IASbaba's Daily Current Affairs Analysis

IASbaba’s Daily Current Affairs (Prelims + Mains Focus)- 5th February 2018

(PRELIMS+MAINS FOCUS)

The proposed Outward Direct Investment (ODI) policy

Part of: Mains GS Paper III- Indian Economy

Key pointers

It may contain provisions to make it easy for many Indian firms to transform themselves into multi-national companies (MNC), to go global and expand.
Approval requirements and other norms would be simplified in a manner that would encourage ‘internationalisation’ of Indian companies.
The ODI policy is also expected to tighten regulations to prevent round-tripping structures, where funds are routed by India-based companies into a newly formed or existing overseas subsidiary and then brought back to India to circumvent regulations here. They said the Reserve Bank of India (RBI) and the Finance Ministry (tax departm
According to India Brand Equity Foundation (IBEF), “Indian firms invest in foreign shores primarily through mergers and acquisition (M&A) transactions. With rising M&A activity, companies will get direct access to newer and more extensive markets, and better technologies, which would enable them to increase their customer base and achieve a global reach.”
Export-Import Bank of India (EXIM Bank), in a July 2017 research brief, had said: “… policy measures by way of removing hindrances and providing broad support (such as financial and technological), especially to firms with small foreign investment intensities (small overseas investment positions) can help improve firms’ competitiveness, export earnings and sales.”

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World-class cancer research park to come up in Visakhapatnam

Part of: Mains GS Paper III- Infrastructure

Key pointers:

A high-level team from America-based Elixsys and noted companies in cancer care will be exploring the option of developing a world-class cancer research park in Visakhapatnam.
Named Vyas Cancer Park (VCR), it is aimed at making the park a prominent hub for cancer research.
The project was cleared by the Empowered Committee of Secretaries. It had recommended the AP Industrial Infrastructure Corporation (APIIC) to develop a joint venture model for the project and place it before the Cabinet, if required, for approval.
The aim of the project is to create a comprehensive life science ecosystem that specialises in bringing together various stakeholders from around the world to undertake research in the VCR Park.

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Ceasefire violations on rise across India-Pak border

Part of: Mains GS Paper II- Internal security

Key pointers:

Indian troops have been given instructions to “shoot limitless bullets to retaliate to a single fire on our territory” from Pakistan, by the Home minsitry.
Ceasefire violations continued to rise with January 2018 witnessing the most number since the 2003 ceasefire agreement.
Army sources said 2017 has turned out to be the most violent year along the India-Pakistan border since the two sides entered into a ceasefire agreement in 2003.
At least 860 incidents of ceasefire violations have been recorded in the past year.
Ceasefire violations have been steadily rising over the past three years.

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(MAINS FOCUS)

NATIONAL

TOPIC:

General Studies 1:

Social empowerment

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 planning, mobilization of resources, growth, development and employment.

Economic Survey 2017-18: Analysis

Background:

The Economic Survey is a statutory document tabled in Parliament. It is meant to be a scorecard of the economy for the current fiscal year.
Over the years, it has become a sourcebook for data and policy analysis.

Facts about the Indian economy: Highlighted in ES 2017-18

Demonetisation and more formalisation of the economy have led to a huge jump in the number of taxpayers, for both direct and indirect taxes.
The formal part of the non-agricultural payroll is much bigger than believed.
India’s export sector is more diversified in comparison to other peer countries; that is, the top 1% of exporting firms account for a much smaller share of total exports, compared to East Asian countries.
Small and medium enterprises play an important rolein industrial employment and exports.
Farm incomes have remained stagnant for the past four years, hit by a drop in crop prices, output glut, and possibly demonetisation.

Issues:

Fiscal slippage:

The Survey hints that some slippage from pre-announced fiscal deficit targets are to be expected in this pre-election Budget.
Issue:
The bond markets hate fiscal slippage. This will lead to a rise in interest rates.
The biggest loser from a higher interest rate is the biggest borrower in the system, the Government of India.
Even an increase of 0.5-0.6% rate over one year is an increase in the interest burden of more than ₹40,000 crore, equivalent to the full budget of the Mahatma Gandhi National Rural Employment Guarantee Act.
Way out:

The disinvestment target was overachieved this year which is quite impressive and could be continued next year.
Also, the widening of the tax net can be positive for revenues, thus cutting the deficit.

Macroeconomic headwinds from abroad:

Oil prices are going up.
This would mean that the triple advantage that the government enjoyed since late-2014 for almost two years of a lower import bill, lower oil subsidy burden and lower inflation is going to go away.
Every $10 increase in oil prices can reduce GDP growth by 0.2-0.3%.
The tightening stance of the world’s most influential central bank, the U.S. Fed.
As rates are being tightened in the U.S., it is likely to lead to a reversal of dollar flows, which can impact India’s domestic liquidity situation, the stock market, and perhaps the exchange rate.

Domestic challenges:

The Budget priorities are in folowing five areas:

Job creation
Revival of private investment spending
Revival of exports
Focus on rural and agricultural economy.
Bringing the banking sector back to a healthier condition.

Other challenges:

Increasing inequality-
Oxfam recently released a report which said that 1% of India owns 73% of its wealth.
One cause of inequality is the strain of indirect taxes, which tend to be regressive because they affect the poor disproportionately. The goods and services tax is an indirect tax. Excise duties on petrol and diesel are indirect taxes.
In the last three years, the share of indirect taxes in total taxation has gone up steadily, which needs to be reversed.
Tax disputes-
The Survey points out that India’s rank in ease of doing business has jumped significantly, but an area which remains a cause for concern is the settlement of disputes or litigation.
By definition, one party to the litigation is the tax department, and quite often the other party is also a government company. The total amount estimated to be locked up in tax disputes is more than ₹8.2 lakh crore.
There is an incentive problem because tax officers are not incentivised to settle claims for fear of being accused of collusion or corruption.
The Economic Survey points out that such a high rate of pendency and the huge amounts stuck in litigation are hurting India’s ease of doing business.

Conclusion:
The Survey is overall an excellent document. It provides a realistic picture whether it is about jobs, investments, growth outlook or burdensome litigation.

Connecting the dots: