📰 The great American arms bazaar
Donald Trump’s attempt to rework the commercial-strategic equation spells an opportunity for India
•In a joint press conference with Norwegian Prime Minister Erna Solberg at the White House earlier this month, U.S. President Donald Trump made up the name of a non-existent fighter plane, “F-52,” while lauding the F-35 fighter sale in a new defence deal with America’s NATO ally. While the gaffe yielded a heavy round of Twitter humour at the expense of Mr. Trump, what has not been adequately noticed is the significance of weapons sales in his diplomatic pitch throughout. He has been an aggressive salesman for American defence manufacturers during his foreign tours and to visiting heads of foreign countries in his first year in office. Promoting the sale of U.S. arms could soon become a key result area for the country’s embassies around the world, according to a Reuters report earlier this month. Arms supply has been a key tool of U.S. strategy for years. Mr. Trump wants to make arms sale itself a strategy.
The existing policy
•Arms transfers by the U.S. happen primarily through Foreign Military Sales, Direct Commercial Sales, and Foreign Military Financing, all controlled by stringent laws, the most important of them being the Arms Export Control Act. The U.S. government sells defence equipment worth about $40 billion every year under Foreign Military Sales. Direct Commercial Sales are worth around $110 billion a year, in which a foreign buyer and the American seller negotiate the deal directly. Foreign Military Financing is done through American grants. Of the roughly $6 billion under that head, $3.7 billion goes to Israel each year. Egypt, Jordan and Pakistan have been other significant recipients of Foreign Military Financing in recent years, followed by 50 countries that receive smaller amounts totalling $1 billion. Arms supplies to foreign countries is critical to the U.S. for at least three reasons: it is a key leverage of global influence, it reduces the cost of procurement for the U.S. military by spreading the cost, and by employing 1.7 million people, the defence industry is a key component in the country’s economy and consequently, its politics.
•But the sale of weaponry, traditionally, is guided less by commercial considerations rather than strategic ones. The Bureau of Political-Military Affairs at the Department of State is the lynchpin of this process; the other players are the Department of Defence, the White House and the U.S. Congress. Each proposed sale is vetted on a case-by-case basis and approved “only if found to further U.S. foreign policy and national security interests”, according to the Bureau’s policy. The actual process of a sale could be long-winded, and could take months even after it is approved in principle, an example being the ongoing negotiations to acquire 22 Guardian drones for the Indian Navy from American manufacturer General Atomics.
•“We are very concerned that our partners have the ability to buy what they seek, within their means,” a U.S. official explained. “So we assess the capability. If someone asks for [the] F-35, we have to ensure that they have the money, the capability to operate it and protect the technology as well as we can. So if we conclude that we cannot sell F-35s, we have at least 10 different types of F-16 fighters that we match with the capability and importance of the partner country.” The process of initial assessment of selling arms to any country involves the State and Defence Departments. There are around 100 military officers attached to the State Department and around the same number of diplomats assigned to the Pentagon, who help in such decisions. It is also sought to ensure that the systems sold to one country do not end up with a third party.
•The White House, through the National Security Council, plays a key role in this process. Once all of them are on the same page on a particular proposal, Congressional leaders of the House and the Senate Committee on Foreign Relations are informally consulted. Once they are on board, the sale is formally notified. Significant sales require a tacit approval by lawmakers.
Changes Mr. Trump wants
•Mr. Trump has not hidden his disapproval for the American strategy, which he thinks has been a big failure. His views on defence partnerships are in line with this thinking. He wants to reduce the Foreign Military Financing to the least, except for Israel. He wants American partners to buy more weapons from it, and it is also a move towards reducing trade deficits with key partners such as South Korea and Japan. He is hammering NATO partners to ramp up defence spending and believes that all these partners have taken the U.S. for a ride. He has little patience for linking human rights to arms sales. The fact also is that the actual practice of American arms supplies does not often live up to its professed objectives. The Central Intelligence Agency’s clandestine weapons supplies for Syrian rebels reached the Islamic State and al-Qaeda for instance, and Mr. Trump has ordered the discontinuation of the programme. So, overall, the President is pushing for a liberalisation of U.S. arms sales to partner countries, guided less by any grand strategic vision, but by commercial and domestic political calculations. He is seeking to flip the equation between commercial and strategic calculations behind arms sales in favour of the first.
•The security establishment and Congress will not easily accede to major changes in existing U.S. laws in order to further Mr. Trump’s ideas. However, Mr. Trump holds the last word on defining what U.S. national interests are, and his thinking could turn out be an opportunity for India, one of the largest importers of major arms. India has bought $15 billion worth of defence equipment from the U.S. over the last decade, but Indian requests for arms often get entangled in the U.S. bureaucracy for multiple reasons. The honorific title of ‘major defence partner’ notwithstanding, the traditional American propensity to link sales to operational questions such as interoperability and larger strategic notions dampens possibilities. India’s robust defence partnership with Russia is a major irritant for American officials.
•If Mr. Trump manages to emphasise the commercial benefits of arms sales, and de-emphasise the strategic angle, it could lead to a change in the dynamics of the India-U.S. defence trade, and bilateral trade in general. India, always wary of military alliances, will be more comfortable with weapons purchases as commercial deals. For America, India could be a reliable, non-proliferating buyer of its arms. The U.S. also has a trade deficit with India. It was the out-of-the-box thinking of a President that led to the India-U.S. civil nuclear deal. With his unconventional thinking, could Mr. Trump offer F-35s to India?
📰 Visa work unaffected by shutdown: U.S. Embassy
Centres that host events and run libraries will remain shut
•Visa services will be operational at the U.S. Embassy here and the consulates, though the American centres functioning in a few cities will be closed because of the U.S. government shutdown.
•“If you have a scheduled visa interview or American Citizen Services appointment, please arrive at the embassy at your designated time,” said the U.S. Embassy spokesperson on Sunday evening, confirming that services will “continue to function during the lapse in Congressional appropriations”.
