The HINDU Notes – 01st July
Border standoff: India warns of serious impact
Delhi breaks silence, says troops did not transgress territory
•China’s actions at the Doko La (Doklam) tri-junction in Sikkim between India, China and Bhutan have “serious security implications”, New Delhi warned on Friday, indicating that while talks have been ongoing between Indian and Chinese officials, there is no resolution yet to the standoff.
•“India is deeply concerned at the recent Chinese actions and has conveyed to the Chinese Government that such construction would represent a significant change of status quo with serious security implications for India,” said a government statement, the first since the tensions at the tri-junction were made public earlier this week.
•Attempting to play down the situation, however, India also said it remained committed to finding a “peaceful resolution through dialogue” with China.
China reiterates demand
•However Beijing, that has been unusually shrill in its comments over the issue, issued its fourth statement in as many days, demanding that India withdraw troops, and saying it was a “precondition for any meaningful dialogue”.
•“The Indian troops trespassed the recognised and delineated boundary between China and India. So the most pressing issue is the withdrawal of troops into the Indian territory,” Chinese foreign ministry spokesperson Lu Kang said on Friday, a day after releasing photographs that purported to show Indian troops on Chinese land.
•Meanwhile Defence Minister Arun Jaitley spoke out at a conference organised by TV Today on Friday as well, saying “The situation in 1962 was different and the India of today is different,” in response to the Chinese statement telling New Delhi to “remember history” and the 1962 war.
•Revealing the series of events that have unfolded over the past fortnight, the government said on June 16, a PLA team carrying construction equipment crossed into Bhutanese territory at Doko La over the Zom Cheri ridge and tried to begin building a road. When Bhutanese soldiers protested, India claims the Chinese soldiers pushed them back to their posts.
•“In coordination with the Royal Government of Bhutan, Indian personnel, who were present at general area Doka La, approached the Chinese construction party and urged them to desist from changing the status quo,” the government said, although it denied the Chinese claim that Indian troops had transgressed into Chinese territory in the process.
Not all rosy with border infrastructure
Advanced landing grounds ready, but Mountain Strike Corps pruned; only 23 of 73 roads planned have been completed
•Under the Narendra Modi government, India’s infrastructure development along the border with China has picked up, though it has rolled back the most ambitious military plan for the boundary.
•According to several military and intelligence sources, India is at least a decade away from matching the infrastructure on the Chinese side, where most posts have direct road access. Across Tibet, massive infrastructure projects have come up providing easy access to the border for the Chinese military.
Mountain Strike Corps
•The 17 Corps, which is India’s first dedicated strike corps for mountain operations, was originally supposed to have three full divisions. Now it has been scaled down to two, of which just one division has been raised until now. With two divisions, the 17 Corps would have about 60,000 men, against the original plan of over 90,000.
Rs. 64,000-crore plan
•In 2013, the Cabinet Committee on Security headed by then Prime Minister Manmohan Singh had approved a Rs. 64,000-crore plan to raise the corps. It was to be completed by 2020.
•The Strike Corps was to be armed with, among others, the M-777 ultra-light howitzers, manufactured in the U.S. by BAE Systems, which can be easily airlifted. These were to be inducted from March 2019.
•While the Modi government has scaled back ambitions for the Strike Corps, it has stepped up the UPA initiative to strengthen border infrastructure with China.
•According to latest statistics, only 24 of the 73 roads identified along the Line of Actual Control with China have been completed until now. Of the total, 61 roads with a length of 3409.27 km, are with the Border Roads Organisation while other 12 were entrusted to agencies like the Central Public Works Department, NBCC and State Public Works Departments.
•In a report presented in the Parliament in March this year, the Comptroller and Auditor-General (CAG) said: “All 61 India-China Border Roads (ICBR) included in the Border Roads Development Board (BRDB) programme were planned to be completed by 2012. However, only 15 roads had been completed by 2012. Out of the balance, 46 roads, only 7 roads were completed by March 2016, extending the Planned Date of Completion (PDC) of balance roads.. to 2021.”
