India’s Emerging Twin Deficit Problem
India’s Emerging Twin Deficit Problem Why in news? The Finance Ministry report highlights two key areas of concern for the Indian economy – the fiscal deficit and the current account deficit. What is optimistic in the report? Stagflation– The world is looking at a distinct possibility of widespread stagflation but India is at low risk of stagflation, owing to its prudent stabilization policies. Economic growth– The economic growth outlook is likely to be affected by Russia-Ukraine conflict owing to the trade disruptions export bans surge in global commodity prices inflation However, in India, the economic activities sustained in the first two months of the current financial year. It is a good sign for India that continues to be the quickest growing economy among major countries in 2022-23. What is the concern with the fiscal deficit? Fiscal Deficit– The fiscal deficit is essentially the amount of money that the government has to borrow in any year to fill the gap between its expenditures and revenues. The fiscal deficit calculations are based on two components — income and expenditure. As per the CGA report, fiscal deficit for 2021-22 was pegged at 6.71 % of the GDP. Impact– Higher levels of fiscal deficit imply the government eats into the pool of investible funds in the market which could have been used by the private sector for its own investment needs. The report states that as government revenues take a hit following cuts in excise duties on diesel and petrol, a risk to the budgeted level of gross fiscal deficit has emerged. Recommendations Trim revenue expenditure (or the money government spends just to meet its daily needs) Rationalize non-capex expenditure What is the issue with current account deficit (CAD)? Current account deficit- The current account essentially refers to two specific sub-parts. Import and Export of goods (Trade account) Import and export of services (Invisibles account) If a country imports more goods than it exports, it is said to have a trade account deficit whereas it earns a surplus on exporting more services than importing. If the net effect of a trade account and the invisibles account is a deficit, then it is called a current account deficit or CAD. Impact– A widening CAD tends to weaken the domestic currency because a CAD implies more dollars or foreign currencies are being demanded than rupees. The report stated that costlier imports such as crude oil and other commodities will not only widen the CAD but also put downward pressure on the rupee. A weaker rupee will, in turn, make future imports costlier. FPI continuously pulling out money from the Indian markets due to higher interest rates in the western economies will also hurt the rupee and further increase CAD. References https://indianexpress.com/article/explained/everyday-explainers/indias-emerging-twin-deficit-problem-explained-7982895/ https://www.investopedia.com/terms/f/fiscaldeficit.asp#:~:text=A%20fiscal%20deficit%20is%20a,spent%20in%20excess%20of%20income. https://www.economicsdiscussion.net/budget/3-types-of-budget-deficits-and-their-measures-micro-economics/753 Quick facts Glossary Inflation- Inflation is the rate of increase of the overall price level of goods and services in an economy. Stagflation- Stagflation describes a combination of high inflation and economic stagnation as reflected by a slow growth rate and high unemployment. Budgetary deficit- It is the excess of total expenditure (both revenue and capital) over total receipts (both revenue and capital). Revenue deficit- It is excess of total revenue expenditure of the government over its total revenue receipts. Revenue deficit = Total revenue expenditure – Total revenue receipts Fiscal deficit- It is defined as excess of total budget expenditure over total budget receipts excluding borrowings during a fiscal year. Fiscal deficit = Total expenditure – Total receipts excluding borrowings Primary Deficit- It is defined as fiscal deficit of current year minus interest payments on previous borrowings. Primary deficit = Fiscal deficit-Interest payments
Bangladesh’s Rohingya Problem
