THE HINDU – CURRENT NOTE 07 March
Panel to pick new ICSSR chairman
•With the term of the present chairman of the Indian Council of Social Science Research (ICSSR) S.K. Thorat coming to an end, the Centre has set the ball rolling to appoint a replacement for him.
•The government has zeroed in on names to man a search-cum-selection committee to choose the new chairman for the apex social science research body.
•National Research Professor Ashok Modak and key RSS-linked Akhil Bharatiya Itihasa Sankalan Yojana figure Satish Mittal are being roped in as members of the committee to sort names for the post, sources said. The secretary (higher education) at the MHRD will also be on the search panel.
•Prof. Modak, who did his doctorate from Jawaharlal Nehru University in 1980, studied in Pune before this. The Smriti Irani-led Ministry of Human Resource Development appointed him National Research Professor — an honour for “distinguished scholars” — in 2015.
MLC from Maharashtra
•Prof. Modak was also an MLC of the BJP in Maharashtra from 1994 to 2006.
•Prof. Mittal, who taught history at Kurukshetra University, has been a prime figure of the RSS-linked Akhil Bharatiya Itihas Sankalan Yojana. He addressed historians on the foundation day of the Indian Council of Historical Research last year.
•He has authored the NCERT Modern India textbook that was commissioned by the Vajpayee government in 2003.
•With the appointment of Meerut-based professor Virendra Malhotra, the ICSSR got a new member-secretary last year.
•Outgoing ICSSR chief Prof. Thorat, an appointee of the UPA government, is a former chairman of the University Grants Commission who also taught at the Jawaharlal Nehru University.
•Another institution that will soon see new leadership is the prestigious Indian Institute of Advanced Studies (IIAS) in Simla.
•Prof. Manjappa Hosamane, who teaches Economics at the University of Mysore, is set to be on the selection committee for picking the new IIAS chief.
•As of now, IIT Roorkee director Ajit Kumar Chaturvedi is holding additional charge as director of IIAS, Simla.
Law to regulate use of air conditioners
•To coax establishments to use electricity more efficiently, the Union Environment Ministry is mulling laws that will require buildings — commercial spaces, airports, offices — to ensure that air conditioners function at pre-set temperatures.
•At a conference to discuss India’s roadmap to phase out particular gases used in refrigerants and air-conditioners because they contribute to global warming, M.K. Singh, Joint Secretary, Ministry of Environment and Forests said the government could bring in a notification, after due public consultation, and have rules that define operating parametres for ACs. This was because several places frequently set their air conditioners to extremely low temperatures — irrespective of whether the weather required it to be so — and thereby consumed an excess of electricity.
•“In Japan, there are regulations that require air-conditioners be set at a specific temperature depending on the season,” Mr. Singh told The Hindu on the sidelines of the conference. Since the summer of 2005, the Japanese Ministry of Environment requires all government departments and commercial establishments to pre-set their air conditioners to 28°C (82°F) during the summer, with employees expected to eschew formal business-wear for comfortable casuals. Mr. Singh added that there would be discussions on the plan but there was no time-frame yet in place to execute the proposal.
•Chandra Bhushan, Deputy Director General, Centre for Science and Environment, who was part of the discussion panel, said that his organisation had discussed such a plan with the ministry.
•“Even the European Union has regulations on the use of heating and cooling equipment…we discussed this [with the government] and let’s see if this comes about,” he said on phone.
•The panel was part of conference to announce updates on India’s ongoing plans to phase out hydrochlorofluorocarbons (HCFC), chemicals widely used in refrigerants and airconditioners. Originally brought in as replacements for refrigerant-chemicals but later found to have a high global warming potential, India is one of the largest consumers of HCFCs after China, and is expected to use even more of it because of the projected growth in the sale of air-conditioners. It has, however, agreed to stop the use of HCFCs by 2030.
‘Polluted environment kills 1.7 million children a year’
•A quarter of all global deaths of children under five are due to unhealthy or polluted environments, including dirty water and air, second-hand smoke and a lack or adequate hygiene, the World Health Organization (WHO) said on Monday.
•Such unsanitary and polluted environments can lead to fatal cases of diarrhoea, malaria and pneumonia, the WHO said in a report, and kill 1.7 million children a year.
