Daily Current Affairs for UPSC IAS | 12th November 2021

Watch the free daily Current affairs video explanation

UPSC Current Affairs: INDIA SEEKS $1 TN IN ‘CLIMATE FINANCE’ TO MEET ITS TARGETS | Page – 01

UPSC Syllabus: Mains: GS Paper III: Climate change and environment

Sub Theme: Climate finance | UPSC

Context: India has demanded a trillion dollars over the next decade (by 2030) from developed countries to adapt and mitigate the challenges arising from global warming. India has kept this as a condition for delivering on climate commitments made by Prime Minister Narendra Modi in Glasgow, Scotland.

Demanding $1 Trillion from developed world

  • The demand comes after India’s surprise announcement at the opening of COP26 negotiations in Glasgow, Scotland, that it would set an ambitious new goal to reach Net-Zero Emissions by 2070.
  • Indian officials clarified their demands that they want $1 trillion in funds just for India by 2030. This amount is ten times more than the unmet $100 billion a year for all poor countries sought under previous deals.
  • This would also mean that advanced economies have to give India the same amount of funds they’ve promised for all poor countries.

How India wants to achieve Climate Neutrality by 2070

  • India’s five-fold plan aims at reducing the carbon intensity of its economy and eventually achieving net zero by 2070.
  • Net zero is when a country’s carbon emissions are offset by taking out equivalent carbon from the atmosphere, so that emissions in balance are zero.

India’s Stance on Updating its NDC

  • NDCs are voluntary targets that countries set for themselves, which describe the quantum and kind of emission cuts they will undertake over a fixed period to contribute to preventing runaway global warming.
  • Despite these assurances, India has not formally updated its Nationally Determined Contributions (NDC).
  • According to Indian officials, India’s NDCs are conditional and is subjected to the availability of the amount of $1 trillion in climate finance.
  • However, the decision on when to submit revised NDCs has not yet been taken.

 

UPSC Current Affairs: THE LOWDOWN ON INDIA’S GLASGOW ANNOUNCEMENTI Page – 06

UPSC Syllabus: Mains: GS Paper III: Environment and climate change

Sub Theme: UNFCCC meet | UPSC

India’s shock announcement at Glasgow

  • India even though not part of problem historically, is still willing to cut carbon emissions and has hinted at effort in curtailing global emission.
  • India’s pledge at Glasgow as of now has not been formally made part of an updated Nationally Determined Contributions (NDC) but still confirms to Paris Agreement to increase emission cut in tackling escalating climate crisis.
  • Despite several meetings of Indian officials on meeting climate neutrality, India did not disclose its intention of achieving climate neutrality prior to Prime Minister’s announcement at Glasgow.
  • Even senior Indian officials were loudly proclaiming the unacceptability of net-zero and the unlikelihood of higher targets by India.

Closely Examining India’s Commitments

  • India insufficiently communicated the significance of its enhanced commitments, especially in contrast to the weak pledges of developed countries.
  • Little effort was made to leverage India’s updated pledge to extract deeper emission cuts from them.

India’s new targets, details perhaps varying in an updated NDC, comprise five elements:

Sr. No. New Targets India’s Projections – Targets Concerns
1 Reducing Emissions Intensity (EI), or emissions per unit of GDP, by 45% in 2030 relative to 2005 levels India’s existing NDC and subsequent submissions to the United Nations Framework Convention on Climate Change (UNFCCC) confirm a steady decline in EI of over 2% p.a. from 2005 onwards. Both the 33%-35% decline promised at Paris, and the updated 45% reduction by 2030, are quite achievable and par for an emerging economy.

 

2 Cutting absolute emissions by 1 billion tonnes, presumably from projected business-as-usual (BAU) 2030 levels. India’s current annual emissions are around 2.8 billion tonnes and projected to reach about 4.5 billion tonnes in 2030 on a BAU basis.

 

Thus, the pledged reduction would be a substantial 20%, comparing favourably with several developed country targets.

 

However, the Prime Minister’s speech in Glasgow mentioned the Railways’ net-zero 2030 target cutting 60 million tonnes annually, and LED bulbs cutting another 40 million tonnes a year, yielding one billion tonnes over 10 years from just these two measures. This may seem easy to achieve but in reality India may struggle.

 

3 500 GW (1 Giga watt = 1,000 Megawatts) of non-fossil fuel installed power generation capacity by 2030 The Central Electricity Authority (CEA) in its 2020 Report on Energy Mix for 2029-30 has projected around 525 GW or 64.3% non-fossil fuel installed capacity including 280 GW Solar and 140 GW wind. Only 267 GW is projected to come from coal and lignite, compared to 203 GW in 2019, so almost all of India’s future growth of capacity is to come from RE.

 

 

 

On installed power generation capacity, India’s extant NDC had incorporated the Government’s declared goal of 175 GW from renewable energy (RE) sources by 2022, even though the NDC stretched to 2030, raising an anomaly.

