IASbaba’s Daily Current Affairs – 26th February, 2016

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IASbaba’s Daily Current Affairs – 26th February, 2016

ECONOMICS

TOPIC: General Studies 3:

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
• Government Budgeting
• Infrastructure: Railways

NOTE: This article is compilation of information from 5 different National Newspapers’

Rail Budget 2016: A balance between growth, operation efficiency

The Railway Budget 2016 focuses on commissioning the unfinished/existing projects rather than new trains. Efforts to reorganise restructure and rejuvenate railways is the main highlight of this year’s railway budget.

The key themes of the Budget were in line with Prime Minister Narendra Modi’s initiatives – Swachch Bharat Mission, Make in India and Digital India.

• The most-expected part about this year’s Railway Budget – there is no increase in passenger rail fares. Subdued passenger traffic and restricted growth in freight (due to increasing competition from road transport on lower fuel prices) have curbed the ability to implement a fare hike.
• 8.5 lakh crore will be invested in Railways in next 5 years.
• ‘Operation 5 mins’, wherein passengers travelling unreserved can purchase a ticket in 5 minutes.
• Bio toilets and airplane-type vacuum toilets in trains.
• Surveillance cameras in select coaches and ladies compartments for women’s safety without compromising on privacy.
• Rail tickets can now be booked 120 days in advance.
• Budget projected a 10.1 per cent rise in the Railways’ gross traffic receipts to Rs 184,819 crore in 2016
• Speed on nine railway corridors to go up to 200 km per hour.
• Wi-Fi in more stations, mobile phone charging facilities in all train compartments.
• Facility of online booking of wheelchair for senior citizens.
• Satellite railway terminals in major cities.
• Centrally managed Rail Display Network is expected to be introduced in over 2K stations over the next 2 years.
• All India 24/7 helpline – 138 from March 2015 ; Toll free No.182 for security.
• 917 road under-bridges and over-bridges to be constructed to replace 3,438 railway crossings; at a cost of Rs. 6,581 crore.
• Four Railway Research Centers to start in four universities.
• While provision of baby foods and hot milk on stations and conversion of station walls into murals are indeed progressive steps
• ‘Clean my coach’ service through SMS
• Rail mitra sewa and Divyang to help old and disabled passengers
• Porters to be called SAHAYAKS, not coolies anymore. Sahayaks will be provided with uniforms and trained in soft skills
• Ticketing: Automated ticket vending machines; mobike apps; GOINDIA SMART CARD for cashless ticket purchase; Bar coded tickets etc

Recent initiatives:

• These initiatives include expanding into newer commodity categories (10 commodities account for 88 per cent of the Railways’ freight at the moment), rationalization of the tariff structure, construction of terminal capacity and “nurturing customers” which will involve appointing relationship managers for key stakeholders.
• Reorganizing the all-powerful Railway Board along business lines and suitably empowering its chairman. There is aproposal to set up a Railway Planning & Investment Corporation to draft medium- (five years) and long-term (10 years) corporate plans.
• Steps to enhance consumer experience which included more options for un-reserved travel, ticketing machines and FM radio on train.
• Further, the operating ratio (expenses as a percentage of revenue) pegged at 90 per cent in FY16 is an improvement over FY15’s ratio, but is still short of the target of 88.5 per cent. Hence, doubts linger on whether the target of 92 per cent (including seventh central pay commission impact) for FY17 will be achieved without a fare hike.
• Superfast trains: will showcase the future of train travel in India
• Humsafar: will be fully air-conditioned third AC service with an optional service for meals
• Tejas and Uday are superfast trains meant to topple the Rajdhanis and the Shatabdis in being the best value proposition on Indian Railways.
• They will run at speeds of 130 kmph and above with onboard services such as entertainment, local cuisine, WiFi through one service provider for ensuring accountability and improved customer satisfaction.
• UDAY, short for Utkrisht Double-Decker Air-conditioned Yatri Express — will be double decker overnighters on the busiest routes, which run with 40 per cent more carrying capacity than conventional trains.