•“A polluted environment is a deadly one — particularly for young children,” WHO Director-General Margaret Chan said in a statement. “Their developing organs and immune systems, and smaller bodies and airways, make them especially vulnerable to dirty air and water.”
Saving the wombs
•In the report — “Inheriting a sustainable world: Atlas on children's health and the environment” – the WHO said harmful exposure can start in the womb, and then continue if infants and toddlers are exposed to indoor and outdoor air pollution and second-hand smoke.
•This increases their childhood risk of pneumonia as well as their lifelong risk of chronic respiratory diseases such as asthma. Air pollution also increases the lifelong risk of heart disease, stroke and cancer, the report said.
•The report also noted that in households without access to safe water and sanitation, or that are polluted with smoke from unclean fuels such as coal or dung for cooking and heating, children are at higher risk of diarrhoea and pneumonia.
•Children are also exposed to harmful chemicals through food, water, air and products around them, it said.
•Maria Neira, a WHO expert on public health, said this was a heavy toll, both in terms of deaths and long-term illness and disease rates. She urged governments to do more to make all places safe for children.
•“Investing in the removal of environmental risks to health, such as improving water quality or using cleaner fuels, will result in massive health benefits,” she said.
GST Bill: Last mile concerns
•More than six months after the Constitution was amended to enable the Goods and Services Tax (GST), the Centre and States have managed to find considerable common ground on the long-debated indirect tax system, overcoming seemingly irreconcilable differences that cropped up along the way. On Saturday, the GST Council approved final drafts of the Central and Integrated GST Bills, which should be placed in the public domain as soon as possible. With the law to compensate States already cleared, the only pending legislative negotiation left for the Council, which is expected to meet again on March 16, involves the State and Union Territories’ GST bills. As these bills secure assent from State Assemblies and Parliament, and swiftly, the operational rules for the GST must be readied. Industry would need at least three months after that to prepare for the transition from the present system of myriad State, Central and local levies on goods and services. Moreover, switching to a new indirect tax system in the middle of a financial year will bring its own subset of accounting complications. The Central government should resist a pushback on the roll-out date, and expedite efforts to ensure everyone is ready to get on board the new system with early clarity on what rates would apply to different goods and services.
•Clearer communication of intent is equally essential. In industry circles, the introduction of a peak 40% tax rate in the GST Bills has set the cat among the pigeons. What started out as a single tax, single market dream for industry has now degenerated into five tax rates, a cess on top, with additional uncertainty about tax rates. Just as effective excise and customs duties are lower than legally specified rates, working in a peak rate for the GST could well be justified. In the current rate structure, a cess has been proposed on luxury and sin goods over and above the highest GST rate of 28%. The cess would finance compensation payouts to States for the first five years. After that, it could be replaced with a higher GST rate to retain the same tax treatment on sin goods, without fresh parliamentary approval. But this intent should be stated explicitly and rates must not be tinkered with in the GST’s first five years at least. It is still not too late to settle another major worry for industry that strikes at the very heart of enterprise. The GST’s anti-profiteering penal provisions are far too vague and draconian, and could discourage companies from making efficiency improvements in supply chains if they are required to pass on the entire benefit to consumers. Lastly, the Chief Economic Adviser has made an impassioned plea to bring real estate under the GST net, linking it to the war against black money. A road map for eventually bringing such excluded sectors into the GST net could hasten the process.
All those who are out of the tax net
•Of nearly 127 crore Indians, only 2.6 crore pay income tax. The fact that less than 3% of Indians pay income tax is automatically construed to imply that a large majority avoid paying income tax. The Finance Minister, Arun Jaitley, made a sweeping statement in his Budget speech this year claiming that India is “a tax non-compliant society and too many people evade taxes”. Not only is the perception entrenched that too few pay income taxes but also that most Indians under-report their incomes.
What data say
•Prime Minister Narendra Modi exclaimed in his New Year’s eve speech that “only 24 lakh Indians reported an income greater than 10 lakh rupees. Who can digest this?” This perception that India is a land of tax avoiders and black money hoarders was first mooted by former Finance Minister P. Chidambaram who, in his 2013-14 Budget speech, emphatically asserted that “only 42,800 persons admitted to an income of more than Rs.1 crore per year”. The insinuation was that there is massive under-reporting of income. Most readers will perhaps endorse this growing chorus that India has too few honest taxpayers. Except that data belies this claim. That a large majority of Indians are tax dodgers may well be an urban legend.
