money to fund the goals, or offer ways to transform the international finance system. Calls for a new international tax body fell on deaf ears.
  • Neither does India have adequate data to frame relevant policy, nor the sort of financial resources necessary to meet these global development targets.India is behind 20-25% to achieve finance as well as goals of 25 targets of 12th  5  year plan due to absence of inadequate data, according to NITI Aayog. So how will India achieve SDGs 169 targets.
  • There is no direct mention of technology facilitation mechanism which India supports.
  • India has not fulfilled the MDGs targets of universal primary school enrollment, empowering women through wage employment and political participation, reducing child and infant mortality and improving sanitation to end open defecation as per a UN assessment due to lack of resources while SDGs require much more than MDGs till 2030.
  • It is better to have few goals of immediate concern rather than having large number of goals and not achieving any of them. The goal should be to identify primary goals which have positive externalities on other goals leading to sustainable development.
  • SDGs can only be achieved with the help of state and local governments, industry and civil society. This all-of-government, cross-domain approach has not been undertaken before on such a scale.
  • In particular, the panchayat, which will be crucial to ensuring inclusion at the local level, remains the weakest link. Similarly, the government’s selective approach in working with civil society is another hurdle to the SDGs’ success.
  • NITI Aayog will have to improve monitoring mechanisms of 169 targets and bring more centre-state coordination.
Editorials, GS-3, Indian Economy, Uncategorized

No jobs in sight

Article Link

With recent demands for affirmative action or job reservations for Scheduled Caste and Scheduled Tribe candidates in the private sector, debates surrounding quota have once again come to the fore.

What has been suggested?

Reservation in private sector has been suggested. Because providing quota in private jobs will help cool down anger among SC and STs, thereby stemming the rise of Maoist militancy among them.

How it helps?

The lands of vulnerable communities are being snatched away and with nothing left, the youth take up the wrong path including militancy. But, Maoist militancy is not just a security challenge, but results from deeply embedded socio-economic causes. And a major reason for mounting discontent among young people is because they have no jobs and future to look forward to. Hence, reservation in private jobs is a good solution.

Why young people take up arms?

The reasons for young people taking up arms in some impoverished regions are wide-ranging. They include-

  • Profound agrarian crisis, caused by abysmally low public investments in dry-land agriculture and farmer income protection.
  • Failures of land reforms.
  • Promotion of unsustainable, high-cost, risky agricultural technologies.
  • The ecological degradation of the countryside.
  • Decline and dispossession from forests.
  • Contraction of rural credit.

Need for quota in private sector:

The hopes of young people are shifting to the private sector. Also, at a time when the few jobs that are being created are in the private sector, and there is wide evidence of the bias shown by this sector against employing youth from socially discriminated categories, there is a strong case for job reservations.

Is it not possible to create enough jobs in public sector?

There is a colossal, unprecedented and ever-mounting crisis of employment for the young in India today. Every month, a million new persons are joining India’s workforce and there are hardly any jobs for them in either the public or private sector.

  • The total number of government staff, including Central and state governments, PSUs and local bodies, is less than 1.4% of the population, against the global average of over 3%.
  • Besides, this number has been going down over the years, falling from 19.13 million in 2000-01 to 17.60 million in 2011-12. Hence, it is not possible to create enough jobs in the public sector.

Why young people are turning away from agriculture?

Growing millions of young people find no future in agriculture. The Socio-Economic Caste Census showed that more than 55% of rural households possess no land, and are forced to survive exclusively by distress manual labour.

  • Marginal and small farmers are not much better off. Most of them are reduced to footloose migrants, travelling, working and surviving under conditions of great hardship away from their homes.

What’s needed now?

  • Massive public investments in agriculture and rural job creation would help create enormous local markets that could spur jobs and demands.
  • Huge expansions in the broken school, higher and technical education, and health and child care services would not just generate jobs, but also render youth entering work more productive and equipped with marketable skills.

Conclusion:

Young people today desperately long to escape the drudgery and hunger that entrapped their parents. Hence, there is a need to change course drastically without which we will continue to profoundly fail our young, with both tragic and explosive outcomes. However, independent of whether or not it would help allay the attraction of dispossessed young Dalit and tribal people to militant ideologies, the case for affirmative action in the private sector for SCs and STs must be considered on its own merit.

GS-1, Social Empowerment, Uncategorized

Women are agents of change

Indian women are no longer “passive recipients” of the state’s welfare schemes, but active agents of change. Real development is only possible with their economic empowerment, the Supreme Court has observed in a judgment. They had become “dynamic promoters of social transformation that can alter the lives of both women and men.”

The judgment came in a case of a woman police officer, Richa Mishra, who was denied selection as Deputy Superintendent of Police on the ground that she was overage.

As India promotes Beti Bachao, Beti Padhao (Education for girls) scheme, “empowerment of women is the need of the hour,” the Supreme Court said. Women in this world, and particularly in India, faced various kinds of constraints and discrimination. This was notwithstanding the fact that under the Constitution, women enjoyed a status of equality with men. “In reality, however, they have a long way to go to achieve this constitutional status,” Justice Sikri.

The apex court said the focus was slowly shifting from mere “better treatment” or “well-being” of women to empowering them to be economically independent and self-reliant, with a positive esteem, to enable them to face any situation and participate in development activities.

Economic development and women’s empowerment had a symbiotic relationship. One cannot do without the other. The court said

The term “women’s empowerment” meant women’s ability to access the constituents of development, in particular health, education, earning opportunities, rights, and political participation.

Poverty and lack of opportunity had bred inequality between men and women. “Policy action is still necessary to achieve equality between genders. Such policy action would be unambiguously justified if empowerment of women also stimulates further development, starting a virtual cycle,”.