EDITORIALS & ARTICLES
2nd February 2021
Govt. agrees to maintain States’ share in the divisible pool of taxes
- The government has accepted the Fifteenth Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41%.
- This has been done for the five-year period starting 2021-22.
- Government gave an ‘in-principle’ nod to the panel’s suggestion to set up a separate non-lapsable fund for defence and internal security modernisation.
15th FINANCE COMMISSION
- The Fifteenth Finance Commission (XV-FC or 15-FC) is an Indian Finance Commission constituted in November 2017 and is to give recommendations for devolution of taxes and other fiscal matters for five fiscal years, commencing 2020-04-01.
- The commission's chairman is Nand Kishore Singh, with its full-time members being Ajay Narayan Jha, Ashok Lahiri and Anoop Singh. In addition, the commission also has a part-time member in Ramesh Chand.
- Shaktikanta Das served as a member of the commission from November 2017 to December 2018.
ON STATE'S BORROWING
- The Fourteenth Finance Commission had raised States’ share to 42% of divisible revenues.
- The Fifteenth Finance panel had reduced the share to 41% in its interim report for 2020-21, citing the conversion of Jammu, Kashmir and Ladakh into Union Territories.
- The Commission’s report with the government’s action taken report on its suggestions, has recommended additional revenue deficit grants of ?2.94 lakh crore for 17 States over the next five years.
- The government has accepted this recommendation as well as the panel’s suggestion to enhance State’s borrowing ceilings in 2021-22.
- The government’s acceptance of the 41% vertical share for States recommended by the Commission as a sign of its commitment to fiscal federalism.
ON CEILING LIMIT
- Government has allowed a normal ceiling of net borrowing for the States at 4% of Gross State Domestic Product (GSDP) for the year 2021-2022.
- A portion of this ceiling will be earmarked to be spent on incremental capital expenditure.
- An additional borrowing ceiling of 0.5% of GSDP will also be provided based on meeting specified reforms in the power sector.
- States are expected to reach a fiscal deficit of 3% of GSDP by 2023-24, and maintain that level till 2025-26, as per the Commission’s report.
- The Centre has accepted ‘in-principle’ this quantum of net borrowing ceilings for the States, as per the action taken report.
- While the Commission has suggested the additional ceiling for power sector reforms be offered up to 2024-25, the government has said it will examine recommendations related to States’ fiscal road map separately.
ON FRBM
- The Commission has also recommended to overhaul the Fiscal Responsibility and Budget Management law to ensure legislations are in sync with fiscal sustainability frameworks.
ON DEFENCE
- The Commission has recommended creating a separate non-lapsable fund for modernisation of defence and internal security, a term of reference the Centre had sought its views on.
- To bridge the gap between defence budget allocations and the projected budgetary requirements, the panel has mooted a fund of ?2.38 lakh crore for the coming five-year period.
- It has recommended that ?1.54 lakh crore of this fund be transferred from the Consolidated Fund of India, partially using receipts from the disinvestment of defence public sector enterprises and land monetisation.
- The government has said the modalities and sources of funding will be examined in due course.
FOR SOUTHERN STATES
- The Commission has sought to assuage the fears of southern States about losing some share in tax transfers due to the reliance on the 2011 Census data instead of the 1971 census, which could penalise States that did better on managing demographics.
- It has done so by giving a 12.5% weightage for demographic performance in its tax-transfer calculations.
- The revenue deficit grants proposed for Andhra Pradesh and Kerala are far higher than the previous Commission’s period, while Tamil Nadu has also been earmarked for marginally higher grant on this front.
Centre to amalgamate market laws into single code
- The Centre on Monday announced setting up of a Single Security Market Code by consolidating the provisions of SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1956 and Government Securities Act, 2007.
- This was announced by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman, while presenting the Union Budget 2021-22 in Parliament.
ENHANCING EASE OF DOING BUSINESS
- According to analysts, this move will improve ease of doing business in the country’s financial markets, cut down compliances, reduce cost and do away with friction between various stakeholders.
- In order to instil confidence among participants in the corporate bond market during times of stress and to generally enhance secondary market liquidity, the Budget has proposed to create a permanent institutional framework.
- The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market.
- It will clearly help to deepen the corporate bond market which continues to face liquidity challenges.
