9 PM Daily Brief – June 9th,2020

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9 PM for Main examination

GS-2

  1. What is the way forward in India-Nepal relations?
  2. Importance of Local governance during pandemics
  3. Importance of E-Diplomacy in the time of COVID-19.

GS-3

  1. Fiscal Deficit – Direct Monetization as possible solution
  2. Indian Navy – The Third Pillar in our security establishment

9 PM for Preliminary examination

FACTLy


1.What is the way forward in India-Nepal relations?

Source: The Hindu

Syllabus: GS-2- International Relations

Context: Recently, Nepal published a new political map showing the areas of Lipulekh, Kalapani, and Limpiyadhura as part of its territory.

Background: Nepal’s move to publish a new map came after India published a map in November 2019 which included the Lipulekh and Kalapani areas in its claimed territory. The border dispute between the countries aggravated after recently India inaugurated a road linking Dharchula in Uttarakhand state to Lipulekh, as part of the Kailash-Mansarovar pilgrimage route.

The Challenges in India-Nepal Ties

Challenge
Territorial/Border Disputes The Treaty of Sugauli signed by the Kingdom of Nepal and British India in 1816 located the Kali River as Nepal’s western boundary with India.

However, the discrepancy in locating the source of the river led to boundary disputes between India and Nepal.

Internal Security There is an open border between India and Nepal which leads to illegal migration and human trafficking
Peace and friendship treaty India-Nepal Friendship Treaty, 1950 has been criticized by the Nepali political elite as an unequal one. For example, the treaty obliged Nepal to inform India and seek its consent for the purchases of military hardware from third countries
India’s Dominance There is a widespread perception in Nepal that India does not respect the country’s sovereignty and that it often intervenes in Nepal’s domestic affairs.
Nepal’s growing proximity to China China has become one of the most important trading partners of Nepal. It has also provided liberal aid for building infrastructure in Nepal and undertaken many infrastructure projects. For Example, China’s freight train to Nepal
Trade Nepal’s trade deficit with India has surged in recent years with continuously rising imports and sluggish exports. Indo-Nepal trade continues to remain massively in India’s favor.

What should be done to improve India-Nepal ties?

  • Strengthening Diplomatic dialogue: Diplomatic dialogue between India and Nepal should be resumed at the earliest possible. Further, embassies on both sides should be allowed to function freely.
  • Respecting Nepal’s Sovereignty:India must respect Nepal’s sovereignty and should not meddle in the internal political affairs of Nepal.
  • Neighborhood First Policy:Through neighborhood first policy, India need to build the trust and show that Nepali nationalism and anti-Indianism are not the two sides of the same coin.
  • Tackling China:India need to counter China’s more assertive foreign policy through soft power and should emphasize on its historically close cultural, religious, and people-to-people relations with Nepal.

2.Importance of Local governance during pandemics

Source: The Hindu

Syllabus: GS 2-Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein

Context: The COVID-19 pandemic has shown the critical role of local governments and decentralised responses.

Advantage for Local governments: In terms of information, monitoring and immediate action which can meet any disaster such as COVID-19.

Core issues: COVID-19 has raised four major challenges:

· Economic: The economic activities are not sufficient to handle such large workforce.

· Health: There are lack of health infrastructures to handle such large populations.

· Welfare/livelihood: The livelihoods of the people hampered due to low economic activities which led to reverse migrations.

· Resource mobilisationThere are inadequate resource availability for the local bodies to handle such crisis.

Challenges for local governance:

  • Paradigm shift: The COVID-19 demands a shift in the delivery of health care with advanced technology.
  • No clarity: In the assignment of functions, functionaries and financial responsibilities to local governments.
  • Low recognition: The critical role of local governments needs to be recognisedby all. Such as Kerala through a ‘big bang’ approach implemented a significant fiscal decentralization program and then built the capacity of its local governments.

These challenges have to be addressed by all tiers of government in the federal polity. The local government’s own revenue is critical for their empowerment.

Suggestions for Resource mobilisation:

  • Local finance:
    • Property tax collection with appropriate exemptions should be a compulsory levy and preferably must cover land.
Facts: 

· The Economic Survey 2017-18 points out that urban local governments, or ULGs, generate about 44% of their revenue from their own sources as against only 5% by rural local governments, or RLGs.

