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IASbaba’s Daily Current Affairs – 2nd December, 2015

  • December 2, 2015
  • 12
IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs December 2015, National, UPSC
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IASbaba’s Daily Current Affairs – 2nd December, 2015

 

ECONOMICS

 

TOPIC

  • General Studies 2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 
  • General Studies 3: Indian Economy and issues related to mobilization of resources, growth, development and employment. 
  • Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth, Investment models. 

 

Special Economic Zones (SEZ) policy in India: Issues & Challenges

  • India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965.
  • With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000 and followed by SEZ Act 2005.

Main objectives of SEZ Act:

 (a)generation of additional economic activity
(b) promotion of exports of goods and services
(c) promotion of investment from domestic and foreign sources
(d) creation of employment opportunities
(e) development of infrastructure facilities

Incentives and facilities offered to the SEZs

  • Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
  • 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
  • Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
  • External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
  • Exemption from Central Sales Tax.
  • Single window clearance for Central and State level approvals.

Failed SEZ policy:

  • As of September 2014, there were 564 formally approved SEZs. But only 192 were operational. Barring a few, we haven’t seen big investments.
  • The incremental employment generated was about 11 lakh in nine years.
  • Exports from SEZs grew by only 4% in 2013-14 and decreased by 6% in the next year.
  • A Comptroller and Auditor General (CAG) audit last year found that 52% of the land allotted has remained idle, even though permissions were given as far back as 2006.
  • One severe indication from CAG was that 57% of SEZs were in the IT (information technology) and ITES (information technology-enabled services) sector, and only 9.6% were for multi-product manufacturing sectors.

 

Some possible reasons for failure of SEZs:

  1. The income tax benefits were neutralized by the introduction of the 20% minimum alternate tax (MAT) and the 20% dividend distribution tax (DDT) in 2011-12.This led to companies moving out from from SEZs.
  2. The absence of complementary infrastructure outside the SEZs, like port connectivity, proved to be an hinderent for manufacturing investment.
  3. Export incentives like Focus Product and Focus Market Schemes were not extended to SEZs, making them less attractive. Exports from outside SEZs, called the domestic tariff area (DTA), enjoyed duty drawback and other duty neutralization.
  4. The force of free trade agreements made import of manufactured goods much cheaper than domestic manufacturing.

Why SEZs in china are doing better than Indian SEZs?

The SEZ model in India was inspired by China’s SEZs which were critical instruments of its export-led growth. Reasons for better functioning of SEZs in china are

  1. Location: All the zones in china are located strategically. Many are located close to ports. This makes water transport cheaper than it already is. Only some are not located close to ports. They are located close to borders. This facilitates easy trade with nearby nations.
  1. Size: China’s zones are not many in number but they are huge in size. Hainan, a province in china is one complete SEZ, which covers an area of 33,000 sq. km. Mumbai covers an area of almost 1000 sq. km. This means that China has an SEZ almost 33 times the area of Mumbai.Size means everything in an SEZ. India has SEZs which are barely 10-20 hectares in size.
  1. Laws: China has amazingly business friendly laws. Corporates need to give only one month’s notice to an employee before firing him. Contrast that to India, where you need to follow a lengthy to fire an employee if your company has more than 100 employees.
    China’s labour laws are highly flexible to the detriment of the labour class. In India the labour class is highly pampered because of the previous government’s faulty policies

Way Forward:

The SEZ policy needs a comprehensive overhaul. Piecemeal repair won’t do, and a non-partisan holistic approach is a must.

Connecting the dots:

  • Critically examine the reasons for failure of SEZ policy in India.
  • SEZ policy 2000, indicate a failed policy status. Comment on the need for continuation of SEZ policy in India.
  • Compare and contrast SEZs of China and India.

 

NATIONAL

TOPIC

  • General Studies 2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 
  • Issues relating to development and management of Social Sector or Services relating to Health, Education, Human Resources.  
  • General Studies 3: Environmental pollution and degradation, Government Budgeting. 

 

Tobacco and Pollution : Can we afford to breathe easy?

  • Today, air pollution has acquired critical dimensions, emerging as a global public health problem, failing to meet WHO guidelines for safe levels, accounting for 3.7 million deaths in 2012.
  • A recent study by Yale and Columbia University ranked India 126th out of 132 countries surveyed on environmental performance and worst air pollution; far below all BRICS nations
  • From the additional risk of respiratory diseases to various other health problems (lung cancer, chronic obstructive pulmonary disease, pneumonia, loss of vision, cataracts, heightened risk of cardiovascular diseases, growth in stress levels as well as non-communicable diseases, such as high blood pressure), it is identified as a major environmental health hazard by agencies such as the World Health Organization (WHO).