•India is also constructing some critical bridges in the northeast which will cut down time for troop movement. The recently inaugurated 9.2-km Dhola-Sadiya bridge will cut down the distance between Assam and Arunachal Pradesh by 165 km.
How will the Centre ensure States’ finances are not hurt?
GST will subsume almost all cesses levied at the moment
•One of the key sticking points thwarting consensus in the Goods and Services Council over the course of its meetings in 2016 was the compensation the Centre would have to pay States for any losses they might incur due to the implementation of the new indirect tax regime.
What was the issue?
•The GST is a destination-based tax, and as such is viewed as being to the advantage of the consuming States and to the detriment of the producing States like Maharashtra, Tamil Nadu, Gujarat, Haryana, and Karnataka.
•These States had raised objections to the implementation of GST, forcing the Centre to agree to a formula for compensating them in the event of a loss of revenue. The 14th Finance Commission advised the Centre to provide 100% compensation to States for their revenue loss after implementation of GST for the first three years. The fourth year would bring 75% compensation, and the fifth year 50% compensation.
•This, however, did not pacify the States who demanded full compensation for five years. The Centre agreed to this demand in December 2016, settling one of the most contentious issues delaying GST.
•The next question, however, was how the Centre was going to finance this compensation package, which experts estimated could be as much as Rs. 55,000 crore.
Where are the funds?
•The GST, once implemented, will subsume almost all the cesses levied at the moment, including Swachh Bharat Cess and Krishi Kalyan Cess. Other cesses like the education cess on imported goods and the cess on crude oil will remain under GST. However, the government needs extra revenue to compensate the States, and so the GST Council decided to impose additional cesses for five years on certain goods over and above the highest tax bracket of 28%. These goods on which cess will be levied include tobacco products, coal, motor vehicles, which include all types of cars, personal aircraft, and yachts.
•These additional cesses, however, will be removed after five years, Finance Minister Arun Jaitley has repeatedly said, adding that the States incurring losses would have to find alternative sources of revenue.
TRAI pitches for lower GST
Seeks 5% for telecom services, urges cut in licence fees, spectrum usage charges
•The Telecom Regulatory Authority of India has pitched for a reduction in the GST rate for telecom services to 5% from the current 18% decided by the GST Council, and recommended a cut in levies such as licence fee and spectrum usage charges.
•The recommendations follow a meeting between the regulator and telcos on June 15 to discuss the financial health of the industry that is currently sitting on a debt of Rs. 4.6 lakh crore.
•In a letter to the Telecom Secretary, Aruna Sundararajan, TRAI Principal Advisor S.K. Mishra has said that the regulator finds “considerable merit” in the industry’s proposal to treat the sector as core infrastructure sector and reduce the GST rate as this would be in the interest of end consumers and would help realise the goal of Digital India.
•Ms. Sundararajan is also the chairperson of Telecom Commission, which is the highest decision-making body in the Department of Telecommunications (DoT).
Economy enabler
•TRAI has said that DoT “may consider actively taking” up with the Ministry of Finance the issue of reduction in GST rate from 18% to a flat 5% by declaring the telecom sector as core infrastructure industry and economy enabler in India. “On several other issues like levies of licence fee, Universal Service Obligation (USO) Fund, spectrum charges, promotion of wireline infrastructure etc, the authority in the past has already given its recommendations to the government,” Mr. Mishra said in the letter.
•TRAI had earlier recommended reducing USO levy to 3% of the adjusted gross revenue from the current 5%. With this reduction, the applicable uniform rate of licence fee would become 6% from the present 8% of the adjusted gross revenue.
•In their meeting with the regulator, the operators had raised concerns over differential spectrum usage charges (SUC) as there was no uniformity in the SUC for different telecom operators.
•The telcos had “argued that 2010 onwards, the spectrum is being auctioned and a high bid amount is being paid to acquire the spectrum… They also added that besides this, other fees are also being levied on the telcos; so, there is an urgent need that SUC should be reduced to the level of recovery of the administrative cost of the spectrum management.”
