📰 Export Import Bank of India, Sri Lanka sign $500-million loan agreement
The Sri Lankan government is expected to invite bids from Indian suppliers soon to finalise its import
•The Export Import Bank (EXIM) of India and the Government of Sri Lanka on Wednesday signed a $500- million Line of Credit agreement aimed at helping Sri Lanka cope with its current fuel shortages, amid one of the worst economic meltdowns facing the island nation.
•New Delhi’s support for fuel imports — by Sri Lanka from India — through the Line of Credit, is in response to Colombo’s “urgent requirement”, according to a statement from the Indian High Commission in Colombo. “This critical support comes in the wake of a virtual meeting between the External Affairs Minister of India S. Jaishankar and Sri Lanka’s Minister of Finance Basil Rajapaksa, held on January 15,” said the official statement released on Wednesday. Days after the meeting, India made the announcement confirming the emergency loan.
•Official sources indicated that the Line of Credit spans a year, and comes at a “nominal” interest rate, of under 2%. The Sri Lankan government is expected to invite bids from Indian suppliers soon to finalise its import. Amid Sri Lanka’s persisting dollar crisis, the country’s ability to import fuel has been severely affected, leading to frequent reports of shortages, as well as power failures.
•On January 13, India extended a $400 million currency swap to Sri Lanka, while also deferring another $500 million due for settlement to the Asian Clearing Union (ACU), to help the island nation cope with its dollar crunch. Further to the $900 million extended then, and the emergency credit for fuel imports now, both governments are in talks for another $ 1 billion assistance that Colombo has sought from New Delhi, at a time when the island nation faces an unprecedented economic crisis.
Young witnesses to use virtual services
•India’s status as a “technological powerhouse” is in jeopardy if it cannot use technology to protect its children, the Supreme Court observed while directing that videoconferencing facilities be established across the country for child witnesses, especially victims of trafficking, to remotely testify against their attackers.
•The order came in a plea that victims of child trafficking, mostly based in far-flung and under-developed areas of the country, should not be made to travel long distances during the COVID pandemic to trial courts, usually located in metros, where they were brought and held by their captors.
•The court highlighted how the pandemic had put more children out of school and into forced labour. Cases of child trafficking and abuse were bound to rise. Judiciary had to be prepared.
•The court said videoconferencing facility for child witnesses should not be limited to the pandemic period alone, but should be a regular feature in cases involving child witnesses. Virtual recording of evidence should be held in-camera whenever necessary.
Standard procedure
•The court confirmed a standard operating procedure (SOP) prepared by its amicus curiae, advocate Gaurav Agrawal, and senior advocate Anita Shenoy, for recording the evidence of child witnesses through videoconferencing. The apex court said the High Courts too, on consultation, had given their nod to the SOP.
•According to this SOP, a child can testify either at the ‘court point’, that is, cities or places where the trial has to take place, or at the ‘remote point’, which is his or her place of residence.
Safeguards
•The SOP said that the videoconferencing facility should be created in every district, especially in States where incidence of child trafficking cases are high.
•Other safeguards prescribed by the SOP include compliance of the “best practices” mandated by the Protection of Children from Sexual Offences Rules, 2020, while recording the evidence of child witnesses.
•These will include ensuring that the child witness is provided diet money on the basis of the distance travelled by him or her to reach the remote point, the presence of a police officer at the remote point to make certain that the child witness does not come in contact with the accused (if out on bail) or any relative of the accused, etc.
•It quoted past judgments to emphasise that innovative steps using communication technology should be encouraged in justice administration.