•India’s per capita GDP is roughly ₹1 lakh, i.e. the average Indian earns a lakh of rupees every year. Given India’s large income inequality, it can also be inferred that when the average income is ₹1 lakh, a greater majority of Indians earn less than ₹1 lakh while a small number at the top earn large amounts. However, the income tax exemption threshold in India is ₹2.5 lakh, i.e. anyone earning below ₹2.5 lakh need not pay income tax. This implies that only those who earn more than 2.5 times the average income of ₹1 lakh will fall under the tax bracket. When a majority of Indians earn less than ₹1 lakh, an income tax exemption threshold of ₹2.5 lakh is sure to leave a vast majority out of the tax bracket. We also know from recent research by the National Sample Survey Office (NSSO) and Peoples Research on India’s Consumer Economy (PRICE) that the average income of the richest 20% of Indians is ₹95,000. This means that even a large majority of the richest 20% of Indians do not qualify to pay income taxes. In this context, it is not entirely surprising that only 3% of Indians pay tax. This is not a function of a large number of Indians avoiding tax, as portrayed, but merely a reflection of the fact that India is a terribly poor country with an extremely high income tax exemption threshold.
Global comparisons
•India is the only large economy with an income tax exemption threshold that is 2.5 times the average national per capita income. In most countries, including in emerging economies such as China, Brazil and Argentina, anyone earning more than half the average national income falls under the income tax bracket. India has increased the income tax exemption threshold on seven occasions, from ₹40,000 to ₹2.5 lakh in the last two decades. Contrast this with China, where the exemption threshold has just doubled from 10,000 yuan to roughly 20,000 yuan in the same period even though average incomes grew much faster in China than in India. If India lowers its income tax exemption to, say, ₹1 lakh from the current ₹2.5 lakh to be more in line with the rest of the world, nearly 1.5 crore more Indians will fall under the tax bracket. To be clear, such a move will not fetch any meaningful extra tax revenues for the government but will merely bring more people into the tax bracket. It is thus misleading and specious to conclude that India’s small number of taxpayers is entirely a result of some genetic and cultural trait of dishonesty of Indian society at large.
•Further, the Prime Minister’s claim or Mr. Chidambaram’s assertion is also not peculiar. ₹10 lakh equals 10 times India’s per capita GDP. Even in the much richer United States, only 12.5 lakh people out of nearly 20 crore adults reported an income greater than 10 times the per capita GDP of the U.S. In the United Kingdom, only 2 lakh people out of an adult population of 4 crore reported an income of greater than 10 times the average annual income. Similarly, an annual income of ₹1 crore in India is equal to 100 times the average annual income. What proportion of people in other countries earn more than 100 times the average annual income? Just 43,000 people in the U.S., 5,000 in the U.K. and a few hundred in Canada. The number of people earning 100 times the average national income in most nations is extremely small. Against this backdrop, out of 68 crore adults in India, 24 lakh people earning more than ₹10 lakh per year or 42,800 earning more than ₹1 crore is not as abnormal as the Prime Minister or Mr. Chidambaram suggest. This is not to imply that there is no tax evasion in India but to say that the number of Indians paying income tax or earning high incomes is not nearly as outlandishly small as claimed.
Political rhetoric
•Most urban Indians are unable to fathom the scale and size of India’s poverty. Their immediate, lived experiences lure them into this belief that a significant majority of Indians earn more than ₹20,000 a month to qualify to pay income taxes. Casting aspersions on all of Indian society solely on the basis of the small number of taxpayers is plain egregious. The political compulsions of such class rhetoric are obvious as it serves as a good alibi for seemingly “tough” actions such as demonetisation. But the Finance Minister’s grand proclamation that India is a tax non-compliant society can be true only if India is much richer than her GDP numbers reveal and is merely hiding behind a veil of feigned poverty.
