GST: Two years on

Source: By Sushil Kumar Modi: The Indian Express

The GST was launched in India with hopes of being a major game-changer for taxpayers as well as for the government. It was expected to not only boost revenue, but also effect transformative changes to India’s indirect tax regime besides ushering in an era of eased compliance. Most of all, it was expected to relieve the economy of the burden of cascading taxes and be a significant step in the creation of a common national market. As we celebrate its second anniversary, let us take a look into how it has fared so far and where it is headed.

Going by international experience, GST has taken between two to five years to stabilise. In this context, in terms of revenue yield, the Indian GST has done remarkably well. In the first 21 months, it yielded an average monthly revenue of Rs 91,334 crore — the average stood at Rs 82,295 crore in the first nine months of its implementation which went up to Rs 98,114 crore in the next 12 months, a growth rate of 19.22 per cent. This achievement pales a little only when we consider the high benchmarking that we had set for it.

The government had set an ambitious target of achieving an annual year-on-year growth rate of 14 per cent on the base year revenue from subsumed taxes in FY 2015-16. This was done to guarantee an assured year-on-year growth of 14 per cent to the states over their respective base year revenues to bring them on board for implementing a uniform and harmonised dual-GST. The average monthly base year revenue from subsumed taxes was around Rs 70,000 crore.

The figures of GST revenue yield so far outline the success of the GST implemented in India. To appreciate this point one needs to analyse GST yields in the backdrop of the average monthly revenue from subsumed taxes in the base year 2015-16 which was of the order of around Rs 70,000 crore and it is this benchmark against which the revenue performance of GST is being judged.

Accordingly, the benchmarked average monthly revenue for 2017-18 and 2018-19 works out at Rs 90,972 crore and Rs 1,03,708 crore respectively, worked out on the basis of a CAGR of 14 per cent on 2015-16 monthly averages. The average monthly yields for 2017-18 and 2018-19 fell short by 12.3 per cent and 5.4 per cent respectively. These are not actual shortfalls; they merely represent the shortfall from the figures projected at a CAGR of 14 per cent on the base year revenues.

Thus, a whopping reduction of 56.1 per cent in the shortfall, into just the second year of GST implementation, from even the abnormally high benchmarked revenues, is a promising sign and is testimony to the structure and design of GST in the country.

The performance of GST revenues of various states has been as diverse as the country itself. While the average shortfall from protected revenue of all states has gone down from around 16 per cent in 2017-18 to 13 per cent in 2018-19, there are wide variations. During 2017-18, states like Maharashtra, Tamil Nadu, Andhra Pradesh stood at one end of the spectrum with shortfalls from protected revenue ranging from 3 per cent to 7 per cent while states like Bihar, Punjab and Uttarakhand had deficits in the region of 38 per cent.

In between lay states like Madhya Pradesh, Karnataka, Rajasthan, Haryana, Kerala, Gujarat, West Bengal and UP with deficits ranging from 12 to 26 per cent. But the real success story was that of the North-eastern states, barring Assam, which were on the verge of “breaking even” in the very first year and most of whom had become “surplus” states by 30 to 80 per cent by the beginning of 2019-20.

States like Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana and UP were on course to closing the gap from protected revenue towards the end of 2018-19. This is a pleasant surprise given that these are manufacturing hubs and GST was thus widely expected to incur losses on the implementation of a consumption type tax; the reason could possibly lie in the fact that these states were doubling up as significant “consumers” besides being production hubs.

However, states like Bihar, West Bengal, Karnataka and Kerala are a bit of an enigma in that these were expected to reap the rewards of the consumption-type GST. Bihar, however, has managed to reduce the gap from protected revenue from 38 per cent in 2017-18 to 15 per cent in 2018-19 and it is expected the state would grow out of the revenue-rain-shadow as GST stabilises.

It would not be incorrect to say that the entire tax eco-system had to bear the pangs of radical transformation; it was inevitable. Most hiccups were occasioned by almost every compliances being automated and being designed to be almost entirely system driven; the building of systems went hand in hand with the actual implementation of GST.

Initially there were issues with migration of taxpayers to the new system, return filing and even payment of taxes. But the GST Council met often and for long hours to sort out the issues. The return schedules were staggered, dates were extended and the GSTR-2 and GSTR-3 kept in abeyance. A summary return was introduced and its features were enhanced to facilitate filing. Late fees were reduced and even waived for the initial period. Migration issues were almost fully resolved by the end of FY 2017-18. Refunds, particularly to exporters, were temporarily put on a semi-manual track till the systems are fully in place. Significant measures were taken to mitigate the initial difficulties of the MSME sector. A new return filing system is on the anvil, it would transform the way tax returns are filed.