Focus areas:

• Gross traffic receipts fell by 8.6% from the budgeted estimates. Freight earnings—the breadwinner of Indian Railways—declined by almost 8% “on account of low demand from the core sector”. The budgeted estimates for the next year bank on “a healthier growth in the core sector of economy” and hence can be equally charged with over-optimism.
• The reason was simple: an under-utilization of16,000 crore. As a result, the budgetary support this year has been slashed toRs.34,220 crore fromRs.40,000 crore last year. The deficit in expenditure in this instance was compensated by increased investments through partnerships.
• Passenger earnings growth pegged at 12.4%; earnings target at ~51,012 cr. Additional berths, women- & children-friendly coaches, bio-toilets, long-route trains for unreserved passengers; elevated sub-urban corridors and new freight corridors. Institutional funding, PPPs, freight revenue to push investment, make the Railways self-sustainable
• The operating ratio target of 88.5% set last year remains unachieved; the revised estimates come to a figure of around 90%. The lower the operating ratio—the ratio of working expenses to gross earnings—the better it is as it leaves more resources for capital expenditure. With the implementation of the 7th Pay Commission recommendations, the revenue expenditure will shoot up considerably and Budget has been realistic in keeping the operating ratio target at a higher level of 92% for the next fiscal.

What is the strategy outlined transforming Indian Railways into a first-rate service provider?

1. Objective of transforming Indian Railways into a first-rate service provider while growing into a customer-friendly organization is done with the help of three pillars of strategy:
   1. New revenues (monetizing all possible sources of revenue);
   2. New norms (incorporating best international practices including, most importantly, a zero-based budgeting approach); and
   3. New structures (revisiting all process and organizational structures).
2. Providing optional insurance to passengers:
   1. That it will be a much-need security for rail passengers. Insurers expect the premium, for both accident and loss of baggage, to be fixed at a nominal price.
   2. The most important aspect is how these insurance policies will be made available to people as there are two places from where travellers buy insurance i.e. online or at the window
   3. This will be a personal accident (PA) cover for death and disability. And we expect the pricing to be along the lines of the Pradhan Mantri Suraksha Bima Yojana — a PA policy — that Indians can purchase for a premium as low as Rs 12. It could of course be much lower given that the Pradhan Mantri’s scheme gives coverage for a year and the current travel insurance plan proposed by the rail ministry would be only for the duration of travel

What are the differences between 2015 and 2016 budgets?

• The thrust of the 2015 railway budget was to make the Indian Railways (IR) a prime mover of the economy.
• The emphasis was on removing operational bottlenecks and consolidating infrastructure development to decongest saturated routes and, thus, reduce the logistics component of product costs, which, in India, are among the highest in the world.
• This year’s budget was full of generalizations and nothing specific was spelled out in this thrust area
• The Operating Ratio has increased from 88.5 per cent last year to 92 per cent in this year’s budget which is a sign of fiscal mismanagement. Capital expenditure has been increased to 1.21 lakh crore this year which would be a further strain on the finances of the railways
• Last year’s performance has been much below the anticipated earnings by the railways. Both freight and passenger earnings have significantly dropped and the gap between the budgetary estimates and the revised estimates of railway revenue is around a massive Rs 17,000 crore… Further, the Railways require around Rs. 32,000 crore to fulfil the obligations and recommendations of the 7th Pay Commission. This means that the Railways are starting the financial year with a shortfall of nearly Rs 50,000 crore.
• If the 2015 budget was the apogee of farsightedness, 2016 is an apology for having developed cataract