Spectrum charges
•TRAI also recommended a relaxation in the payout for auctioned spectrum. At present, operators pay 25% or 33% as upfront charges of total spectrum price and the remaining is paid over a ten-year period after a moratorium of two years.
•For spectrum payments in the 700/800/900/2100/2300/2500 MHz bands, TRAI has suggested 10% of the bid amount as initial payment with the remaining payment spread over 18 years (18 equal instalments with interest).
RBI says bank funding can’t be substituted
‘NBFCs, mutual funds have been partly meeting companies’ debt needs’
•With banks increasingly ‘retrenching’ credit, mutual funds, non-banking finance companies (NBFCs) and capital markets have partly offset the corporate sector’s debt requirement but such alternative sources of funding cannot replace bank loans, the Reserve Bank of India (RBI) said in its biannual Financial Stability Report (FSR) released on Friday.
•According to latest data, banks’ share in the flow of credit, which was about 50% in 2015-16, declined sharply to 38% in 2016-17.
•“Retrenchment of credit by public sector banks is partly offset by NBFCs, mutual funds and the capital market but they cannot fully substitute for banks in a bank-based financial system like ours,” said N.S. Vishwanathan, Deputy Governor, RBI.
•“Hence, steps to restore the health of the banks assume urgency,” said Mr. Vishwanathan who wrote the foreword.
•RBI said the aggregate flow of resources to the commercial sector was not affected owing to a sharp increase in private placements of debt by non-financial entities and net issuance of commercial papers (CPs).
•“The aggregate share of these two in total credit flow to commercial sector increased to 24.3% in 2016-17. Moreover, there is increasing intermediation of credit by mutual funds,” the report said.
•The report noted that during 2016-17, while deposit growth of scheduled commercial banks picked up, credit growth remained sluggish, putting pressure on net interest income (NII), particularly of the public sector banks (PSBs). While profitability ratios of such banks showed a marginal increase, public sector banks continued to show a negative return on assets (RoA).
•On asset quality, latest data showed that while gross NPAs of the banking sector had increased in March 2017 compared with September 2016, overall stress declined due to reduction in restructured standard advances.
GNPA ratio rises
•Gross non-performing advances (GNPAs) ratio of all banks rose from 9.2% in September 2016 to 9.6% in March 2017. The net non-performing advances ratio of banks increased marginally from 5.4% in September 2016 to 5.5% in March 2017. During the same period, the stressed advances ratio declined from 12.3% to 12% due to a fall in restructured standard advances.
•“While there is a fall in the stressed advances ratio in agriculture, services and retail sectors, the stressed advances ratio in [the] industry sector, however, rose from 22.3% to 23%,” the report said. Going forward, RBI said growth was expected to pick up further on the back of implementation of GST, FDI reforms and fall in inflation.
At stroke of midnight, India gets a ‘good and simple tax’
It will end the spectre of tax terrorism, says Prime Minister Narendra Modi
•Prime Minister Narendra Modi termed the new Goods and Services Tax (GST) regime rolling out from Saturday as a ‘Good and Simple Tax’ and said its introduction is not just a tax or economic reform, but a social reform that will nudge people on the path to honesty and benefit the poor the most.
•Speaking at a special function at Parliament’s Central Hall, where President Pranab Mukherjee launched the new indirect tax regime at the stroke of midnight on Friday, Mr. Modi said the practice of giving out ‘kachcha’ (informal) bills would become history as the GST presented an opportunity to stop black money and corruption, and give people a chance to do honest business.
‘Simpler and modern’
•Calling the GST a simpler, modern and more transparent taxation system that will do away with 500 different taxes levied across the country’s 29 States and seven Union Territories, Mr. Modi said that it would end the spectre of tax terrorism and Inspector Raj that India’s businesses have had to endure for long.