On other fronts, too, the Indian GST has done reasonably well. Check-posts of the states’ tax departments are now a thing of the past and this has significantly cut haulage times and improved the turnaround of fleet. Reporting obligations have been standardised and are now identical across the country. The national e-way bill system, introduced with effect from April 1, 2018, is another feature which integrated the tax system; instead of having to fill out something like four or five (even seven or eight) different declarations, goods can now be moved from one corner of the country to the other on the strength of just one declaration. This is a step in the direction of integrating the national market.

IGST is another such mechanism which is fast integrating value chains in the country. The IGST is India’s unique contribution to the world of indirect taxation. None of the federal systems have as smooth and as efficient a mechanism as the Indian IGST to transfer tax from the originating to the destination jurisdiction.

Effective burdens of tax have fallen and, contrary to the international experience, it has not, on its own, fuelled inflation. Perhaps we have not witnessed price cuts commensurate to the falling effective burden of tax and the anti-profiteering body may have to devise objective standards and a transparent methodology to analyse this phenomenon.

The biggest challenge is fine-tuning the IT system to cater to the requirements of both taxpayers and the tax administration. As has been rightly said, it is like building “an already sailing ship”. This is particularly challenging since nothing of this kind, or of this order of magnitude, has been designed for administering a tax. But I am sure we will overcome and emerge on top.

 

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The government’s budget math

Source: Mint

The first Union budget of the new government for the full year 2019-20 was chock-full of new measures designed to kick-start a flagging economy. The corporate tax rate has been reduced to 25% for all but 0.7% of companies that have an annual turnover higher than 400 crore. A number of measures have been proposed to deepen the market for corporate bonds, and in particular long-term corporate bonds for infrastructure financing.

The statutory investment limit for foreign portfolio investment has been raised from 24% to sectoral limits (presumably, the same as those currently applicable to foreign direct investment), with an option to individual companies of lowering the threshold if they wish. The scope of the securities transactions tax has been drastically curtailed to the difference between the settlement and strike price in case of options.

There are a large number of measures to promote entrepreneurship in startups, including a very interesting proposal to have a dedicated channel within Doordarshan, which will serve matchmaking function between startups and venture capitalists. The management of this channel is to be handed over to startups themselves. Tax concessions to startups are very liberal. Any verification of the sources of funds for these, and valuation of shares issued by them, has been de-linked from scrutiny by the income tax department. In lieu of these concessions to high net worth individuals, who are the angels or venture capitalists funding startups, there is a surcharge of 3% on individuals earning between 2 crore and 5 crore per annum and 7% on those earning more than 5 crore.

There are some other measures too numerous to mention, but I want to get to the essence of a government budget, which is to state its revenues and expenditures, and its net borrowing (the fiscal deficit) upfront. The speech by finance minister Nirmala Sitharaman had no mentions whatsoever of the fiscal deficit. This is the first time that such a thing has happened in my memory. It was mentioned by her informally after the conclusion of her speech, as having gone down to 3.3% from 3.4% in fiscal year 2018-19 by the revised estimates. There was nothing in the appendices to her speech either, but of course the figures were available in the first table in Budget At a Glance, one of the documents in the Budget set.

I want to look past those who have argued that in the present growth slowdown in India, it is ridiculous to watch the fiscal deficit. Whatever a person’s stand on whether there should or should not be fiscal restraint, the Budget statement has to first and foremost be a statement of the accounts of the government.

I will also look past those of us who are worried about the fact that the fiscal deficit in recent years has not included borrowing by public entities like the Food Corporation of India, which were previously funded directly from the exchequer, but are now borrowing from public accounts like the National Small Savings Fund.

But let that pass. In Budget at a Glance, the fiscal deficit is pegged at 7.04 trillion. If this is estimated at 3.3% of the budgeted gross domestic product (GDP), clearly we have to peer at the denominator a little. The GDP for the current year 2019-20 has been estimated to grow at 12% in nominal terms over its level in 2018-19 of ₹188.41 trillion. Putting together the numbers in the most recent monetary policy statement of the Reserve Bank of India on 6 June, inflation is forecast at 3.3% for the current year, and GDP real growth is forecast at 7%. The nominal growth rate can be no higher than 10.5%, worked out as a product.

