GS: 2

International relations:

Time for an icebreaker (The Hindu) 

Context

In the late 1960s, shortly after the India- Pakistan  war, the official in the Ministry of External Affairs handling the Pakistan desk received a strange request during his meeting with the new Pakistan High Commissioner

Intellectual partition

Author states that India and Pakistan have now developed intellectual partition on various levels

Cultural partition

Pakistan: The process of this partition, which began in the 1950s, when poets and historians began to construct separate histories, is now complete, as Pakistani students learn a language more Arabic than Urdu, of a polity that begins in 1947, and about an ancient history that relates to foreign invaders from the country’s west more than the shared history with its east

India: On the Indian side, contemporary cultural linkages have been severed, with Abida Parveen and Ghulam Ali no longer able to perform in India, Pakistani actors barred from work in Indian films, and a television network stopping the very popular telecast of Pakistani soap operas

Sports

Sporting events are fewer, and there is little “healthy rivalry” when Indian and Pakistani teams do meet: instead a defeat becomes a national disgrace, while a victory is celebrated as a quasi-military conquest

Visa

Visas are still granted for pilgrimages on both sides, but for all other travel they are tightly controlled and granted as exceptions to the rule

Bilateral trade

Bilateral trade, which had developed a low but steady normal, could be reduced even further now: as Indian development of Chabahar port in Iran circumvents Pakistan by sea, and an air cargo corridor to Afghanistan replaces land cargo entirely. Effectively, India is willing to double its trade costs and spend billions of dollars extra in order block out Pakistan, and Pakistan is willing to risk its trade route to Afghanistan and Central Asia, but won’t allow Indian trade to Afghanistan come through Wagah

Trade of fire

The only increased ‘trade’ is that of ‘trading fire’ at the Line of Control (LoC), where Pakistan attempts to push in infiltrators over the LoC into India under covering fire, and Indian troops fire back, taking also a high toll for civilians on both sides

  • After the 2003 ceasefire had been implemented, villagers on either side of the LoC had returned to their homes and rebuilt schools along the area. Most of that peace has been undone by the past few years of ceasefire violations, according to a study by the United States Institute of Peace called “A Line on Fire”
  • Ceasefire violations: From 12 ceasefire violations (CFVs) on both sides combined and one civilian casualty in 2006, 2016 saw 51 dead in about 900 CFVs. The data for this year has surpassed those numbers, which includes four Indian Army soldiers killed this weekend

Yet, neither side gives credence to claims of the other. Even after the surgical strikes of September 2016, Pakistan’s government refused to accept India’s detailed account of the cross-LoC action

Terrorism

The discourse on terrorism is even more divided

  • No justice for Mumbai: After the Mumbai attacks of 2008, Pakistan admitted in public statements at least that the perpetrators of the attacks would be brought to justice. Yet in the past three years, the Mumbai trial in Rawalpindi has all but ground to a halt
  • No action on terrorists: The Lashkar-e-Taiba’s operations commander Zakiur Rehman Lakhvi is out on bail, while 26/11 mastermind Hafiz Saeed, out of custody last month, plans to stand for elections in 2018
  • Propaganda: On the Pakistani side, there’s growing belief that India funds groups such as the Tehrik-e-Taliban Pakistan (TTP) as well as insurgent groups in Balochistan. Mr. Modi’s public support for the Baloch insurgency during his Independence Day speech last year did not help
  • Kulbhushan Yadav: The fate of Kulbushan Jadhav, whose release from Pakistani custody in other times may have been decided by mutual negotiation and a possible exchange of personnel, is now in the hands of the International Court of Justice

Why is it necessary for both sides to close this intellectual gap?

  • India has long opposed “third-party interventions”, but the lack of dialogue with Pakistan is imposing just that, with every dispute between the two countries now being taken up at global forums: the United Nations, Financial Action Task Force, International Court of Justice, and World Bank for the Indus Waters Treaty
  • With the U.S. drawing India into its Afghanistan policy, and China’s stakes in the China-Pakistan Economic Corridor, the subcontinent is becoming an area of contestation by players bigger than both India and Pakistan. Even in Afghanistan, their interests are being increasingly defined by the coalitional arcs being drawn: with the U.S., India, and Afghanistan ranged on one side; and Russia, China, Iran, Pakistan and the Taliban on the other