•The Trump administration, which marked one year in office, was paralysed from Friday midnight after the U.S. Senate failed to clear a funding Bill to finance the government, after a bitter standoff between Republicans and Democrats over immigration and spending could not be resolved in time.
•Shortly after the shutdown was declared, the American centre in Delhi and those in Chennai, Kolkata, Hyderabad and Mumbai, which host cultural events and operate libraries, put out statements announcing that they would “remain closed until further notice”.
Flights not affected
•Officials set a rest speculation that consular and visas services were also affected. Flights to and from the U.S. will also not be affected, but travellers may face longer visa processing time if the shutdown were to be prolonged. During the shutdown, essential U.S. federal services and military operations will continue, but thousands of workers will be suspended from government jobs, until the government is able to reach a deal with the Opposition.
📰 Time for clarity: on Doklam stand-off
The Centre must share details of what has been happening at Doklam
•Five months after the government claimed the victory of “quiet diplomacy” to bring the 73-day stand-off between Indian and Chinese troops at Doklam to an end, the contours of the actual agreement and events that have followed remain a mystery. On August 28, the Centre had issued a statement on a mutual decision for Indian and Chinese troops to disengage and withdraw from the part of the Doklam plateau disputed between China and Bhutan that had been the scene of the stand-off. A second statement from the Ministry of External Affairs the same day said the verification of the disengagement by both sides from the “face-off” point, which included the withdrawal of troops, road construction equipment and tents, was “almost complete”. However, last week the Army chief, General Bipin Rawat, said Chinese troops are in parts of Doklam they had hitherto not manned, and while the People’s Liberation Army infrastructure development was “temporary” in nature, “tents remain, observation posts remain” in the disputed area. The MEA, which had maintained that there was “no change” in the status quo, also appeared to shift position, saying that New Delhi was using “established mechanisms” to resolve misunderstandings over the Doklam issue. While discretion and quiet negotiations are useful, especially when sensitive matters along the India-China Line of Actual Control are being discussed, such divergence in public statements also fuels speculation that something deeper and more troubling exists on the ground. The government must verify if satellite photographs showing much more permanent infrastructure in north Doklam, not far from Indian posts, that are the subject of reports in the media, are accurate and whether they pose a new threat to India.
•Roiling matters further are the broader statements made in New Delhi last week. Speaking at the MEA’s annual Raisina Dialogue, Foreign Secretary S. Jaishankar put China’s rise first on a list of “major disruptors” in the region. General Rawat said that the “time has come” for India to “shift focus” from its western border with Pakistan to its northern border with China. This is bound to raise eyebrows given that the boundary with Pakistan has seen heavy shelling and rising military and civilian casualties in the past year. Similarly, Beijing’s latest belligerent statements that all of Doklam belongs to China and is under its “effective jurisdiction” could be indicators that the agreement announced in August is unravelling. If so, a Doklam-style troop build-up in the future must be avoided at all costs. It is imperative that the government proceed with caution in step and consistency in statement, and drop the ambiguity it has embraced since the Doklam stand-off began in June.
📰 Disqualification of AAP MLAs approved
After Presidential nod, AAP to explore legal options
•President Ram Nath Kovind on Sunday accepted the recommendation of the Election Commission to disqualify the 20 MLAs of the Aam Aadmi Party (AAP), the ruling party in the national capital, for holding offices of profit.
•A notification issued by the Law Ministry quoted the President as saying, “In the light of the opinion expressed by the Election Commission (EC), the 20 members of the Delhi legislative assembly have been disqualified.”
•The AAP MLAs were appointed as Parliamentary Secretaries and a petitioner in a complaint to the EC and the President in 2015 said that being a parliamentary secretary was holding an office of profit and this invited disqualification. After the President’s decision, the AAP said it would use all legal options available.
Request for meeting
•AAP Delhi convener Gopal Rai said the 20 MLAs had requested to meet the President to discuss the issue before his decision was announced on Sunday. However, they could not get an appointment as the President was “not available.”
•“We had requested a meeting for Sunday morning, but were denied, and now [Sunday afternoon] we get this news. We will approach the court and will hope for justice,” Mr. Rai said.
No remuneration
•A Parliamentary Secretary assists a Minister, and the office usually comes with perks as well as a measure of political influence. However, in a notification confirming the appointment of the 20 MLAs, the government had said no remuneration or perks would be given to the Parliamentary Secretaries.
•The 20 MLAs who are facing disqualification include Transport Minister Kailash Gehlot, who is the MLA from Najafgarh.
•“It is unfortunate that the President took the decision in such haste, without even giving us a chance to speak. It is a ploy by the Centre, using constitutional institutions to derail our government. But we will not give up. We have faith in the judiciary. The doors of the High Court and the Supreme Court are still open for us,” said Alka Lamba, representing from Chandni Chowk and one of the 20 disqualified MLAs.
•AAP spokesperson Saurabh Bharadwaj also questioned the speed at which the recommendation was accepted by the President.
•“The ‘speed’ at which the President delivered the 120-page order raises suspicion about many institutions. Wish the same speed while President & LG sit on legislations passed by Delhi Assembly,” tweeted Mr. Bharadwaj.
•The controversy started in 2015, when the AAP came to power with a whopping majority of 67 out of 70 seats and appointed 21 lawmakers as parliamentary secretaries. One out of these 21, Jarnail Singh, left his position to fight elections from Punjab.
•Though attempts were made to exclude the post of the parliamentary secretaries from the ambit of ‘office of profit’ by the Arvind Kejriwal government, former President Pranab Mukherjee refused to approve the proposal.
📰 Capacity building for primary health care
A pluralistic and integrated medical system remains a solution worth exploring
•A contentious element of the National Medical Commission (NMC) Bill 2017 — an attempt to revamp the medical education system in India to ensure an adequate supply of quality medical professionals — has been Section 49, Subsection 4 that proposes a joint sitting of the Commission, the Central Council of Homoeopathy and the Central Council of Indian Medicine. This sitting, referred to in Subsection 1, may “decide on approving specific bridge course that may be introduced for the practitioners of Homoeopathy and of Indian Systems of Medicine to enable them to prescribe such modern medicines at such level as may be prescribed.”