Addressing thrust areas: Need of the hour

• Our freight rates, among the highest in the world, make our products uncompetitive.
• Over the years, these high freight rates have diverted railway traffic to roads.
• There is need to address the worrying decline in modal share of freight traffic by expanding the freight basket, rationalizing the tariff structure and building terminal capacity.
• The Railways has been losing market share to road haulage due to ever increasing freight rates as well as infrastructure bottlenecks that have reduced average freight train speeds to around 25 kmph, one of the slowest in the world.
• The creation of dedicated freight corridors and the increased focus on containerization will help the Railways move away from overdependence on low yield bulk cargo (currently, just 10 commodities account for 80 per cent of the freight hauled by the Railways) and speed up transit times, enabling it to compete better with road transport
• In fact, discounting for the fuel component in freight charges, the rates should have been reduced this year.
• Passenger fares do not add much to the revenue but keeping them stagnant is also not good in the long run. A marginal increase was, perhaps, called for.
• Finances can be improved only by increasing the volume of traffic and tilting the scales in the IR’s favor.
• There is a need to improve average speeds of trains. Most tracks and rolling stock are already fit for speeds above 100 kmph for passenger services and above 75 kmph for goods services. However, average speeds of passenger services are around 40-50 kmph and those of freight 20-25 kmph. This is because we don’t have the capacity to run them at optimum speed. Increasing capacity by doubling/ quadrupling lines would in itself improve speeds. This has to be the thrust area.

But do we need all this right now? When the Indian Railway’s is bankrupt?

• The issue is not technology. It is priority and timing.
• Technology for technology’s sake is not what an organization dealing with logistics should opt for.
• Where will we run coaches at 200 kmph when even the existing sectional speed is not being achieved? Till we don’t have the capacity to run, buying such technology is like buying a Ferrari for Chandni Chowk.

Way ahead

With the Railways worried about a continuous decline in its freight traffic, four measures have been announced.

1. Expanding the basket of items carried,
2. Rationalizing of rates,
3. Signing of long-term contracts and
4. Building terminal capacity.

• Railway Budget was customer-centric, both for passengers and industry. It is seeking to enhance the competitiveness of the railways for goods traffic through announcements of review of the freight tariff structure and direct long-term freight negotiations with key partners. It is a win-win for industry and the railways
• The huge investments in technology and railway infrastructure are moves with positive intent, despite the disappointing overall revenue growth. However, the real test would be the implementation strategy and the commercial framework for executing the announced plan
• After all, it’s competition and accountability—and not some band-aid applied by the government of the day—that will ease financial distress at Indian Railways.
• A competitive tariff structure for freight trains is urgently required to arrest the slide of traffic to roads. This should go hand in hand with the steady elimination of cross-subsidy from freight to passenger segment of the business. An appropriate road map to achieve this could have been laid out. That would have made a perfect rail budget statement for 2016-17

Connecting the dots:

• If the 2015 budget was the apogee of farsightedness, 2016 is an apology for having developed cataract. Comment

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 the development and management of Social sector/services relating to Health, Education and Human Resources

Drug Pricing: Critical Illness—A Gold mine

India’s Drug Pricing Regime

1. Drugs Order (Display of Prices) 1962 froze medicine pricing
2. Hathi Committee Report (1975) led to the Drug Policy (1978) which:
   • Set up a National Drug Authority
   • Selective price control on medicines
3. The Drug Price Control Order (DPCO), 2013:
   • Brought 348 drugs into India’s National List of Essential Medicines (NLEM) 2011, with significant exclusions made for formulation and presentation

Pills becoming ‘too expensive to swallow’—

• Daraprim, a drug used to treat HIV patients—Price was raised from $20 to $750
• Glenmark—Abirapro (250mg; 120 tablet pack is Rs.39,990) and Evermil (10 mg; 10 tablet pack is Rs.29,965)
• Glivec (anti-cancer drug) — base price rose from Rs.8, 500 to over Rs.1 lakh per month
• Sovaldi (hepatitis C drug)—$1,000 per pill
• Cortisporin (ear infections)— Price rose from $10 to $195

Heavily skewed against the poor—

• Out-of-pocket expenses can comprise up to 80 per cent of all health financing, with 70 per cent of health spending on outpatient treatment devoted primarily to purchasing medicines
• Access to affordable medicines remains a significant concern; Delhi, at best, offers just 48.8 per cent availability
• This spiralling cost of basic medical drugs has left little for daily life. For instance, unskilled workers need to work an hour in India (it’s 10 minutes in the United Kingdom) to afford basic paracetamol

