Archives

(PRELIMS + MAINS FOCUS)

India’s GDP falls 23.9% in first quarter: NSO data

Part of: GS-Prelims and GS-III – Economy

In News:

• As per National Statistical Office (NSO), April-June 2020-21 Quarter GDP growth at constant prices (Real GDP) is -23.9%. 
• It was measured from the same quarter previous year 2019-20. 

Key takeaways 

• All the sectors have shown negative growth except agriculture where the growth was 3.4%.  
• India will face negative growth in the present quarter (July to Sept) also measured from July-Sept 2019-20. 
• As we all know that the Demand of GDP in the economy comes from four sectors: Household (Consumption – C), Private Sector (Investment – I), Government (Consumption + Investment represented by G), Export – Import (X-M)
• In the Present Scenario, recession has been triggered because due to Lockdown, production was stopped then people lost jobs and their (consumer) demand decreased.
• Then, the businessmen reduced production and their demand for capital goods/raw material/ intermediate goods decreased.

Do you know? 

• Once a country faces two consecutive quarters of negative real growth (measured from the same quarter previous year), then it is declared recession.
• India is also expected to see a full year contraction in real GDP in the present year by around 5%.
• India till now has faced recession four times in 1957-58 (-1.2% – drought), 1965-66 (-3.66% – drought), 1972-73 (-0.32% – Oil crisis) and 1979-80 (-5.2% – oil crisis/drought).

Rare Renati Chola era inscription unearthed

Part of: GS-Prelims and GS-I – Art and Culture

In News:

• A rare inscription dating back to the Renati Chola era has been unearthed. 
• Location: Remote village of Kadapa district, Andhra Pradesh. 

Image source: Click here 

Key takeaways 

• It was found engraved on a dolomite slab and shale. 
• It was written in archaic Telugu, which was readable in 25 lines
• It was assigned to the 8th Century A.D., when the region was under the rule of the Chola Maharaja of Renadu.

Important value additions 

Renati Cholas

• The Telugu Cholas of Renadu (also called as Renati Cholas) ruled over Renadu region, the present day Cuddapah district. 
• They were originally independent, later forced to the suzerainty of the Eastern Chalukyas. 
• They had the unique honour of using the Telugu language in their inscriptions belonging to the 6th and 8th centuries.
• The inscriptions at Gandikota at Jammulamadugu and Proddatur are proof of this fact. 

Do you know? 

• Suzerainty is a relationship in which one state controls the foreign policy and relations of a tributary state, while allowing the tributary state to have internal autonomy. 

U.S.-Israeli delegation lands in Abu Dhabi on historic visit 

Part of: GS-Prelims and GS-II – International relations

In News:

• A U.S.-Israeli delegation arrived recently in Abu Dhabi on the historic first commercial flight from Tel Aviv, Israel. 
• The visit marked the normalisation of ties between Israel and the UAE.
• Objective of the visit: To boost cooperation in areas including aviation, tourism, trade, health, energy and security.

Important value additions 

• Israel’s Health Ministry updated its list of “green countries” with low COVID-19 infection rates to include the UAE and eight other countries.
• This means that Israeli officials and journalists travelling to Abu Dhabi would be exempted from 14-day quarantine upon return.
• The UAE repealed a 1972 law which earlier boycotted Israel. 
• Now, it will be permissible to enter, exchange or possess Israeli goods and products of all kinds in the UAE and trade in them. 

Do you know? 

• The UAE is the first Gulf country and only the third Arab nation to establish relations with Israel.
• Egypt made peace with its former battlefield enemy in 1979. 
• Jordan followed in 1994. 
• The UAE has never fought a war with Israel. 

Atal Bimit Vyakti Kalyan Yojana extended

Part of: GS-Prelims and GS-II – Policies & GS-III – Employment

In News:

• The Employees’ State Insurance Corporation (ESIC) has extended the Atal Bimit Vyakti Kalyan Yojana by one year to 30th June 2021.
• The ESIC has also relaxed eligibility criteria and enhanced the payment of the unemployment benefit under the Yojana. 

Important value additions 

Atal Bimit Vyakti Kalyan Yojana 

• It was introduced from 1st July 2018.
• Under it, unemployment benefit is paid to the workers covered under the Employees’ State Insurance (ESI) scheme.
• The benefit is paid in the form of cash compensation upto 90 days, once in a lifetime. 
• It can be claimed after three months (90 days) in one or more intervals for being unemployed.