Missing the reality
•The debates around this issue have been ranging from writing-off the ability of Ayurveda, yoga and naturopathy, Unani, Siddha and homoeopathy (AYUSH) practitioners to cross-practise to highlighting current restrictions on allopathic practitioners from practising higher levels of caregiving. However, these debates miss the reality: which is a primary health system that is struggling with a below-par national physician-patient ratio (0.76 per 1,000 population, amongst the lowest in the world) due to a paucity of MBBS-trained primary-care physicians and the unwillingness of existing MBBS-trained physicians to serve remote/rural populations. Urban-rural disparities in physician availability in the face of an increasing burden of chronic diseases make health care in India both inequitable and expensive.
•Therefore, there is an urgent need for a trained cadre to provide accessible primary-care services that cover minor ailments, health promotion services, risk screening for early disease detection and appropriate referral linkages, and ensure that people receive care at a community level when they need it.
Issue of cross-prescription
•The issue of AYUSH cross-prescription has been a part of public health and policy discourse for over a decade, with the National Health Policy (NHP) 2017 calling for multi-dimensional mainstreaming of AYUSH physicians. There were 7.7 lakh registered AYUSH practitioners in 2016, according to National Health Profile 2017 data. Their current academic training also includes a conventional biomedical syllabus covering anatomy, physiology, pathology and biochemistry. Efforts to gather evidence on the capacity of licensed and bridge-trained AYUSH physicians to function as primary-care physicians have been under way in diverse field settings, and the call for a structured, capacity-building mechanism is merely the next logical step.
•The 4th Common Review Mission Report 2010 of the National Health Mission reports the utilisation of AYUSH physicians as medical officers in primary health centres (PHCs) in Assam, Chhattisgarh, Maharashtra, Madhya Pradesh and Uttarakhand as a human resource rationalisation strategy. In some cases, it was noted that while the supply of AYUSH physicians was high, a lack of appropriate training in allopathic drug dispensation was a deterrent to their utilisation in primary-care settings. Similarly, the 2013 Shailaja Chandra report on the status of Indian medicine and folk healing, commissioned by the Ministry of Health and Family Welfare, noted several instances in States where National Rural Health Mission-recruited AYUSH physicians were the sole care providers in PHCs and called for the appropriate skilling of this cadre to meet the demand for acute and emergency care at the primary level.
•Our own experience at the IKP Centre for Technologies in Public Health shows that there is hope. Here, the focus has been on deploying a capacity-building strategy using AYUSH physicians upskilled through a bridge-training programme, and the use of evidence-based protocols, supported by technology, to deliver quality, standardised primary health care to rural populations. Protocols cover minor acute ailments such as fever, upper respiratory tract infections, gastrointestinal conditions (diarrhoea, acidity), urological conditions, as well as proactive risk-screening. The Maharashtra government has led the way in implementing bridge training for capacity-building of licensed homoeopathy practitioners to cross-prescribe.
As anchors
•Capacity-building of licensed AYUSH practitioners through bridge training to meet India’s primary care needs is only one of the multi-pronged efforts required to meet the objective of achieving universal health coverage set out in NHP 2017. Current capacity-building efforts include other non-MBBS personnel such as nurses, auxiliary nurse midwives and rural medical assistants, thereby creating a cadre of mid-level service providers as anchors for the provision of comprehensive primary-care services at the proposed health and wellness centres. Further, the existing practice of using AYUSH physicians as medical officers in guideline-based national health programmes, a location-specific availability of this cadre to ensure uninterrupted care provision in certain resource-limited settings, as well as their current academic training that has primed them for cross-disciplinary learning hold promise. These provide a sufficient basis to explore the proposal of bridging their training to “enable them to prescribe such modern medicines at such level as may be prescribed”.
•Ensuing discussions will be well served to focus on substantive aspects of this solution: design and scope of the programme, implementation, monitoring and audit mechanisms, technology support, and the legal and regulatory framework. In the long run, a pluralistic and integrated medical system for India remains a solution worth exploring for both effective primary-care delivery and prevention of chronic and infectious diseases.
📰 Profit and loss: on AAP MLAs' disqualification
The disqualification of AAP MLAs is a legal question, not a political one
•The Election Commission’s advice to the President that 20 legislators of the ruling Aam Aadmi Party in Delhi are liable for disqualification will inevitably invite legal and political scrutiny. The party claims it was denied a hearing and alleges political motives behind the action. It has questioned the timing of the decision, just ahead of the Chief Election Commissioner’s retirement. Regardless of the charge of political malice, the correctness of the EC’s decision will be decided on legal grounds. The courts will have to rule on the question whether the post of parliamentary secretary, which these MLAs were holding, is an ‘office of profit’. They may also examine whether there was any violation of natural justice. Twenty-one MLAs were appointed parliamentary secretaries in March 2015. The Delhi High Court set aside the appointments in 2016 on the ground that the Lieutenant Governor had not given his approval. The EC has been hearing a complaint by an advocate that these legislators had incurred disqualification by holding these posts, which, he contended, were offices of profit. The key question was whether the post was an office of profit even after the Delhi government made it clear that parliamentary secretaries would not be eligible for any remuneration or perquisites. They were only allowed the use of government transport for official uses and office space in the respective ministries. The EC has answered the question in the affirmative, and the President has acted on it.
•Going by Supreme Court decisions, the test to decide whether a post is an office of profit is the role of the government in appointing and paying the person concerned. In Jaya Bachchan, the court said it was an office of profit even if one did not actually receive payment; it was enough if some pay was ‘receivable’. In Raman v. P.T.A. Rahim, the court said only posts that are capable of yielding pecuniary gains, as distinguished from compensatory allowances, would be offices of profit. It is indeed true that the Arvind Kejriwal regime is politically disadvantaged because, unlike State governments, it cannot make many decisions without the Lt. Governor’s concurrence. It could not pass, as States have done, legislation to save the post from disqualification. The President withheld assent to a law it passed without the LG’s nod. However, Mr. Kejriwal should have been mindful of the growing perception, as evident in several judicial decisions, that the post of parliamentary secretary is a way of getting around the constitutional limit on the size of ministries. He could have avoided controversy by not appointing MLAs in posts that involved an executive role. After all, there can be no dispute over the principle behind the bar on legislators holding such posts: that there be no conflict between their duty and their interest.
