IASbaba's Daily Current Affairs Analysis
IASbaba’s Daily Current Affairs (Prelims + Mains Focus)- 4th June 2018
Archives
(PRELIMS+MAINS FOCUS)
Providing energy access to all: India on right track
Part of: Mains GS Paper III- Energy security
Key pointers:
- India’s efforts in providing energy access to those without it have come in for praise by the International Energy Agency (IEA).
- Since 2000 around half-a-billion people have gained access to electricity in India “with political effort over the last five years significantly accelerating progress”.
- The IEA in its World Energy Outlook 2017 reported that India’s growth was on course to achieving “access to electricity for all” by 2020, which is “a colossal achievement”.
- It noted that the pace had accelerated in recent years, with the country adding annually 40-million people to those with access to electricity, since 2011.
Access to clean cooking fuels:
- Around 78-crore people in India depend on biomass for cooking, but the country is making progress. Almost 3.6-crore LPG connections have been made since the government launched the PAHAL scheme in May 2016 to provide free connections to families living below the poverty line.
- The World Energy Outlook 2017 report had similarly noted that “the share of the population relying primarily on biomass for cooking fell to 59 per cent in 2015 from 66 per cent in 2011.
- Globally, nearly 300-crore people are forced to cook using wood and other fuels that produce smoke, resulting in 28-lakh premature deaths each year – twice more than the number of deaths related to malaria and AIDS combined.
(MAINS FOCUS)
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.
Corporate Social Responsibility: A different model
Introduction:
The Indian Companies Act (2013) mandates that Indian corporates, public and private, must allocate at least 2 per cent of their net profits for CSR (Corporate Social Responsibility).
The Act defines broadly the social framework within which companies should spend their CSR funds but beyond that, companies have the freedom to identify the projects and determine the modalities of implementation.
A significant amount on eligible CSR activities has been spent over the last three years.
Is the current individualistic model with every company doing its own thing, the optimal model for the utilisation of these statutorily sequestered funds?
Issues with current model:
- Corporates have limited experience and expertise in addressing the complexities of social development. That is not their business and whilst they may be genuinely committed to social upliftment, this is not an activity they are trained to lead or manage. They do hire resources to bridge the lacuna but there are many entities with a deeper understanding of social issues and better placed to deploy CSR funds.
- The MCA data shows that the bulk of the CSR money (almost 75 per cent) is allocated to just three sectors — education, health (including sanitation and water) and rural poverty. These are the most pressing issues facing the country.
But this focus raises questions. Is there duplication of effort? Are there inter se synergies to be garnered through cooperation? - The MCA data also reveals a skew in the distribution of the CSR funds. Almost 40 per cent of the money goes to just a few relatively well-developed states — Maharashtra, Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh and Telangana.
Reason- India’s most profitable companies (Reliance, Infosys, Wipro, ITC, IOC, HDFC) invest preponderantly in these states and Section 135(5) of the Act encourages companies to “give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities.”
The current model, thus, aggravates rather than alleviates existing regional and social disparities.
Attitudinal shift: Increasing corporate involvement in social issues
Increasing number of Indian companies, especially large-cap professionally managed companies have woven social responsibility into the fabric of their corporate values. Their leaders have distanced themselves from the Friedmanite dictum (Business had a singular responsibility to their shareholders and that “the business of business was business”).
They, of course, hold themselves responsible for their “business” but not to create value just for the benefit of “business”. They acknowledge a responsibility towards stakeholders that falls outside the boundaries defined by the shareholder community.
A different model:
Corporates can pool their CSR funds into a common “CSR trust” and allow an autonomous body to manage and disburse the funds. This body should be a confederation of corporates, NGOs, domain experts and government.
CSR trust’s role can be to define the CSR agenda, identify the CSR projects, select the local partners, allocate the resources and oversee implementation.
Such a collaborative model would be an improvement on the present individualistic approach.
Benefits:
- It would enable the pooling of knowledge and experience, the sharing of best practice and the leveraging of scale economies.
- It would provide a forum for learning from the grassroots experience of NGOs and the local community.
- It would facilitate back-office synergies and reduce duplication of efforts (as mentioned, CSR money is concentrated on just three sectors).
- It would allow for a more equitable geographic distribution of funds.
