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GS: 2


International relations:

Nepal gets a high Rs. 650 crore outlay (The Hindu)

Context

India’s annual financial allocation under the Union Budget

‘Neighbourhood First’ policy

For India’s development and diplomatic engagement under the ‘Neighbourhood First’ policy, the Budget has allocated Rs. 5545 crore.

Traditionally Bhutan gets highest

  • Bhutan is traditionally the largest recipient of Ministry’s allocation.
  • It has maintained the same position even as the allocation increased by Rs. 71 crore to touch Rs. 2,650 crore.

More for Myanmar

At Rs. 280 crore, Myanmar’s allocation too has improved from Rs. 220 crore of last year.

Nepal gets the highest

  • However, the giant leap in allocation was for Nepal, which received Rs. 650 crore from the Ministry
  • This year’s allocation is the third consecutive and the largest increase.
  • In 2016-17, Nepal received Rs. 332.72 crore, which was increased to Rs. 375 crore last year.

Why?

Rehabilitation work

The budgetary increase was a likely step ahead from the Indian commitment to help Nepal recover from the 2015 earthquake.

Terai road network

The Terai road network and railway connectivity plans were also likely to get a part of the increased allocation.

Indian Constitution and Polity:

Should India have simultaneous elections? (The Hindu Opinion)

Context

Simultaneous elections in India

Why should India have simultaneous elections?

  • Holding simultaneous elections will ensure consistency, continuity and governance
  • MCC is detrimental to developmental work
    • Five years mean five years of stable governance. A system must be evolved to give a period of five years to the incumbent government to focus on governance
    • If we are occupied with Vidhan Sabha elections, Zilla Parishad elections, Panchayat elections, and municipal elections throughout the year, where is the time for developmental work, with the Model Code of Conduct (MCC) kicking in every time these elections are held?
  • Curbing corruption
    • Frequent elections provide opportunities to unscrupulous elements to propagate corruption and create disruption in normal public life impacting the delivery of essential services.
    • The way out is to cut the role played by money in elections, and this can come about only through a ceiling on political party expenditure
  • Huge burden on resources
    • Frequent elections act as a burden on the resources, both in terms of financial and manpower requirements
    • Security personnel and government officials are effectively put on election duty for many months in a year
    • A case in point is the recurring engagement of teachers for election duty, as a result of which students suffer
    • Simultaneous elections can bring the much-needed operational efficiency in this exercise
  • Threat to communal peace: Elections have become too divisive. Communal riots and caste disturbances are deliberately created around election time to ensure polarisation of communities for electoral gains
  • Convenience to Election Commission: As regards logistical and administrative feasibility, simultaneous elections would be most convenient for the Election Commission. Since voters, polling personnel, and polling booths are all the same, it does not matter if the voter is casting her vote for one election or two or three

Why simultaneous elections in India is not a good idea?

  • Simultaneous elections go against the spirit of the Constitution and against the spirit of federalism
  • Burden on the resources
    • Even if simultaneous elections are held the financial burden for state parties would still be the same as
    • So this idea can be seen as a way out for national parties
    • Moreover, the logistic requirement of movement of security forces would still remain the same thereby creating no change in the lengthy schedule of the elections
  • Problem of MCC: This problem emerges mainly because parties and governments fail to arrive at a consensus on the scope of the code of conduct and the meaning of what constitutes policymaking and what constitutes distribution of patronage
  • No-Motion will be meaningless
    • If we enforce the system of simultaneous elections, we would need to curtail the legislature’s power to unseat a government
    • It would be mandatory to have a ‘constructive vote of no-confidence’. This means that no opposition party would be able to table a no-confidence motion unless it has the capacity to also simultaneously form a new government
    • The fundamental instrument of the no-confidence motion would thus be effectively taken away
  • What if central government loses majority? Suppose simultaneous elections are held but the government lses its majority in the Lok Sabha, as Atal Bihari Vajpayee did within 13 days in power, will we then hold a new set of elections in all the 29 States too, even if they have an absolute majority? Why should the States suffer for the electoral decisions taken at the Centre
  • Repeated elections keep legislators on their toes and increases accountability

Why it is a complicated matter?

Holding simultaneous elections is certainly desirable but not feasible

  • It is certainly desirable but not feasible. For it to be feasible, we need a political consensus, which is not easy to achieve.
  • Who would want the term of the House to be reduced? The ruling dispensation would not like a reduction from five years and the Opposition would not like an extension beyond five years. That’s why a consensus is an uphill task

Conclusion

Arguments given in the favor of the simultaneous elections are as worthy as are the arguments against it. So all in all it is a complicated matter which requires political consensus

GS: 3

Economy:

Farmer Sutra: Jaitley focuses on the rural sector (The Hindu)

Context

Agriculture and health concerns of the poor addressed in the budget but the rest of the people have been left out

MSP increased

The government has decided to offer a minimum support price (MSP) of at least 1.5 times the expenses borne by farmers for all crops.