📰 O.P. Rawat to head poll panel
Takes over from A.K. Joti, will oversee polls in northeast, Karnataka, M.P. this year
•The Union Law Ministry on Sunday appointed seniormost Election Commissioner Om Prakash Rawat as the next Chief Election Commissioner (CEC) as the incumbent A.K. Joti will retire on Monday.
•Former Finance Secretary Ashok Lavasa was appointed as Election Commissioner to fill the vacancy created by Mr. Rawat’s elevation.
Crucial polls to follow
•Mr. Rawat, who will take charge on Tuesday, will have a tenure of almost a year till his retirement in December 2018. He will oversee elections in Tripura, Meghalaya and Nagaland scheduled next month.
•Crucial States like Karnataka, Madhya Pradesh, Rajasthan and Chhattisgarh will also go to the polls under his watch.
Sunil Arora next in line
•Sunil Arora, presently the second seniormost Election Commissioner, will continue until April 2021.
•As per convention, Mr. Arora will be the CEC during the 2019 Lok Sabha elections.
•Mr. Lavasa, due to demit office in October 2022, will be the Chief Election Commissioner after Mr. Arora.
•Election Commissioners have a fixed term of six years but have to step down if they reach 65 years of age before their term expires.
•A Madhya Pradesh cadre IAS officer, Mr. Rawat has served as secretary, Department of Public Enterprises in the Ministry of Heavy Industries.
Forest rights awardee
•Mr. Rawat had also served as principal secretary to Babu Lal Gaur, the former Chief Minister of Madhya Pradesh, between 2004 and 2006.
•Mr. Rawat has a post graduate degree in Social Development Planning from the United Kingdom, completed in 1989, and has been a recipient of the Madhya Pradesh Award for recognition of forest rights in 2009.
•Mr. Lavasa, before retiring as the finance secretary, served in the Ministries of Environment and Forests, Civil Aviation, Power, Home and Finance at the Centre and in the department of industries, tourism and public relations in his home cadre of Haryana.
📰 Poll panel cites SC rulings on office of profit
Says there is little to dispute that the office of Parliamentary Secretary is an office under the government
•Even as the Aam Aadmi Party (AAP) has criticised the Election Commission for not giving its MLAs a proper hearing, the panel has cited several rulings of the Supreme Court in its recommendation to the President that the 20 legislators be disqualified for holding office of profit.
•The recommendation said the Supreme Court in Maulana Abdul Shakur vs Rikhab Chand (1958) had defined the concept of office of profit under the government. The court said the government’s power to appoint a person to an office, or to keep him in that office, or revoke his appointment at its discretion, and payment from government revenues were important factors in determining if one held an office of profit. Payment from a source other than government revenue was not the decisive factor.
Various parameters
•In Pradyut Bordoloi vs Swapan Roy (2001), the Supreme Court outlined the following questions for the test: whether the government makes the appointment; whether the government has the right to remove or dismiss the holder; whether the government pays the remuneration; what are the functions of the holder; does he perform them for the government; and does the government exercise any control over the performance of those functions?
•Three other rulings were cited to highlight the grounds on which a distinction between the holder of an office of profit and of a post/service under the government could be made.
•In Guru Gobinda Basu vs Sankari Prasad Ghosal (1964), the court said: “But all these factors need not coexist. Mere absence of one of the factors may not negate the overall test. The decisive test for determining whether a person holds any office of profit under the government, the Constitution Bench holds, is the test of appointment; stress on other tests will depend on the facts of each case.”
•The court said the final query was, whether, on account of holding of such office, would the government be in a position to influence him so as to interfere with his independence in functioning as an MLA and/or would his holding of the two offices involve a conflict of interest.
•Citing the judgments, the EC said the AAP MLAs were appointed Parliamentary Secretaries by the Delhi government, which exercised control over them. The government had the power to remove them, their work was allocated by Ministers concerned as delegated authority and expenses of their office were paid from government revenues. The Commission concluded that there could be “no dispute that the office of Parliamentary Secretary was an office under the government.”
📰 A misleading story of job creation
India does not create 55 lakh new jobs every year, as claimed by a new report
•A recent research report titled “Towards a Payroll Reporting in India” authored by the Group Chief Economic Adviser of the State Bank of India and a professor from the Indian Institute of Management, Bangalore has caught the media’s and the Prime Minister’s fancy. Ostensibly, the main objective of the report was to make a case for a better payroll reporting system in India, which is perfectly justified and needed. But, along the way, it also made an extravagant claim that 55 lakh new jobs are created every year in India. Unsurprisingly, the Prime Minister ignored the case for a better payroll system but pounced on the 55 lakh new jobs number, citing it to claim in an interview that his government is doing a splendid job in creating new jobs. Unfortunately, it is a case of data analysis gone berserk. The celebrations are completely unjustified.
Flaws in analysis
•How did the report arrive at the 55 lakh new jobs number? It used data from the Employees’ Provident Fund Organisation (EPFO) which registers employees from the formal sector for provident fund benefits. It found that as of November 2017, there were 36.8 lakh new members in the age group of 18-25 years who registered with the EPFO vis-à-vis the previous year. It assumed that any 18- to 25-year-old registering with the EPFO implies that he or she found a new job in the organised sector. It then extrapolated this November 2017 data to the full year of FY-2018 and boldly claimed that 55.2 lakh new jobs were created in FY-2018.
•It doesn’t take much to realise the flaws in this analysis: New 18- to 25-year-old EPFO members do not automatically mean net new jobs in the economy; an informal job that turns formal with an EPFO registration does not mean it is a new job; cherry-picking an EPFO data point and post-demonetisation/Goods and Services Tax (GST) time frames lead to these grossly misleading conclusions.