📰 Imperial excess: On Governors and limits
Governors must work within constitutional parameters, not as agents of the Centre
•West Bengal Chief Minister Mamata Banerjee’s outburst against Governor Jagdeep Dhankhar on Monday was not a first but it brought to the fore, yet again, the role of the Governor in relation with the elected government and legislature. Mr. Dhankhar and his counterparts in Tamil Nadu and Maharashtra appear to be testing the limits of their power and confronting the elected governments and legislatures in recent weeks. Tired of Mr. Dhankhar’s constant tirade against her on Twitter, Ms. Banerjee blocked him on the platform. The Governor then sent her a message for “dialogue and harmony amongst constitutional functionaries” but promptly posted that too on Twitter. The Chief Minister said the Governor was trying to treat the elected government as “bonded labour”. He has been summoning the Chief Secretary and the Director General of Police on a regular basis, and when they do not turn up, taking to Twitter and often tagging the Chief Minister. Mr. Dhankhar also had a run-in with Assembly Speaker Biman Banerjee recently, on the premises of the State Assembly. He has withheld assent to the Howrah Municipal Corporation (Amendment) Bill 2021, delaying polls to the civic body. He has made allegations of impropriety in welfare schemes, questioned Government claims about investments in the State, and taken up the cudgels for the Opposition BJP.
•In Maharashtra, Governor Bhagat Singh Koshyari has stalled the election of Speaker since the post fell vacant in February 2021. He has taken umbrage over the amendments in the legislative rules for holding the Speaker’s election through voice vote instead of secret ballot. The Governor’s view that the State Assembly cannot decide its own rules is unacceptable to the ruling coalition, but is being cheered by the Opposition BJP. Mr. Koshyari had in the past batted for the BJP, supporting its demand for a special session of the Assembly on women’s safety and security. He had refused to accept the recommendation of the Council of Ministers on the nomination of 12 members to the Legislative Council, until the matter reached the High Court. In Tamil Nadu, Governor R.N. Ravi has not acted upon the T.N. Admission to Undergraduate Medical Degree Courses Bill, adopted by the Assembly in September 2021. The Governor is required to either send it to the President of India for approval or return it for reconsideration by the Assembly, but the indefinite delay in taking a decision amounts to undermining the legislature, and is unjustifiable. The Bill relates to a question of State-Centre relations, as it proposes to dispense with the National Eligibility cum Entrance Test (NEET) for medical graduate admissions in the State. NEET has been criticised for curtailing State powers, and the Governor’s delay in processing the Bill is only aggravating the situation. Some of these issues may require debate and discussion before resolution. But any imperial overtone of Governors can only do harm to the constitutional scheme of things.
📰 Ink India-Britain free trade, unlock new opportunity
There are good economic and strategic reasons for an FTA that will spell many opportunities for both countries
•In May last year, Prime Ministers Narendra Modi and Boris Johnson announced their shared vision for a transformative decade for the India-United Kingdom partnership. That they met in the middle of India’s second wave of COVID-19, shows their determination to turn their shared political will into action. As part of that transformation, the two leaders declared their ambition to more than double bilateral trade by 2030, which totalled over £23 billion in 2019. They directed their governments to take rapid steps to reduce barriers to trade, and to complete the groundwork necessary to begin work on a Free Trade Agreement (FTA) by the end of 2021.
A beginning
•These words have now been made real. Both governments have already taken action; for example, unlocking the export of British apples to India and enabling a greater number of Indian fisheries to export shrimp to the U.K. Small but meaningful steps by which both countries have demonstrated they can and have taken concrete measures to stimulate growth.
•The big next step was the launch of FTA negotiations last month. On January 13, 2022 in New Delhi, India’s Commerce Minister Piyush Goyal and the U.K.’s International Trade Secretary Anne-Marie Trevelyan announced their shared ambition to finish negotiations on a comprehensive and balanced FTA by the end of 2022. This is a big task; all trade negotiations are complex, and especially so between two partners of such different sizes and at such different stages of their development. The opportunities an FTA presents, however, are bigger — for both countries.
Businesses in both nations
•Before looking at the future, it is worth taking stock of the present. There are nearly 600 U.K. companies in India employing more than 3,20,000 people. This includes: Barclays which has its biggest office outside of London in Pune, whilst JCB’s products manufactured in India are exported to over 110 countries across the globe, as are those by consumer goods giant Hindustan Unilever headquartered in Mumbai; just two of many examples of British companies supporting Prime Minister Modi’s vision for an Atmanirbhar Bharat.