Bangladesh’s Rohingya Problem What is the issue? Five years after Bangladesh took in thousands of Rohingya driven out of Myanmar, the refugee population is exploding with serious security implications. What is Rohingya issue? The Rohingya are an ethnic Muslim group who reside predominantly in Rakhine state and speak a Bengali dialect. They are not recognised by the Myanmar government as an official ethnic group and are therefore denied citizenship under the 1982 Citizenship Law. It is claimed that there were no Rohingyas in Myanmar before the British brought ‘Bengalis’ to Burma. But, there is sufficient evidence to show that the Rohingyas pre-existed the British-engineered migration during the British occupation of the Arakan State in 1823. Even those who arrived in Burma post-1823 could not go back to Bangladesh now given that they have no citizenship claims there. This effectively makes them a stateless people. They are often said to be the world’s most persecuted minority. What about the involvement of Bangladesh in this issue? Bangladesh has been at the forefront in aiding and providing food and shelter for the refugees and trying to create the conditions in Myanmar for their safe return. Since 2017, more than 700,000 Rohingya, fled as the country’s military launched a campaign of terror against the community, including torture, gangrape, mass executions, and the razing of Rohingya villages. The Forcibly Displaced Myanmar Nationals (Rohingya refugees) settled in the Kutupalong camp in Bangladesh (the world’s largest refugee camp) and underwent dramatic expansion. What is the status of repatriating of refugees in Bangladesh? According to UNHCR, the United Nations Refugee Agency, there were 926,486 registered Rohingya refugees in Bangladesh as of May 31 2022. In the camps, a sharp increase in their population is witnessed due to peace, absence of violent persecution, assurance of food and medical care, etc. In 2017, Bangladesh and Myanmar signed a repatriation agreement but the two sides had not agreed on a concrete process or on a deadline for completion of the repatriation. In 2018, 2,260 Rohingya were identified for repatriation but the attempt failed as they refused to return to Myanmar without assurances for their safety. A tripartite virtual meeting was mediated by China in 2021, but the the Myanmar military staged a coup and put the repatriation process on ice. When China and Russia supported Myanmar on a UNGA resolution on human rights violations against the Rohingya in 2020, India abstained from the vote. What are the current issues with the Rohingyas? Population- The annual rate of growth of population in Bangladesh is 1%, while the population of the Rohingya is growing at 6 or 7 %. Costs- The massive Rohingya population is putting an enormous burden on resources and the environment, besides creating conditions for criminal activity and friction in local society. Impact on India– It carries serious social and security implications for the sensitive Northeast India. The Rohingya issue has also been the cause of tensions between India and Bangladesh in the past and continues to carry that potential. Increase in crimes– Crime such as kidnapping for ransom, petty theft, and dacoity are increasing. Organised crimes– Cox’s Bazar (a refugee camp location) occupies a key place on the Bay of Bengal, and some Rohingya have been found to be involved in drugs trade and human trafficking. Recruitment hub for extremists– The Rohingya often has little education, and many are angry and desperate, and vulnerable to radical Islamist ideology. References https://indianexpress.com/article/explained/bangladesh-rohingya-issue-migration-kutupalong-refugees-camp-7977773/ https://thediplomat.com/2022/02/bangladesh-and-myanmar-resume-talks-on-rohingya-repatriation/
The Situation of Government Jobs
The Situation of Government Jobs Why in news? The PM has ordered a million central government posts to be filled in mission mode over the next 18 months. What is the current picture of employment in India? The unemployment rate is defined as the percentage of unemployed persons in the labour force. Battered by demonetisation, pandemic and subsequent lockdowns, the Indian economy has started showing some signs of revival now. PLFS data– The annual report of the Periodic Labour Force Survey for July 2020 to June 2021 showed that the unemployment rate eased to 4.2% from 4.8% in 2019-20. The unemployment rate was higher for males in rural areas than females. In urban areas, the situation is quite opposite as unemployment rate was higher for females than males. The labour force participation rate (LFPR), or those working or seeking or available for work in the labour force, was the highest in four years at 39.3% in 2020-21. CMIE data– However, according to the Centre for Monitoring Indian Economy (CMIE) data, the unemployment rate in the country stands at 7.83% in April 2022. India is still far behind the US, China and others in public sector employment. PLFS is launched by National Statistical Office (NSO) since 2017 whereas CMIE is a leading business information company that was established in 1976, primarily as an independent think tank. What is the current strength of the Centre’s human