A mistake

India’s decision to stay out of the South Asian Association for Regional Cooperation (SAARC) meet in Pakistan has also complicated its standing as a regional leader

  • While alternative arrangements such as The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), the Bangladesh, Bhutan, India, Nepal (BBIN) initiative and the Indian Ocean Rim Association (IORA) represent some parts of the region, they cannot replace the whole, and the region becomes easier to fragment, as China has managed to do by making inroads into Nepal, Bangladesh, Sri Lanka and the Maldives

Way forward

Without bilateral talks, the two sides can explore simple engagements on the environment, medical tourism, energy pipelines and electric grids in the interim

Conclusion

In a world where connectivity is the new currency, and multiple alignments are replacing polar geopolitics, it is hard to justify the disconnected space that New Delhi and Islamabad are hurtling into

Technology alone isn’t the solution (The Hindu Opinion) 

Context

In the annals of the story of air pollution, December 3, 2017 will likely become a pivotal moment. On Day 2 of the final Test match between India and Sri Lanka in Delhi, bowlers Lahiru Gamage and Suranga Lakmal left the Kotla cricket ground early in the game complaining of breathing difficulties. 

Author’s contention

No government can eliminate air pollution within the span of a single term in office. Neither the previous United Progressive Alliance government nor the current National Democratic Alliance government is alone culpable — business, the media, and the middle and upper classes are equally to blame. In fact, the government may not even have the tools to ‘solve’ the problem of air pollution in our cities. It may take years of worse conditions before things get better, unless some transformational alternatives are seriously considered

Explaining urban pollution

Urban air pollution refers largely to the mixture of gases and small particles in the lowest hundred or so metres, a result of human activity associated with vehicles, road dust, domestic cooking and heating, power plants and other industries nearby, diesel generator sets, and the open burning of waste

Situation in India

In Delhi, in recent weeks, concentrations of particulates below 2.5 thousandths of a millimetre in size, which settle deep in the lungs, were 22 times the World Health Organisation (WHO) standard. In November 2016, they were 16 times the standard. Other cities are slightly better, but still worse than the standard 

Monitoring infra not available

Monitoring air pollution requires well-calibrated and spatially well-represented networks of measurement equipment, which do not exist in most parts of India. 

Reducing population

In principle, the amount of pollution from each brick kiln, truck or two-wheeler, car, power plant or field can be estimated. The total pollution is the sum of all the activities times the pollution per activity.

  • We already know that the number of polluters will rise with population and economic growth. The trick has been to try to find ways to reduce the emissions per activity, referred to as emissions intensity

Emission intensity

Emissions intensity can be divided into

  • Technological elements: In cars, for instance, engine technology that uses less polluting fuels could improve efficiency. Cars now offer the tantalising prospect of reducing emissions intensity to zero, with battery and other energy-storage technologies. But it will take at least three decades for the current fleet to turn over sufficiently towards zero-emission vehicles, before their contribution to air pollution reduces significantly
  • Non-technological elements: However, this is not sufficient if the total number of cars increases or people drive a lot more. It is vital, therefore, to pay attention to non-technological aspects such as urban planning, to reduce driving, and to increase cycling, walking, and use of public transport

Pollution affects everyone

Unlike water pollution, where the better off can buy or use filtered water, the rich cannot pay their way out of air pollution. While they may not be as exposed to the worst levels suffered by the very poor living in informal settlements on roadsides, filters and hermetically sealed living spaces offer only temporary reductions and the fantasy of clean air. In fact, ozone, a dangerous air pollutant, can eat into filters, just as badly as it can destroy the lungs of even healthy youth

Policies needed

Using the best available technologies for various sources is absolutely essential. Other ways of reducing emissions intensity are also needed but, it is just as important to take back urban space for use by people, not their machines

  • Reclaiming urban space for use by people: This would mean a great reimagining and rethinking of urban space with expanded walking, non-motorised cycling, waterways, and footpaths. While small changes in a few cities and some protests have been seen, other transformative movements are needed by voters in partnership with social institutions to take back urban space. Many cities in Southeast Asia, Europe and the Americas have shown how this can be done, and several Indian mayors and bureaucrats are already familiar with these models.
  • Other sectors: There are also opportunities to reduce polluting activities in other sectors such as power generation and industrial production. This would mean reducing emissions intensity, but also avoiding certain activities or substituting them with others. Such approaches also offer co-benefits such as improved health, reduced carbon emissions and new forms of collaboration across social class
  • There is also a need to overcome the corruptive and overwhelming influence of motor vehicle manufacturers, power producers, developers, and other large stakeholders on decisions taken by policymakers

Conclusion

It is not ethically appropriate to delay the resolution of deadly air pollution in cities for an entire generation that would suffer greatly in the interim. If there are sustainable modes that are worth pursuing, why not have more living laboratories of such social experiments around land use and transport? 