The Tawang test
.China’s statement that it is “gravely concerned” over the government’s decision to allow the Dalai Lama to visit Arunachal Pradesh’s Tawang monastery in early April, and that it would “seriously damage” bilateral ties, is unwarranted. It is also an unacceptable escalation of rhetoric over an issue that India and China have engaged with each other on, including during the visit by Foreign Secretary S. Jaishankar to Beijing. The controversy over the Tawang area goes back to the Shimla meet of 1914, when the Chinese representatives just initialled, and didn’t sign, a trilateral agreement with British India and Tibet. Later, in 1959, when the current Dalai Lama fled Tibet, he came into India through Tawang. He has not visited Arunachal Pradesh since 2009, when he retraced his 1959 journey. On that occasion too, his itinerary had evoked threats from Beijing, but eventually bilateral concerns outweighed them. The Chinese government would do well to not allow tensions with India over the issue of Arunachal Pradesh to spill into other spheres of engagement, and perhaps to also recall its own talks with representatives of the Dalai Lama that broke down after nine rounds in 2010 when it seeks to castigate him and New Delhi for their engagement. Beijing’s objections over access for the Dalai Lama as a spiritual leader to a religious shrine obviously cannot be allowed to intimidate India into restricting his free movement.
At the same time, New Delhi must calibrate its moves to avoid misperceptions that it is indulging in political power-play. Recent developments, such as visits to Tawang by American diplomats including the U.S. Ambassador, and an official dinner at the U.S. Embassy attended by a Minister and leader of the “Tibetan government in exile” based in Dharamshala, could be interpreted as messages aimed at China, even if they did not signify any policy change. Beijing has been touchy about visiting delegations from Taiwan and the grant of visas to those it perceives as dissident activists. Pinpricks cannot substitute for policy and New Delhi should keep its focus on the major issues between the two countries. The bid for Nuclear Suppliers Group membership and having Masood Azhar placed on the UN terrorists’ list have occupied much of the bilateral canvas, while the larger issue of the boundary resolution hasn’t been addressed adequately. Statements last week from former Chinese special envoy Dai Bingguo, who suggested that flexibility from India over the “eastern boundary” in Arunachal Pradesh could yield flexibility from China over “other areas”, that is, the western boundary in J&K, are significant. If the statements are an indication that the 20th round of talks between the special representatives expected this year will see an opening for progress, then that is a more worthwhile goal for New Delhi and Beijing to be preoccupied with.
NIIF in talks with two sovereign funds
•The National Investment and Infrastructure Fund (NIIF) has begun talks with two sovereign wealth funds to become the first investors to come on board, following the signing last fortnight of a government commitment to infuse ₹20,000 crore into the fund, CEO Sujoy Bose said on Monday.
•The NIIF plans to leverage the Centre’s financing – equivalent to $3 billion – to invest a far higher amount in infrastructure firms and projects, in partnership with global, long-term investors eyeing infrastructure assets, and fund managers that could create dedicated infra sector funds.
•“We have been having discussions with developers and financiers to see where the NIIF can add value and we will end up with a large pool of capital that will allow us to operate at a scale not common in India today, with sticky capital,” Mr. Bose said.
•A big milestone was cleared two weeks ago when the Centre signed off on its initial commitment of ₹20,000 crore to the NIIF, he added.
•“We are now in conversation with a couple of sovereign funds to become the first investors and we will expand that conversation with large global pension funds and insurance companies as well,” Mr. Bose said, stressing that this would be sticky, long-term capital unlike volatile global portfolio flows. The anchor investment by the government in NIIF will be split into two buckets – a billion dollars will be earmarked for a ‘NIIF Direct’ fund that could directly invest in existing or new infrastructure firms or projects.
•Sovereign funds, pension and insurance companies would bring in a similar amount, while the government’s stake would be kept at 49% of this fund, he said.
•“With the rest of the $2 billion equivalent, we will look to work with fund managers to see if we can create funds that can become partners with us in investing,” he said, speaking at an Indian Private Equity and Venture Capital Association conclave in the capital.
$600-billion opportunity
•India is more attractive to foreign investors interested in infrastructure investments in emerging markets as it now has several privately executed projects that are operational or are close to completion, Mr. Bose said.
•“Some investors prefer post-construction assets, some like to take a risk on construction but require a higher return. There are estimates that about $600 billion equivalent of operating or mostly constructed assets are available,” he said.
•The NIIF will also back ‘platform companies’ that can scale up and deliver bigger projects as the sector has seen fragmented players, the fund’s chief executive said.
•“There have not been many large firms coming up. Now we see firms like IDFC alternatives starting the concept of platform companies that can be scalable and become strong counter-parties to government in PPP structures,” said Mr. Bose.