 

India has reached only around 101 GW of solar and wind due to numerous constraints. Even adding large hydro and nuclear powers, both now considered renewable, current RE installed capacity is about 150 GW.

 

So, India at Glasgow therefore seems to have pledged virtually no additional coal-based power. This will be tough to achieve.

 

4 50% electricity generation from renewable sources by 2030   India’s Glasgow pledge of 50% electricity from RE by 2030 is just a bit more than the CEA projection of 44.7%. These commitments may prove difficult as currently witnessed, combined with the need for storage and grid stability.

 

5 Net-zero emissions by 2070

 

  Accelerated deployment of electric or fuel-cell vehicles must go alongside a rapid reduction in personal vehicle use and a major push for mass transportation. Carbon lock-ins and energy use need to be minimised through mandatory “green” construction codes for the huge housing and other buildings stock, highways and infrastructure yet to be built. A leap in employment-intensive recycling of waste goods and materials, including in solid and liquid waste management linked to methane recovery, would deliver substantial co-benefits across sectors.

 

Two Disappointments

  1. India refused to join over 110 countries in a declaration to end deforestation by 2030. India’s pledges also do not mention the NDC target for forests and tree cover, in which India is known to be slipping, with deleterious impacts on both the environment and livelihoods of tribals and other forest dwellers. Read together, these may confirm the worst fears of many regarding efforts to dilute environmental regulations in favour of corporate interests.
  2. India also did not join the Global Methane Pledge by over 100 nations to reduce emissions of the short-lived but potent greenhouse gas by 30% by 2030 from 2020 levels, when methane is among the fastest growing emissions in India.

Infrastructure for Resilient Island States (IRIS)

  • IRIS, a dedicated initiative, has been co-created by the Coalition for Disaster Resilient Infrastructure (CDRI) with support from Member Countries and organizations and Small Island Developing States (SIDS) representatives.
  • IRIS aims to support SIDS in achieving sustainable development through a systematic approach to resilient, sustainable, and inclusive infrastructure. IRIS will promote disaster and climate resilience of infrastructure assets in SIDS, and share latest knowledge and learnings targeted to specific infrastructure sectors.
  • IRIS will work with SIDS to identify opportunities for partnerships and technical collaborations to strengthen infrastructure systems for resilient development in these countries.
  • The goal of IRIS will directly contribute to the SAMOA Pathway (SIDS Accelerated Modalities of Action), and target to deliver three outcomes with progress monitored against these outcomes through the lifecycle of IRIS. Aligned with SAMOA pathway, the three intended outcomes are:
  1. Improve resilience of SIDS infrastructure to climate change and disaster risk.
  2. Strengthen knowledge and partnerships for integrating resilience in SIDS infrastructure.
  3. Promote gender equality and disability inclusion through resilient SIDS infrastructure.

Conclusion

  • The author concludes by saying that efforts such as IRIS must also be undertaken in India where coastal erosion, sea-level rise, and urban flooding due to extreme rainfall exacerbated by haphazard urbanisation are acquiring threatening dimensions.
  • It would be ideal too if the on-going updating of the NDC was done through a cross-partisan multi-stakeholder consultative process that would make it truly “nationally determined” and implemented.

 

UPSC Current Affairs: A tax burden that attacks the federal rights of States I Page – 06

UPSC Syllabus: Mains: GS Paper 3: Indian economy and taxation

Sub Theme: Taxation | UPSC

A tax burden that attacks the federal rights of States

  • The government  had to ensure that the revenue of the Central and State Governments are not compromised/reduced because of the new tax structure.
  • It was a known fact that the revenue of the Government would not be the same in comparison with the then-existing tax structure due to the enhanced tax credit mechanism and other modifications.
  • Therefore, an adjustment in the tax rate was required to avoid a reduction in the revenue of the Government.
  • To ensure that the revenue does not reduce, an adjustment in the tax rate was required. This rate was termed as the ‘Revenue Neutral Rate’ (RNR).
  • RNR calculation has to include the cascading effect on certain goods having no excise or sales tax implications. For example: Wheat would get costlier due to RNR fixed for diesel being higher than current tax rate even though wheat does not have any excise or sales tax implications.

Important Prelims Fact: RNR recommendation from Subramanian committee:-The government of India had appointed a committee which is headed by Dr. Arvind Subramanian. Committee had released a detailed report on the calculation of RNR and the tax structure.

Ratio for Distribution of RNR

  • One of the biggest hurdle in deciding the RNR is the distribution ratio among the central and state government.
  • The ratio has to include the effects of the loss to be borne by different state governments.
  • Two different ratios were selected for assessment. Central to state ratio of 60:40 or the reverse ratio of 40:60. “Coming up with an RNR is as much soft judgment as hard science” as quoted by the subramanian committee on the report shared by them with CBEC on RNR and GST rates.
  • The drawback of setting a RNR low would lead to decrease in growth rate of the economy in long term.