World’s largest amphibious aircraft makes maiden flight in China (The Hindu) 

Context

China’s domestically developed AG600, the world’s largest amphibious aircraft, performed its maiden flight on Sunday from an airport on the shores of the South  China Sea, the latest step in a military modernisation programme

What is an amphibious aircraft?

An amphibious aircraft or amphibian is an aircraft that can take off and land on both land and water

8 years

State-owned Aviation Industry Corp of China (AVIC) has spent almost eight years developing the aircraft, which is roughly the size of a Boeing Co 737 and is designed to carry out marine rescues and battle forest fires

Potential uses

It can make round trips without refuelling from the southern island province of Hainan to James Shoal, claimed by China but which is located close to Sarawak in Malaysian Borneo

  • State media has also noted its potential use in the South China Sea, where China, Vietnam, Malaysia, the Philippines, Taiwan and Brunei all have overlapping claims
  • Powered by four turboprop engines, the AG600 can carry 50 people during maritime search-and-rescue missions, and can scoop up 12 metric tons of water within 20 seconds for firefighting trips
  • It can use conventional airports and also land and take-off from the sea

Military modernization programme

China is in the midst of a massive military modernization programme, ranging from testing anti-satellite missiles to building stealth fighters and the country’s first indigenous aircraft carrier, to add to an existing one bought from Ukraine 

New sanctions are an act of war (The Hindu) 

Context

Sanctions on N Korea

What has happened?

The UN Security Council unanimously imposed new sanctions on North Koreaon Friday for its recent intercontinental ballistic missile (ICBM) test, seeking to limit its access to refined petroleum products and crude oil and its earnings from workers abroad 

What does the ban entail?

  • The UN resolution seeks to ban nearly 90% of refined petroleum exports to North Korea by capping them at 500,000 barrels a year and, in a last-minute change, demands the repatriation of North Koreans working abroad within 24 months, instead of 12 months as first proposed
  • It also caps crude oil supplies to North Korea at 4 million barrels a year and commits the Council to further reductions if it were to conduct another nuclear test or launch another ICBM

Backdrop

North Korea on November 29 said it successfully tested a new ICBM that put the U.S. mainland within range of its nuclear weapons

Reaction of N Korea

The North Korean mission to the United Nations did not immediately respond to a request for comment 

Reaction of S Korea

South Korea welcomed the sanctions and called on North Korea to “immediately cease reckless provocations, and take the path of dialogue for denuclearisation” 

Indian Constitution and Polity: 

Withdraw triple talaq Bill: AIMPLB (The Hindu) 

Context

Triple Talaq

What has happened?

The All India Muslim Personal Law Board (AIMPLB) on Sunday demanded the withdrawal of the triple talaq Bill, saying it went against the Constitution and violated the rights of women

AIMPLB’s views

  • Snatching the right to divorce: It accused the Centre of snatching the right of divorce from men. The chairman of the board, Maulana Rabe Hasani Nadwi, will request the Prime Minister to withdraw the Bill
  • Against the constitution: The Bill is against the Constitution, the rights of women and Shariah (the Islamic law). It is also an attempt to interfere with the Muslim personal law. If this Bill becomes a law, women will face a host of difficulties
  • Against Muslim women: The Bill is against the interests of Muslim women. If a husband gives triple talaq to his wife and is jailed for three years, how will the woman make her ends meet and look after her children
    • The proposed law will allow the victim to approach a magistrate for “subsistence allowance” for herself and minor children. The woman can also seek the custody of her minor children from the magistrate who will take a final call on the issue

Backdrop

The Muslim Women (Protection of Rights on Marriage) Bill, prepared by an inter-ministerial group headed by Home Minister Rajnath Singh, will be introduced in Parliament next week

Place on record amended draft of Tribunal Rules:SC (The Hindu)

What has happened?