resources? The Union Budget 2022-23 estimated the strength of central government employees at 34.65 lakh as on March 1, 2022. According to the Annual Report of the Department of Expenditure (2019-20), approximately 21.75% of the sanctioned posts were vacant as on March 1, 2020. The Indian Railways is the biggest government employer with 12.52 lakh employees as of March 1, 2020. Almost 92% of the central government’s manpower is employed by Railways (almost 40%) Home Affairs (almost 30%) Defence (Civil) (nearly 12%) Department of Posts (almost 5.50%) Department of Revenue (more than 3%) Also, a large number of employees have been hired on contract as per the recommendations especially of the last two Pay Commissions. What are the major recruitment bodies? The UPSC and SSC are the two main recruiters of central government personnel. UPSC makes Group A and Group B recruitments. SSC recruits for all Group B (Non-Gazetted) and Group C (Non-Technical) posts in central Ministries/ Departments and their attached and subordinate offices among others. Twenty one RRBs recruit mainly Group C personnel for Railways. The Institute of Banking Personnel Selection (IBPS) is engaged to recruit for nationalised and Regional Rural Banks. Does the government’s 18 month deadline make sense? Lack of framework– The move doesn’t appear to have any framework for recruitment in the various ministries and departments (except the Agnipath scheme in the armed forces). Concerns with the deadline– The 18-month deadline raises suspicion about the feasibility in achieving the target. No clear idea– The vacancies of the right kind in government/PSUs need to be identified and the skill-sets necessary in a candidate to fill these should be clearly defined. Expenditure burden– An ill-considered addition to the workforce will end up creating a burden for future governments, shrinking room for development expenditure. What is the need of the hour? The government should examine the feasibility of replacing the system of permanent employment with a liberal contractual system, based on periodic performance-based reviews. With technology offering solutions to replace humans in monotonous jobs, the government should gradually move towards recruiting only for the skilled jobs in its ranks. This is the only possible way forward to keep its salaries and pensions bills in check even while adding to the workforce. References https://indianexpress.com/article/explained/govt-job-india-unemployment-explained-7972367/ https://www.thehindubusinessline.com/opinion/editorial/job-at-hand/article65530233.ece https://indianexpress.com/article/explained/fall-in-unemployment-rate-in-2020-21-labour-survey-what-it-means-7971285/ https://www.business-standard.com/article/economy-policy/india-s-unemployment-rate-rose-to-7-83-in-april-shows-cmie-data-122050201088_1.html
The Agnipath Scheme for Armed Forces
The Agnipath Scheme for Armed Forces What is the issue? Massive protests demanding the rollback of the Agnipath scheme is continuing across the country. How are candidates recruited to the service at present? Short Service Commission (SSC)- SSC officers are presently inducted under the 10+4 scheme. Here, the officer serves for 10 years and can either opt out of service or extend the service by 4 years. They can resign at any time during the 4 year period. Permanent Commission (PC)– A Permanent Commission means a career in the service till retirement. The Supreme Court directed the government to ensure that women officers, irrespective of their years of service, are granted PC in the army. What is Agnipath Scheme about? Tour of Duty, or Agnipath, is a scheme under which the forces will recruit soldiers for short-term and long-term on an ‘All-India All-Class’ basis. Aim- To reduce the salaries and pensions to divert resources for military modernisation. Eligibility- Those between the ages 17.5 and 21 years will be eligible to apply. The required educational qualification will be Class 10-12, depending on the service and assigned role. Recruitment- The Centre will recruit Agniveers and the induction process will repeat every six months. The recruitment of women will depend on the requirements of their respective services. Training- The training will go on for a maximum of six months, post which an Agniveer will be deployed for the remaining three and a half years. Selection process- An online centralised system will be used for enrolment of Agniveers and the selection will be the exclusive jurisdiction of the armed forces. Permanent enrolment- After completing 4 years of service, Agniveers will be eligible to apply for permanent enrolment in the armed forces. Up to 25% of them will be