Reason for Problems of RNR in India

  • Many types of taxes are levied in India, which are not consistent between the products. For example, entertainment tax is levied on movies but is not levied on consulting services. Therefore, the revenue neutral rate for these two services will be different.
  • Credit of some taxes is available, and not for others. For example, Octroi cannot be set off against excise, but VAT can be set off. Both these taxes are going to be subsumed under GST. But Octroi is applicable only on inter state sales while GST is applicable on all states. Then how can the rate be same?
  • The taxation also depends on the person itself, rather than the product. For example, a manufacturer may claim credit of service tax but a trader cannot. In such circumstances, calculating a single revenue neutral rate is going to be difficult.
  • Finally, there are a lot of differences between tax rates within each state as well. CST rates for MP, for example, are lower than those of Gujarat. But the aim is to have a single rate of GST. Therefore, something which is revenue neutral for MP might be a revenue loss for Gujarat.

Conclusion

RNR is one of the biggest hurdles in the implementation of GST. It is probable that a higher RNR is fixed by India when compared to the international RNR.

TENSIONS IN FISCAL FEDERALISM

One Fundamental aspect of our Governance is the fiscal federalism which provides the autonomy of the states to raise revenue and undertake expenditure according to their priorities and needs. Such form of fiscal federalism has been formulated keeping in mind the diverse needs and aspirations of the states across India and hence considered critical for balanced and holistic development of the entire country.

However, in recent years, the fiscal federalism has become skewed towards the Centre in certain aspects and the same has been opposed by number of states. In this regard, let us understand  some important issues which have arisen in the Centre State Fiscal Relations.

Higher Share of Cess and surcharge: Cess and surcharge imposed and collected by the Centre do not form part of Central Divisible pool of taxes. They are not distributable among the States and hence continue to remain with the centre. Over a period of time, the Centre has been imposing large number of surcharge and Cess to mobilise revenue. A Case in point is the recent introduction of the Agri Infrastructure Cess in the Union Budget 2021-22.

The share of Cess and Surcharge as a percentage of Gross Tax Revenue(GTR) of the centre has increased sharply from 2.3% in 1980-81 to 15% in 2019-20. The States see this as an illegitimate way of depriving resources that are rightfully due to them.

GST compensation: States agreed to give up the power to impose indirect taxes and adopt GST on the basis of a guaranteed 14 per cent growth in GST revenues per annum. The Centre committed to pay the states for the shortfall in their GST revenue through the imposition of GST Compensation Cess for a period of 5 years.

However, on account of CoVID-19 pandemic, there was GST shortfall of almost around Rs 3 lakh crores. However, money collected under GST compensation Fund was hardly around Rs 65,000 crores. Hence, there was an obligation on the Centre to pay compensation amount of almost Rs 2.35 lakh crores. Initially, the Centre asked the States to borrow this amount from the market. Later on, due to strong opposition, the Centre decided to borrow on behalf of the states and compensate them. This recent issue over GST compensation has led to erosion of trust in the fiscal federalism.

Centrally Sponsored Schemes (CSS): The Centrally Sponsored schemes are the schemes which are financed by both Centre and States in a defined proportion (70:30 or 60:40 or 50:50 etc), but implemented by the respective State Governments. Some of these schemes include MGNREGA, Ayushman Bharat, National Education Mission etc.

The Centre lays down elaborate rules and guidelines with respect to implementation of these schemes. It also lays down purposes for which the funds can be utilised for. The State governments claim that such rules and guidelines do not provide them with enough financial and operational autonomy in executing the schemes.

These Centrally sponsored schemes have also faced political controversy. For instance, some of the States such as West Bengal, Telangana etc. have decided not to implement Ayushman Bharat Scheme. These states claim that their own health insurance schemes are better than centre’s Ayushman Bharat Scheme.

Borrowing powers of the States: Under Article 293, the States are allowed to raise loans from the Centre or market. However, a State cannot raise a public loan without the consent of the Centre if there is still outstanding any part of a loan. Since all the State Governments have been and continue to be indebted to the Centre, the Centre effectively controls the amount of public debt raised by State Governments. Presently, the fiscal deficit of a State cannot exceed 3% of GSDP.

Hence, in recent times, particularly in the aftermath of CoVID-19 pandemic, Frictions have risen over the Centre’s attempt to perpetually control borrowings by the States. The recent 50-year interest free loan announced by the Centre for the states is a case in point. Any State which avails this facility will need to take Centre’s permission for all future borrowing  at least for the next 50 years.

REVENUE NEUTRALITY IN GST AND ISSUES IN GST

Details about GST

What is GST? GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage is made available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. GST is a consumption-based value-added tax on goods and services with dual levy by both the Union and the States.