INS Viraat

Part of: GS-Prelims and GS-III – Security

In News:

• INS Viraat will be scrapped at a ship breaking yard at Alang in Gujarat soon.
• INS Viraat holds the Guinness World Record for being the longest serving warship of the world.
• It is a Centaur class aircraft carrier. 
• It played a major role in Operation Jupiter in 1989 during the Sri Lankan Peacekeeping operation. 
• It also saw action during Operation Parakram in 2001-2002, post the terrorist attack on Parliament.
• The indigenous Advance Light Helicopters ‘Dhruv’ and the Russian twin rotor Kamov-31 have also operated from the ship.
• It was decommissioned in March 2017. 

Miscellaneous

Kavkaz 2020

• India has announced its withdrawal from multilateral Military Exercise Kavkaz 2020. 
• It is to be held in Astrakhan region in southern Russia from 15th to 26th September.
• Both China and Pakistan are going to be a part of the multinational exercise.
• China’s participation in the exercise was also a reason for India to pull out of the multilateral tri-services military exercise.
• India is locked in a military conflict with the Chinese in eastern Ladakh and on high alert all along the 4,000 kilometre Line of Actual Control (LAC). 

(MAINS FOCUS)

ECONOMY/ FEDERALISM

Topic: General Studies 2,3:

• Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

GST reform needs a new grand bargain

Context: 40th GST Council meeting and growing voices about compensation to states.

Do you know?

• Before GST, States had the power to levy some indirect taxes on economic activity. Therefore, after GST regime was introduced (in 2017), the Centre promised guaranteed compensation to the States for the first five years, for the revenues they lost after the shift from the earlier system. 
• The compensation is calculated at a growth rate of 14% keeping 2015-16 as the base year.

Challenges for GST during the times of Pandemic

• Shortfall: The tax collection has dropped significantly, while expenditure needs are sharply higher, especially at the frontline of the battle, at the State level.
• Centre abdicating responsibility: Using an equivalent of the Force Majeure clause in commercial contracts, the Centre is abdicating its responsibility of making up for the shortfall in 14% growth in GST revenues to the states (compensation amount)
• States are left for themselves: It seems that the States have been told that they are on their own to meet the shortfall in revenues.

Why is Centre putting onus on States to finance themselves considered wrong?

• Limited Avenues: States do not have recourse to multiple options that the Centre has, such as issue of a sovereign bond (in dollars or rupees) or a loan against public sector unit shares from the RBI. 
• Less bargaining Power: The Centre can anyway command much lower rates of borrowing from the markets as compared to the States. 
• Rating Agencies don’t differentiate: In terms of aggregate public sector borrowing, it does not matter for the debt markets, nor the rating agencies, whether it is the States or the Centre that is increasing their indebtedness.
• Macroeconomic Stability is Centre’s domain: Fighting this recession through increased fiscal stimulus is basically the job of macroeconomic stabilisation, which is the Centre’s domain. 
• Erodes Federal Trust: Most importantly, breaking the important promise of compensation, using the alibi of the COVID-19 pandemic causes a serious dent in the trust built up between the Centre and States.

Way Forward – GST 2.0

• Widening of Tax Base: GST is a destination-based consumption tax, which must include all goods and services with very few exceptions, such as food and medicine

• Low and stable single rate: Widening of the tax base itself will allow us to go back to the original recommendation of a standard rate of 12%, to be fixed for at least a five-year period.

• Some extra elbow room for the States’ revenue autonomy can be obtained by allowing the States non VATable surcharges on a small list of “sin” goods such as liquor, tobacco, polluting goods such as SUVs, and industrial fuels such as diesel, aviation turbine fuel and coal. 
• Sharing with Third Tier of Government: Of the 12% GST, 10% can be equally shared between the States and the Centre, and 2% must be earmarked exclusively for the urban and rural local bodies, which ensures some basic revenue autonomy to them. The actual distribution across panchayats, districts and cities would be given by respective State Finance Commissions.

Conclusion

GST is a crucial and long-term structural reform which can address the fiscal needs of the future, strike the right and desired balance to achieve co-operative federalism and also lead to enhanced economic growth. 

Connecting the dots:

• Lessons from GST for One Nation One Ration Card

ECONOMY/ GOVERNANCE/ INTERNATIONAL

Topic: General Studies 2,3:

• Important International institutions, agencies 
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Criticism of WB’s Ease of Doing Business Report

Context: World Bank’s decision to halt its annual ‘Doing Business’ report on account of data authenticity issues of some countries. It has also decided to audit the ‘Doing Business’ report for the last five years 

India and Ease of Doing Business

• India has sought to improve its ease of doing business index ranking, as a means to attract investments to achieve the targets set for ‘Make in India’
• India’s success in boosting its ease of doing business ranking is spectacular, to 63rd rank in 2019, up from the 142nd position in 2014. 