Existing loopholes—

While 358 formulations of paracetamol are under price control, over 2,714 combinations (80 per cent of market share) are not

Despite price controls, the Drug (Prices Control) Order, 2013 covers only 18 per cent of the domestic market (55 per cent is excluded combinations of NLEM drugs), with little impact

• India’s current drug pricing policies have tended to fix the maximum price of a medicine above the retail price of the market volume leader (Marked by the SC)
• While the National Pharmaceutical Pricing Authority struck down its notification on ceiling prices for 50 non-scheduled medicines in 108 formulation/dosages, the public interest in ensuring affordable access remains 

Lack of competition and significant information asymmetry: Leading customers to buy the priciest product to alleviate an immediate need

Arrangements drawing concern—

• Voluntary Licence agreements—signed between Gilead Science and 11 Indian generic drug makers, and this has pushed pricing concerns about critical drugs to rise
• Removal of customs duty exemption on the imports of ~70 drugs
  • Custom Duty of 35% on 15 life-saving drugs
  • Why: Indian companies are producing them already as generic medicines and almost half of them already fall under Government’s price control order
  • Need: Strengthen the taxation structure and boost domestic competition (to increase domestic production-providing relief from the blow being faced due to Chinese imports)
  • Impact: To be borne by the patients of ‘Haemophilia’ (totally dependent upon a medicine produced by an American pharmaceutical company (Find out about ‘Haemophilia)

Ensuring Affordability-Quality-Access

Price Controls— the government needs to utilise price, volume and cost-effective controls to mitigate health-care inflation

• Canada: Patented Medicine Prices Review Board
• Egypt: Has brought all medicines under price control
• Lebanon: Has utilised regressive margin pricing and improved transparency by publishing patient prices on its online Lebanon National Drug Index

Centralised Procurement System—effectively utilised by Tamil Nadufor purchasing drugs

• The government tenders for the antiparasitic Albendazole (400 mg) tablets has attracted prices of 35 paisa per tablet; retail prices are quoted at Rs.12

Stop unethical and unfair drug selling practices—that is used to influence doctors and key bureaucrats

Need to revise the NLEM every 2-3 years: Price regulation should be necessarily based on the therapy considered, instead of a focus on formulation

Need to re-consider the VAT abolishment on essential medicines

Creation of an accessible and affordable health-care system:

• Offering scale, multi-generational permanence (multi-generational)
• Supported by sustainable financing mechanisms to ensure affordability
• Inclusion of debt financing with appropriate policy interventions like cheaper loans and tax breaks on interest payments (to generate fund flow)
• Easing the Reserve Bank of India’s rules on external commercial borrowings by health-care projects: Will help access cheaper funds from a larger credit source; 20 per cent of private equity funds are expected to be invested in health care
• Web of Health Insurance: The government’s push for low cost “in-patient” insurance, while encouraging, should also incorporate out-patient expenses
• Continue work on: Low-cost diagnostic capabilities, generic drug stores (Rajasthan’s “Life Line” drug stores) and low-frills hospitals that provide affordable care (Vaatsalya)

IASbaba’s Views:

• With India becoming a superpower in the field of generic drugs, a well-formulated policy (bulk drug) is the need of the hour to create an enabling environment for the pharma companies to build an ecosystem enabling them to go up the value chain while maintaining the ‘public health’ to be their top-most priority.
• The ‘Pharmacy to the World’ also is striving for immediate needs such as access to capital, quality infrastructure, huge investment, efficient growth and qualified manpower which can cut-across its element of having remained overpriced and unaffordable largely. This sunshine industry requires innovative policymaking initiatives, to trace its high potential for growth and remove the constraint of ‘medical debt’ from the back of many.

Connecting the Dots

• Critically examine the need for setting up a separate ministry for pharma sector in India
• Discuss the recommendations given by the V. M. Katoch Committee.

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