Components of GST: States levy and collect State GST (SGST) and the Union levies and collects the Central GST (CGST). For any particular good or service, the SGST and CGST rates are equal. An integrated GST (IGST) is applied on inter-state movement of goods and services and on imports.

Taxes subsumed under GST:

Trends in GST Collection- Important Prelims Pointers

Lack of Revenue Neutrality:  A change in tax structure can be said to be revenue neutral if the modified tax is able to realize revenue comparable to the original tax regime. In this sense, the much-needed revenue neutrality of GST stands compromised. The Share of General Government’s revenue from taxes subsumed under GST was 6.3% of GDP in 2016-17.  However, the collections under GST was 5.7% of GDP in 2018-19 and 5.6% in 2019-20.

Share of GST in Total Tax collection: GST accounts for the highest share followed by Income Tax and Corporate Tax. Amongst different components, IGST accounts for highest share.

Improvement in Tax base: Increase in number of registered taxpayers from 1.08 crore to 1.23 crore. More number of informal entities have come under the tax bracket.

Challenges and Concerns

The 15th Finance Commission has highlighted some challenges with the implementation of the Goods and Services Tax (GST).  These include:

Stagnation in Revenue: Monthly GST collections crossed Rs 1 lakh crore in April 2018 and since then remained stagnant.

Inverted Duty Structure: The term ‘Inverted duty Structure’ refers to a situation where the rate of tax on inputs purchased (i.e. GST Rate paid on inputs) is more than the GST rate on finished goods. The inverted duty structure leads to higher input tax credits and hence lower tax collection for the Government.

Complexity: The GST was introduced in order to simplify the tax structure and improve the tax compliance. However, the existing GST regime has multiple rates: 0, 0.25, 1, 3, 5, 12, 18 and 28%.

Coverage: Petroleum crude, petrol, high speed diesel, natural gas etc. are still outside GST.

Issues in Refunds: Delays in GST refunds, recent unearthing of fake invoices and fraudulent practices to corner input tax credit.

Anti-profiteering framework: Need to evolve clear guidelines on anti-profiteering mechanism.

Shortfall in GST Compensation Cess: Almost 21 states still depend upon Centre for the GST compensation.

Severe fiscal strain is expected when the 14% compensation comes to an end as the median growth rate of subsumed taxes is only 11%, and in many States between 5% to 10%. The median subsumed tax buoyancy is below unity. This means with 1% growth, there will be a 0.75% growth of tax.

Architecture: The fundamental weakness of the GST is its political architecture which is asymmetrically loaded in favour of the Centre. Disputes between States and between the Centre and the States are inevitable in a mosaic arrangement. But in the current structure, no particular body is tasked to adjudicate this though the original Constitution (115th Amendment) Bill 2011 (GST Bill) had a provision for such an institution. In the voting, the central government has one-third vote and States have two-thirds of total votes (with equal voting rights regardless of size and stake). With the support of a dozen small States whose total GST collection is not more than 5% of the total — and their Budget is mostly underwritten by the central government — the game is hugely in the Centre’s favour. With equal value for each States’ voting, larger and mid-sized States feel short changed.

 

UPSC Current Affairs: Is the economy still reeling from demonetisation? I Page – 07

UPSC Syllabus: Prelims and Mains: GS Paper 3: Indian Economy

Sub Theme: Demonetisation | UPSC

IMPACT OF DEMONETISATION

  • Impacted daily transaction of money and hit the MSMEs and people in the informal system the most as they are cash-dependent.
  • It did not impact large corporations that much as much of their transaction is not in cash and they also have a pool of reserve funds which they can use in any emergency. Such pool is not available to people in the informal sector and once cash transaction was stopped, it impacted their business and livelihood.
  • Impact of demonetisation was further stressed by introduction of GST and it impacted the MSMEs much more than the large corporates.
  • According to SBI Report, informal sector shrank from 52% of formal GDP in 2017-18 to mere 15-20% of formal GDP in 2020-21.
  • Covid pandemic has further impacted the informal sector as lockdown led to closure of business for substantial amount of time for both formal and informal sector. Due to lack of reserve pool, most of the business in the informal sector were closed. Now, in the formal sector, particularly the large players not only survived the lockdown but are now thriving post lockdown. So, the sharp bounce back witnessed in the economy is mostly by corporates.
  • Thus, the informal sector because of three sequential shocks – 1. Demonetisation 2. GST 3. Lockdown in Pandemic – are in dire straits. Vast majority of the Indian market which is at the bottom of the pyramid are finding difficult to recover.
  • The target of demonetisation to stop terror financing and reduce corruption has not happened. Even the cash in transaction is at much higher level as compared to 2016 when demonetisation took place.
0

Leave a Reply

Your email address will not be published. Required fields are marked *