- This will be fairly positive for debt mutual funds particularly credit funds which had witnessed significant outflows last year due to poor liquidity in certain corporate papers.
- This will also help to reduce the volatility in secondary market yields of relatively lower rated bonds in the AA and A category.
OTHER STEPS
- The government also announced establishing a system of regulated gold exchanges in the country.
- For this purpose, SEBI will be notified as the regulator.
- The Warehousing Development and Regulatory Authority will be strengthened to set up a commodity market ecosystem with arrangements including vaulting, assaying and logistics in addition to warehousing.
- To provide protection to investors, the Finance Minister has proposed to introduce an investor charter as a right of all financial investors across all financial products.
- A significant change, the impact of which would be felt across industries, is the proposed introduction of the securities market code.
- Also an important proposal, on expected lines, has been the introduction of certain dispute resolution mechanisms – reduction of the limitation period to 3 years should help in bringing certainty to taxpayers.
Auto sector welcomes vehicle scrappage policy
- Leading players in the automotive sector have welcomed the Centre’s announcement on the voluntary vehicle scrappage policy to phase out old and unfit vehicles.
- While tabling the Union Budget for 2021-22, Finance Minister said the policy would help in encouraging fuel-efficient, environment-friendly vehicles, thereby reducing vehicular pollution and the oil import bill.
WHAT DOES THE POLICY AIM TO ACHIEVE?
- The idea is to phase out cars and commercial vehicles which are older than 20 or 15 years, respectively.
- This is being done in a bid to reduce urban pollution levels and galvanise automotive sales, which continue to suffer during India’s post-COVID recovery phase.
- This means that any private vehicle that’s older than 20 years will have to undergo a fitness test.
- A fitness test, according to the Finance Minister, will be conducted at automated fitness centres, which will determine whether the vehicle in question is qualified to run on roads, or headed for the scrap heap.
- Vehicles would undergo fitness tests after 20 years in automated fitness centres in the case of personal vehicles (PV), and after 15 years in the case of commercial vehicles (CV).
ARE THERE ANY OTHER COSTS INVOLVED?
- Yes. The government has proposed a Green Tax, which requires you to pay 10-25 percent of your road tax every time you renew your fitness certificate.
- This means that, in addition to the fee you’re required to shell out for the test, you have to pay a considerable sum, which differs from city to city, based on their pollution levels.
- In the Delhi-NCR region, for example, the Green Tax, if implemented, would require the customer to pay 50 percent of the road tax, upon renewal of registration.
EXPERT OPINIONS
- Kenichi Ayukawa, president, Society of Indian Automobile Manufacturers (SIAM), “the vehicle scrappage scheme has a good intent and the auto industry would be keen to work with the government on suggestions for maximising benefits to environment and society.”
- Federation of Automobile Dealers Associations president Vinkesh Gulati said, “If we take 1990 as the base year, there are approximately 37 lakh CVs and 52 lakh PVs eligible for voluntarily scrappage. “As an estimate, 10% of CVs and 5% of PVs may still be plying on the road.”
- Vipin Sondhi, MD & CEO, Ashok Leyland Ltd., said the policy is good for the environment and for setting in motion a circular economy. “However, we await further details of the policy as the industry had requested an incentive-based scrappage policy for it to be effective, Mr. Sondhi said.
For New Delhi, the tightrope on Myanmar is back
For India, the return to military rule by Myanmar’s Tatmadaw (Army) and the detention of Aung San Suu Kyi and the political leadership of the National League of Democracy (NLD) are a repeat of events 30 years ago.
INDIA'S DILEMMA:
- Modi government’s reaction is likely to be starkly different to India’s strong public criticism of the junta’s actions in 1989-90.
- India does care about democracy in Myanmar, but that’s a luxury it knows it will not be able to afford for the time being.
- The only option will be to engage, building on its outreach in recent years via the security and defence establishment.
- One important reason for the change is that India’s security relationship with the Myanmar military has become extremely close.
- It would be difficult to “burn bridges” with the army given their assistance in securing the North East frontiers from insurgent groups.
- In a joint visit to Naypyidaw in October 2020, Foreign Secretary Harsh Shringla and Army Chief Gen. Manoj Mukund Naravane made it clear that New Delhi saw both relationships at par.