Now, of course, the finance minister can argue that the growth-promoting measures in the budget will raise the real growth rate, and we hope they will eventually. However, a nominal growth rate of 12% is difficult to justify when RBI projects inflation anchored at a little over 3%. At the likely nominal growth rate of 10.5%, the fiscal deficit works out closer to 3.4%. Does this little bit matter? It does, if the government claims it has a strident commitment to fiscal discipline. What the small rise indicates is that the absolute fiscal deficit has risen more with respect to the previous year than nominal GDP.

The most encouraging commitment to fiscal discipline was acknowledgement of delays in government payments to suppliers and contractors, and the proposal for a payment platform to enable filing of bills and payment on the platform itself. It is confined to small-scale suppliers, but hopefully it will extend to large suppliers too. If honestly implemented, this alone will raise the fiscal deficit well beyond what is budgeted, since payment delays have become one of the instruments through which the reported fiscal deficit is kept under control.

The proposed interchangeability of PAN and Aadhaar has me deeply worried. Everything, like Form 16A for tax deducted at source (TDS), will become more cumbersome if the interchangeability between an alphanumeric and an all-numeric identifier is to be factored in. TDS as it stands is sufficiently problematic. It is entered manually, often with errors, and the proposal to pre-fill income tax returns, in place of form 26AS, could make it harder to correct those errors. The TDS pro-rating of income by banks is distressingly unconnected to the receipt of income by the taxpayer, which is unlawful, but who will go to our clogged justice system with such an issue?

 

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Finance for SDGs

Source: Mint

Blended finance is in fashion in the development finance world. It refers to the merging of public and private funds to maximize development impact and is most often called upon in reference to meeting the sustainable development goals (SDGs) that countries valiantly agreed to in 2015.

Blended finance is talked about as a mechanism to reduce investment risks associated with things such as basic healthcare, energy access and livelihood for the poorest. The phrase is being floated at all manner of international gatherings—from meetings of the World Bank to those of the Organisation for Economic Co-operation and Development (OECD), as a way to make the limited pool of $140 billion international public funds go farther.

Enthusiasts advocate three main hopes: One that blended finance can reduce investment risk; two, enhance returns; and three, increase financial flows. There are plenty of examples being floated around advertising the clever use of such capital. For example, a €360 million hospital in Turkey was made investible through the use of credit enhancements that allowed the issuance of investment-grade bonds, whose ratings were higher than sovereign ratings. A $58 million local currency, multi-country debt fund for off-grid energy in rural African homes was made possible through clever structuring of monies from the African Development Bank, Calvert Impact Capital, Global Environment Facility and the Nordic Development Fund. And in true spirit of blending, the government of Norway and Unilever has invested $125 million in a fund mandated to invest in agriculture companies to create inclusive, deforestation-free commodity production ecosystems.

No doubt these examples have removed otherwise insurmountable barriers, but they are only the tip of the iceberg for what can be achieved if blending were to truly catalyze private investment. For blended finance to change development finance, it has to scale. For this to happen, five fundamental issues that are inherent to the way public and private capital is managed, need to be addressed.

The first is to do with the way money is managed. Most aid agencies need to spend their commitments in a given calendar/fiscal year; internal accounting systems disallow payables over time. This means that any contract that entails future payments is prohibited. For example making efficient cook stoves available to households suffering from indoor air pollution needs payments of at least $7 per stove per year; Assuming carbon credits accounted for 60% of that, at least $3 of top-up would be needed in order to generate a decent rate of return for private investors. Many agencies are unable to enter into such forward contracts.

Relatedly, many agencies still have an archaic “use it or lose it” approach—if you don’t spend the money in that calendar year, chances are you will forfeit it in the following year. In reality, projects get delayed and cost overruns happen—particularly in the typically challenging markets that SDGs are relevant to. This approach not only creates perverse incentives where organizations focus on spending; sometimes, it even translates into corporate performance indicators where Staffs are monitored against money spent. When this becomes the primary objective that defines the life of an organization or the tenure or the staff member, a focus on impact and outcomes is naturally a dismal secondary.