· Per capita own revenue collected by ULGs is about 3% of urban per capita income while the corresponding figure is only 0.1% for RLGs.

    • Fiscal illusion: There is a big gap between tax potential and actual collection which results in underperformance. In States such as UP, Bihar and Jharkhand, local tax collection at the panchayat level is almost nil.
    • All States should take steps to enhance and rationalisethe property tax regime.
Facts:

· A recent study shows that the share of property tax in GDP has been declining since 2002-03.

· The share of property tax in India in 2017-18 is only 0.14% of GDP as against 2.1% in the OECD.

    • Land monetisationand betterment levy may be tried in the context of COVID-19 in India.
    • Issuance of Bonds:Municipalities and suburban panchayats can issue a corona containment bond for a period of say 10 years on a coupon rate below market rate but significantly above the reverse repo rate to attract banks.
  • MPLAD fund scheme:
    • MPLADs were earmarked for local area development and must be assigned to local governments like to panchayats on the basis ofwell-defined criteria.
  • The Fifteenth Finance Commission (FFC): 
    • A special COVID-19 containment grant to the LGs:By the FFC to be distributed on the basis of SFC-laid criteria.
    • Low increase: The local government grant of ₹90,000 crore for 2020-2021 by the FFC is only 3% higher than that recommended by the Fourteenth Finance Commission. It should be increased to an appropriate level.
    • The Building health infrastructure and disease control strategies at the local level should find mention in tranches of the packages announced by the government.

Way Forward

Strategies in tackling the COVID-19 crisis must include local governments being equipped and fiscally empowered.

3.Importance of E-Diplomacy in the time of COVID-19.

Source: The Hindu

Syllabus: GS 2-   Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: The first India-Australia virtual leaders’ summit held on June 4 and discussed issues ranging from military interoperability to jointly tackling COVID-19.

E-Diplomacy:

  • Migration to online mediums: The Nations have shifted to online mediums with video conference calls due to the dangers posed by COVID-19. It has compelled the traditionally glad-handing, backslapping and tourism-promoting art of summit diplomacy to online summits.
Advantages of E-summits: 

 

Disadvantages of E-summits:
· Physically safer for leaders.

· Time saving.

· Low economic costs on events with less spent on physical journeys.

 

· Doubts: Without all the protocols and structured dialogues of summits, it is doubtful if major breakthroughs or deals requiring direct intervention of leaders can happen.

· Less productive: In terms of deliverables, especially where crucial sticking points such as India-China issues on borders.

· Broader political goals: Online summits may not satisfy the broader political goals and bigger objectives that heads of state carry with them.

In pre-COVID-19 times: Summit venues used to be thoroughly sanitised and debugged to prevent sensitive foreign policy content from being spied upon or leaked.

Now with many countries moving towards digital summits and E-diplomacy, it will bring the technological challenge for them.

Cyber Security Challenge to E-Diplomacy:

  • Hacking: It is riskier and could be subject to hacking of classified content.
  • This could reduce the spontaneity of their conversations.
  • Important issues: It is arguable whether new ideas or proposals which require geo-strategic alignments can be discussed in e-summits.

India’s efforts at E-Diplomacy:

  • India’s multilateral ‘e-diplomacy’ since the COVID-19 outbreak:
    • The PM convened the SAARC leaders’ video conference.
    • Joined the Extraordinary G20 Leaders’ Summit via video link.
    • Made his maiden appearance at the NAM virtual summit.
  • Elaborate summit with Australia:
    • It involved the exchange of multiple agreements such as the two countries upgrading their relations to a ‘comprehensive strategic partnership’.

Way Forward

Despite the Cyber security and productivity concerns e-summits must go on as diplomacy.

4.Fiscal Deficit – Direct Monetization as possible solution

Source – The Hindu

Syllabus – GS 3 – Mobilization of resources for growth

Context – Recently rating agency Moody downgraded India from Baa2 rating to Baa3 rating

Reason for Downgrading – Moody has cited slowing growth, financial sector weakness and rising debt as the main reasons for downgrading the ratings.

  • Moody’s estimation of Public debt to GDP ratio is 72% in 2020-2021.
  • Non-Performing Assets in financial sector are over 9% of loan advances in pre-corona India.
  • Growth rate by World Bank has been projected at 3.1% in FY22.

Apart from the reasons cited by Moody’s, structural issues have been major contributor in the slowing growth rate.