selected on an objective basis and enrolled as regular cadre. They will have to serve for a further minimum of 15 years. Adequate re-employment opportunities will be created for the rest 75% who will move out of the services and return to society. Pension– Agniveers will not be eligible for any pensionary or gratuity benefits under the scheme. Exemption– The scheme does not apply to defence officers for whom there is a provision called Short Service Commission or SSC. Currently, the Army recruits young people under the SSC for an initial tenure of 10 years, extending up to 14 years. What benefits will be extended to Agniveers? Salary– The Agniveers will receive an annual package of Rs. 4.76 lakh in the first year to Rs. 6.92 lakh in the fourth year. Allowances– In addition to monthly salary, these recruits will be paid allowances for travel and uniform. Honours and Awards- They will also be entitled to honours, and awards as per existing guidelines. Seva Nidhi– Agniveers will contribute 30% of their salaries to a fund that will be matched by the government. This fund will accrue interest, and at the end of the four years, each soldier will get Rs.11.71 lakh as a lump sum tax-free amount, which includes interest accumulated on the absolute amount. Leaves- An Agniveer will be granted 30-day annual leave while sick leave will be based on medical advice. Insurance cover- The Agniveers will be provided non-contributory life insurance cover of Rs. 48 lakh during their service in the armed forces. How is the Tour of Duty different from conscription? Conscription refers to the mandatory of youth in the national armed forces. Countries that follow the practice of conscription include Israel, Norway, North Korea, and Sweden. However, ToD is not compulsory but provides an opportunity for India’s youth to experience military life without having to join the armed forces on a long-term basis. What is the need for such a scheme? Military exposure– Agnipath scheme or Tour of Duty exposes a larger section of Indian population to the military way of life and gives them a wider exposure. Disciplined workforce– It provides the nation with a large pool of disciplined workforce, with varied skill sets. Beyond regional outlook– This scheme will make citizens rule-abiding and raise them above narrow regional and sectarian outlook, besides enhancing their physical fitness levels. Reservists- The trained workforce can also act as reservists in times of national emergency. Address personnel shortage– This recruitment model has been conceptualised to address personnel shortages, including officers. Employment – It has been proposed as a means to generate increased employment opportunities, with the goal of ensuring that 40% of the personnel are recruited through this medium. What are the mounting criticisms against the scheme? In the Union Budget 2022-23, Rs 5.25 lakh crore were allocated to defence. Of this, defence pensions added up to Rs 1.19 lakh crore. Slashing the expenditure– The reform is criticised for its move to slash the growing salary and pension bills of the three services. Diluting the professionalism– The scheme has been accused of diluting the professionalism of the armed forces. Reduced efficiency– The process will result in mixed units that will lack cohesion and regimentation, which will reduce their effectiveness. Against induction of women– There is also a criticism that with the induction of women in all trades, a unit’s fighting efficiency and rigour will reduce. Political militias– There is an apprehension that the youthful population with military training could create political militias, if they cannot find suitable employment avenues. Lack of reservation– Reservation for former Agniveers in jobs in both central government and state governments is lacking. Suspension of recruitment– Already the recruitment process was suspended for the last two years due to COVID. References https://www.thehindu.com/news/national/agnipath-scheme-eligibility-recruitment-salary-benefits-soldiers-army-navy-air-force/article65529801.ece https://theprint.in/opinion/tour-of-duty-will-expose-youth-to-military-life-dont-let-bureaucracy-fail-it-like-note-ban/996888/ https://www.business-standard.com/article/current-affairs/military-life-without-joining-armed-force-what-is-tour-of-duty-scheme-122061400130_1.html
Counteracting China’s Influence by Improving Self-Capacity