The Supreme Court has directed the Centre to place on record the amended draft of the Central Tribunal, Appellate and other Authorities (Qualifications, Experience and other conditions of Service of Members) Rules, 2017, which is under challenge for modifying the terms of appointment and functioning in various statutory tribunals, including the National Green Tribunal, and causing dilution of judicial independence and posing a threat to the Constitution

Government’s position

The government would amend the Rules and place the draft of the changes on January 4, 2018 before the Supreme Court

Backdrop

The court, on December 15, ordered the government to give copies of the amended Draft Rules to senior advocates Arvind Datar and Mohan Parasaran, who were appointed amicus curiae, in the case. They are to peruse the proposed amendments and, if necessary, point out anything contrary to the Attorney General’s submission before the matter is taken up by the court

Petition by Jairam Ramesh

The development came on several petitions, primarily one by Congress MP Jairam Ramesh, challenging the provisions of the 2017 Rules and the Finance Act, 2017 introducing the modifications in key tribunal appointments.

  • Ramesh specifically challenged Sections 182, 183, 184 and 185 of the Finance Act, 2017 as well as the 2017 Rules framed under Section 184.
  • He contended that Section 184 clothed the government with “uncanalised and unguided power to make rules to provide for qualifications, appointment, term of office, salary, allowances, resignation, removal and other terms and condition of service of chairpersons and members of several other tribunals and appellate tribunals.
  • His petition had highlighted how the Finance Act bowled out the NGT Act – the parent statute passed by Parliament which set up the tribunal to provide speedy justice against dangers to environment and ecology. The NGT Act had provided the qualifications and conditions for the appointment of NGT Chairperson and members
  • But now, the Centre, through the Finance Act, had gifted to itself the power to control the functioning of the tribunal itself and, that too, when the government was itself a party in most cases before the tribunal, Mr. Ramesh had contended 

Fast track alimony payment: Centre  (The Hindu) 

Context

Fast tracking of alimony process

What has happened?

Expressing concern over delay in disbursing money awarded as maintenance to women by courts, the Centre has asked the High Courts to set up a mechanism to fast-track the process

What the law minister has said?

  • All the stakeholders, the Government of India, the judiciary, legal services authorities and State governments need to take collective responsibility for ensuring that institutional mechanisms, such as the proposed committee comprising district judge and superintendent of police, work seamlessly to provide justice to women,” Mr. Prasad said in his letter
  • The Law Minister asked High Courts to advise district courts to monitor timely disbursal of maintenance and speedy execution of warrants awarded by the court

Panels set up

Several High Courts have set up committees to now monitor the process of disbursal of maintenance to women

The price of justice (Indian Express Editorial) 

Context

Government needs to invest more in the judiciary to reduce pendency

Controlling the judiciary

In the first paragraph author has pointed out as to how in a democracy, political leaders try their best to keep a check on the judiciary and the best way of doing so is too keep its budgetary allocation to a minimum

Meagre budget

For 2017-18, the Union budget allocated a meagre Rs 1,744 crore to the judiciary — about 0.4 per cent of the total budget

  • To put this in perspective, each of the 12 companies with the highest non-performing assets (NPA) have debts at least eight to 10 times more than the judiciary’s budget. The net worth of Monnet Ispat is Rs -1,602 crore, with a gross debt of Rs 10,333 crore as of March 31, 2017

Increasing pendency

It is primarily on account of a such a miserly  government that many cases are pending in courts. Poor manpower and crumbling infrastructure, coupled with a boom in litigation, made the judiciary underperform. As a result, courts were buried under cases

  • New laws were enacted by Parliament without a commensurate increase in judicial officers or courts
  • For example, dishonour of cheques was made a criminal offence in 1988. There are an existimated 38 lakh such cases pending before magistrates across India. This took away manpower from other cases, with a cascading effect on pendency. There are reportedly about 3.4 crore cases pending across all courts

Lack of infra

There was a reason why courts were constructed on a grand scale. Grand buildings inspire awe, making people respectful of the place they have come to for justice. Today, the lower courts (except in Delhi) are worse than bus stands. Even high courts are bursting on account of the lack of infrastructure 

No money for filling vacancies

  • As of April 2017, there were 430 posts of judges and additional judges lying vacant in high courts, and 5,000 posts vacant at the district level and lower
  • For 1.7 billion people in India, there are 31 judges in the SC and 1,079 in high courts. Of the latter, there are never more than 600 judges appointed at any point
  • When suggestions to fill vacancies are made by the chief justice, the government’s response is the same: They do not have the money for it

What should be done?