Middle class left high and dry

Despite some token measures to boost new jobs such as footing part of the bill for new employees’ provident fund (PF) contributions for three years, little respite was offered for the salaried class.

Education cess raised

  • But any gain in take-home salaries has been virtually offset by raising the 3% education cess.
  • Now, a 4% education and healthcare cess will apply.

No respite on indirect tax front

  • Hiking of custom duties: The government hiked Customs duties on a range of products, including mobile phones, wearable devices, television display panels, furniture, diamonds, footwear, cosmetics and dental floss.
    • Why?: The idea is to push global producers to start making these goods in India but till that happens, consumers will need to foot higher costs.
  • Rationalization of the high Excise duties on petrol and diesel
  • A much-anticipated rationalisation of the high Excise duties on petrol and diesel was carried out with an eight rupee reduction in these duties, but consumers would get no relief as a new road and infrastructure cess of ₹8 a litre has been levied to fund infrastructure projects

Ayushman Bharat: the big budget scheme(The Hindu)

Context

Two major initiatives in health sector announced as part of Ayushman Bharat programme

Aim:

Making path breaking interventions to address health holistically, in primary, secondary and tertiary care systems, covering both prevention and health promotion

  1. National Health Protection Scheme
  2. Health and wellness centres

National Health Protection Scheme

  • 5 lakh rupees per family per year for secondary and tertiary care hospitalization.
  • This will be the world’s largest government funded health care programme.
  • Existing RSBY coverage: Under the existing Rashtriya Swasthya Bima Yojana (RSBY), poor families get an annual coverage of Rs. 30,000

Health and wellness centres

  • Under this 1.5 lakh centres will bring health care system closer to the homes of people.
  • These centres will provide comprehensive health care, including for non-communicable diseases and maternal and child health services.
  • These centres will also provide free essential drugs and diagnostic services.
  • Funds: The Budget has allocated Rs.1200 crore for this flagship programme. Contribution of private sector through CSR and philanthropic institutions in adopting these centres is also envisaged.

A negative step?

  • Basic health care must be provided through government hospitals and not through insurance that pays for care at private hospitals.
  • This is a disturbing sign that we are going down the American route to health care instead of, say, the Canadian route.

New India 2022

These two health sector initiatives under Ayushman Bharat Programme will build a New India 2022 and ensure enhanced productivity, well being and avert wage loss and impoverishment. These Schemes will also generate lakhs of jobs, particularly for women

A shot in the arm for Urban Rejuvenation Mission(The Hindu)

Context

In a boost to infrastructure development in cities, the total outlay for the Urban Rejuvenation Mission, which includes projects under AMRUT and Smart Cities Mission, will be Rs. 12,169 crore, according to the Budget proposals for 2018-2019

Smart Cities Mission

  • The Smart Cities Mission, will get Rs. 6,169 crore in 2018-2019, including Rs. 169 crore towards capacity building for urban development.
  • This will be used to develop 100 smart cities.
  • According to a press release, 99 cities have been selected under the Smart Cities Mission with an outlay of Rs. 2.04 lakh crore, projects worth Rs. 2350 crore have been completed, and work for Rs. 20,852 crore is under progress.

AMRUT

  • Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the allocation proposed is Rs. 6,000 crore
  • This will be towards the Urban Rejuvenation Mission of 500 cities.
  • Under the AMRUT programme, the State-level plans of Rs. 77,640 crore for 500 cities have been approved

Goodbye to fiscal consolidation (The Hindu Opinion)

What is meant by fiscal consolidation?

Fiscal consolidation is a reduction in the underlying fiscal deficit. It is not aimed at eliminating fiscal debt

Fiscal deficit data

Year Target Actual
2017-18 3.2% 3.5%
2018-19 3.3%
2020-21 3%

 

Revenues healthy

Capital receipts are expected to exceed the budgetary estimate thanks to record disinvestment revenues of ₹100,000 crore (₹27,500 crore higher than targeted).

But Concerns on the expenditure side

  • Revenue expenditure grew by 15% compared to the Budget estimate of 6%.
  • Major increase in establishment expenditure: An increase in establishment expenditure accounts for more than 40% of the increase in revenue expenditure.
  • Capital expenditure lower: Capital expenditure ended up lower than in the previous year by 3.9%.

Reason for fiscal slippage

  • Expenditure has got out of control or was under-estimated in last year’s Budget.
  • Moreover, revenue, not capital, expenditure is the villain.
  • The revenue deficit for 2017-18 is 2.6% of GDP, way above the Budget estimate of 1.9% of GDP.

