1. Farm Loan Waivers are more of a political imperative than a solution to agrarian crisis. Discuss the given statement. Highlight the arguments for and against farm loan waivers. What alternate measures can you suggest to solve the financial agrarian crisis? (GS 3)

Live Mint | TOI

Yes,they are more of a political imperative than a solution to agrarian crisis :-

  • There is greater attention on farm loan waivers and less on rural distress. This is not a good stand because one is a symptom (loan waiver /indebtedness) and the other is the malaise (rural distress).
  • Resolving the former without addressing the latter is of no utility.Farmers can decide the fortunes of political parties, and politicians are wary of antagonising  them.

Why farm loan waivers are needed :-

  • After Uttar Pradesh (UP) and Maharashtra,Punjab has emerged as the third state in India to waiver farm loans, a move that will benefit 10.25 lakh farmers.
  • Farm loan waiveris necessary in the short term as farmers are unable to repay debts due to fall in agriculture prices despite a bumper crop.
    • Farmers are dissatisfied with procurement price and unable to repay institutional and private loans.
  • Agriculture in India has been facing many issues
    • fragmented land holding
    • depleting water table levels
    • deteriorating soil quality
    • rising input costs
    • low productivity.
    • Add to this vagaries of the monsoon.
    • Output prices may not be remunerative.
    • Farmers are often forced to borrow to manage expenses. Also, many small farmers not eligible for bank credit borrow at exorbitant interest rates from private sources.
    • When nature rides roughshod over debt-ridden farmers in the form of erratic monsoon and crop failures, they face grim options. Indebtedness is a key reason for the many farmer suicides in the country.
    • Loan waivers provide some relief to farmers in such situations.

Why farm waivers are not the solution:-

  • In the long term, loan waiver does not provide secure credit system as this would lead to inadequate funds for agri-infrastructure development.
  • Trying to solve farmer suicides without considering the larger agrarian crisis is tragedy.
  • Using a detailed household level NSSO data, data shows that the 2008 national level debt waiver did not lead to any material increase in the overall consumption level of the farming households. This data detected a significant decrease in spending on critical items such as health and education.
  • It also makes a sharp dent in the finances of the government that finances the write-off.
  • Loan waivers cost tax payers. For instance, about ₹525 billion was spent on the loan waiver of 2008, as per the International Council for Research on International Economic Relations.
  • waivers may add to the already elevated non-performing assets of banks.
  • Bulk of farm loan waivers which the government announced in 2008 dealt with bank debt. But 90% of the debt owed by farmers is to private lenders.
  • Apart from repercussions on the farm loans, there can also be some collateral damage to other loans as the belief sets in that you can get away without paying, and this can make the bad loan problem in India even worse .
  • lack of clarity about the exact process of executing the waivers, especially over how lenders will be compensated.
  • Waivers undermine an honest credit culture It leads to crowding-out of private borrowers as high government borrowing tends to (impose) an increasing cost of borrowing for others.
  • Farm loan waivers, in the long term, are bad politics insofar as they are a palliative that never addresses the underlying problem: the lack of efficient markets in agriculture.
  • Impact on state finances can be significant.
    • For example, with the most recent round of waivers, Maharashtra’s state fiscal deficit—the difference between its expenditure and revenue—will go up to 2.71% of its state GDP, credit ratings firm India ratings has estimated. This, compared to a budgeted fiscal deficit of 1.53% for the 2017-18 fiscal year.

Measures needed to solve the financial agrarian crisis:-

  • Making agriculture sustainable by reducing inefficiencies, increasing income, reducing costs and providing protection through insurance schemes.
  • Need to increase productivity.
  • Government should focus on building more efficient infrastructure that results in better irrigation facilities, water conservation, and a sufficient storage system for produce. Investments should be made to ensure better farm-to-market connectivity, and that farmers get a fair price for their produce.

2. Discuss the long-term and short-term benefits of GST. What can be the challenges in implementing the same?(GS 3)

The Hindu

Introduction:-

  • GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.
  • The proposed tax will be levied on all transactions involving supply of goods and services, except those which are kept out of its purview.