•The Indian economy was subjected to massive external forces of formalisation by the twin forces of demonetisation in FY-2017 and the GST in FY-2018. As we know through numerous surveys, demonetisation resulted in thousands of employers retrenching a large part of their informal workforce paid in cash and registering the remaining employees as formal workers with benefits such as provident fund. This upheaval will show up as new formal jobs in the EPFO data set but it does not mean net new jobs were created. The study does not adjust for these effects. This was the phenomenon that played out post-demonetisation in FY-2017.
•Next came the GST-induced formalisation in FY-2018. The GST by design was a policy of formalisation of the Indian economy through a networked system of tax credits which could be claimed only if the business was formally registered under the GST. It is then likely that the GST coerced thousands of small and medium businesses in the country to transition at least a part of their workforce from informal to formal employment. The costs of formalisation may have resulted in many firms cutting costs or even shutting down. The EPFO methodology does not capture any of these costs of forced formalisation but merely showcases the new formal employees as new jobs. In other words, if, say, for every five informal employees, four lost their jobs due to the GST and demonetisation and one became formal, this study will count it as one new job created. Instead, the truth would be that four jobs were lost and one job turned formal from informal, not new. Thus, the study conflates what could be formalisation gains with new jobs.
•It is well-known that when an employee loses her job or stops working, her membership from the EPFO database is not removed automatically. So, the EPFO data set may reflect new additions accurately but not deletions, i.e. job losses. When we talk of new jobs in the economy, we usually mean net new jobs, not gross jobs. So, it is somewhat misleading to claim that the economy has “created 55 lakh new jobs” when we do not know how many lost their existing jobs.
•If one had to truly separate out GST- and demonetisation-induced formalisation effects, then the study should have compared the EPFO numbers of FY-2016 and FY-2015. We did exactly that. And what did we find? In FY-2015, the total number of contributing EPFO members grew 7%. In FY-2016, it grew 8%. But after demonetisation, in FY-2017, it grew 20% and by December 2017, it had grown a further 23%. Are we then saying that the Modi government did not produce enough jobs in the first two years but, miraculously, after demonetisation and the GST, there were jobs galore, as per the same EPFO data set? Cherry-picking data points (EPFO data) and time periods (FY-2017 and FY-2018) are old, time-tested statistical tricks to arrive at fallacious conclusions.
Accumulated deposits in banks
•Let us understand this with another example. It is generally agreed that growth in total accumulated deposits in banks is an indicator of the robustness of the economy. The total number of deposits in all banks in India was ₹6.22 lakh crore at the end of FY-2016. By the end of FY-2017, bank deposits had grown to nearly ₹11 lakh crore, a 76% increase of ₹4.8 lakh crore. Can we then infer that Indians grew substantially richer in FY-2017 and the overall economy is very robust? Obviously not because demonetisation forced people to deposit their currency into banks which is why bank deposits grew in FY-2017. Instead, if we combine the value of currency and bank deposits and compare, we find that there is actually a 5% decline in FY-2017, not a 76% increase! So, if we cherry-picked just bank deposits as a data point and chose the time frame as FY-2017, we could have shown that Indians had become inordinately richer. That does not mean it is true. This is what the EPFO study does in making a case for 55 lakh new jobs in FY-2018. It neither accounts for job losses nor adjusts for induced formalisation. It is patently false and misleading.
•India’s jobs situation is a very grim challenge that must be acknowledged, confronted and for which we must debate solutions. All evidence, confirmed by both governmental agencies and analysis by independent organisations like the Centre for Monitoring of Indian Economy and well-known labour economists, have clearly demonstrated how growth in new jobs (formal and informal) has slowed down dramatically. A serious issue such as lack of jobs for millions of youth cannot be wished away by hiding behind misleading data analysis and a media spin.
📰 A Budget less cluttered
With little to do on indirect taxes, the Budget can now focus on aspects of govt. finance that matter
•As a watershed tax reform, Goods and Services Tax (GST) promised to have a profound impact on India’s budget-making exercise. The debut year has proved something of a disappointment. But as teething troubles with the new tax regime are addressed, there are three key areas where its reformative impact on the budget process may be felt.
•One reason why Indian Finance Ministers (FMs) have such a tough time balancing their budgets is the our narrow tax base. While a crackdown is on to identify evaders, the GST was expected to expand the indirect tax base and plug leaks in the indirect tax compliance structure.
Wider tax base
•The GST was expected to deliver an expansion in the indirect tax base, sweeping more small and mid-sized businesses under its ambit, compared with the excise duty regime. It mandates registration for all entities with an annual turnover of ₹20 lakh or above. To ensure better compliance, GST has a self-policing mechanism by way of invoice matching of supplies by every registered assessee, a reverse charge mechanism for unregistered suppliers and e-way bills to check under-invoicing.
•So has GST managed to net new taxpayers? It started off well by reporting 72 lakh registrations at the outset, which has steadily climbed to 99 lakh by December 2017. While the bulk of these numbers came from the automatic migration of erstwhile state VAT, excise and service tax assessees to the GST network, government estimates suggested that about 18 lakh new assessees had registered afresh. The GST tax base of 99 lakh is prima facie a good number, given that the combined taxpayer base under all the taxes that GST subsumed (excise, service tax, VAT, sales et al) was estimated at 75-80 lakh.
•But the larger base, so far, hasn’t translated into a fatter indirect tax kitty. Government releases suggest that GST collections started off with a bang in July 2017 at ₹92,283 crore, but have ended with a whimper, with monthly collections at ₹80,808 crore for November 2017. These are subject to later revisions too, based on input and transitional credit claims and refunds.
•One explanation for the falling collections in recent months is the wide-ranging cuts in GST rates that the GST Council has effected recently to pre-empt any inflationary impact from the tax change. In November, for instance, rates on 177 items were slashed from 28% to 18%. Some official estimates have placed the revenue foregone due to these rate cuts at ₹20,000 crore a year.
