IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs April 2017, IASbaba's Daily News Analysis, International, National, UPSC

IASbaba’s Daily Current Affairs – 26th April 2017

NATIONAL

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 relating to planning, mobilization of resources, growth, development and employment.
Inclusive growth and issues arising from it.

NITI AYOG – Change in Planning mindset

Introduction

Post independence planning was adopted as major part of economy. Economic and social planning is part of concurrent list of Indian constitution. With the NITI Ayog taking over from the erstwhile Planning Commission there is change in the planning framework.

Perspective Planning:

The decades-old five-year plans will now make way for a larger and more focused 15-year “National Development Agenda” that will include internal security and defence as well.
The new blueprint will be implemented after the last of the five-year plans, the 12th (2012-17) ends next year. In the new framework, there will be a 3-year Action Plan for 2017-18 to 2019-20, aligned to the award period of the 14th Finance Commission.
In it there is also a 7-year strategy from 2017-18 to 2023-24 to convert “longer vision into implementable policy and action as part of the “National Development Agenda” with a mid-term review after three years, in the financial year ending March 2020.
Finally, it will have an over-arching 15-year aspirational plan for achieving the Sustainable Development Goals.

Issue:

To do away with the erstwhile Planning Commission’s control-and-command approach towards States and his oft-repeated emphasis on ‘cooperative federalism’, there were great expectations from the successor organisation, the NITI Aayog.
The Five Year Plans — the last one ended on March 31 — were relegated to history, to be replaced by a three-year action plan. This was to be part of a seven-year strategy that would in turn help realise a 15-year long-term vision.
The agenda outlined in the recent meet is meant to be the first step towards attaining the envisioned outcomes by 2031-32.
- This ‘New India’, as NITI Aayog Vice Chairman Arvind Panagariya put it, will ensure housing for all, with toilets, LPG, power and digital connections; access to a personal vehicle, air conditioner and white goods for ‘nearly all’; and a fully literate population with universal health care.
Assuming that the economy grows at 8% annually hereon, the Aayog has presented estimates about the size of the economy and per capita incomes by 2031-32, though comapring these with China’s performance in the last 15 years is a bit odd.
India’s GDP will rise by ?332 lakh crore in the next 15 years, the Aayog reckons.
- The bare details of the 15-year vision that have been shared seem like motherhood statements with some optimistic numerical guesswork.
- But even that is more than we know about the seven-year strategy.
Without the larger strategy and vision in place, the three-year action plan is likely to be more of an abstract wish list that Chief Ministers will now evaluate and revert on.
- Effectively, till it is ratified by the Council, there is a vacuum in India’s policy framework — similar to the delayed starts of past Five Year Plans. It is not yet apparent if the 12th Plan’s innovation of painting alternative scenarios (of actions and outcomes) — a more useful tool for longer-term planning — has been adopted.
Meanwhile, the PM’s message to States to speed up capital expenditure and infrastructure development is important as pump-priming the economy is not only the Centre’s task.
To make cooperative federalism truly effective, the Council, or Team India, must meet more often — a nearly two-year gap in doing so is a recipe for communication breakdown.

Conclusion:

Planned development is a necessary framework for a country like India. NITI Ayog can go a long way in ensuring the much needed cooperative federalism imbibed with innovative practices and long term vision. But the idea of Team India should be in true spirit than in words.

Connecting the dots:

Critically analyse the new planning framework outlined by the NITI Ayog. How will it be different compared to erstwhile planning framework?

INTERNATIONAL

TOPIC: General Studies 2

India and its neighbourhood- relations.

Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Effect of policies and politics of developed and developing countries on India’s interests

Delay in quota reforms to erode IMF’s credibility

In News: Addressing the plenary of the International Monetary and Finance Committee (IMFC), Finance Minister Arun Jaitley said current IMF quotas do not reflect global economic realities and demanded reforms to the controversial quota system.