  • Fill up the vacancies: Even if the government does not want to increase the numbers (which it should, and drastically), it ought to fill the vacancies over which it squabbles with the SC. It should also cut down the number of cases it files in courts, as the Government of India and state governments file the maximum number of cases. A policy should be put in place, and officers made accountable for filing of frivolous cases
  • Proportional increase in budget: It would also be wise for the government to consider that whenever legislation (primarily economic and criminal) which would result in new kinds of disputes arising is proposed, for example, the Prevention of Money Laundering Act, additional amounts be provided for setting up of new courts and appointing officers to deal with such cases. Constituting tribunals headed by retired judges is not enough, since cases eventually travel to a criminal court, and then to a high court or the Supreme Court. The government ought to estimate such jumps in the number of cases and increase the judiciary’s budget proportionally

Conclusion

The salary offered to judges at any level is paltry. Yet, judges work assiduously, without favour or reward, in trying conditions, more than any other branch of the government. It is time the government loosened its purse strings and gave the judiciary a substantial hike

GS: 3

Economy: 

Panel exhorts centre to contain bank NPAs (The Hindu) 

Context

Concerned over rising NPAs of banks, a Parliamentary panel asked the government to take urgent remedial measures to reduce the volume of stressed assets in the system and strengthen its vigilance mechanism.

Says guidelines alone not working, urges strict follow up

The Committee on Petition in its reports said that it is constrained to note that even after having a ‘vigilance mechanism’ in vogue in the banking system, there are incidences of fraud relating to non-performing assets.

‘Not yielding result’

“In this regard, the Committee opined that merely issuing of guidelines or advisories by the government or the RBI for averting the incidences of fraud relating to NPAs do not seem to have yielded the desired results and the RBI — being a Regulator — does not seem to have succeeded insofar as implementation and enforcement of its own guidelines is concerned.

Recommendation

  • The Committee, therefore, recommended that the government impresses upon the Reserve Bank of India to monitor and follow up strict compliance of relevant instructions with banks and financial institutions on a regular basis
  • It also recommended that the existing vigilance mechanism be revisited and, if required, be amended, to provide more teeth to it. 

WTO: nations arrive at a crossroads (The Hindu) 

Context

‘India will have to quickly forge a grand alliance to protect interests and prevent mayhem’

Trump poses problems

According to multiple sources, the Trump administration reneged at the last minute on an earlier commitment by the U.S., and instead sought many onerous conditions — in proposed WTO norms relating to public stockholding of food grains — that developing countries could not accept as binding rules. 

No token declaration

The latest meeting ended without even the token Ministerial Declaration mainly due to the Trump administration, leading 40-odd nations to question the centrality of ‘development’ (improving the trading prospects of the ‘developing nations’) in the multilateral trading system as envisaged in the ongoing Doha Round.

TPP withdrawal

In January, the Trump administration withdrew from the Trans-Pacific Partnership, a mega-regional free trade agreement signed by the Obama administration along with 11 other nations.

Favors Bilateralism

With such startling moves, the Trump administration has given further credence to the notion that it favours bilateralism over multilateralism, and protectionism over free trade.

Against continuity of policies

It has also signalled that it would not hesitate to take decisions that upset the continuity of or consistency with earlier U.S. policies.

Blocked appointment of judges

In a much criticised stand, the Trump administration decided to block the appointment of judges to the WTO’s Appellate Body, under the Dispute Settlement Mechanism (DSM) on grounds including that the U.S. was losing far too many cases — something that many have contested.

This amounted to holding the DSM hostage and undermining the mechanism.

Credibility affected

When biennial WTO Ministerial Conferences (MC) end in a deadlock like what was seen in Buenos Aires, it affects the credibility of the multilateral rule-based trading system

‘Sanctity of talks’

Jayant Dasgupta, former Permanent Representative of India to the WTO, referred to the failure in finding a permanent solution to the issue of public stockholding and said by not adhering to the commitments made by a previous (U.S) administration, the Trump administration was setting a dangerous precedent.