•The other reason for moderating collections though, is lacklustre compliance. Even as registrations have been growing significantly, the number of GST return filers has dwindled from about 59 lakh in July to 53 lakh for November. Excluding taxpayers under the composition scheme who are supposed to file their returns only on a quarterly basis, this suggests that less than two-thirds of registered 99 lakh entities, are filing their returns and paying the tax due.
•With filers dwindling and rates declining, GST collections have predictably headed south. With the monthly run rate on collections for the first five months of FY18 at about ₹88,000 crore, doubts are now emerging as to whether GST will even match the taxes it has subsumed this year. While there are no official targets for this year, analyst estimates suggest GST will have to mop up anywhere from ₹10 lakh crore to ₹12 lakh crore for FY18, for the fisc to remain revenue neutral.
•Glitches in the GST network which prompted the Council to relax some of its compliance requirements may have contributed to falling return filings in recent months. Therefore, the key to fixing the shortfall in collections may be for the GST Council to focus on the compliance in the coming months. It can either reinstate the policing mechanisms that have been deferred, or bite the bullet to selectively raise GST rates.
Better forecasting
•In the pre-GST era, indirect tax targets in Union Budgets relied heavily on qualitative judgments and extrapolations of previous year’s numbers. Every year, ahead of the Budget, the CBEC would compile sector-wise indirect tax collections for the previous year and source growth projections from respective Ministries to arrive at its forecasts for the next year.
•The Finance Ministry would then put together the forecasts from CBEC and CBDT and arrive at its numbers, with (often sizeable) tweaks to ensure that the fiscal math added up. But the problem with this approach was that actual revenues for the year often fell short, leading to a last-minute scramble and aggression on collections. While the Central budget at least used estimates, State budgets were a complete black box. By unifying central and State levies, GST is expected to render budget revenue forecasts more reliable. The monthly return filings are designed to give the FM a real-time handle on collections, with rich data to assess compliance.
•But while GST can help the FM arrive at better forecasts in the long run, transitional issues in GST have made this year’s budget exercise more challenging. The 2017 Budget had to skip GST targets as the law was still in the making, and presented numbers for excise and service taxes alone. The Budget may now have to sum up excise/service tax mop-ups until June, patching on GST collections from July to measure the annual mop-up.
•The targeted GST number is also shrouded in mystery due to lack of data on State VATs and fluidity in GST rates. It is unlikely that all the tangles will be sorted out by February 1 for a clear picture of the real potential of GST to emerge. Hopefully, the next fiscal will bring clarity.
•In India, one aspect of the annual budget spectacle is industry groups lobbying for indirect tax cuts. The FM, after considering conflicting demands, doled out cuts or effected increases, with the stock markets eagerly hanging on to his every word. But with excise duty and service tax now under GST and the decision-making powers on rates vesting with the Council, the FM may have limited room for such giveaways.
•Budget speeches from now on may have to dwell more on direct taxes and basic customs duty changes. And yes, products still outside the GST ambit (alcohol, fuel and energy, land) offer scope for rate changes.
•But then, this may be a good development from a policy perspective. Without all the trimming and tucking on rates, the Budget exercise can now focus on aspects of government finance that really matter — measuring the outcomes of allocations made in previous budgets, changing the skewed capital-revenue mix of the fisc, reforming the draconian tax administration and attacking the bloat in unproductive revenue expenditure.
📰 Flawed fiscal policy favours the affluent
•“To hunt crocodiles, water was drained from a pond. While crocodiles were not found as they had moved up to land, the smaller fish died.” — from a school magazine
•The Union Budget will be presented soon. The twin disruptions of demonetisation and GST have left the poor in India poorer and the rich, richer. This is no empty rhetoric of a roadside romantic. These are the findings of the World Inequality Report 2018 released recently. The the top 1% income earners received 6% of the total income in the early 1980s; it went up to 15% in 2000 and today stands at 22%. IMF research papers give country-wise figures of the share of the billionaires in the GDP of each country.
•The worth of dollar billionaires is most skewed in Russia, the U.S. and India which are home to a substantial number of billionaires. The World Inequality Report points out that inequality actually declined in China in the past decade and growth was faster compared to India. China’s per capita income was five times that of India in 2016.
•Data from India’s Income Tax department showed that 59,830 individuals reported gross total income more than ₹1 crore. Over 30,500 individuals reported earning salary income of over ₹1 crore. Five individuals reported earning salary income between ₹100 crores and ₹500 crore. Thirty two persons showed gross total income over ₹100 crore. Only one individual showed the income over ₹500 crore.
•French economist Thomas Pikkety, in his ‘Capital In The 21st Century’ analysed data from 20 countries over the past three centuries. In page 491 of his classic, he attributes the reason for growing inequality in India to the low tax to GDP ratio. Fiscal policies fail to reduce inequality levels because of low tax to GDP ratio.
•Agricultural income is not taxed with 2,746 cases showing agricultural income of ₹1 crore and more in the last seven years.
•Tax on the super-rich is a flea bite. There should be a separate, higher rate for the super-rich instead of a surcharge.
•The 10% tax on dividends above ₹10 lakh is a mirage; it should have been at least 25% with exemption for dividends up to ₹10,000.
•Additional resource mobilisation is concentrated on indirect taxes with a slew of relief measures in direct taxes, benefiting only the rich.
•The stock market boom calls for revisiting the present policy of exempting long term capital gains on shares held for 12 months and more. India’s market to GDP ratio stands at 104%.
•Inheritance tax, abolished in 1987, should be reintroduced.
📰 ‘Develop a U.S.-style online platform to sell bad loans’
Banks have over ₹10 tn in dud assets
•The Reserve Bank of India (RBI) has called for putting in place an online trading platform on the lines of the system in the U.S., to sell distressed assets to ensure more transparency and better price-discovery.
•Deputy Governor Viral Acharya has opined that such a platform could help create a thriving market for selling bad loans, which is plaguing the domestic banking system, and asked all the stakeholders to come together to develop such a mechanism.