Figure 1 – Structural issues in Indian Economy

Atma Nirbhar Mission – Government has introduced the Self-Reliant Mission to infuse Rs 20 lakhs crore in economy. This mission is aimed at resolving structural issues in all sectors on economy. This infusion can be done either by providing guarantees to bank or via deficit financing.

Need of monetizing the Fiscal Deficit –According to Keynesian economics theory, in any economy, the slowdown can be revived only by financing the fiscal deficit. The governments increased spending in turn leads to a virtuous cycle of growth.

Figure 2 – Virtuous cycle of growth

Methods of financing the deficit

  1. Borrowing by government– Government can borrow from internal sources as well as from external sources to finance its deficit. This however leads to crowding out effect and thus discourages investment by private sector. It also raises the public debt to GDP ratio which in turn affects the rating done by rating agencies.
  2. Printing Rupees or direct monetization– Government, can get money printed by RBI in return of bonds issued by government. This although has inflationary effect on economy but a slowdown in economy can be uplifted with the short-term inflationary pressure.

Difference between OMO and direct monetization – Direct monetization is different from the “indirect” monetizing that RBI does when it conducts the Open Market Operations (OMOs). In OMO, RBI purchases bonds in the secondary market and it does not include printing new currency.

Way Forward – Controlling inflation with monetary policy while financing the deficit with direct monetization is the need of the hour to revive the economy hit hard by lockdown as well as structural issues.

5.Indian Navy – The Third Pillar in our security establishment 

Sources – The Hindu

Syllabus – GS 3 – Various Security forces and agencies and their mandate

Context – Uncertainty regarding construction and commissioning of third aircraft carrier in Indian Navy

Aircraft carrier in India and other countries 

Figure 1- Comparison chart of number of aircraft carriers India, China and Pakistan have

Need of third aircraft carrier in India:

  1. Changing geopolitics in Indian Ocean– Indian Ocean region is deemed to become heartland of world’s geopolitics in 21st This would require early preparedness which includes strengthening Indian Navy for better power projection.
  2. Long gestation period – Aircraft carriers need around 10 years from concept phase to commissioning phase. This requires foresight and strategic policy making which includes estimation of needs and wants of a future global power like India.
  3. China expanding its naval power– By 2030, the Chinese Navy will have around 6 aircraft carriers which are required for its objective of becoming global hegemony both in military and economy.
  4. Trade via Sea Line of Communications – 97% of Trade in India happens via Sea line of communications which require better protection from conventional threats like Piracy and terrorism.
  5. Long coastline– India has coastline of around ~7500km which is important source of country’s economy in terms of trade, tourism, aquaculture, conservation of maritime biodiversity. This underlines the importance of better equipped Navy to tackle unforeseen crises.
  6. Role played in previous wars– The Bangladesh War of 1971 was a strategic victory for India which was won because of combined efforts of three forces. It was Navy, however, which played predominant role to create blockade for Pakistan with its prowess of powerful systems.

Despite of the advantages third aircraft carrier offers to regional power like India, there has been argument against need of such carriers.

Argument against Aircraft Carrier

  1. Budget Constraint – Due to Corona pandemic and the slowdown in economic sectors, resource mobilisation for securing livelihood and strengthening health infrastructure is needed. This puts budgetary constraint on defence bill and construction of projects like INS Vishal will need to be postponed for now.
  2. Limited role of Navy in historical wars – Among the major wars India has fought in its neighbourhood in 1948, 1962, 1965 and 1971 Navy played a limited role as all were predominantly land border based wars. This requires strengthening the Army and Air Force on urgent basis.
  3. Border disputes –India has land border based disputes with Pakistan along LOC and with China along LAC. Budgetary resources are, hence, needed for Land border management and modernisation of related ammunition and forces.
  4. Aircraft Carriers need Aircrafts and helicopters– Indian Air force does not have required squadron strength to fight a two-front war. It currently has 33 squadrons when requires number is 42 squadron. This indicates lack of fighter aircrafts, helicopters needed for strong Air Force. Navy, if will have third aircraft carrier, will need more such aircrafts to be deployed on the upcoming carriers.

Way Forward – The increasing significance of Indian Ocean Region in this century demands a strong Indian Navy which can provide not only regional security to its littoral neighbours but also participate with other global power in securing the peace.


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