Counteracting China’s Influence by Improving Self-Capacity This editorial is based on Tackling China’s infra build-up along LAC, which was published in Hindustan Times on 14/06/2022. It talks about China’s infrastructure buildup along the LAC and the steps India can take for deterrence against any Chinese attack. For prelims: India-China border mapping, Tibetan plateau, Xinjiang region, PLAAF, IAF For mains: Implications for India due to improvement on infrastructure by the Chinese side on LAC and how can India respond to this threat. With the rise of belligerent China and its increasing level of infrastructure buildup near India’s border area, there is a need for India to enhance its infrastructure capabilities to deter China from pursuing any misadventure along the LAC (Line of Actual Control), and to further develop it’s long term strategy to contain China. What’s the Issue? China has been developing infrastructure along with LAC. The latest satellite images revealed that China was building a second bridge over the Pangong Tso. This bridge can carry tanks and facilitate faster movement of military forces between the north and south banks of the lake. What kind of Infrastructure is being built by China? For Improving Air Assets: The first type of area is aimed at enhancing the capabilities of the PLAAF (Chinese air force), as earlier, it has a limited no of operational airfields in the Tibetan plateau, and problems of operating from high altitudes were a severe handicap for the People’s Liberation Army (PLA) Air Force. After the Doklam incident in 2017, 37 airports and heliports within Tibet and Xinjiang have been newly constructed or upgraded, of which at least 22 are identifiable as military or dual-use facilities. Dual-use facilities are those infrastructures that can have both military and civilian applications. These facilities include: Hardened shelters for housing military aircraft, Underground facilities to ensure survivability, Air defense missiles for protection, Runways extension, Helicopter operations facilities. For Enhancing Logistics: The second area is focused on the ability of the PLA (People’s Liberation Army) to rapidly mobilize its forces from its mainland bases to their battle locations through an improved road and rail network. In between 2015 and 2020, Tibet’s highways grew from 7,840 km to 11,820 km, a 51% increase, In June 2021, a high-speed rail line connecting Lhasa and Nyingchi entered service, covering the 435 km distance in 2.5 hours. For Ramping up Forward Movement: The infrastructure is also being developed for speedy application of combat power at LAC. China has constructed at least eight key roads toward LAC from the G219 highway, These roads provide connectivity to areas opposite important Indian military posts in Ladakh, from Daulat Beg Oldie to Galwan Valley, Pangong Tso, and Chumar. In addition, infrastructure such as the bridge at Pangong Tso will assist in the faster north-south movement of troops. What are China’s Intentions? China’s infrastructure buildup is aimed at reducing India’s advantage in the employment of airpower during a conflict along LAC. It is to overcome their shortfalls, neutralize India’s airpower edge over Tibet, and increase the PLA’s combat capability for war fighting along LAC. What are the Challenges for India? It would increase the PLA’s combat capability for war fighting along LAC. With the improved infrastructure in Tibet and Xinjiang, China could quickly mobilize its troops on the border from its bases. China would be able to neutralize India’s airpower edge over Tibet. What is the response from the Indian side? The Indian Army has redeployed significant forces from the Pakistan border to the northern front. A major push has been given to infrastructure development, improving surveillance, and construction of roads. After the 2020 standoff in eastern Ladakh, the government has sanctioned the construction of 32 roads along LAC. What Could be the Way Forward? Build Deterrence: India must develop a strategy that strengthens its deterrent posture. Deterrence is based on a strong army deployment along with LAC. India must focus on capabilities that seek to impose punishing costs in the event of a conflict. Tactical Thinking: Apart from infrastructure development and troop deployments, which are necessary measures, there is the need for India to define a long-term military strategy. Superior role of the IAF and Navy: It is needed to ensure operational readiness and dominant role of airforce in high-altitude operations as China doesn’t have many forward bases in the region, further harsh climate of Tibetan plateau makes transportation and mobilization of troops very difficult. India also need to develop a dominant naval position in the Indian Ocean. Going Beyond traditional means: Capabilities must be developed in all domains to impose costs beyond the immediate area of conflict through long-range missiles, cyber warfare, space weapons, etc.