•This, he said, would be an outcome of the technological backing for GST implementation, which would do away with grey areas and the resultant discretion the bureaucracy enjoyed over tax payers.
•Mr. Mukherjee, who as Finance Minister introduced the Constitutional Amendment Bill for enabling GST in 2011, said the tax is “no doubt a disruptive change”, but is similar to the introduction of the VAT (value-added tax) regime which met resistance initially. “There will be teething troubles, which we have to solve swiftly so that it doesn’t impact the growth of the economy. The GST Council, Centre and States should continuously improve and refine the GST in the same spirit that we have seen till now,” he said.
•Stressing that GST would make it easier for global investors to bet on the Indian market, Mr. Modi sought to allay the anxiety in the business community about the preparedness for the transition to the new tax regime, and said that even though not everyone is familiar with technology, each family will have a Class X or XII student who can help carry out the GST compliance requirement of filing an online return each month.
•While Opposition parties, including the Congress, the Trinamool Congress and the DMK, chose to stay away from the function, the PM was wholehearted in his acknowledgement of all parties’ role in the GST’s journey and compared the deliberations over different governments on GST to the prolonged debate over the Constitution that started in the same Central Hall of Parliament in November 1946.
•“If Sardar Patel hadn’t unified the country’s 500 provinces after independence, what would the country have been like today? Just like that national integration, GST today will help integrate India’s economy,” the Prime Minister asserted.
•NCP leader Sharad Pawar, Vijay Kelkar who originally authored a report on implementing the GST reform during the Atal Bihari Vajpayee government, Tata Group chairman Ratan Tata, former West Bengal Finance Minister Aseem Dasgupta and Kerala Congress leader K.M. Mani — both of whom headed the empowered committee of State Finance Ministers during different periods — were present along with Lok Sabha Speaker Sumitra Mahajan.
Entering the age of GST
The long-term benefits of GST are clear — the challenge is to quickly address the short-term obstacles
•The Goods and Services Tax (GST) is in force from today. The reform, touted as a “game changer” and the “reform of the century”, was deemed worthy of a launch on the midnight of June 30 in the Central Hall of the Parliament. Indeed, one is reminded of the famous speech by Pandit Jawaharlal Nehru on the midnight of August 14-15, 1947. He spoke of a “tryst with destiny”, of “redeeming the pledge” and referred to India waking up to life and freedom when the whole world slept. Given the fanfare with which unveiling of the GST reform has been planned, it seems to be a reform with consequences never before seen in the country.
•The enormous publicity that it has received and the great gains spoken about the ‘one nation, one market, one tax’ by both the government and the captains of industry have raised high expectations. However, there is palpable nervousness at both government and industry levels.
•The country has waited for the reform for long, and I had once described implementation of the GST as the “bullock cart stuck in the mud”. The discussion on the reform has spanned more than a decade and half, and the then Finance Minister, P. Chidambaram, in his Budget of 2007 spoke of implementing the levy from April 2010. Suddenly the mud seems to have dried and the bullock cart seems to have been powered with a Rolls-Royce engine!
Check the optimism
•While the implementation of the GST reform is surely a cause to celebrate, one should not get carried away, for over-optimism on its favourable consequences builds expectations which may be difficult to fulfil. It must be noted that petroleum products are excluded and cascading on that account will continue — they contribute over 35-40% of revenue from indirect taxes.
•With multiple rates, it is not a simple tax and robs much of the benefits from lower administrative, compliance and distortion costs. There will be classification disputes, and many of them will end up in courts. Having multiple rates is a sure invitation for lobbying. This also puts additional burden on administration, increases the compliance cost and the load-bearing capacity of technology needed for providing input tax credit with multiple rates by matching every invoice. Requiring the regular GST dealers to file 37 returns in a year raises anxiety, given an untested technology platform. Despite the assurances given, the anti-profiteering clause creates considerable apprehension. The requirement of e-way bills for inter-State movements has also been a cause of concern. Above all, there is a palpable fear of the unknown, given the recent disruptive experience with demonetisation. Indeed, any major tax reform could lead to disruption, and the complexity of the structure and the untested technology platform adds to the fear. Of course, a majority of retail traders, who buy and sell commodities and services within a State and have a turnover of less than Rs. 75 lakh, will come under the compounding system. They will pay a simplified tax at 1-2% on the turnover without the facility of availing or according input tax credit, and submit only quarterly returns.