Long-term benefits:-

  • The much-vaunted growth acceleration may happen only in the long term when the transaction cost of businesses comes down.
  • The objective of including real estate within a reasonable time period is welcome because besides expanding the tax base, this will help in fighting black money.
  • It would be useful to simultaneously include petroleum products within the ambit of the GST, for the expanded base could offset the revenue loss due to the prevailing high rates on petroleum products.
  • reduce compliance and administrative cost in the long term, do away with levies like octroi and ensure a more unified market.
  • It will reduce cascading on account of levies like octroi, purchase tax and central sales tax and make the economy more export-competitive.
  • More importantly, it might see a significant increase in revenue productivity of income tax as the seeding of PAN in GST registration will make it difficult for businessmen to evade the tax.
  • All these could contribute to acceleration in growth.

Short term benefits:-

  • reduce the transaction cost of doing business in India.
  • A simple tax structure can bring greater compliance, thus increasing number of tax payers and in turn tax revenues of Government.
  • GST will ensure competitive pricing. Tax paid by final consumer will come down in most cases. Lower prices will help in boosting consumption which is beneficial to Companies.
  • GST will ensure boost to exports. When the cost of Production falls in the domestic market, Indian Goods and services will be more price competitive in foreign markets
  • The current state of Indian Economy demands fiscal consolidation and reduction in Fiscal deficit. A recent Report by CRISIL states that GST is the country’s best bet to achieve fiscal consolidation.
  • The authority will be responsible for ensuring that the reduction of tax rates on account of implementation of GST results in a commensurate reduction in prices.  It may be argued that this may allow the government to monitor and control prices of all goods and services, which may interfere with the idea of these prices being determined based on their demand and supply in the market.

Challenges in implementation:-

  • Petroleum products are excluded and cascading on that account will continue
    • They contribute over 35-40% of revenue from indirect taxes.
  • With multiple rates, it is not a simple tax and robs much of the benefits from lower administrative, compliance and distortion costs.
  • There will be classification disputes, and many of them will end up in courts.
  • Having multiple rates is a sure invitation for lobbying. This also puts additional burden on administration, increases the compliance cost and the load-bearing capacity of technology needed for providing input tax credit with multiple rates by matching every invoice.
    • classifying goods and services under different slabs may be a complex exercise.A second disadvantage of a multiple rate structure is that it could lead to disputes on classification of goods and services.
  • Requiring the regular GST dealers to file 37 returns in a year raises anxiety, given an untested technology platform.
  • Despite the assurances given, the anti-profiteering clause creates considerable apprehension.
  • The requirement of e-way bills for inter-State movements has also been a cause of concern.
  • Above all, there is a palpable fear of the unknown, given the recent disruptive experience with demonetisation.
  • Indeed, any major tax reform could lead to disruption, and the complexity of the structure and the untested technology platform adds to the fear.
  • Of course, a majority of retail traders, who buy and sell commodities and services within a State and have a turnover of less than Rs. 75 lakh, will come under the compounding system. They will pay a simplified tax at 1-2% on the turnover without the facility of availing or according input tax credit, and submit only quarterly returns.
  • The power loom sector has considerably suffered on account of one disruption, and with different tax rates proposed to be levied on yarn, fabrics and readymade garments, Tamil Nadu manufacturers are at war.
  • There are concerns about the rates of tax, mandated compliances and glitches in transition, and investment activity is virtually at a standstill, with everyone waiting to see how the reform pans.
  • Even as the tax is about to be unveiled, old decisions are changed and new decisions taken by the GST Council, and there is hardly any time to internalise them.
  • there are specific rules for various services such as telecom, property, transportation, etc.  This means that while a service may be consumed across multiple states, the tax revenue would be attributed to the state where the recipient is registered or his office is located.  This could lead to higher tax attributed to states that have more registered offices.

Exemption/ threshold may distort RNR & GST

Effectiveness of GST Council and adherence to its recommendations

Efficacy of GSTN

Tax administration no mention in any policy docs.

Increasein the compliance cost of the business

Suggestions:-

  • The tax will be unified eventually to have one or two rates will be achieved soon.
  • Robust IT Network: Government has already incorporated Goods and service tax network (GSTN). GSTN has to develop GST portal which ensure technology support for GST registration, GST return filing, tax payments, IGST settlements etc. Thus there should be a robust IT backbone
  • Extensive Training to tax Administration Staff:
    • GST is absolutely different from existing system. It, therefore, requires that tax administration staff at both Centre and state to be trained properly in terms of concept, legislation and Procedure.