Criticism of World Banks Ease of Doing Business report

1. The report is Politicised 

• • Chile’s global rank went down sharply, from 34th position in 2014 to 67th in 2017. 
  • Chile’s former Socialist President (2014-18), Michelle Bachelet, accused the World Bank of manipulating the index methodology to show her presidency in poor light, while showing improvement in the ranking during the regime of the right-wing party.

2. Admission by WB Chief Economist (Paul M. Romer) to the mistakes

• • In 2017, he said, “Based on the things we were measuring before, business conditions did not get worse in Chile under the Bachelet administration”
  • He further added, “I didn’t do enough due diligence and later realised that I didn’t have confidence in the integrity of the report’s data.”
  • The World Bank’s own internal watchdog, the Independent Evaluation Group, in its 2013 report, has widely questioned the reliability and objectivity of the index. 

3. Robustness of methodology & calculation of Index is doubted

• • Analytical and empirical foundations of the index are weak, if non-existent. 
  • The index is based on de jure measures, and not on de facto conditions.
  • Example: The data for computing the index for India is obtained from larger enterprises in two cities only, Mumbai and Delhi, by lawyers, accountants and brokers — not from entrepreneurs.

4. Utility of the Index is questionable

• • There is no credible association between improvement in ranking and a rise in capital formation & output growth.
  • Russia’s ease of doing business rank jumped from 120 in 2012 to 20 in 2018 ahead of China, Brazil, and India, but without becoming a magnet for investment inflows. 
  • China, on the contrary, attracted one of the highest capital inflows but its ease of doing business ranking was low and hovered between 78 and 96 for the years between 2006 and 2017.

5. Index is an ideologically loaded measure against the interest of workers

• • To meet the ease of doing business targets, labour rights and safety standards of factories are often compromised. 
  • In 2016, the Maharashtra government abolished the annual mandatory inspection of steam boilers under the Boilers Act of 1923 and the Indian Boilers Regulation 1950.
  • There is little economic evidence to suggest that minimally regulated markets for labour and capital produce superior outcomes in terms of output and employment

Implications for India

• Since 2015, the government has invested considerable political and administrative capital to improve India’s ranking.
• While its Ease of Doing Business rank improved, it has meant nothing on the ground. 
• The share of the manufacturing sector has stagnated at around 16-17% of GDP, and 3.5 million jobs were lost between 2011-12 and 2017-18. 
• India should do some soul searching as to why the much trumpeted rise in global ranking has failed miserably on the ground.

Connecting the dots:

• World Competitive Index

(TEST YOUR KNOWLEDGE)

Model questions: (You can now post your answers in comment section)

Note: 

• Correct answers of today’s questions will be provided in next day’s DNA section. Kindly refer to it and update your answers. 
• Comments Up-voted by IASbaba are also the “correct answers”.

Q.1 Recently India’s GDP fell by 23.9% in the first quarter of 2020. Consider the following statements: 

1. All the sectors have shown negative growth except agriculture. 
2. Once a country faces three consecutive quarters of negative real growth it is declared recession.

Which of the above is/are correct? 

1. 1 only 
2. 2 only 
3. Both 1 and 2 
4. Neither 1 nor 2

Q.2 Recently Renati Chola Era inscription has been unearthed in which of the following state of India? 

1. Karnataka 
2. Kerala 
3. Tamil Nadu 
4. Andhra Pradesh

Q.3 Consider the following statements regarding Renati Chola: 

1. They ruled over Renadu region. 
2. They were forced to the suzerainty of the Eastern Pallavas.
3. They used Telugu language in their inscriptions between 6th and 8th centuries.

Which of the above is/are correct? 

1. 1 and 2 only 
2. 2 only 
3. 1 and 3 only 
4. None of the above

Q.4 Consider the following statements regarding INS Viraat: 

1. It holds the Guinness World Record for being the longest serving worship of the world. 
2. It played a major role in Operation to Jupiter during Bangladesh peacekeeping operation.

Which of the above is/are correct? 

1. 1 only 
2. 2 only 
3. Both 1 and 2 
4. Neither 1 nor 2

Q.5 India recently announced its withdrawal from multilateral military exercise Kavkaz 2020. In which of the following country is it going to be held? 

1. Russia 
2. Japan 
3. China 
4. USA

ANSWERS FOR 31st August 2020 TEST YOUR KNOWLEDGE (TYK)

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