IASbaba's Daily Current Affairs Analysis

IASbaba’s Daily Current Affairs (Prelims + Mains

Focus)- 21st December 2017

(PRELIMS+MAINS FOCUS)

Parliament gives nod to the IIM Bill

Part of: Mains GS Paper II- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Key pointers:

As per the IIM Bill, 2017, a Board of Governors will appoint the Director of each IIM.
The Indian Institutes of Management got the power to grant degrees instead of post-graduate diplomas.
The Bill also allows students to acquire doctoral degrees from the IIMs.

Earlier, fellowships of the IIMs were not regarded as Ph.D.s, which led students to complete their diplomas and go abroad if they wanted to earn a doctoral degree.

The hope is that the passage of this Bill will pave the way for more research at these prestigious institutions.
The Bill also confers on the 20 IIMs the status of institutions of national importance, granting them greater functional autonomy by restricting the role of the government in them.

Till now, the Centre had a role in the appointment of the chairpersons and directors to their Boards and also fixing the pay of the directors.
As per the IIM Bill, 2017, a Board of Governors will appoint the Director of each IIM.
A search-cum-selection-committee will recommend the names. And the director will be eligible for variable pay as determined by the Board.

Article link: Click here

Methanol Economy Fund

Part of: Mains GS Paper III- Science & Technology

Key pointers:

Niti Aayog plans to set up a Methanol Economy Fund worth Rs 4,000-5,000 crore to promote production and use of the clean fuel.
Using methanol as a transportation fuel would require minimal alteration in the vehicles. China is the world’s largest producer of methanol.

Benefits of methanol as a fuel:

Methanol fuel is cheaper, safer and pollution free.
Methanol can be used as an energy producing fuel, transportation fuel and cooking fuel, cutting down India’s oil import bill by an estimated 20 per cent over the next few years.

Article link: Click here

Indirect tax collection more than direct tax collection

Part of: Mains GS Paper III- Indian Economy

Key pointers:

The contribution of direct taxes in the total tax collection in 2016-17 has fallen below 50 per cent to 49.66 per cent for the first time since 2006-07.
Data released by the Central Board of Direct Taxes (CBDT) shows direct tax collection in 2016-17 was Rs 8.5 lakh crore. The indirect tax collection in 2016-17 was Rs 8.6 lakh crore.
The reason for the fall primarily is slow growth in corporate profits in the last couple of years and a simultaneous increase in service tax collections during the last couple of years.

Issue:

Indirect taxes are said to be regressive in nature as they do not distinguish between poor and rich, and therefore, higher proportion of indirect taxes in total tax collection is not considered ideal.

Article link: Click here

(MAINS FOCUS)

INTERNATIONAL

TOPIC: General studies 2:

India and its neighborhood- relations

Bilateral, regional , global groupings and agreement involving India and affecting its interest

Effect of policies and politics of developed and developing countries on India’s interests, Indian Diaspora.

Important International institutions, agencies and fora- their structure, mandate.

Reviving SAARC is important

Background:

The 32-year-old SAARC seems to turn into a moribund(decayed) group as India is preoccupied with the exciting prospect of its role in the Indo-Pacific and beyond. The South Asian agenda has been reduced, at least in public perception, to countering Pakistan and its terror proxies.

A moribund SAARC is not in our interest:

Sub-regional and other arrangements such as BIMSTEC, though valuable, are no substitute as these does not include our troublesome western periphery.
A strong regional group is essential to prevent meddling by external powers and realise our legitimate aspirations in the Indo-Pacific and beyond.

Obstacles to the emergence of a cohesive South Asia:

Pakistan is the largest obstacle, but not the only one.
Inability to reach on agreements.
An example is our inability so far to push through a sub-regional Motor Vehicle Agreement with Nepal, Bhutan and Bangladesh after Pakistan blocked a similar arrangement at the SAARC.

Way forward:

We cannot dictate the actions of our neighbours. But we need to pay more attention to certain aspects.

Our ability to manage our region and stature in the world depend to a considerable degree upon economic success.
The continent-sized Indian economy, growing at around 6 per cent, holds a tremendous attraction for our neighbours. In this reference we need to continue strengtheing our economy.
Realising its special responsibility in driving the locomotive of South Asian growth, India should continue to institutionalise positive asymmetry in favour of the small neighbours and allow all to benefit from her economy and market.
All our neighbours have certain vested interests opposed to India and it becomes necessary once in a while to send a coercive message to them. This should, however, not alienate the constituencies that are well-disposed towards us.
A jingoistic response, as in case of the Pakistan security establishment and its proxies ends up consolidating opinion in their favour. The wisdom of restricting transit for Nepal to punish the short-sighted actions of its governments is also questionable.
The resulting hardship can turn the entire population against us.
Relations with our South Asian neighbours are intertwined with the interests of our states and certain political constituencies.
For example, the politics in Tamil Nadu over the Sri Lankan Tamils issue and our relationship with Pakistan has become a subject of electoral politics in recent years.
In a democracy, such politics is unavoidable, and if not considered could have unintended consequences.
The cost and time overruns that mar most of our projects at home due to cumbersome administrative and financial procedures also afflicts our projects in neighbouring countries.
We need to focus on improving our project delivery.
The pull of our soft power is the strongest in South Asia because India remains the repository of nearly all linguistic, religious and cultural traditions of this region. India is the epitome of the South Asian diversity, which we have managed well in our vibrant democracy.
Thus, the huge soft power of India needs to be preserved on continuous basis.