The second relates to how money is monitored. Public agencies, aid in particular, focus on monitoring every dollar spent, whereas private funds monitor outcomes over a pre-agreed period of time and rely on audited financial reports as the benchmark for healthy financial management. This perceived micromanagement distracts from focusing on the real outcomes of the investment and redirects often significant human resources into the production of micro level financial reporting. The underlying problem is how governments set the rules. Rather than control the process, public agencies should set their ‘public benefits’ criteria upfront, and private entities should make those integral to normal financial reporting.

The third is related to the pricing of risk. In commercial finance the higher the risk, the higher the cost of capital. In an ideally blended structure designed to cater to risky markets or make investments economical, public capital should bear a higher share of the risk—but at lower costs of capital. However, in reality, public capital tends to be risk-averse, and so the line between costs of public and private capital end up getting blurred with the result that the sources sometimes compete with each other rather than be complementary.

The fourth relates to how failure is handled. While every private agency works to minimize failures, some degree of failure is inevitable when investing in new technologies, business models or untested markets. After all, the average failure rate of venture capital funds is 25-30%. Without venture money, new ideas would never be backed. Public monies, on the other hand, are intrinsically risk-averse, to the point of zero tolerance when it comes to ‘failure’. While this is understandable given that most public monies tend to be people’s tax dollars, unless some level of failure is permitted, innovative business models of types needed to meet the global goals are unlikely to emerge.

And finally, the biggest hurdle to public and private monies coming together lies in an ideological difference between governments and businesses. While the landscape is changing, many aid agencies I have dealt with, still cannot fathom the idea that public monies will be used to enable private entities to make profits. The longer this ideological difference remains, the harder it will be to develop large scale solutions where public monies will be needed to mitigate the risk that private entities will not otherwise take. All this notwithstanding, the larger goal of blending is a noble one and it is time that a common understanding were achieved among the blenders of capital so that both sides know what to expect.

 

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Planet needs Plan B

Source: The Financial Express

The much anticipated Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C was released on October 8, after a gruelling week-long deliberation by government representatives from 130 countries in Incheon, South Korea. The report has come out with some known and other unknown facts, and a dire prognosis.

The 1.5°C Report reiterates that the planet has already warmed by 1°C compared to pre-industrial levels and the impacts of this warming are already visible in the form of extreme weather events, rising sea levels and diminishing Arctic Sea ice. This year alone, the world has been battered by extreme weather—heat waves and drought in Europe and China, forest fires in the US, dust storms and unprecedented rainfall in India (including the historical floods in Kerala) and high precipitation in Japan. With a further 0.5°C warming, the effects would be far greater than what scientists previously predicted.

A 1.5°C warmer world will see higher sea levels, higher temperatures and an increase in frequency and intensity of precipitation, floods, droughts and heat waves. At 1.5°C, some critical thresholds will be breached beyond which natural ecosystems would fundamentally change and, in some cases, take millennia to recover. For instance, sea levels would continue to rise for centuries even if we cap warming at 1.5°C. The thresholds for irreversible, multi-millennial loss of ice sheets in Greenland and west Antarctic may also be breached. The warming and acidification of oceans will cause a 70–90% loss of corals and will put the survival and growth of many marine species in jeopardy. As a result of all these factors, 100 million people in countries like India will go into poverty through impacts on agriculture, lost livelihood opportunities, adverse health impacts and population displacements.

If the warming of 1.5°C will have major impacts, impacts at 2°C would be catastrophic. So far, the world was made to believe that a warming of 2°C was manageable. Under the Paris Agreement, 1.5°C was put as an aspirational target and 2°C as the ‘real’ target. But this report has turned our understanding on what would happen at 2°C on its head.

A 2°C warmer world will lead to a 0.1 m higher rise in sea level than that caused by a warming of 1.5°C, inundating vast coastal areas and disrupting the lives of 10 million more people. Corals face complete extinction at 2°C and 2 million km2 of permafrost will melt over centuries, risking runaway climate change due to large-scale methane emissions.

A 2°C warmer world will devastate economies and ecosystems and push hundreds of millions of people back into poverty. Countries like India that have a large proportion of population dependent on agriculture would suffer pronounced impacts in the form of floods, drought, water scarcity and decrease in food production, exposing a greater proportion of an already vulnerable population to poverty and livelihood insecurity.