Projections for new fiscal

What do we make of the projections for 2018-19?

  • The Budget projects an increase in tax revenues of 16.6% compared to 15.3% in the previous year, which appears achievable.
  • Total expenditure is expected to grow by 10.1% compared to 12.3%, which could turn out to be an under estimate.
  • Capital expenditure has been set 9.9% higher which is modest given that there had been a decline in the previous year.
  • Growth in public investment is tepid.
  • There are no big tax giveaways either in the Budget. Clearly, fiscal policy is not being used to stimulate growth.
  • With inflation running at 5%, the scope for monetary easing too is limited.
  • The government is leaving it to market forces to drive growth in the coming year.

Will it work?

The budgetary projections for 2018-19 thus hinge critically on nothing going wrong with the equity markets and investors shrugging off the tax on long-term capital gains.

Ratio of gross tax revenues to GDP risen

On the positive side, the ratio of gross tax revenues to GDP, which had been stagnating at around 10% since 2008, has risen to 11.6% in 2017-18 and is projected to rise further to 12.1% in 2018-19, 12.4% in 2019-20 and 12.7% in 2020-21.

  • What this means?
    • This shows that demonetisation and GST are beginning to pay off by widening the tax base and increasing the buoyancy of tax revenues.
    • There is reason to be optimistic, therefore, about the medium-term outlook for government finances whatever the problems in the next year or two.

Rural foray: Budget mainly focusses in rural sector; already discussed

New schemes announced have no actual budget outlays and only depends on external agencies and extra budgetary resources to fulfil the demands for funds needed to implement them.

Discussed in detail in the next article

Conclusion

It is clear that a return to a high growth trajectory of 8% is unlikely before the 2019 election. The BJP seems to have reckoned it has the urban middle class with it regardless. It is the rural constituency that needs focus. The Budget for 2018-19 has expenditure items planned accordingly while ensuring that the fiscal deficit stays within reasonable bounds.

Promise and delivery: on Union Budget 2018 (The Hindu Editorial)

Context

If the Union Budget is construed as an annual tug-of-war between populism and fiscal prudence, arguably it is the latter that prevailed in the past four budgets tabled by the NDA.

Arun Jaitley’s Budget will be judged by whether it can bridge the gap

Armed with a war chest of ₹24.4 lakh crore in budgeted receipts for FY19, Mr. Jaitley has homed in unerringly on the root causes of distress — unremunerative farm incomes, unemployment, lack of social security nets and the squeeze on the middle-class taxpayer.

Welfare intent

  • List of welfare measures announced but due to resource constraints major part to the funds for the plans is to be met via extra-budgetary resources and external agencies

Effect: This can lead to gap between promise and delivery

Consider agriculture.

  • MSPs increased but food subsidies upped by a modest amount only
  • A ‘fool-proof’ mechanism has been mooted to avoid market prices falling below MSPs, but it is left to the Niti Aayog to work out the modalities
  • Setting up farmers’ markets is similarly a great idea to free small farmers from the tyranny of Agricultural Produce Market Committees (APMCs), but the project gets a mere ₹2,000-crore allocation.

Funds to be met via extra budgetary resources

The ambitious rural package in this Budget requires a massive outlay of ₹14.34 lakh crore out of which, as much as ₹11.98 lakh crore is expected to be met from extra-budgetary resources.

Similar situation in social sector schemes

  • Like for the National Health Protection Scheme, there is little clarity on modalities
  • The entire clutch of proposals on improving learning outcomes, providing universal health coverage and alleviating the lot of minorities and girl children is expected to be funded through a mere ₹16,000-crore increase in allocations to ₹1.38 lakh crore.

Funding problem of Infrastructure sector has been addressed though

Infrastructure appears to be one of the few sectors where the funding problem has been addressed, with PSUs bankrolling a significant proportion of the ₹5.97-lakh crore outlay for FY19.

Nothing major for middle class

While being liberal in its announcements for rural India, the Budget has been frugal in its giveaways to the middle class and the corporate sector.

Income tax slabs remain unchanged

  • Standard deduction instead: A standard deduction of ₹40,000 is back for salaried taxpayers.
    • Too small though: This deduction (which also replaces transport and medical reimbursements) is too small to establish real parity.

No cut in the basic corporate tax

The clamour for an across-the-board cut in the basic corporate tax rate from 30 to 25% has also been ignored, with the cut limited to mid-size companies (up to ₹250-crore turnover).

  • Global effect:
    • Though this will benefit the overwhelming majority of corporate tax filers, how this impacts the competitive edge of India’s largest companies in the global context will be debated
    • Especially so, since the U.S. recently slashed its corporate tax rate to 21% and European nations average 20%.