Conclusion:

We cannot ignore or abandon the task of building a largely cohesive and stable periphery. Groupings like BIMSTEC, Indo-Pacific may seemingly be more important but the success of such groupings can be reaped only when we have a stable neighborhood. And for this stability SAARC is quintessential

Connecting the dots:

A decaying SAARC is not in India’s interest. Discuss. Also highlight the ways India can make our neighbors feel comfortable about a regional grouping.

ECONOMY

TOPIC: General Studies 3:

Economic Development – Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment;

Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Inclusive growth and Challenges of inequality.

India’s high inequality is hurting growth

Introduction:

India is suddenly in the news for all the wrong reasons. It is now hitting the headlines as one of the most unequal countries in the world, whether one measures inequality on the basis of income or wealth.

The World Inequality Report 2018 has provided data on inequality across various countries.

World Inequality Report (WIR) is a report published by the World Inequality Lab at the Paris School of Economics, is “based on the latest evidence collected for the World Wealth and Income Database, a massive project maintained by more than 100 researchers in more than 70 countries.”

WIR highlights the following:

Inequality as a rule exists everywhere in the world, where the rich have become proportionately richer than the other groups in the last three decades or so.
India’s inequality looks more skewed. The share of the top 10 per cent in total national income in 2016 in India was 55 per cent. It was 47 per cent for the US, 37 per cent for Europe and 41 per cent for China.
In our country, the top 1 per cent holds 22 per cent of total income which was only below 28 per cent for Brazil. In case of China, it was 14 per cent and 13 per cent for Europe.
According to one more study, India is the second-most unequal country globally, with millionaires controlling 54% of its wealth.

This should give an indication of the concentration of income in certain pockets.

Pic link: https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-explainer/

Wrong growth

There are two other interesting parameters which are spoken about here in the report.

The first is cumulative growth per adult between 1980 and 2014. Given the low base, growth was 223 per cent for this period in case of India. For the bottom 50 per cent it was 107 per cent and 112 per cent for the middle 40 per cent, while for the top 10 per cent it was 469 per cent.
More alarming is the income growth for the top 1 per cent where it was 857 per cent. This is probably a sharper measure of inequality as it speaks of growth in income over various groups where the richest has witnessed the highest increase over higher base numbers compared with the other categories.
The second metric is the share of income growth of various classes for the period 1980-2016. The bottom 50 per cent had a share of just 11 per cent. The middle 40 per cent had 23 per cent, one of the lowest across regions like the World, the US, Europe, and China. The top 10 per cent had share of 66 per cent (same as in the US but much lower than in Europe with 48 per cent and China 43 per cent) and top 1 per cent, 28 per cent. This talks of which groups have gained the most on account of cumulative growth.

Two conclusions can be drawn from the above data.

First, the level of inequality is very high in the country and cannot be disputed.
Second, the benefits of growth have been extremely skewed towards the rich.

So, let us examine how did this happen?

Economic reforms have actually widened the wedge.

In other words, the growth model followed since reforms was tilted towards the productive sectors and liberalisation meant less of government and more of private enterprise.
This was the chosen route to growth and hence it was felt that if the private sector was given space for expansion, the benefits would percolate downwards (or trickle down) through employment opportunities as well as higher living standards.

However, this has not happened according to script and the benefits have largely flowed to the upper echelons.

In fact, this limited growth syndrome acts as a useful social buffer as it gives the illusion of upward mobility even though the pace is much slower than that of the higher echelons. Therefore, it is not surprising that 90 per cent of the population accounted for just a third of the growth taking place during the period 1980-2016.

Private push

Economic reforms were focused on de-nationalisation. Privatisation meant that even public companies would be owned by private players, which began the process of heightened inequality.

Governments have dithered (on two minds) on subsidies and the elite are anti-subsidy. The result has been that even government activity has tended to move towards private projects generation in roads and city development (privatization). Therefore, when a road is created the contracts go to private parties, which increases income of the relatively richer echelons.

Crony capitalism

Curiously, the distribution by the government of relief payments to the unemployed under NREGA scheme has been criticized and expressed sharp disapproval by many, as it has pushed up wages beyond productivity levels and affected corporate profits!

This is so as NREGA wage has become a benchmark for all wages in industry.

There is hence relentless pressure from the corporate world on the government to lower these allocations on grounds of its distorting the wage structure.

This kind of growth of crony capitalism and growing nexus between the government and some corporates has exacerbated the income distribution pattern.

Privatisation programmes are normally for better performing companies — which is natural or else they would not be of interest to the private sector. Loss-making companies continue to be held by the Government. This is another reason which has fostered the inequality syndrome in the country.

Demand saturation, and more

Higher inequality comes in the way of demand creation.

Economic growth is sustainable provided the poor are also able to rise in the hierarchy and spend on goods and services. If these incomes do not rise, the demand cycle is interrupted. Therefore, it is essential to keep their income increasing at a reasonable rate.

The problem we have today of absence of demand is because of inequality.

The rich run into a cliff of ‘demand-saturation’ where motor vehicles cannot be changed every year or houses bought periodically. The other income groups too have to spend. If they do not have this money or other means needed for a particular purpose, as is the case in the last three years, the tendency would be to spend more on essentials than consumer goods which impact growth.

Conclusion:

Tackling inequality and reducing the gap between citizens is ironically a necessity to keep the economy ticking.

In the West, high levels of prosperity across the citizens was one reason for expanding markets overseas. We do have a large populace that needs to move up the ladder or else will continue witnessing growth in waves rather than in a linear manner.

Connecting the dots:

Discuss the main causes for high level of economic inequality in India. What can India do to reduce inequality?
Unless we make an effort to first contain and then reduce the rising levels of extreme inequality, the dream of ending extreme poverty will remain a pipe dream. Elucidate.