[Mission 2023] INSIGHTS DAILY CURRENT AFFAIRS + PIB SUMMARY 19 August 2022

GS Paper 2

Syllabus: Issues related to development, welfare schemes for vulnerable sections of society, subsidies etc

Source: The Hindu

Context: While hearing a petition demanding the derecognition of political parties that promise “irrational freebies’‘ to voters, the Supreme Court recently called for a balance between welfare measures and loss to the public exchequer.

Freebies and welfare:

• Free electricity, free water, free public transportation, waiver of pending utility bills and farm loan waivers are often regarded as freebies
• They potentially undermine credit culture, distort prices through cross-subsidisation eroding incentives for private investment, and disincentive work at the current wage rate leading to a drop in labour force participation
• Welfare: Expenditure on which brings economic benefits, such as the public distribution system, employment guarantee schemes, states’ support for education and health.

Is India spending too much on welfare or freebies?

• Declining spending on social sector: Studies, especially by the Reserve Bank of India (Study on State Finances), have shown that from 2014 onwards, the social sector expenditure at the State level has been declining even after States were given more resources.
• Health and education: The allocation to the health and education sectors by the States is declining.
• The Reserve Bank of India report: two months ago brought to light the fiscal situation of the States.
  • At least five States are going to see fiscal pressure.
• Low spending on welfare schemes: Welfare spending in India is woefully low.
  • It is low in comparison to other developing countries – some years ago, public spending on health and education was 4.7% in India, compared to 7% in sub-Saharan Africa.

Solution:

• Spend more on welfare schemes: There is a need to spend more resources on welfare schemes
  • There’s a need to keep track of allocations to the social sector.
• Public expenditure efficiency: At the same time, it is high time we started talking about public expenditure efficiency in this country.
• Better resources: We need to have a good tax framework, where you have much better resources for more social sector expenditure while also ensuring medium-term debt sustainability.

Comparison with Sri Lanka:

• Public debt stock: Fiscal crises happen not because of the fiscal deficit of any particular year, but due to the public debt stock that is accumulating over a period of time.
• Other factors: The fiscal situation there was not triggered by welfare spending alone
  • There are many other things happening there which led to the crisis.

How to raise taxes and engage in greater redistribution:

• Reduce Indirect taxes (Goods and Services Tax)
• Increase Non-tax revenues
• Wealth tax: Levy a one-time 4% wealth tax on the wealthy, we can get revenues worth 1% of GDP.
• Property tax: Similarly, we are raising 2% of GDP through property tax, whereas the developing country average is 0.6% of GDP and in OECD countries it is 2% of GDP.
  • So again, there is great scope to raise revenues.

Supreme Court’s suggestion:

• Balance welfare spending and our fiscal concerns: The court has mentioned the need to balance welfare spending and our fiscal concerns.
• Social sector expenditure: The implicit subsidies can be reduced so that we have more resources for welfare or social sector expenditure.

Conclusion:

• Long term impact: There is a need to identify the policies that have a long-term impact.
  • At the same time, there is a need to identify the beneficiary sets.

Insta Links:

Subsidies in India

Practice Questions:

Q. Explain the meaning of investment in an economy in terms of capital formation.Discuss the factors to be considered while designing a concession agreement between a public
entity and private entity.(UPSC 2020)

GS paper 2 and 3

Syllabus: Governance

Source: The Hindu

Context:

• The Supreme Court ordered the status quo on the implementation of a Delhi High Court order to hand over the affairs of the Indian Olympic Association (IOA) to a Committee of Administrators (CoA).
• FIFA had recently gone ahead and suspended the AIFF, citing “third party interference.

Key Highlights:

• Previously, Delhi HC has set up a three-member CoA: The Delhi High Court had directed the setting up of a CoA comprising:
  • Former Supreme Court judge Justice Anil R. Dave
  • Former Chief Election Commissioner S.Y. Quraishi
  • Former Secretary of the Ministry of External Affairs Vikas Swarup.
• Assisted by eminent sports persons: High court has directed the Executive Committee of the IOA to forthwith hand over the charge to the CoA, which would be assisted by three eminent sportspersons, namely, Olympians Abhinav Bindra, Anju Bobby George and Bombayla Devi Laishram.
• According to the rules of the International Olympic Committee: The representation of a national-level body like the IOA by a non-elected body would be treated as a third party interference.
  • The IOA is bound by these rules. Every country in the world is bound by it.
• Third-party interference: The Indian Olympic Association (IOA) is a unit of the International Olympic Committee and they have their own rules and according to them
  • If any national-level body like petitioner IOA here is represented by a non-elected body then it is treated as a third-party interference.

Insta Links:

Indian Olympic Association(IOA)

GS paper 2

Syllabus: International Relations

Source: The Hindu

Context:

• China’s investments in infrastructure projects under its Belt and Road Initiative (BRI) have declined while China’s short and medium-term assistance to partner countries, some of which are dealing with rising debt levels, is increasing, according to recent research highlighting a shift in China’s approach to overseas lending.