So what exactly does it mean to reform quotas at the IMF?

What is an IMF ‘quota’?

IMF member countries are each assigned a quota — a value of its share in the IMF financing system that is tied to its impact on the world economy.

A country’s quota at the IMF determines its voting power, the amount of financial resources it must provide to the IMF and its access to IMF financing. The larger a country’s quota, the more say that country has in the governance of the international financial institution.

Quotas are based on a weighted average of GDP, openness, economic variability and international reserves. They are expressed in a value known as Special Drawing Rights, an international reserve asset determined by the value of the U.S. dollar, euro, Japanese yen and pound sterling.

Issue:

The IMF’s Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s quota cannot be changed without its consent.

On December 15, 2010, the Board of Governors, the IMF’s highest decision-making body, completed the 14th General Review of Quotas (GRQ), which involved a package of far-reaching reforms of the IMF’s quotas and governance.

This reform package, which became effective on January 26, 2016, delivered an unprecedented 100 percent increase in total quotas and a major realignment of quota shares. It doubled the overall size of the quotas to $659 billion (from $329 billion) while allotting an additional 6% of quotas to the developing world. However, there has been a long delay in implementation of this 14^th GRQ reforms and stakeholders have argues that the quotas do not reflect global economic realities.

Key reforms proposed by 14^th GRQ:

Gave boost to the representation of emerging economies like India, China, Brazil, Russia and increased their power and greater say in IMF.
India’s voting rights increased by 0.3% from the current 2.3% to 2.6%. China’s voting rights increased by 2.2% from current 3.8% to 6 %.
These reforms shifted more than 6% of the quota shares to emerging and developing countries from the US and European countries. Russia and Brazil also have gained from the reforms.
The combined quotas or the capital resources of IMF also have doubled due to reforms to $659 billion from current $329 billion.
The doubling of quotas means that the shares (roles) of advanced European and Gulf countries have been reduced and that of emerging nations particularly China has been increased.
China will have the 3rd largest IMF quota and voting share after the US and Japan. While, India, Russia and Brazil will also be among the top 10 members of the IMF.
The voting power and quota shares of the IMF’s poorest member countries will be protected.
Under the reform, for the first time IMF’s Executive Board will consist entirely of elected Executive Directors and it ends the category of appointed Executive Directors.

The 15th General Review of Quotas (GRQ), the most recent attempt to revise the size and composition of the system, was to be completed by October 2017, but the deadline has now been extended to 2019.

Why is reform necessary?

IMF shareholders decided the reforms were necessary in order to more accurately reflect the growing global influence of emerging market economies, and to boost the IMF’s legitimacy as a global financial institution.

The reform will boost the IMF’s “core resources,” which will allow it to more effectively respond to financial crises. The reform will strengthen the IMF in its role of supporting global financial stability.

The developing world is looking beyond the short-term crisis management tools that the IMF, as the sole international lender of last resort, has traditionally offered them for decades now — albeit in an unsatisfactory and politically biased way.

There have been rising influence of economies seeking alternative sources of capital to fund their long-term growth needs. For instance, India is seeking $2 billion from the New Development Bank, set up by the BRICS countries in 2015 with a more equitable power structure, to fund infrastructure projects.

The Asian Infrastructure Investment Bank, launched in 2014, could be an even bigger threat to the IMF’s influence given its larger membership, lending capacity and international reach.

In this environment of competition, the IMF will have to do more than just superficially tinker with its asymmetric power structure and outdated quota system. Else, it could be slowly but steadily pushed into irrelevance.

Any further delay in the 15th GRQ will erode IMF’s legitimacy and credibility and will be against the spirit of the Articles of Agreement. The IMF could turn irrelevant unless it reforms to keep up with rival global institutions.

Connecting the dots:

There is urgency for reforming international financial institutions so as to reflect the growing role of developing countries in the world economy. Do you agree? Elucidate.