Increase in education cess will offset gains

For the salaried class and the corporate sector, the increase in education cess will offset some of the gains from these tax cuts.

Tax relief to senior citizens

  • Senior citizens have benefited, particularly from the tax relief on interest from bank deposits and post office schemes, which has been hiked from ₹10,000 to ₹50,000 a year
  • These interest payouts are also exempt from the vexatious TDS provisions
  • This relief renders senior citizens far less vulnerable to steadily dwindling interest rates on bank deposits and small savings schemes; it also helps them to continue relying on fixed-income instruments to cover living expenses
  • This relief may reverse the unhealthy trend of risk-averse savers shifting wholesale from bank deposits to market-linked options such as equity mutual funds, in search of higher returns.
  • Little to cheer for middle class in spite of analysts expecting a populist budget in wake of coming elections
  • The proposal on MSPs is shrewdly timed, though it would mean higher prices for consumers.

Capital gains tax

The imposition of 10% long-term capital gains tax on profits (exceeding Rs. 1 lakh ) from shares and equity mutual funds could dampen market sentiment in the near term, but is unlikely to have any structural impact on domestic equity flows

  • The reason for not much impact
    • The bulk of new allocations flowing into Indian equities in the last two years have come from retail investors, most of them saving for the long term.
    • It is unlikely that they will beat a hasty retreat from shares or mutual funds just because of a modest levy.

Conclusion

Overall, the Budget has a sense of direction that is difficult to find fault with. If some of the proposals seem half-hearted or are not taken to their logical end, it may be the result of revenue constraints. It is to be hoped that as the revenue base improves and GST collections stabilise, future budgets can put the finishing touches on the welfare proposals.

The question of credibility (The Hindu Opinion)

There were considerable expectations from the Budget. Given that this is the last full-year Budget by this government and the first one after the revenue uncertainties arising from implementation of the goods and services tax (GST) reform, there were apprehensions about the slippages as well. Indeed, there are electoral budget cycles in every democratic polity and considering the dissatisfaction shown by rural electorate in the recent Gujarat elections, there were definite apprehensions about fiscal laxity

Focus areas

The Finance Minister devoted a considerable part of his speech to elaborate the focus areas in the Budget. These include strengthening the agriculture and rural economy, provision of good healthcare for the poor, taking care of the senior citizens, creation of infrastructure, and working with the States to improve the quality of education

Substantial slippages

The slippage was mainly on account of higher than budgeted spending in revenue expenditure, particularly the grants given to the States for Central schemes, which was higher by 25.8%.

  • This Budget has reworked the entire adjustment path.
    • The estimated fiscal deficit for 2018-19 is 3.3%, and in addition, the government will issue bank recapitalisation bonds amounting to ₹80,000 crore.
    • Proper accounting demands that this should be a part of the fiscal deficit as when the shares of public enterprises are sold, these are taken as non-debt capital receipts, but when the bonds are purchased by the government, they are not counted for the deficit!
    • The Finance Minister states that he accepts the key recommendations of the FRBM Committee to bring down the debt-to-GDP ratio to 40% and the fiscal deficit target will be the key operational parameter, but does not adhere to the 3% target for the next year and 2.5% for the subsequent years set by the Committee!
    • The medium-term fiscal plan states that the 3% target will be reached only in 2020-21. Fiscal management in the country suffers from credibility crisis.

Too loaded

Furthermore, when the reform required that the tax policy should not be loaded with many objectives, the Budget goes on to use the instrument to promote post-harvest activities in agriculture, employment generation and incentivising micro, small and medium enterprises.

Increase in custom duties to facilitate Make in India: A Retrograde measure

We have been advocating moving away from protectionism in global forums, but want to protect the domestic producers through higher import duties. This may make some producers happy, but will not increase the competitiveness

Fiscal glide path pushed back to 2021(The Hindu)

Context

The last full budget of the Narendra Modi-led Bhartiya Janata Party government before the general elections due in 2019 missed the fiscal deficit target of 3.2% for 2017-18

Bond yields rise as the government misses deficit target of 3.2%; analysts expect yields to remain elevated

Why?: This was attributed to revenues to be received under the Goods and Services Tax (GST) for 11 months, instead of 12. The revenue for March will be received in April.

Fiscal Deficit targets

The government said the fiscal deficit target for next financial year would be 3.3% and 3.1% for the year after and then 3% for 2020-21.

Bond prices slumped

Bond prices slumped as the government missed the fiscal deficit target with the yield on 10 year government bond shot up 17 bps to end the day at 7.6%. Yields are expected

Government borrowing

The government pegged its net market borrowing at Rs. 4.62 trn in FY19 (excluding buyback and switches), which is in line with what the market had estimated.

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