•The banking system is saddled with more than ₹10 trillion worth of bad loans as of September, 2017.
•Following a massive spike in stressed assets, the RBI has, since last June, identified 40 largest stressed accounts and asked banks to refer them to various debt recovery tribunals.
•These 40 accounts, which include Essar Steel, Bhushan Steel, Bhushan Power, Amtek Auto, Videocon Industries and JP Infra among others, constitute as much as 40% of this ₹10 trillion dud loans.
•In the financial stability report released recently, the central bank had warned that the bad loans could spike to 10.8% by March and 11.1% by September, 2018.
•“The Indian Banks Association, Association of Asset Reconstruction Companies [Arcon] and the credit rating agencies can come together to set up what could be the equivalent to the Loan Syndication and Trading Association (LSTA) in the United States,” Dr. Acharya told a summit hosted by the industry lobby Assocham here.
•The Loan Syndication and Trading Association is a loan syndication and trading system which provides disclosure on credit events, digitisation of loans and legal documents apart from providing an online bidding platform for the sale of such assets, Dr. Acharya said.
Industry standard
•“My recommendation to you, or at least what I would encourage you, is to discuss whether there is value to building something like this or not. The U.S. and South Korea have built such platforms during their banking crises and then it became an industry standard for doing loan sales thereafter,” the Deputy Governor noted.
•Dr. Acharya said it was in the interest of banks to create primary market liquidity to offload loans and probably in the interest of asset reconstruction companies to have a secondary market for such assets.
•If such a platform is developed, then loan sales can occur for risk transfer, perhaps, prior to default or becoming an NPA because, maybe somebody wants to come in even before an (Insolvency and Bankruptcy Code (IBC) filing takes place.
📰 Syndicates target cash hoarders
Well-oiled ring offering to change old notes for a hefty commission, say officials
•The government's decision to scrap Rs. 500 and Rs. 1,000 notes in 2016 has led to the creation of a space for police acting as complainants in multiple cases of ‘cheating.’ The cash haul in Uttar Pradesh last week, where 16 people were arrested for allegedly storing scrapped Rs. 500 and Rs. 1,000 notes worth Rs. 96 crore is a case in point.
•The tip-off was provided by the National Investigation Agency (NIA) and the accused were booked for cheating with the police as the complainant.
•As per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, a person can only be fined for storing old currency notes and it’s a non-cognisable offence.
•On November 8, 2016 Prime Minister Narendra Modi in a televised address to the nation had announced that the Rs. 500 and Rs. 1000 notes were no longer valid. He described the move as a measure to address black money hoarding and to curb terrorist activities.
•Officials say they have identified a well-oiled ring that was offering to change the old currency notes for new ones for a hefty commission.
•With no one to complain in such cases, the police are registering the case on their own.
•Anurag Arya, Superintendent of Police, Kanpur (East) where the arrests were made said one of the accused, Anand Khatri, a sari shop owner had stored the notes at his house and had been collecting them for the past six months. The money belonged to Khatri, Santosh Yadav and Mohit.
•Asked who they were cheating as the money belonged to them, Mr. Arya said, “It is cheating because they were making people believe that they would get the notes exchanged when there was no way of doing it. They were basically fooling people that they could do it after charging a commission of 30-40% of the value of the old notes. The RBI doesn’t provide any such window.”
Provision for penalty
•As per Section 7 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, “whoever contravenes the provisions of section 5 shall be punishable with fine which may extend to ten thousand rupees or five times the amount of the face value of the bank notes involved in the contravention.”
•Security agencies have picked up phone conversations of money launderers who were using terminologies like “receipt and revert, second channel, VP Slot and U-Turn” as various methods to launder money through the banking system.
•“These code words are a mystery to us as well. The exchange of old currency notes through fraudulent means stopped in March 2017. The recent recoveries have all been cases of cheating,” said the official.
•The Income Tax Department and State police officials said they had identified several such agents in Delhi, Haryana, Gujarat, Maharashtra, West Bengal, Andhra Pradesh and Karnataka who were contacting people who had hoarded cash.
•Another official said these agents claimed to have a contact in the RBI who would assist them in getting new notes.
•“There are several syndicates of cheats who are taking advantage of all those who had stored old currency notes. For a commission, they offer to change the old notes for new ones through some source they claim to have in RBI,” said an official.
•He said that several cash hoarders had retained their stock in the hope that the government would allow a short window some day to exchange the old notes.
•Another official said attempts were also being made through Temple Trusts for this purpose.
Terror link
•On November 7 last year, the NIA arrested 10 people and recovered over Rs. 36 crore in old notes.
•It claimed the seizures were made in connection with an ongoing probe in the J&K terror funding case where several second-rung separatists were arrested. A senior NIA official said they are yet to link the demonetised currency to the J&K terror funding case.
•Explaining the money laundering method, an official said, “VP Slot probably means that two VPs of two banks will sit on their systems at the same half hour slot and then large sums of 100 cr etc will be transferred without being recorded on the database.”
📰 India can strike across the borders: Rajnath
The Home Minister's comments came days after Indian troops carried out retaliatory action against Pakistani troops.
•Home Minister Rajnath Singh on Sunday warned Pakistan that India can kill its enemies not only within its borders but also across, even as violence along the Jammu and Kashmir border continued to climb. Holding Pakistan responsible for the poor bilateral relations, Mr. Singh told a public gathering in Lucknow, “We want to maintain good relations with our neighbour but they don’t stop doing mischief. We have given a strong message to the world that India can kill its enemies not only on this side, but on that side of the border as well.”
Retaliatory action
•His comments came days after Indian troops carried out retaliatory action against Pakistani troops, in which seven of their soldiers were killed and four injured in Poonch. Mr. Singh saif that a few months ago, Pakistan attacked and martyred 17 Indian jawans.
•“Prime Minister Narendra Modi consulted all of us on this serious issue, and the Indian Army entered the Pakistani area and killed the militants,” the Home Minister said.