 Trump administration’s view

Meanwhile, the Trump administration refused to see the talks as a failure. Soon after the Buenos Aires meet, U.S. Trade Representative Robert Lighthizer said”The fact that one WTO Member with an extreme position chose to block a short Ministerial Declaration expressing shared views is no reflection on the excellent work of Minister Malcorra or her team.”

India

The strong position of one member against agricultural reform based on current WTO mandates and rules, led to a deadlock without any outcome on agriculture

Conflicting views

  • However, according to Mr. Lighthizer, the Buenos Aires meeting “will be remembered as the moment when the impasse at the WTO was broken.”
  • The U.S. will work with willing Members on “e-commerce, scientific standards for agricultural products, and the challenges of unfair trade practices that distort world markets.
  • The new direction of the WTO is set: improving trade through sectoral agreements by like-minded countries.

End is near?

Decisions at the WTO are taken by consensus among all member countries. Though all are considered equal, countries like the U.S. wield considerable influence in the manner in which consensus is arrived at.

US Influence

So, when the U.S. decides that sectoral agreements at the WTO is the way forward, it could in turn change the very DNA of the global body and spell the end of WTO in its current form.

Options before India

Opposing the introduction of new and the so-called 21st Century trade issues such as e-commerce, investment facilitation and proposed norms on small firms, without resolving outstanding Doha Round issues such as food security

Bridges with Africa

Already, the Indian government is working on holding a meeting of important WTO members early next year.

Much in common

Pointing out that India’s positions have much in common with the African nations’ stand, Biswajit Dhar, professor, Jawaharlal Nehru University, said, “We have to build bridges with Africa.”

Forge a larger alliance

India needed to quickly forge a larger alliance on issues such as e-commerce and investment facilitation in addition to planning a strategy to counter the moves that are against India’s interests.

 

Going back to interwar years

If you kick the WTO out, you will be going back to the interwar years (1919-38) when there was total mayhem as there were no rules [to prevent barriers, protectionism and discriminatory trade],” he cautioned.

Hitting the GST hurdle (The Hindu)

Context

Experience is the name the wise give to their mistakes. Through lessons learned from Modvat and later from VAT (which are also based on the same concept of tax credit, as in GST), it would be simple, even now, to gauge what GST would bring about. 

Failure of Modvat & VAT

  • CAG audits on Modvat revealed huge evasion, while one of the Collectorates had listed 13 ways that companies were taking wrong credits.
  • The CII had also reported about the failure of Modvat.
  • The VAT generated rampant evasion to the extent of even 50% in 11 of the 23 States, where audits were carried out in 2010. Other undetected wrongdoings and many unrevealed cases of harassment would add further to this sorry state of affairs. 

RV’s advice

Anticipating all these, well-meaning experts had already forewarned about complex multipoint levies with input tax credit at each stage, as in Modvat, VAT and GST. 

Question Raised

To those who still advocate GST , one may ask, “Then, why was VAT of 1995 in Maharashtra abandoned soon and why was Modvat christened as Madvat?”

GST Problems

GST would actually bring forth even greater problems.

  • These have already begun to show as tips of a large iceberg — business climate being affected badly, fall in exports and other difficulties, including conditions in complex notifications (such as GST notification 41/2017), which cannot even practically be fulfilled.
  • For July, on transitional credit refund claims alone, as much as ₹65,000 crore had been claimed. Highly questionable, it is also practically impossible to check every claim.
  • Unbridled ‘sophistication’ and hi-tech requirements only make things worse.
  • Besides, the need for countless documents, returns, formats, GST-1, GST-2, certified copies, subsidiary invoices etc., has prompted the Trade Confederation to term GST ‘a nightmare’. 

The root of the problem

It would only be clear that the way-out is not through merely lowering tax rates.

Things will not ‘settle down’, but would only go from bad to worse. 

Enduring the VAT

  • With regard to VAT, the protests alone came down after some time, as many tax payers endured what could not be cured; while many learned to become street-smart to outsmart this ghastly tax regime, through collusion with tax officials and evading tax, through remaining within the exemption limit.
  • They were also freed of audits and did not have to answer show-cause notices
  • Ethics and tax compliance were sacrificed for sheer survival.

Tax exemption through fragmenting in GST

  • The above also explains why, in the GST regime, many opt for exemption through fragmenting their business, and persuading their suppliers and buyers to do so also
  • For, if they opt to pay duty under composition scheme, there would be a break in the GST chain.