3. Bureaucracy is not an obstacle to democracy but an inevitable complement to it. Critically examine this statement. (GS 4)

Bureaucracy complements democracy:-

POLITICAL:

  • A permanent and impartial civil service is more likely to assess the long-term social payoffs of any policy whereas the political executive may have a tendency to look for short term political gain.
  • A permanent civil service provides continuity and develops expertise as well as institutional memory for effective policy making and helps state to achieve the goals.
  • Also politicians can carry out the will of electorate only with the help of the civil service
  • A permanent civil service helps to ensure uniformity in public administration and also acts as a unifying force particularly in vast and culturally diverse nations.
  • In the light of political instability civil service plays a very important role of maintaining stability and bringing about change
  • Civil service main role is only to provide choice for the politicians according to chagla commission as final authority rests with the political executive.
  • In the light of the emergency during 1970’s in the threat of military take over .it is the adaptive bureaucracy which ensured there is democracy.
  • During policy formulation civil service acts as source of information,technical and an impartial adviser to the political executive.

SOCIAL:

  • Democracy promotes egalitarianism approach and equality and believes in non discriminatory approach. As bureaucracy is an impersonal administrative body it can satisfy the need of democracy
  • In societies where broad based civil society is present civil service becomes relatively autonomous.It remains within the overall framework of the democracy and addresses economically weak sections.
  • In the context of developing countries there is a need for rapid socio economic development like education,health etc.these can be handled only with efficient administration and civil service.
  • It is the role of bureaucracy to enable every section of the society access to the benefits of development in a structurally unequal society like India.
  • Civil service is the reason for continual maintenance of the democracy in the country as there have been some land mark policies being implemented like NRHM,RTI,73rd and 74th Constitutional amendment act ,green revolution ,ICT and e- governance, disaster management, agricultural sufficiency, poverty  and malnutrition eradication etc .
  • EC which is again a bureaucratic body ensures the continuance of democracy.This ensures voice being provided to the citizen and the evidence fr the smooth transition of power.
  • Civil service and social change:
    • With the state and civil service coming together changes are sought to be brought .about with the help of laws. Thus, untouchability, bigamy, child marriage and dowry system have been declared illegal.

ECONOMIC:

  • Modern democratic system promotes capitalistic economic system which believes in stability and continuity. This impetus is very well provided by bureaucracy.
  • The bureaucracy has a very important new role, namely that of functioning as the agent of economic development.

 Bureaucracy contradicts democracy:-

1. LACK OF POLITICAL NEUTRALITY:-

  • In  the growing size of the modern state, the accelerating intervention of government in the economy, and the secrecy and increasing of state activities, which together may remove bureaucratic activities from the reach of democratic control.
  • Post independence there is increasing politicisation of civil service and the basic tenet of political neutrality is long forgotten.
    • Also according to Vohra commission  Bureaucrats and political servants formed the nexus where they promote each other’s interests which leads to increasing corruption and fractured implementation of policies.This is subversion of democracy

2. They also resist simplification of procedures which is a pre-requisite for introduction of e-governance since it would undermine their importance

3. Civil service does not have a role clarity in a democracy and it is in a double mind.It is expected to be neutral yet it has to deal with politicians ,it is expected to implement policies yet it has to be part of policy formulation. There is confusion and this leads to delays in implementation

4. In many cases civil servants have gone to extent of displacing political executive for policy formulation and political executive displaced bureaucracy in controlling and monitoring. This leads to imbalance in democracy

5. Civil servants in India are accountable to the ministers, but in practice, the accountability is vague and of a generalised nature.

6. Being permanent in nature it might be very difficult to make it accountable. So bureaucracy is a necessary evil in a democracy

Recommendations:-

1. There is a need for a separation of policy formulation and implementation responsibilities by extensive restructuring.

2. Bureaucracy should understand the politics but should not indulge in politics and more incentives or rewards  should be given to the civil servants for effective implementation of the policies.


 

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