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IASbaba’s Daily Current Affairs – 4th May 2017

NATIONAL/ECONOMY

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.

Taxing Agricultural Income

Introduction

India’s tax base is disappointing. For a large country with large immense priorities India needs to initiate measure to encourage people to pay taxes and widen tax base. Taxing agricultural income is a recent debate that needs wider debate.

Issue:

Bibek Debroy, a member of the government think tank NITI Aayog, recently voice a proposal to tax agricultural income above a particular threshold which has led to a public exchange of views.

Finance Minister Arun Jaitley quickly dismissed any plans to tax farm income, but more policymakers have voiced opinions.
Chief Economic Adviser Arvind Subramanian who made it clear that taxing farm income is a State subject.

Taxing Agricultural Income – Possibilities:

The public image of farming being a poor man’s venture and the sizeable vote share that farmers enjoy have made the idea of farm taxes a political taboo.
The frequent distress faced by poor or marginal farmers, which could be attributed to structural issues other than taxation, hasn’t helped matters either.
But India has a presence of rich farmers as well and there exists as a strong justification for taxing them in order to widen the country’s embarrassingly narrow tax base.
Debroy suggested that an appropriate tax policy should draw a distinction between rich and poor farmers, thereby addressing the widespread political apprehension of bringing agriculture under the tax net.

India’s narrow tax base:

India’s Economic Survey over the years has continuously highlighted the plight of a low tax base and the need to improve it.
India’s tax base, standing at a diminutive 5.9% of the working population, is already among the lowest in the world.
This unnecessarily burdens the more formal sectors of the economy that are already overtaxed; at the same time, it handicaps government spending on the social sector.

Concerns:

Policymakers must also show equal care and urgency in addressing the structural issues facing the sector.
- This includes, among many, reforms to the broken agricultural supply chain that still leaves farmers at the mercy of middlemen cartels.
- Such reforms are crucial if farming is to become a sustainable enterprise in the long run.
- Else, a tax on high-income farmers will result only in driving resources away from agriculture into other sectors.
It would make no difference to poorer farmers stuck in agriculture, merely because of the lack of opportunities.
In this context, the historical transition of labour and other resources from agriculture into other sectors is particularly useful to keep in mind.
The said transition has been very slow in India; in fact, according to Census figures, the size of the farm workforce increased by 28.9 million between 2001 and 2011.
This is due to a combination of factors, but one in particular is worth noting: the difficulty agricultural workers face in finding jobs in other more advanced sectors.
A tax on lucrative high value farm ventures, which affects their ability to absorb labourers from low-value farming, could make life more difficult for farmers unable to make the cut in industry or services.
Policymakers need to move carefully as they go ahead on a long overdue fiscal reform.

Conclusion:

India’s tax base is disturbingly small and this hurts resource mobilization and use. It is important we take all necessary measures to widen the same. Agriculture especially rich farmers should be progressively brought under the tax net for a vibrant economy and will help further spread of resources. However the [policy should be well planned.

Connecting the dots:

Analyse the need to tax agricultural income of rich farmers. Elaborate on the issues concerning narrow tax base of the country.

INTERNATIONAL

TOPIC: General studies 2:

India and its neighborhood- 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, Indian diaspora.

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

China to host a Belt and Road forum for international cooperation

Introduction:

Recent UN support for China project passing through PoK puts India’s claim in jeopardy.

In March 2017, a UNSC resolution was called on Afghanistan to tackle the “threats” posed by the Taliban, al-Qaeda, ISIS affiliates and other terrorist groups which threaten the security and stability of the war-torn country.

The resolution adopted unanimously by the UN Security Council extended the mandate of UN Assistance Mission in Afghanistan until March 17, 2018, and expressed serious concern at the presence and potential growth of ISIS affiliates in the country.

UNSC resolution welcomed current efforts to strengthen regional connectivity and economic cooperation between Afghanistan and its neighbours, citing the example of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project and the Chabahar port project between Afghanistan, India and Iran.

However, the UNSC resolution had for the first time incorporated China’s Belt and Road Initiative (BRI), a multi-billion inter-continental connectivity mission that has a flagship project passing through Pakistan occupied Kashmir (PoK). It also said international efforts should be strengthened to implement the BRI.

The UN endorsing the BRI could complicate the situation as far as India’s claims are concerned.

India has a “sovereignty” issue with the BRI because its flagship project, the China-Pakistan Economic Corridor (CPEC), passes through PoK and according to diplomats, India endorsing the BRI would mean giving up its claims on PoK.