How short is the short term?
•It is clear that the GST reform will lead to significant disruption in the economy in the short term. How short is the short term depends on how well the transition is planned, and how fast the economic agents will adjust to the new normal. The disruptions caused by demonetisation continue to haunt large parts of the unorganised economy even as the economy had been substantially remonetised. It is very difficult to predict the impact of such disruptions and the discontent they create. The power loom sector has considerably suffered on account of one disruption, and with different tax rates proposed to be levied on yarn, fabrics and readymade garments, Tamil Nadu manufacturers are at war. Transporters will soon find that the tax paid on fuel cannot be credited against the GST payable on the transportation services rendered by them. There are concerns about the rates of tax, mandated compliances and glitches in transition, and investment activity is virtually at a standstill, with everyone waiting to see how the reform pans. Even as the tax is about to be unveiled, old decisions are changed and new decisions taken by the GST Council, and there is hardly any time to internalise them. The government could have used the time until September to provide greater clarity and test the technology through some dry runs to ensure a smoother transition.
•Instead of viewing the GST as a game changer, it is useful to see it merely as the next stage of consumption tax reform in the country. To be sure, there will be disruptions, and this may actually contribute to some slowdown in the economy in the short term. The much-vaunted growth acceleration may happen only in the long term when the transaction cost of businesses comes down. The statement by the Union Finance Minister that there could be short-term pains for long-term gains is appropriate. The Revenue Secretary too has stated that this is a work in progress, and that is refreshing. Hopefully, his statement that the tax will be unified eventually to have one or two rates will be achieved soon. The objective of including real estate within a reasonable time period is welcome because besides expanding the tax base, this will help in fighting black money. It would be useful to simultaneously include petroleum products within the ambit of the GST, for the expanded base could offset the revenue loss due to the prevailing high rates on petroleum products.
Reducing the cost
•The GST reform is an important reform. It is a major tax harmonisation exercise and will significantly reduce the transaction cost of doing business in India. It will unify multiple taxes into a single tax and reduce compliance and administrative cost in the long term, do away with levies like octroi and ensure a more unified market. It will reduce cascading on account of levies like octroi, purchase tax and central sales tax and make the economy more export-competitive. More importantly, it might see a significant increase in revenue productivity of income tax as the seeding of PAN in GST registration will make it difficult for businessmen to evade the tax. All these could contribute to acceleration in growth. To know how and when that will happen, we will have to wait and keep the fingers crossed.
For a more representative House
Reform is urgently needed to make Parliament more productive and responsive
•Parliament is supposed to be a union of exemplary orators, with a grass-roots touch. Unfortunately, one is rarely inspired by the quality of India’s parliamentary debates nowadays. Parliamentary debates, which once focussed on national and critical issues, are now more about local problems, viewed from a parochial angle. With niggardly attendance by our Members of Parliament (MPs), poor quality of debates and pandemonium marking the proceedings, there is seemingly little value that a parliamentary representative can add to the policy discourse.
Low productivity
•Consider the utilisation record. Each minute of running Parliament in sessions costs Rs. 2.5 lakh, which is utilised poorly. Between the 1950s and the 1960s, the Lok Sabha used to meet for an average of 120 days in a year. In comparison, in the last decade, it has met for an average of 70 days a year. Its productivity in the 2016 winter session was 14%, while that of the Rajya Sabha was 20%.