- Another reason for the change is Ms. Suu Kyi herself, whose image as a democracy icon and Nobel peace laureate has been damaged by her time in office, where she failed to push back the military, and even defended the Army’s pogrom against Rohingya in Rakhine State in 2015.
CHINA FACTOR:
- Officials also say a harsh reaction from India, on the lines of that from the U.S., would only benefit China.
- US has threatened action against those responsible for the “coup” unless they revoke the military’s takeover.
GROWING RELATION WITH MYANMMAR:
- Apart from strategic concerns, India has cultivated several infrastructure and development projects with Myanmar, which it sees as the “gateway to the East” and ASEAN countries.
- These include the India-Myanmar-Thailand trilateral highway and the Kaladan multi-modal transit transport network, as well as a plan for a Special Economic Zone at the Sittwe deep-water port.
- India still hopes to help resolve the issue of Rohingya refugees that fled to Bangladesh, while some still live in India, and will want to continue to engage the Myanmar government on that.
No Indian role in developing ECT in Colombo
- Reneging on a 2019 agreement with India and Japan, Sri Lanka has decided to develop the strategic East Container Terminal (ECT) at the Colombo Port on its own.
- The Sri Lankan government would instead offer the West Container Terminal to India for possible investments.
- It comes amid mounting pressure from Port union workers against any foreign role or investment in the ECT project, where nearly 70% of the transhipment business is linked to India.
EAST CONTAINER TERMINAL
- In 2019, Sri Lanka, Japan and India signed an agreement to jointly develop the East Container Terminal at the Colombo Port.
- The three countries will jointly build the East Container Terminal at the Port of Colombo.
- As per the agreement the Sri Lanka Ports Authority (SLPA) retains 100% ownership of the East Container Terminal (ECT), while the Terminal Operations Company is jointly owned,the SLPA
- Sri Lanka will hold a 51% stake in the project and the joint venture partners will retain 49%.
- Japan is likely to provide a 40-year soft loan with a 0.1% interest rate, details of India’s contribution to the initiative are awaited
IMPORTANCE OF THE PROJECT FOR INDIA
- Over 70% of the trans-shipment business at the strategically located ECT is linked to India
- The involvement of India and Japan is the project is being seen as a big development aimed at neutralising the growing influence of China, which has poured money into the South Asian island nation under its mammoth Belt and Road Initiative (BRI) infrastructure plan
INDIAN REACTION
- Asked about the development, a senior Indian source said: “We would hope that Sri Lanka does not unilaterally decide on this matter, as there is a tripartite agreement on it.”
- For New Delhi, the strategic ECT project in Colombo has been high on priority.
- It has figured in talks at the highest levels, including when External Affairs Minister S. Jaishankar visited in January.
ESIC, other social security safety nets to cover gig economy workers
- With the Covid-19 pandemic increasing the focus on gig economy and its workers, Finance Minister on Monday said that the law on minimum wages would now apply to workers of all categories including those associated with platforms.
- Such workers would now be covered by the Employees State Insurance Corporation (ESIC).
EMPLOYEES' STATE INSURANCE
- Employees' State Insurance (abbreviated as ESI) is a self-financing social security and health insurance scheme for Indian workers.
- The fund is managed by the Employees' State Insurance Corporation (ESIC) according to rules and regulations stipulated in the ESI Act 1948.
- ESIC is a Statutory and an Autonomous Body under the Ministry of Labour and Employment, Government of India.
MORE DETAILS
- Women will be allowed to work in all categories and also in the night-shifts with adequate protection.
- At the same time, compliance burden on employers will be reduced with single registration and licensing, and online returns.
- The Labour Ministry defines a gig worker as any person “who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”.
SAFETY NET
- The Budget for 2021-22 (April-March) also proposes to launch a portal that would collect relevant information on gig economy workers, including those working in building and construction, among others.
- This portal will help formulate relevant policies for health, housing, skill, insurance, credit and food schemes for such workers.
- Extending safety net of ESIC and other social security to gig economy workers was proposed by the government as a part of the reforms to the three labour codes, passed by the Lok Sabha in September last year.
- The safety net, however, came with its own set of limitations as the same set of reforms to the labour codes allowed firms greater flexibility in hiring and firing workers without any permission from the government.
- Currently, neither the central government nor the states have any data on the possible number of gig economy workers in the country.