•Similarly, India is already a big investor into the U.K. — especially in dynamic sectors such as fintech, electric vehicles and batteries. In 2020-21, India was the U.K.’s second largest source of investment in terms of number of projects. Just last week, both Essar Group and Ola Electric announced investments into the U.K. But given the size of our two economies — the fifth and sixth in the world — our trade relationship in particular has underperformed. An FTA will change that.
•The U.K. thrives on free trade. Having left the European Union’s common trade bloc after 47 years (in 2020), we are building a network of like-minded democracies committed to free trade. The Indian government is showing its determination to agree to a new set of trade deals; and it is not coincidental that both governments are negotiating with similar countries, for example, Australia. India has an extraordinary opportunity to transform its economy and society in the next 30 years, as it hits its demographic sweet spot, at the heart of the Indo-Pacific region where half the world’s people live and 50% of global economic growth is produced. Freer trade with the U.K. will help through greater access to a highly open and competitive market, offering valuable opportunities for India’s booming companies — for example giving Bengaluru’s start-ups direct access to London’s capital markets.
Fine prospects
•A U.K.-India trade agreement will stimulate growth and employment in both countries. U.K. government analysis shows that, depending on the depth of the deal, an FTA would add around £14.8 billion to the GDP of India and the U.K. collectively by 2035. A trade deal helps diversify supply chains by making it easier and cheaper for more businesses to do business across borders. Lower barriers coupled with greater regulatory certainty would incentivise new small and medium-sized enterprises to export their goods and services. An agreement also means Indian and British consumers see improvements in the variety and affordability of products.
•There are good economic reasons for agreeing to an FTA. There are also good strategic reasons. The British Government’s Integrated Review of our overseas policy, which I worked on before coming to India, describes the world we are in; messier, with more geo-strategic competition. It is one in which two dynamic democracies such as India and the U.K. need to work closer together to promote open economies.
From past to future
•Finally, an FTA would mark a new way of working between the U.K. and India. It gives a new framework within which the two countries can grow and flourish together, putting the colonial economic relationship where it belongs — in the history books. We should acknowledge that past, especially in this 75th year of India’s Independence, and build a future which is about opportunities for both countries.
•This month also marks one year since I presented my credentials to India’s President Ram Nath Kovind. I am honoured to be here at this defining moment — when the U.K. and India will shape the next 25 years of our destiny, as equal, forward looking partners.
📰 Creating jobs by increasing capex
The thrust on capital expenditure is laudable, but it comes with some caveats and risks
•If we had to look for one single metric that held the key to us achieving our immense economic potential as a nation, creation of gainful jobs, particularly for our underemployed youth and women, would perhaps be a strong candidate.
•Data from the International Labour Organization (ILO) suggest that India’s employment to population (over the age of 15) ratio has steadily dropped from 55% in 2005 to 43% in 2020. In 2020, it was 52% in Bangladesh, 63% in China and 73% in Vietnam. Specifically, women form just 20% of India’s workforce, while they comprise between 30% and 70% of the workforce in the other three countries. Further, CMIE data suggest that across manufacturing and services, India lost nearly 1 crore jobs between December 2016 and December 2021.
•Amidst a global and domestic context muddied by the COVID-19 pandemic, Finance Minister Nirmala Sitharaman, and indeed the entire administration, has their job cut out, trying to enable creation of sustainable jobs over time. In the 2022-23 Budget speech, she went all-in on allocating ample money towards productive infrastructure investments as the way forward.