The world, therefore, cannot afford a warming of 2°C. The goal of climate change now must be firmly fixed to 1.5°C to have a fighting chance to avoid the worst impacts of climate change. But limiting warming to 1.5 °C will be very difficult, if not impossible. The report makes it clear that the current level of climate ambition, as set out under the Paris Agreement, cannot limit warming to even 2°C. In fact, global warming is likely to reach 1.5°C between 2030 and 2052. To limit warming at 1.5°C, CO2 emissions will have to be reduced by 45% by 2030 from 2010 levels and reach net-zero by 2050. This means that maximum efforts need to be done by 2030. This will be a herculean task considering the obstructionist behaviour of the United States, which is historically the largest polluter of the climate.

It was clear in Incheon that the US continues to pose the biggest obstacle in putting together a global coalition to fight climate change. The US delegation tried its best to dilute the findings of the 1.5°C Report and announced that it would leave the Paris Agreement at the earliest. Since Trump took office, the US has been obstructing the climate negotiations and promoting fossil fuels. How the rest of the world handles the climate-rogue behaviour of the Trump administration will decide whether the world will meet the 1.5°C goal.

The world, therefore, now needs a Plan B as Plan A. The Paris Agreement is insufficient. The first component of Plan B should be to quickly achieve global consensus to make 1.5°C the new target. There will be an inclination amongst countries to reject 1.5°C as impractical and instead keep the focus on 2°C. But, this would be disastrous for the poor and developing countries. If the world keeps the target as 2°C, it will probably overshoot this target. If the world agrees to keep the warming within 1.5°C, it will probably contain it well within 2°C. This will save millions of lives.

Plan B requires building a new coalition that marginalises the overwhelming influence of the US in climate negotiations. This will mean a Paris Agreement plus approach that creates more forums for sector-specific and regional alliances on reducing emissions.

The one area where I disagree with the 1.5°C Report is with respect to the phasing out of fossil fuels. The report emphasises the need to reduce coal consumption rapidly, though it allows for the use of natural gas with carbon capture and storage. This differentiation between one fossil fuel with another is more politics than science. All studies show that natural gas is equally climate damaging if one includes methane leakages. If the world wants to meet the 1.5°C target, it will have to act on all fossil fuels simultaneously.

We will succeed with Plan B if the burden of this transition is shared equitably and fairly between nations and communities. As the 1.5°C Report points out, ‘social justice and equity are core aspects of climate-resilient development pathways that aim to limit global warming to 1.5°C’. The world, however, requires a new formulation of equity in which every country must act now and actively raise its level of ambition. Developed countries and rich developing countries must take the lead by rapidly de-carbonising their economies and reducing consumption. Poor developing countries should pursue low-carbon pathways more vigorously and limit the addition of fossil fuel assets going ahead.

Limiting warming to 1.5°C will be really hard. It will require ‘rapid and far-reaching’ transitions in everything we do; having said that, we are at the right time in history to make a serious attempt to meet this target. We have the scientific understanding and technology; money was never the problem. Limiting warming to 1.5°C requires investing an additional $2.4 trillion annually in the energy sector between now and 2035. This is about 2.5% of global GDP. In comparison, military spending in 2017 amounted to 2.2% of global GDP. The question is: Are we smart enough to switch money from killing to living?

 

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Save Western Ghats

Source: Deccan Herald

The central government re-issued the Draft Notification — for the fourth time — to constitute an area of 56,825 sq km spread across five states as Eco-sensitive Area (ESA) in the Western Ghats. The Kasturirangan Committee had recommended an area of 59,940 sq km spread across six states — Kerala, Tamil Nadu, Karnataka, Goa, Maharashtra and Gujarat.

There appears to be a systematic attempt by vested interests such as timber merchants, contractors, some of whom might have the backing of some politicians, to spread non-existent and imaginary directions in the draft notification. This has obviously generated doubts and fear in the minds of the people living in and around the Western Ghats. Genuine concern for protection of the precious Western Ghats — which is a finite and diminishing resource — requires an urgent attempt to reach out to the people to honestly convey indisputable facts contained in the notification and its implications at the ground level.

What is in the Kasturirangan Report and in the Draft Notification issued by the MoEF? The Kasturirangan Committee was set up by Government of India to review the recommendations of the Madhav Gadgil Committee, which had recommended that the entire Western Ghats should be notified as Eco-sensitive area. The Kasturirangan Report reduced and limited the extent of the eco-sensitive area to only 37% of the Western Ghats. That is exactly what the Government of India has sought to notify until now. The remaining 63% of the area can be used to facilitate plans and projects for ‘sustainable development’.  