Also included in the newly adopted council resolution was China’s Belt and Road Initiative, which aims to build a trade and infrastructure network connecting Asia with Europe and Africa along the ancient trade routes.

After this, China promptly announced that this reference of Belt and Road Initiative (BRI) in UNSC resolution reflected a global consensus on the BRI. The Chinese envoy said that latest council move is conducive to creating a favourable atmosphere for China to host a Belt and Road forum for international cooperation in Beijing this May in order to brainstorm on interconnected development.

BRI: the grand design

The BRI originated in 2013 when China’s President Xi Jinping in his speech outlined plans for China’s global outreach through connectivity and infrastructure development.

The Silk Road Economic Belt includes land corridors from China through Central Asia and Russia to Europe with spurs to West Asia and to Pakistan — the China-Pakistan Economic Corridor (CPEC).
The 21st century Maritime Silk Road links China’s east coast through major sea lanes to Europe in the west and the Pacific in the east.
Together, they constitute the BRI (originally “One Belt One Road”, until the Chinese recently changed the name).
The concept was subsequently fleshed out with multiple justifications and project ideas, finally giving it wings as the grand strategic vision of President Xi.

Objectives of BRI

Among Chinese objectives of the BRI are –

finding outlets for excess capacity of its manufacturing and construction industries;
increasing economic activity in its relatively underdeveloped western region; and
creating alternative energy supply routes to the choke points of the Straits of Hormuz and Malacca, through which almost all of China’s maritime oil imports pass
Through BRI, China can strengthen its influence over swathes of Asia and Africa, buttressing its ambitions to be a maritime power, and developing financing structures parallel to (and eventually competing with) the Bretton Woods system.

It is a rich mix of economic, developmental, strategic and geopolitical motives. It is also the most ambitious global infrastructure project ever envisaged by one country.

Concerns:

Connectivity and infrastructure development are unexceptionable objectives. Much of Asia lacks them and the finances required to develop them.

However, analysts have highlighted a number of potential issues:

Chinese overcapacity may override host countries’ development priorities in project selection;
political tensions between countries may prevail over considerations of economic benefit;
local elites may corner the “spoils” from new projects, thereby exacerbating social tensions; and
financing strategies may result in countries sleepwalking into a debt trap (the Hambantota development projects in Sri Lanka provide a telling example).

Much will depend on how sensitive China is to international and local concerns on these counts. However, even if only a part of the grand BRI design is eventually implemented, it could have a major political and economic impact.

India’s stand on BRI and mid-May summit:

Officially, India says it cannot endorse the BRI in its present form and has a “sovereignty” issue, since BRI includes the CPEC, which runs through Indian territory under illegal Pakistani occupation (Gilgit-Baltistan).

Some analysts have argued for the more “pragmatic” approach of a partial endorsement: as the initiative rolls out in various countries, India can engage with them (and with China) to promote projects that would be of benefit.

The mid-May (BRF) summit is said to include leaders of Russia, Turkey, Pakistan, Sri Lanka, Myanmar and Indonesia.

The US, Germany, France and the U.K. will not be represented at the top level (because of their leaders’ domestic preoccupations).

There are only two each from South Asia, Central Asia and Africa and none from West Asia. India has apparently not yet conveyed the level of its attendance.

China has argued that India would be “isolating” itself by staying out and argues that connectivity provided by the BRI would enhance economic cooperation and promote peace.

This corridor would intersect the CPEC and may therefore open new routes for Chinese goods to both India and Afghanistan, besides promoting India, Pakistan and Afghanistan trade.

With its investment in the CPEC now estimated at over $60 billion, its increasing bilateral assistance to Pakistan and its growing military presence in that country, China is in a strong position to persuade Pakistan to recognise that this is in its best economic interest: it may even transform the CPEC into a commercially viable project.

What awaits next?

Will India participate in the BRF summit? Will India ask China whether it is willing to address its concerns in such a way as to enable high-level Indian participation?
Would China be willing to declare that the CPEC is not a component of the BRI but a separate bilateral China-Pakistan project?
Will BRF provide New Delhi the opportunity to extract something of commensurate value in return?

Connecting the dots:

What is China’s Belt and Road Initiative (BRI)? Should India worry about it? Analyze.
Explain the concept of one belt one road initiative of china and its impact on the growth and security of South Asian continent.
India today seems to be sceptical about one belt one road (OBOR) initiative of china. Explain the reasons for the same and what should be the future course of action by India towards OBOR initiative.