•In comparison, the British House of Commons has met for an average of 150 days a year over the last 15 years, while the U.S. House of Representatives has met for 140 days in the same period. Most Parliaments are in session throughout the year. While our Parliament lacks the power to convene itself, it should have a minimum mandated number of days to meet — with the National Commission to review the working of the Constitution recommending 120 and 100 days for the Lok Sabha and Rajya Sabha, respectively. Odisha has already shown the way, mandating a minimum of 60 days for the State Assembly to sit. Without Parliament meeting often, it will be derelict in its duty to hold the executive to account.
Passing Bills
•Meanwhile, political power continues to be a male bastion. The Lok Sabha and the Rajya Sabha have not seen women MPs cross the 12% mark.
•In 2012, India ranked 20th from the bottom in terms of representation of women in Parliament. While the 73rd and 74th constitutional amendments enabled the reservation of 33% of seats in local government, political representation by women candidates continues to be subdued, with no significant rise in the number of women MLAs in recent Assembly elections; women constitute less than 10% of the Assemblies in Tamil Nadu, West Bengal, Assam, Kerala and Puducherry. This needs to be changed dramatically, beginning with the passage of the Women’s Reservation Bill (108th amendment) reserving 33% of all seats in Parliament and State legislatures for women.
•Now, parliamentary legislation is often criticised for being hastily drafted and being rushed through Parliament in an ad hoc and haphazard manner. In 2008, for instance, 16 Bills were passed with less than 20 minutes of debate. The non-passage of private member Bills doesn’t help either. Only the second half of every Friday, during a parliamentary session, is devoted to debating private member Bills. To date, only 14 private member bills have been passed.
•We need a systematic approach to legislative engineering and prioritisation — the parliamentary committee, an unfashionable institution, long out of vogue, can assume institutional importance in this process. For a backbencher MP, such committees offer a place to raise issues in the general public interest and conduct advocacy amidst legislative engineering. As highlighted by the Law Ministry, we require a constitution committee. Instead of constitutional amendments being presented to Parliament like ordinary pieces of legislation in the form of Bills, often at short notice, it would be desirable to have the committee conduct an appropriate priori scrutiny before the actual drafting of the proposal for constitutional reform.
On debates and research
•Even the individual voting record of MPs remains unknown. With no record maintained of the voting record associated with each MP, it is difficult to distinguish their individual progressive or conservative nature, let alone their leadership abilities. Currently, the Anti-Defection Act punishes MPs who deviate from their parties’ stated position, with the risk of losing their seats.
•The Anti-Defection Act needs to be recast, and used only in the most exceptional circumstances, while allowing MPs free rein on their self-expression. The U.K., for example, has the concept of a free vote allowing MPs to vote as they wish on particular legislative items.
•In this context, most MPs have limited or no research staff, leaving them bereft of expert in-house advice — budgetary expenses allocated for their secretarial staff and constituency expenditure leave little for conducting primary research. Parliament’s Library and Reference, Research, Documentation and Information Service (LARRDIS) currently has a sanctioned strength of 231 staffers but employs 176, about 8% of the total strength of the Lok Sabha secretariat. In comparison, the Congressional Research Service, a part of the Library of the U.S. Congress, employs 600 people, of whom 400 are policy analysts, attorneys and sectoral experts, while the Congressional Budget Office has an additional 200 people. Other parliaments offer funds to hire research teams for MPs. Investing in Parliament’s intellectual capital is necessary and additional budgetary support should be provided to LARRDIS while assisting MPs in employing research staff.
•We also need an institutionalised process to raise the quality and rigour associated with the budget scrutiny process. India needs a parliamentary budget office, akin to the U.S. Congressional Budget Office, which can be an independent and impartial institution devoted to conducting a technical and objective analysis of any Bill with spending or revenue raising requirements. Other countries have led the way with such entities established in Kenya, South Africa, Morocco, the Philippines, Ghana and Thailand.
•India’s citizens need a more robust legislative system that offers public representatives — our MPs, Ministers and the Prime Minister — a greater sense of authority. However, one must stand wary against rank populism infecting our body politic. Parliament should be a space for policy and not for politics. We need to undertake reforms to ensure that it is recast as such.