The notified 37% of the area consists of natural forests, containing high biological richness, low population density and already existing National Parks, Sanctuaries and Reserved Forests and includes villages immediately adjacent to such Protected Areas. It is very important to understand that entire districts, taluks or hoblis have not been notified as ESA.

Will legally owned lands of farmers and local people be acquired, as is widely feared? The directions have been issued under Section 5 of the Environment (Protection) Act, 1986, and related rules which do not empower the government to acquire any land. There is nothing in the draft notification that would permit the take-over of any land in respect of even the villages that are in the list. Therefore, the question of people losing their private lands or plantations located either in the identified villages or outside does not arise at all.

Will even bona fide activities of people, including agriculture, coffee plantation, construction of houses, public utilities etc are prohibited? Not at all; growing of coffee, pepper, orange, paddy and all such agricultural and horticultural crops are in the Green category and fully permissible. There is no restriction on building houses in the villages listed in the ESA notification. Most other local business and commercial activities including home stays, tea/coffee processing, coffee curing, roasting and grinding, commercial complexes, manufacture of cement products like blocks, pipes, etc., bricks and roofing tiles, wood furniture units are also in the Green category and therefore permissible.

Only the listed Red category industries are prohibited in the notified ESA comprising of Protected Areas and identified villages. Only environmentally damaging activities are prohibited. These include: (a) mining, stone quarrying and sand mining; (b) thermal power plants; (c) building and construction projects of 20,000 sqm area and above; (d) township and area development projects with an area of 50 hectares and above and/or with built-up area of 1,50,000 sqm and above; and (e) Other activities listed in the Red category.

Contrary to the rumour that the ESA extends to areas up to 10 km from the boundary of the identified villages, the truth is, the restrictions do not extend beyond the boundaries of the identified villages. In other words, it applies only in the notified ESA, which includes Protected Areas, forests and the identified villages. The restrictions do not apply to entire hoblis and taluks as feared. 

Additionally, even those activities that are now listed in the Red category like mining/quarrying, etc., which are on-going with all permissions will continue. They will be phased out within five years or on expiry of the lease/permission, whichever is earlier. Any activity listed in the Orange category can also be taken up with appropriate permissions.

But why should the Western Ghats is notified as an Eco-sensitive Area in the first place? The Western Ghats act as a barrier intercepting the rain-laden monsoon winds that sweep in from the south-west during late summer. Protecting the Western Ghats is therefore crucial to ensuring water-security for a huge section of India’s population living in the peninsular states. 

Three of India’s most important river systemsKrishna, Godavari and Cauvery, along with hundreds of other rivers, tributaries and streams originate in the Western Ghats. Several invaluable genes of food crops, as yet undiscovered medicinal plants, designs, nature-friendly chemicals, fibres, all of which have the potential to make India an economic superpower are locked up in the Western Ghats.

Protecting the Western Ghats from further damage will not only help biodiversity conservation but is also crucial for farmers and planters for ensuring sustainable agriculture. Such protection will also conform to the Narendra Modi-led government’s commitment to international agreements to combat the dangerous impact of climate change.

Finally, to avoid one-sided opinions and assertions, it will be in the best interest of Karnataka to think of establishing a group consisting of MPs and MLAs across political parties and which will keep only Karnataka’s (and, of course, India’s) interests in mind in making its suggestions to the state and central governments.

 

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Germ of an Idea

Source: By Arghya Manna: The Telegraph

It was 1891. New York resident and Italian immigrant Zola — his first name has been lost to the mists of time — had an egg-sized malignant tumour on his neck that was nearly blocking his food pipe. In those days, the only way to treat cancerous diseases was surgery. So Zola went to see Dr William Coley, the head of the Bone Sarcoma Unit at the Memorial Hospital in New York, US.

Dr Coley’s first cancer patient, a 18-year-old girl, had just lost her fight with cancer, leaving him distraught but determined to find a way to arrest the disease. He had been looking in the archives of the hospital and found cases of patients who recovered completely from cancer after contracting a streptococcal infection. That gave him the idea that, perhaps, a bacterial infection can bolster the body’s defence mechanism, helping it fight cancer.