Effective Subsidy Delivery Mechanism
Effective Subsidy Delivery Mechanism This editorial is based on “what commodities distribution of commodities should be distributed for free or at a subsidised level” was published in The Indian Express on 16/06/2022. It talks about wasteful expenditure occurs by the state by giving subsidies to non-essential goods and services, and how the state can utilise best practices to further enhance its delivery mechanism. For Prelims: Food subsidies, PDS (Public Distribution System), DBT (Direct Benefit Transfer), PLI (Production Linked Index), Poverty, Fiscal policy For Mains: Issues in the Implementation of Subsidy Distribution, Delivery mechanisms, and their fiscal implications Recently, the Punjab government announced a subsidy scheme to provide free electricity up to 300 units, this sparked the debate around the subsidies and what are the essential goods and services that required the government efforts to reach the downtrodden section of society. What are Subsidies? It’s the difference between the market price of a commodity, for example wheat and rice which are procured by the government, and the price at which they are being sold to the beneficiary in the form of subsidized food grain. Fiscal Cost of Subsidies: As India is a developing country, hence, there are limited budgetary resources to enhance subsidies net coverage to far more population. In the central budget, the food subsidy amounts to Rs. 2.06 lakh crore, which is almost 1.9% of the GDP in 208-19 and 2.5% in 2019-2020. The revenue to GDP ratio has been stagnating over a long period during 2010-11 to 2019-20, which is around the narrow range of 18.4% to 20.3%. Whereas in many developed and emerging market economies, this ratio tends to be much higher. In 2019, these ratios were 36% and 30.1% for the UK and USA, 48.6% and 43.6% for Sweden and Netherlands, and 31.5% for Brazil. What is the Delivery Mechanism for Dispersal of Subsidy? Support for low-income households in a targeted manner, which is the free or subsidized provision of food grains and services such as health and education e.g. – (Public Distribution System). For example, Direct Benefit Transfer (DBT) through providing money to the beneficiary’s bank account, so that a person is free to choose any food grains in the open market according to his choice and on the other hand the person avails subsidized food grain through PDS (Public Distribution System). Incentives to support selected categories of investors and producers like reduction of corporate taxes have been offered to promote investment in general, or in certain regions such as backward areas. e.g. – PLI (production linked incentive. PLI (Production Linked Incentives)-alternative methods include direct budgetary support and indirect support through tax concessions, schemes also require to be carefully designed to avoid their misuse and minimize their costs. What could be the Rationale for Selection of Subsidy? With limited budget, poor targeting and leakages we need to focus on commodities which are considered “essential” and “merit” goods. Primarily food grains, particularly wheat and rice, are supplied to target groups at a highly subsidized price through the public distribution system. Further there is enough evidence that such a distribution has helped to reduce poverty. There is also a category of goods which are called “merit” goods where significant positive externalities are associated with their consumption — for instance, health and education-related provisions, including midday meals and breakfast. In these cases, the benefit of the use of such goods extends beyond the immediate consumer to the wider community. subsidization or the free provision of essential and merit goods can be justified on the grounds of meeting social objectives but there are enormous examples of wasteful or populist subsidies recently Punjab government announced 300 units of free electricity which has led to an undue increase in the wasteful power consumption. Way Forward Innovative Solutions: Need proper targeting of beneficiaries leveraging technology. Regulation Body: There is a need to establish a efficient procurement and public distribution system which would manage procurement and distribution. So, that is to stop leakages and avoidable administrative costs. Choice of Goods & Services: The need of the hour is to limit subsidies to essential and merit goods only. Less Fiscal Space: There is a need to be very efficient and select subsidies on goods and services as there is limited overall financial support. Generating More Income: Governments, both state and centre need to pay adequate attention to further strengthening their fiscal revenue. Social Impacts: Although there are leakages in the PDS system it shows the major impact on the individuals and benefits go beyond the individual to a social and community level, but the benefits from direct income support and PLI are not yet measurable. So, the best way to continue with the PDS scheme is to stop its leakages wherever possible and side by side keep on experimenting with direct income support with measurable results.
FAT FINGER TRADE 2022
FAT FINGER TRADE A ‘fat finger’ trade is an erroneous action caused by hitting the wrong key in the market. Some of these orders, which are placed at the extreme end of the operational range, are passively held in the order book, according to the NSE. Trades resulting from such orders, which are issued at unrealistic prices, cause price anomalies. Few trading members had placed orders on the exchange platform at prices that did not reflect the current market price and were far distant from the last traded price, according to the exchange. Trading members are also placing orders at prices that are at the extreme end of the exchange’s operational range and have no obvious or economic logic when compared to the last traded price, according to the statement. NSE’s Stance The NSE has asked its trading members to refrain from initiating or executing transactions that appear to be non-genuine on their own account or on behalf of their clients, as well as from engaging in practises that cause order book anomalies. They’ve been told to put in place suitable internal systems and procedures to ensure that such orders/transactions, including algorithmic trades, don’t end up on the exchange’s trading system. “Non-compliance with the circular will result in appropriate disciplinary action which may include departure from trading terminals.