- It would provide a platform for the delivery of holistic solutions developed by leveraging the financial and non-financial assets of corporates and by creating development “joint ventures” between companies with complementary assets and skills.
Thus , for example, a JV between Reliance JIO, TCS, Unilever and Larsen and Toubro could bring to a CSR project on education not just the hardware of a school building , tables and chairs but also Internet connectivity by Jio , IT by Wipro, marketing skills by Unilever, vocational training by Larsen and internship by all. And thereby generate sustainable income generating opportunities.
Conclusion:
The government is responsible for social development. Corporates cannot replace them in this role. But governments need help. Corporates can make a meaningful contribution especially if there is a platform that allows them to offer the totality of their skills, technology and resources. The above model for CSR provides such a platform.
Connecting the dots:
- A significant amount on eligible CSR activities has been spent over the last three years as part of CSR. The individualistic model (where each company spends and implements CSR projects individually) is not an apt model. Instead a collaborative approach should be adopted. Comment.
NATIONAL
TOPIC:
General Studies 2:
- Indian Constitution- historical underpinnings, evolution, features, amendments, significant provisions and basic structure.
- Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.
General Studies 3:
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Terms of reference of the 15th Finance Commission: Issues Part II
Introduction:
A reliable system of intergovernmental fiscal transfers is the key to a viable and stable federal polity.
After the abolition in 2014 of the Planning Commission, which played a critical role in the Indian transfer system, the UFC has emerged as the principal agency to handle this delicate task.
Article 280(3) and its first three clauses clearly spell out the core duties of the UFC: tax devolution, grants-in-aid, and augmenting the resources of panchayats and municipalities.
Concern:
Over the years, the open-ended subclause, 280(3)(d), that provides for “any other matter… in the interests of sound finance”, has been exemplified in the Terms of References of recent UFCs.
The Terms of Reference of the 15th FC have attracted considerable public debate. Some States even held ‘conclaves’, and six of them submitted a memorandum to the President to alter clauses which allegedly violate constitutional propriety, long-standing precedents, and the “fiscal rights” of States.
Reference article: Terms of reference of the 15th Finance Commission: Issues
Issues:
- The fiscal consolidation roadmaps that entail expenditure compression which ultimately reduce vital public spending on health, education, food security entitlements, drinking water, and so on disturb the finer fabric of India’s cooperative federalism — especially in the context of India’s lowest share of direct taxes in total taxes in the world, disreputable tax-GDP ratio, imprudent transgression into States’ autonomy, alarming growth of economic inequality etc.
- Transfers to local governments:
The Terms of Reference of the 15th FC introduces “performance-based incentives” which inter-alia want, “Provision of grants in aid to local bodies for basic services, including quality human resources, and implementation of performance grant system in improving delivery of services.”
This subclause is not constitutionally neat because grants to local governments constitute a separate core mandate. - Including transfers to local governments among the “performance-based incentives”, the efforts to link local grants to the divisible pool via Article 275 are apparently ignored.
The need for an integrated federal public finance that takes local governments into account in macro policymaking and in formulating strategies to ensure regional equity and for evaluating the revenue potential and fiscal capacity does not seem to have occurred to the decision-makers of the country. This omission is tantamount to tearing the web of a ‘holding together’ federation which seeks “inclusiveness” as a national goal. The Terms of Reference debate and the memorandum of the State Finance Ministers are silent on this vital issue. - In mandating the 2011 population, no alternate compensatory device has been envisaged.
From a larger cooperative federalism perspective, the issue of population should refer to demographic dividend, inter-State migration, ageing population, and the like.
For example, Kerala reaped its demographic dividend long back in 2001 and now accommodates nearly three million migrants from places like Odisha, West Bengal and Bihar. This takes a heavy toll on the State and local government resources.
Conclusion:
Indian public finance needs to be restructured to focus on local governance.
In preparing the Terms of Reference for a quasi-judicial body like the UFC, it is important not to use it as a platform to impose the Union government’s agenda on the States.
Connecting the dots:
- The drawing up of a Terms of Reference of a constitutional body (Finance Commission) is a serious exercise to be handled with sagacity and skill, based on proper consultations in the true spirit of cooperative federalism. Comment.
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