Service Providers

  • Same is the case with service providers, who too would choose not to pay service tax through splitting their units or by undercutting the value of their clearances
  • Thus, unwittingly though, they would also pay far lesser income tax than what they would willingly have done otherwise. 

Inherent uncertainty

A very important reason for the price rise, which has constantly followed Modvat, VAT and also the present GST, is the inherent uncertainty 

Increase prices to keep as reserve

Faced with the prospects of having to pay huge amounts demanded after protracted and costly litigation, many would choose to increase prices for obtaining greater profits, to be kept as reserve

This uncertainty is also revealed in the ‘disclaimer’ in several FAQs, stating that replies are only for guidance and do not hold any legal validity.

Vast Grey areas

The grey areas are so vast and deep that even higher forums of appeal cannot judge with any certainty, let alone FAQ answers or ‘Suvidha providers, GST kendras’ etc., conceived of in this drama of pretence and make-believe.

Stringent Procedures not the cure

All of the above underlines the truth that evasion and aberrations can never be checked by making statute and procedures elaborate and stringent

Promotion of Permit Raj

The arbitrariness, which these would generate, only serve to promote a far stronger culture of ‘permit raj’ and greater loopholes. 

The Solution

The solution lies through single-point GST levy, with simple statute, procedures and documentation and a tariff with broad-based headings for goods and taxing only organised services

Four Canons of good taxation

Adam Smith stipulated four ‘canons’ for a good taxation system — equality, certainty, convenience and economy.

Conclusion

Guided by these and also by our own well-meaning experts, a truly ‘Good and Simple Tax’ should replace the present one, which, indeed, is highly grotesque and cruelly ‘sophisticated’! 

Defusing stress (Indian Express Editorial)

Context

RBI report underlines that the bad loan problem will get worse before it gets better. In long run, bank governance will be key

Financial Stability Report

The latest edition of the Financial Stability Report released by the RBI makes for grim reading.

Worsening Asset Quality

It has warned about the worsening asset quality of Indian banks, both public and private, besides further pressure on profitability.

Bad Loans

The FSR says that gross bad loans rose to 10.2 per cent in the quarter to September from 9.6 per cent six months ago and that the banking stability indicator shows that risks remain at an elevated level weighed down by further asset quality deterioration

NPAs might rise

  • And going by the stress tests conducted by the banking regulator, gross NPAs may rise to 10.8 per cent by the end of March 2018 and to 11.1 per cent by September 2018, if economic conditions do not improve.
  • Given the state of the economy, it is hardly surprising to see the worsening of the gross NPA ratio of large borrowers —from 14.6 per cent to 15.5 per cent in the period between March to September this year and the high credit concentration risk arising from exposure or lending to a select band of borrowers in the case of nine banks

Government lenders in majority of the bad loans

Just as it was the last time well over a decade ago, when the government had to step in and support several state-owned banks in the wake of a prolonged slowdown, this time too, the lenders controlled by the government dominate the list of those weighed down by bad loans.

Private banks too this time

But this time what’s more worrying is the secular trend — with private banks too being singed in this slowdown, given their growing share of the business pie over the last decade and the huge divergences in reporting of their bad loans after RBI asset quality reviews compared to their PSU peers.

CAR could fall

Six banks could see their Capital Adequacy Ratios fall below the mandated level of 9 per cent by September 2018.

Recapitalisation plan

That, and the downside risks of corporate deleveraging and muted loan growth and the fact that banks have to transit to new accounting standards next year, have prompted the government and the RBI to announce a recapitalisation plan aggregating Rs 2.11 lakh crore over two years. But the recap plan should be just the first building block.

Governance is the key

Far more critical to promoting a sound and professional banking sector is governance — which should be ensured by both the government and the RBI this time around to prevent or limit further drawdown of public funds in future

Insolvency and Bankruptcy Code

With signs of some of the resolution plans under the Insolvency and Bankruptcy Code set to come to fruition next year, a global recovery underway and with the rebuilding of supply chains post-demonetisation and GST, fortifying bank balance-sheets should help when the economy gathers steam after a few more quarters. Equally, with growing financialisation, as reflected in the Assets under Management or AUM of the Indian mutual fund industry of Rs 22.73 lakh crore at end November this year, the risk migration from banks to mutual funds is something financial regulators need to keep a watchful eye on

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