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Conclave of Finance Ministers of the southern States to discuss contentious issues in the Terms of Reference (ToR) of 15th Finance Commission
Finance Commission (Article 280)
The President shall, within two years from the commencement of this Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four other members to be appointed by the President
- It shall be the duty of the Commission to make recommendations to the President as to
- the distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them under this Chapter and the allocation between the States of the respective shares of such proceeds
- the principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India
- the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats & municipalities in the State on the basis of the recommendations made by the Finance Commission of the State
- Any other matter referred to the Commission by the President in the interests of sound finance
- Population census: The 13th FC used population figures of states based on 1971 census with a 25% weightage to that factor. On the other hand the 14th FC chose population figures of 2011 census and assigned 10% weightage in addition to the 17.5% weightage given to the 1971 population data. From the perspective of economic objectives, there is no justification in using 1971 population data as a factor in the horizontal distribution of funds. From a political perspective, the use of 1971 population data will result in losers and gainers.
- Conditions that may be imposed by the Central government while providing consent to States when they borrow under Article 293(3)
- Article 293 (3): A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government
- Asking the Commission to propose measurable performance-based incentives to States in respect of a number of areas such as the implementation of flagship schemes, progress towards replacement rate of population growth, a control or lack of it in incurring expenditure on populist measures
- Promoting ease of doing business
India should make money laundering a standalone offence keeping in mind the on-site mutual evaluation by the Financial Action Task Force (FATF), which is due in November-December 2020
What is the legislation that deals with money laundering in India?
Prevention of Money laundering Act (PMLA)
The first FATF mutual evaluation of India was done in 2010 when the body expressed satisfaction with the measures taken by the country. However, in the same breath, the FATF highlighted, in its 256-page report, a number of lacunae in the then legislation, for which it suggested changes. Since then, a range of laws have been amended
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989.
- Objective: The mandate of the FATF is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system. In collaboration with other international stakeholders, the FATF also works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse
- Recommendations: The FATF Recommendations set out the essential measures that countries should have in place to:
- Identify the risks, and develop policies and domestic coordination;
- Pursue money laundering, terrorist financing and the financing of proliferation
- Apply preventive measures for the financial sector and other designated sectors
- Establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures
- Enhance the transparency and availability of beneficial ownership information of legal persons and arrangements
- Facilitate international cooperation
What has happened?
The 115 Aspirational Districts Programme (ADP) conceived by Prime Minister Narendra Modi is radical not because this is the first time that a government in India has focussed on India’s most backward districts but because the exercise envisages a serious re-imagination of government and governance, and deepens cooperative federalism.
Education, health and nutrition, agriculture and water resources, financial inclusion, basic infrastructure and skills
Why the term “Aspirational” used instead of backward?
Attitudes and narrative matter for outcomes: So that they are viewed as islands of opportunity and hope rather than areas of distress and hopelessness
How the districts were chosen?
In consultation with state officials: The 115 districts were chosen by senior officials of the Union government in consultation with State officials on the basis of a composite index of the following
- Deprivation enumerated under the Socio-Economic Caste Census
- Key health and education performance indicators
- The state of basic infrastructure
- A minimum of one district was chosen from every State
No special funds for this scheme
To Leverage the resources of the several government programmes that already exist but are not always used efficiently
- Prabhari: Each district is assigned a prabhari (in-charge) officer from the Centre (of additional secretary or joint secretary rank) and a prabhari officer from the State (of the rank of Secretary to State government) who will work in cooperation with the district administration
- Centre and State to work together: It is necessary for the Centre and States to be involved because not all decisions can be taken at the level of district
For example, if there is a shortage of teachers in a local school or a shortage of health personnel in a primary health centre, it needs the State capital to act, possibly through transfers of personnel from over staffed areas
- DM’s role is most important: The most crucial is the District Magistrate or Collector who is familiar with the challenges of his or her geography and has considerable power to implement government schemes
Publicly available rankings
- This programme takes the principle of competitive federalism down to district administrations
- Each district will be ranked on the focus areas which are disaggregated into easily quantifiable target areas
- So as not to bias the rankings on historical achievements or lack of them, the rankings will be based on deltas or improvements.
With continuously updated data dashboards, those running the programme on the ground can alter strategies after accurate feedback.
In a way, the ADP is a big pilot programme from reorienting how government does its business of delivering development. A decisive shift in the paradigm of governance is likely to finally fulfil the many broken promises of the past.
Twin balance sheet problem refers to the stress on balance sheets of banks due to non-performing assets (NPAs) or bad loans on the one hand, and heavily indebted corporates on the other. “Our own assessment is that it would take another six to nine months before the banks see revival of confidence to lend afresh as they would then see reasonable amount of their NPAs get unlocked through a resolution
What is twin balance sheet problem?
Twin balance sheet problem refers to the stress on balance sheets of banks due to non-performing assets (NPAs) or bad loans on the one hand, and heavily indebted corporates on the other
ASSOCHAM has urged RBI to relax norms proposed in its February circular on the revised framework for resolution of stressed assets, claiming these were harsh both on the banks as also borrowers
CHOGM meeting & Indian PM’s bilateral visit to the U.K.
Issues to be discussed at CHOGM
- Explore ways of raising intra-Commonwealth trade from around $525 billion in 2015 to around $700 billion by 2020
- A memorandum of understanding on the return of illegal migrants to India, previously agreed and relating to an issue that Britain has repeatedly raised, will be formally signed
- Other agreements set to be reached include one on the setting up of an Ayurveda research centre in the U.K
- The treatment of religious minorities in India and the detention of Jagtar Singh Johal, a British citizen who remains in custody in India after being arrested last year
Effect of Demonetisation
Demonetisation’s effect on tax collections
- Net collections have increased by 17.1% in the just concluded fiscal year, to Rs. 9.95 lakh crore. In FY15 and FY16, India’s direct tax kitty witnessed growth of just 8.9% and 6.9%. But seen from a historical perspective, a 14% or even 17% annual increase in direct taxes isn’t extraordinary for the Indian economy.
- For instance, in fiscal year FY14 (under the UPA government), direct tax collections rose 14.3%. In FY11, they had expanded 18%. Clearly, these numbers were achieved without any tinkering with high-value currency notes
- Tax buoyancy: Tax buoyancy has picked up post-demonetisation. In the seven years from FY08 to FY14, direct tax buoyancy hovered between 0.5 and 1.1 times, averaging out at 1 for the period. Direct tax buoyancy doubled from 0.6 times in FY16 to 1.3 times in FY17 and accelerated further to 1.7 times in FY18
- The number of IT return filings zoomed to 6.84 crore by the end of FY18. That’s a 57% increase in the last two years (2.48 crore new filings)