 

Case of Tobacco

Tobacco consumption in the global world today, forms one of the most preventable causes of morality. Tobacco and its products are made entirely or partly of leaf tobacco as raw material and all of them contain the highly addictive ingredient, nicotine.

WHO:

  • Almost around 6 million people die from tobacco use and exposure to tobacco smoke
  • One death in every six seconds
  • 22% of the world’s population aged 15+ is smokers

SMOKING CAUSES:

  • Cancer of lungs, urinary bladder, throat/oral cavity
  • Bronchitis
  • Emphysema
  • Coronary heart diseases
  • Gastric ulcer etc.

The Tobacco Industry:

  • Game of ‘Numbers’: Master Settlement Agreement in 1998 revealed a trove of internal tobacco industry memos, showing that the industry knew that tobacco caused harm and death, and that tobacco control policies delivered public health benefits. But the proof was of no use as they were put to fast-track death to protect the sales and profits of the firms involved.
  • Hypocrisy ran wild when tobacco giant Philip Morris established the Council for Tobacco Research to promote alternative explanations for lung cancer in smokers.

The Impoverishment Debate

Economic Costs:

  • Whether impoverishment of the communities outnumbers the impoverishment of the general public- is a matter to be properly analysed.
  • It is very well established that the economic costs of tobacco-related diseases and deaths total around $22 billion a year in India alone.
  • As a way ahead, the European Union issued clean air regulations that are economically beneficial: The European Union estimates its clean air policy package will offer an economic benefit of €40-140bn per year in 2030, and deliver €3bn in direct economic benefits.

Is it just a make-believe theory?

The tobacco industry claims it helps poor tobacco farmers and workers. But the reality of the theory behind their upliftment is:

  • Often work in degraded conditions,
  • Earning mere subsistence wages and
  • Susceptible to tobacco-related illness

Therefore, the argument holds not much of the reality as the tobacco giants and big polluters seek to block international policy when it goes against their interests by hiding behind the mere revelation of provision of not even an iota of their own income to these communities and leading them to risk their life for a meagre amount of money.

Tobacco Fiscal Policy in India

  • Tax hikes do not match increase in real income
  • Multiplicity of tobacco taxes: Makes administration difficult and provides opportunities for tax avoidance and tax evasion
  • Differentials in tax rates on cigarette, bidis and smokeless products provide consumers flexibility to shift to cheaper products when higher taxes are imposed
  • Multiple slabs: Allows manufacturers to keep prices intact despite tax raises thereby defeating the very purpose of putting up hikes in the first place

Bidi-smokers Value chain:

  • Bidi consumers are more responsive to tobacco price increases than cigarette consumers
  • Excise on bidis can be increased by 100 percent of current excise, without any loss of revenue
  • Bidi VAT rates vary greatly across states and rationalization and equalization of bidi taxes across the states is imperative to minimize adverse health costs and effects

Illegality:

India: World’s fifth largest market for illegal cigarettes (Euromonitor International)

Do potential solutions exist- IASbaba’s Views

  • There is an urgent need to consolidate voices to
    • Expose industry tactics,
    • Spread the truth about tobacco harm,
    • Creating social movements,
    • Litigate against industry violations and interference,
  • Taxation:
    • Tax increases on tobacco products should be indexed to bothconsumer price indices/inflation and rise in incomes, to reducethe affordability of tobacco products and to minimize incentives fortobacco users to switch consumption to lower priced brands orproducts in response to tax increases
    • Urgent reforms in removing the multiplicity of tax structure for improved tax administration and regulation
    • Introduce uniform value-added taxes on cigarettes and bidis across states
    • Impose a special surcharge on their sales/profits and make them compulsorily contribute towards cost of treatment of cancer in the public hospitals
  • Use of alternative products (water pipes, smokeless tobacco & electronic nicotine delivery system) are gaining in popularity and should be addressed by introducing some control or regulation measures
  • Crack down of cigarette smuggling
  • Behavioural Approach needs to be developed to bring about an opposite trend of staying away from it

Connecting the Dots:

  1. Is there a need to incorporate ‘gender’ into tobacco control measures? Discuss
  2. ‘The future of tobacco control rests on successfully enacting comprehensive tobacco control measures’. Do you think steps taken by India can serve the purpose presented by WHO incorporating a larger perspective?

 

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