To find out, he created a mixture of bacteria that he would call Coley’s Toxin or Coley’s Fluid. Following the path indicated by Edward Jenner and Louis Pasteur, the mixture had two kinds of bacteria — Streptococcus pyogenes and inactivated Serratia mercescens, better known these days for its role in hospital-acquired infections. He reasoned that this mixture, when injected, would induce the body’s immune system to attack and kill cancer cells.

Dr Coley injected Zola with this mixture repeatedly till he developed a fever. Soon after, Zola’s tumour started melting and eventually disappeared. His was perhaps the first case of cancer being treated successfully with immune therapy in modern times. Elated, Dr Coley treated several other sarcoma patients with Coley’s Fluid and, in 1893, published a report on this new way of treatment in the American Journal of Medical Science. It was the first study on using immunotherapy to treat cancer.

While very few remember Zola’s name and treatment, most people know of Jimmy Carter, the former president of the US. In August 2015, Carter announced that his melanoma was spreading to the brain and other organs. The situation seemed hopeless but his doctors took a radical approach: instead of the common practices of radiotherapy and chemotherapy, they decided to try immunotherapy, which saved Carter’s life. The process that they used was developed by James P. Allison and Dr Tasuku Honjo, who won this year’s Nobel Prize in Medicine for their path-breaking work. Coincidentally, the duo will be handed over the prize on the 125th anniversary of the first paper, written by a bone doctor from New York, on using immunotherapy to battle cancer.

Allison and Honjo’s method of immunotherapy, however, is quite different from the approach taken by Dr Coley. The current Nobel winners found out a way to unleash the power of immune cells, specifically T-cellsa type of white blood cells. In 1990, while working on T-cells with Jeff Bluestone at the University of California, Berkeley, Allison discovered a protein — CTLA-4 — in T-cells. Allison predicted that this protein switches off T-cells, which is why they do not attack cancerous cells. After six more years of research, Allison discovered how to block CTLA-4. It was the pivotal moment in tumour immunotherapy. If CTLA-4 is blocked, T-cells become active and can attack and kill cancer cells. Meanwhile Dr Tasuku Honjo from Kyoto University in Japan was also working on the same thing. He discovered an inducible gene, PD-1, which also held back T-cells from destroying cancer cells.

Allison and Honjo’s discoveries led to checkpoint inhibitors, the first class of drugs designed to co-opt T-cells in the fight against cancer. The US Food and Drug Administration (FDA) approved the first checkpoint inhibitor in 2011. Just how successful these medicines are has been proven by the fact that their inventors were awarded a Nobel only seven years later.

Unfortunately, Dr Coley’s fate was very different. Though his magic soup, Coley’s Fluid, was used to successfully treat more than a thousand patients, contemporaries viewed his success with suspicion because he could not explain why or how his treatment worked. In 1899, Coley’s Fluid became commercially available and in 1902 Coley received financial assistance from the Rockefeller and Huntington families — believed to be the first private patronage to study cancer in the US. Despite this, Coley’s method was eventually displaced by radiation therapy. Perhaps the main reason was that Dr James Ewing, who championed radiotherapy and also happened to be Coley’s boss, tagged immunotherapy as “dangerous”. Dr Ewing was the most famous pathologist of his time in the US and through his advocacy; radiation therapy was officially adopted as the way to treat cancer.

While we will never know if Dr Ewing discredited Dr Coley’s treatment because of professional jealousy, it is undeniable that the late nineteenth and early twentieth century’s were the era of radiation physics.German physicist Wilhelm Roentgen, inventor of the X-ray, won the first Nobel Prize in Physics in 1901 while Pierre and Marie Curie won it in 1903 for their work on radiation. It was the flavour of the times and both scientists and their patrons were more interested in radiotherapy. It was only after the scientific community realised the hazards of radio and chemotherapy that it started showing an interest in immunotherapy.

While Allison and Honjo’s efforts to treat cancer through immunotherapy is truly pioneering, it is also true that this is immunotherapy’s time. Dr Coley was much before his time. Otherwise, Zola would be as famous as Carter, at least in the medical world.

 

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Farmer suicides

Source: Mint

There is much discourse on both the issue of agrarian distress and farmer suicides. However, there have been some arguments that seem to paper over the problem and get into comparisons—that the people who committed suicide just happened to be farmers; that they were not poor; that (as argued by Shamika Ravi of Brookings India) the suicides of housewives are higher than that of farmers; and that the idea of debt-driven suicide was popularised by those opposed to genetically modified crops.