•Meanwhile, concern is rising across the security establishment over the worsening situation along the Indo-Pakistan border, where casualties from cross-border firing have now climbed beyond all recent trends.
•“There seems to be no strategy at all. The situation is getting out of hand, ceasefire is as good as it is over,” a former intelligence agency chief said, as yet another soldier was killed along the border.
•The Army said Signalman Chandan Kumar Rai was grievously injured in Mendhar sector along the Line of Control on Saturday, and he succumbed to his injuries on Sunday. It said Pakistani Army initiated “unprovoked and indiscriminate firing of mortars, small arms and automatics” from 4.20 p.m. on Saturday.
•The Pakistan Foreign Office meanwhile summoned Indian deputy high commissioner J.P. Singh to Islamabad and condemned the “unprovoked ceasefire violations” by Indian troops.
•It said 18 Indian posts resorted to “unprovoked firing with mortars and heavy weapons”, resulting in the death of two civilians on its side, and injury to a few others.
•“The repeated ceasefire violations by India are a threat to regional peace and security and may lead to a strategic miscalculation,” Pakistan warned.
Worsening situation
•The situation along the border continued to be volatile for the fourth day on Sunday, with 11 people dead and at least 15 people including two security personnel injured in Pakistani firing in January. In 2017, the region saw 12 deaths.
•Over 20,000 people living in border villages have been shifted to safer localities because of the continuing firing along the border. Nearly 500 schools within five kilometres of the border in Jammu region have also been shut down for the next three days.
📰 Artificial Intelligence is making inroads into tourism sector
Hotels are hoping to use artificial intelligence to get better knowledge of their clients via personal data provided on reservation or “beacon” technology
•A hotel room automatically adjusting to the tastes of each guest, virtual reality headsets as brochures: the tourism sector is starting to embrace new technologies, hoping to benefit from lucrative personal data.
•In a prototype of the hotel of the future on display at Madrid’s Fitur tourism fair, receptionists have disappeared and customers are checked-in via a mirror equipped with facial recognition.
•Once the client is identified, the room adapts itself automatically to all demands made at reservation: temperature, lighting, Picasso or Van Gogh in the digital frames hanging on the walls. “Technology will allow us to know what the client needs before he even knows he wants it,” says Alvaro Carrillo de Albornoz, head of Spain’s Hotel Technology Institute.
Tracking guests
•Some hotels already offer such experiences at a more basic level. But the room prototype put on show by French technology consultancy Altran, aimed at luxury hotels, has incorporated cutting-edge speech recognition technology, allowing for instance a guest to order a pizza in 40 languages.
•“Even the lock is intelligent — it opens and closes via the WhatsApp application on the client’s phone,” says Carlos Mendez, head of innovation at Altran.
•The mttress is equipped with sensors and records the movements of those sleeping, which could prompt hotel staff to offer them a coffee when they wake up.
•Generally speaking, hotels are hoping to use artificial intelligence (AI) to get better knowledge of their clients via personal data provided on reservation or “beacon” technology used once the client is in the hotel or resort.
•Restricted in some countries, the latter involves placing a beacon in the hotel that will detect customers’ smartphones, meaning they will know how much time they spend in their rooms, for instance, or at what time they go to the pool.
AI algorithms
•Fed with this data, AI algorithms will get to work, determining what the clients’ habits are to lure them back again by offering a tailor-made experience, or sell them additional products.
•If the algorithm “knows that when you come to the hotel with your wife, you don’t eat at the restaurant but order room service, it will propose a special room menu with a bottle of champagne,” says Mr. Carrillo. “But if you come with your entire family, it will propose a reduction on kids’ menus.”
•For Rodrigo Martinez, head of consultancy Hotel Servicers, these technological tools could also help improve hotels’ productivity. “All purchases can be made automatic,” he says.
•“For instance, if a huge amount of Brits are coming, the system will know that it has to order more bacon.”
Virtual reality
•Manufacturers of virtual reality (VR) headsets are also jumping onto the bandwagon. At various Fitur stands, visitors are able to immerse themselves in the streets of Marrakech or amble along a portion of the Santiago de Compostela pilgrims’ trail.
•“We’re in a completely pioneering phase,” says Marcial Correal, head of the Spanish association for virtual travel agencies, who is promoting this tool to tourism professionals as the brochure of the future, without too much success so far. “Professionals say ‘how amazing’ but they don’t buy it. It’s not in their marketing budget priorities.”
•Headsets themselves are not too pricey, between 50 and 600 euros , says Cesar Urbina of virtual reality agency Iralta. “Then there’s content production, a little more than a normal video — from 2,000 euros up to 150,000 euros.”
•Hotel chain Palladium, however, has decided to give it a go. Its salespeople no longer have paper brochures on them to present their hotels to travel agents, they carry virtual reality headsets.
📰 New ‘tattoo’ lets you control objects remotely
Provides a ‘sixth sense’ for magnetic fields
•Scientists have developed ultrathin electronic skin tattoos that can help control virtual and physical objects with mere hand gestures. The extremely thin, almost invisible foil that sticks to the palm of the hand like a second skin, have sensors which provide people with a “sixth sense” for magnetic fields.
•These sensors will enable people to manipulate everyday objects or control appliances with mere gestures, similar to how we use a smartphone now.
•“Our electronic skin traces the movement of a hand, for example, by changing its position with respect to the external magnetic field of a permanent magnet,” said Canon Bermudez of Helmholtz-Zentrum Dresden-Rossendorf (HZDR) in Germany.
•“This not only means that we can digitise its rotations and translate them to the virtual world but also even influence objects there,” said Mr. Bermudez, lead author of the study.
•Using this technique, the researchers managed to control a virtual light bulb on a computer screen in a touchless way.
•They associated the angle between the wearable sensor and the magnetic source with a control parameter. “By coding the angles between 0 and 180 degrees so that they corresponded to a typical hand movement when adjusting a lamp, we created a dimmer and controlled it just with a hand movement over the permanent magnet,” said Denys Makarov from HZDR.