- Industry executives, however, estimate that there could be over 130 million gig economy workers with many more expected to join the freelance work force as formal jobs slowed dry up.
- The extension of safety net to gig economy workers was welcomed by platforms such as Urban Company and Snapdeal, who said it will help the sector grow in a sustained manner.
EASING COMPLIANCE BURDEN
- Apart from the workers, the budget for 2021-22 has also proposed measures aimed at easing the compliance burden for startups as well as larger companies.
- Having decriminalised several procedural and technical compoundable offences under the Companies Act, the government now aims to do the same for the Limited Liability Partnership Act.
- Companies which have paid up capital of up to Rs 2 crore and turnover of up to Rs 20 crore, up from Rs 50 lakh and Rs 2 crore, respectively, will be considered under the definition of small companies from the new fiscal, Sitharaman said.
- The government has proposed to incentivise the setting up of one-person companies (OPC) by allowing them to grow without any restrictions on paid-up capital and turnover, with an option to convert into other companies at any other time.
- The residency limit for an Indian citizen to set up an OPC has also been cut down to 120 days from 182 days, while also allowing non-resident Indians to start OPCs in India.
Allocation Of Rs 24,435 crore Hike in WCD budget, Mission Poshan 2.0 launched
- The Ministry of Women and Child Development has received a 16 per cent increase in its budget allocation this year with a sum of Rs 24,435 crore announced Monday.
- Finance Minister further announced that supplementary nutrition schemes were being merged with the Poshan Abhiyan to launch Mission Poshan 2.0.
NATIONAL NUTRITION MISSION
- Government is implementing several schemes and programs under the Umbrella Integrated Child Development Services Scheme as direct targeted interventions to address the problem of malnutrition in the country.
- All these schemes address one or other aspects related to nutrition and have the potential to improve nutritional outcomes in the country.
- POSHAN Abhiyaan (National Nutrition Mission) is a flagship programme of the Ministry of Women and Child Development (MWCD), Government of India, which ensures convergence with various programmes i.e., Anganwadi Services, Pradhan Mantri Matru Vandana Yojana (PMMVY), Scheme for Adolescent Girls (SAG) of MWCD Janani Suraksha Yojana (JSY), National Health Mission (NHM), Swachh-Bharat Mission, Public Distribution System (PDS), Department Food & Public Distribution, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Ministry of Drinking Water & Sanitation.
- The goals of NNM are to achieve improvement in nutritional status of Children from 0-6 years, Adolescent Girls, Pregnant Women and Lactating Mothers in a time bound manner during the next three years beginning 2017-18.
MISSION POSHAN 2.0
- Out of the allocation for the ministry this year, the highest amount has been allocated to Mission Poshan 2.0 and Saksham Anganwadi scheme — Rs 20,105 crore.
- Poshan 2.0 now combines the Integrated Child Development Services (ICDS), Anganwadi services, Poshan Abhiyan, Scheme For Adolescent Girls and National Creche Scheme.
- The allocation for social services sector, which includes nutrition and social security and welfare, has been increased from Rs 2,411.80 crore in 2020-21 to Rs 3,575.96 crore.
- Schemes like Beti Bachao Beti Padhao, One Stop Centres, Swadhar Greh, Child Protection, Pradhan Mantri Matru Vandana Yojana, Scheme for Adolescent Girls and Ujjawala have not been allocated anything in this budget.
- The budget of the ministry’s autonomous bodies — National Institute of Public Cooperation and Child Development, Central Adoption Resource Agency, National Commission for Protection of Child Rights, National Commission for Women and Central Social Welfare Board — have been increased.
ENHANCING NUTRITIONAL CONTENT
- The budget for Mission for Protection and Empowerment of Women has been drastically reduced from Rs 726 crore to Rs 48 crore.
- The launch of Mission Poshan 2.0 by merging the supplementary nutrition programme and Poshan Abhiyan is a great step to strengthen the country’s public health as the mission intends to enhance the nutritional content delivery and the outreach.
- NFHS-5 data shows the significance of nutrition more than ever before as the nutrition indicators have not fared well.
- We recognise that malnutrition is a complex condition that can involve multiple factors.
- Therefore, to reduce multiple forms of malnutrition, more nutrition specific and nutrition sensitive interventions should be targeted.
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