Momentum in tax collections
•Before we get into that, let’s start with some good news. Data released by the Controller General of Accounts (CGA) shows that for the first nine months of the current fiscal year 2021-22 (FY22), the Centre’s revenue receipts across taxes and dividends already stood at ₹17.3 lakh crore, just shy of the full year budget of ₹17.9 lakh crore. There are many factors that contribute to this remarkable outcome. First, higher income tax and Goods and Services Tax (GST) collections are on the back of a robust performance of India’s organised sector, amidst increased formalisation of the economy. Second, the government deserves full credit for the conservative Budget projections of last year, even as it enhanced credibility by coming clean on expenditures hidden in off-balance sheet in the books of the Food Corporation of India. Put together, for the first time in many years, notwithstanding the pandemic and the intense hurt amongst the unorganised sectors, tax collections for this fiscal year will end well ahead of the original Budget projections.
•This Budget, therefore, revised up FY22 Central revenue receipts to ₹20.8 lakh crore, nearly ₹3 lakh crore higher than the original Budget. Given the momentum in tax collections till December, notwithstanding the Omicron wave, actual revenue receipts may exceed even this number by an additional ₹0.5 lakh crore-0.7 lakh crore. All this will more than make up for the projected shortfall in the government’s disinvestment Budget for this year.
•Despite the much higher revenue receipts than budgeted, the overall FY22 fiscal deficit is projected to end at ₹15.9 lakh crore (6.9% of GDP), higher than the Budget Estimates of ₹15.1 lakh crore. Additional spending towards food and fertilizer subsidies, increased allocations towards the National Rural Employment Guarantee Scheme and export incentives, and a clean-up of the books of Air India prior to its sale all contributed towards increased expenditures.
•Going forward, however, a sustained momentum in tax collections will provide additional degrees of fiscal policy freedom to the Finance Minister as she tries to foster domestic jobs and output. She has chosen to back investments into capital expenditure as the way to achieve this.
•For the next fiscal year FY23, she has increased her capital expenditure budget – or investments into productive capital creation – to ₹7.5 lakh crore, 24% higher than the FY22 revised estimate of ₹6 lakh crore. Alongside she has pencilled in just 1% increase in revenue expenditure, i.e., into items such as salaries, pensions, interest, and subsidies. In this regard, she is continuing a trend that she started in last year’s Budget. Between FY11 and FY21, capital expenditure averaged just 12% of the government’s overall expenditure. For the current FY22, that ratio increased to 16%, and for FY23, the Finance Minister has proposed to take it to 19%.
•The intent and commitment behind this strategy is clear and laudable. The expectation is that sustained investment in roads, railways, freight corridors, power, renewable energy along with initiatives such as Production-Linked Incentives (PLI) and other enabling legislation, will create the conditions for drawing in private sector investments into manufacturing, and foster job creation and sustainable growth.
The key lies in execution
•But as with everything else, this strategy does come with a few caveats and risks.First, not all the headline capital expenditure is indicative of fresh greenfield investments. The ₹0.5 lakh crore of clean-up of Air India’s books this year counts as capital expenditure. Similarly, for FY23, the government has set aside ₹0.8 lakh crore to partly clean up the books of NHAI and BSNL. Nevertheless, the transparency this brings about is still very welcome.
•Second, while there is a visible thrust on hard capital expenditure, the outlays towards critical areas such as education, healthcare and urban infrastructure remain subdued. One would think investments in these areas are equally, if not more critical, than hard infrastructure alone.
•Third, the thrust on capital expenditure has resulted in notably higher fiscal deficit numbers than expected. Notwithstanding the intent and commitment, such high fiscal deficits can put pressure on interest rates and the Reserve Bank of India, even as it raises the risk of inflation, higher current account deficits, and the attendant threats to financial stability.
•Ultimately, the key lies in execution. The Finance Minister has provided ample funds for the infrastructure thrust. It is up to the entire administration – Central, State, and local – to ensure that the funds are utilised in a timely fashion, and result in delivery of world-class infrastructure. Alongside, ease of doing investments have to be continually addressed, especially around key areas such as land acquisition, contract enforcement, and policy stability. Sustained investments in manufacturing and value-added services hold the key for the growth of small businesses, jobs, and our economic well-being.