Key Highlights:

• Green Finance and Development Center (GFDC) report: In the first half of 2022, China’s engagement through financial investments and contracts in 147 countries amounted to $28.4 billion, up by 47% from the previous year, said a report from the Green Finance and Development Center (GFDC) at Shanghai’s Fudan University.
  • Of this, $8 billion was through investments and $16.5 billion through project contracts.
  • This marked a decline from $48.5 billion in the same period in 2019.
• China’s total engagement at $932 billion: Since the launch of the BRI in 2013, the report estimated China’s total engagement at $932 billion, with $561 billion in construction contracts and the rest in other investments.
• The report noted three clear trends in the BRI:
  • A growing role for Chinese State-owned Enterprises
  • The average size for project deals falling, from $558 million in 2021 to $325 million last year
  • An increasingly uneven spread of engagement.
• No China engagement: Several countries “saw no Chinese engagement” in the first half of the year, including Russia, Sri Lanka and Egypt, while the figure in Pakistan was down by 56%.
• Research from the AidData research lab reported by Bloomberg: China’s short and medium-term lending to several BRI partners has rapidly risen.

Loans to Pakistan:

• In the past five years, China “made nearly $26 billion in short and medium-term loans to Pakistan and Sri Lanka” alone, marking a shift in its overseas engagement “from funding infrastructure toward providing emergency relief.”

Insta Links:

Belt and Road Initiative(BRI)

GS Paper 3 

Syllabus: S&T/ Governance

Source: Indian Express

Context: The author argues for use of blockchain technology for e-governance in India

A digital infrastructure based on blockchain technology will transform the digital ecosystem in India and will enable the future of digital services, platforms, applications, content, and solutions.

Recent steps for digital infrastructure:  Digital India mission in 2015, our payments, provident fund, passports, driving licenses, crossing tolls, and checking land records all have been transformed with modular applications built on Aadhaar, UPI, and the India Stack.

Limitations of public digital infrastructure

• Low availability and affordability: It is well established that digital infrastructure should be designed based on principles of availability, affordability, value, and trust.
• Current digital ecosystem is not interconnected as a design; a technical integration is required to make them conversant and interoperable.
• Validation of data is becoming complex: Information has to travel across multiple systems to complete the interaction and rely on private databases, which makes the validation of data more complex as the network grows, driving up costs and creating inefficiencies.

Solutions:

Web 3.0: It is the next iteration of the internet. It heavily relies on blockchain technology, machine learning, and artificial intelligence (AI). It aims to create a decentralized internet with open, connected, intelligent websites and web applications.

Benefits:

• Data Ownership. In Web 2.0, tech giants control and exploit user-generated data.
• Fewer Intermediaries
• Transparency
• Efficient searching and information linking
• Personalized Web Surfing Experience
• Uninterrupted services
• Auto verification: A blockchain-based infrastructure can provide all of these attributes without the need of trusting any particular actor to verify a ledger’s history.
• The blockchain records could be visible, compiled, and audited by the regulators in real-time.

Need for an All-India Blockchain Platform for India:

• A digital infrastructure based on blockchain technology will transform the digital ecosystem in India and will enable the future of digital services, platforms, applications, content, and solutions.

Conclusion:

The Indian digital community, including fintech, academia, think tanks, and institutions, should focus on supporting research in standards, interoperability, and efficient handling of current known issues with the distributed technologies, e.g., scalability and performance, consensus mechanisms, and auto-detection of vulnerabilities.

Insta Links

Blockchain

Mains links

Q. Analyze the potential of blockchain technology in transforming the public sector works and citizen service delivery. (15M)

Prelims Link

GS Paper 3

Syllabus: Privatization of banks, Monetary policy, the role of RBI etc

Source: The Hindu

Context:

• Big-bang privatization of public sector banks can do more harm than good, the latest RBI bulletin has warned, asking the government to take a nuanced approach to the issue.
• While private sector banks (PSBs) are more efficient in profit maximization, their public sector counterparts have done better in promoting financial inclusion, they said in the article.

Key Highlights:

• Privatization not at the cost of social objective: The gradual approach to privatization adopted by the government could ensure that a void was not created in fulfilling the social objective of financial inclusion and monetary transmission.
• Promoting green transition: PSBs (Public Sector Banks) had played a key role in catalyzing financial investments in low-carbon industries, thereby promoting green transition.
• Financial inclusion goals: Evidence suggested that public sector banks were not entirely guided by the profit maximization goal alone and have integrated the desirable financial inclusion goals into their objective function unlike private sector banks, the report said
• Countercyclical role of PSB lending: In recent years, these banks have also gained greater market confidence.
  • Despite the criticism of weak balance sheets, data suggests that they weathered the COVID-19 pandemic shock remarkably well.
• Consolidation of the sector has created robust and competitive banks: Recent mega-mergers of PSBs have resulted in the consolidation of the sector, creating stronger and more robust and competitive banks.
• National Asset Reconstruction Company Limited (NARCL): The authors also pointed out that the establishment of the National Asset Reconstruction Company Limited (NARCL) would help in cleaning up the legacy burden of bad loans from their balance sheets.
• National Bank for Financing Infrastructure and Development (NABFiD): The recently constituted National Bank for Financing Infrastructure and Development (NABFiD) would provide an alternative channel of infrastructure funding, thus reducing the asset-liability mismatch concerns of PSBs.

What is Privatization?

• The transfer of ownership, property or business from the government to the private sector is termed privatization.
• The government ceases to be the owner of the entity or business.
• Privatization is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about.
• India went for privatization in the historic reforms budget of 1991, also known as the ‘New Economic Policy or LPG policy’.

Practice Questions:

Q. Explain the meaning of investment in an economy in terms of capital formation. Discuss the factors to be considered while designing a concession agreement between a public entity and a private entity. (UPSC 2020)