These arguments are clever. On the one hand, they question the rigour of attributing causality, breaking up the triggers to smaller bits and putting them on a statistical significance like (a) poverty is not a significant reason, (b) smaller farmers are not committing suicides (c) indebtedness is not a significant reason or (d) bankruptcy is not a significant reason.

On the other hand, they bring out alternative narratives— more lovers are committing suicide or a larger number of housewives are committing suicide. Similarly, people like Shamika Ravi have argued that farmers in better-off states (like Maharashtra and Andhra Pradesh) are committing suicide while those from economically backward states (like Uttar Pradesh and Bihar) are coping.

How does one counter these clever arguments? Or are the arguments made by people other than “activists”—scholars like Srijit Misra, K. Nagaraj, Ajay Dandekar, Davuluri Venkateswarlu, A. Vaidyanathan or journalists like P. Sainath, Jaideep Hardikar and Kota Neelima —to be ignored? What have these people who have worked on the phenomenon of farmer suicides done to bring credibility to the obfuscating grand statistics and how do they establish causality?

The credibility of the scholars and authors named above does not come purely from comparing the data at the Meta level that compares suicides by lovers to those of farmers. No, they are not writing a chapter for books like Freakonomics where the fun-fact is that drunken walking is more dangerous than drunk driving. Instead each of them is focusing on the data about the reported farmer suicides.

In most of the cases, the journalists and scholars have followed up on reported suicides and interviewed the families to ascertain whether the reporting was accurate and unbundled the death by trying to establish the events that triggered the death. Therefore, when one talks of farm suicides, it is usually backed by years of data that has been independently verified and given meaning through real-life stories, unlike the arguments provided purely on metadata.

What could be the reasons for these suicides? A large part of the literature seems to indicate that indebtedness is the prime reason not only for suicides, but also for the non-poor slipping back into poverty. We need to understand that indebtedness is not the same as bankruptcy and that people could feel vulnerable even before they declare themselves bankrupt. Indebtedness also includes loans from the formal and the informal sector.

Therefore, not only is the nature of indebtedness nuanced, the reasons for getting into debt are also nuanced. The lifetime work of scholars like Anirudh Krishna has been in understanding this phenomenon where he argues that getting into debt is predominantly on account of health events, agrarian distress and social expenses.

Unlike the entrepreneurial life of people in the formal sector, where the firm is distinct from the owner and people might have the safety nets of limited liability clauses, the entrepreneurial life of a farmer does not have these insulations. A bad health event coupled with volatility in agriculture could be killing. A good crop with prices depressed may lead farmers to depression. One just needs to look at the rich literature on farmer suicides to understand the shades of distress that a farmer household goes through before dismissing that as fake news.

The questions that we need to ask is not about whether the suicides are fake or not. The question is deeper. Is there a crisis-like situation in Indian agriculture? The answer seems to be obvious and evident. What are the issues?

The issues (even from metadata) are well known. The farmholding size is going down due to fragmentation, the average number of loans given out by the formal sector for agricultural operations is going down and the average ticket size is going up. Just this data indicates the informalization of formal credit (not in terms of actual amounts dispensed, but number of farm households covered). The prices are not remunerative and less than substantial quantities are being cleared in the market at the minimum support prices.

The farmers who are regularly marching either to Mumbai or Delhi are the ones who are sending the warning signals of their distress. They want to live and we should not be pushing them to become another suicide statistic. And the best response is to engage and not dismiss this as one more fake statistic or fake news.

 

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Spatial development

Source: Mint

India’s unprecedented economic growth during the last two decades has been spearheaded by lopsided spatial development, with clusters of economic activity concentrated in a few highly dense megacities. Engines of growth have failed to spread to less dense secondary cities. Given that a majority of the population in India still lives outside megacities, this has created huge spatial disparities. Uneven spatial development is common in many countries, but it is much more pronounced in India. Unlike in China, Europe and the US, where the engines of growth and job creation have spread to the secondary cities, in India medium-sized cities remain mired in joblessness and poverty. Policymakers frown upon unequal spatial disparities and this has increased the importance of inclusive spatial development in our development discourse.

Why is India’s spatial development so lopsided? What can India learn from China and the US where engines of growth have shifted to the secondary cities? Are India’s manufacturing and services sectors following similar spatial development patterns? Is the geographic trajectory of capitalism toward spatial clustering or dispersal?

Spatial Equilibrium Trap

A detailed examination of India’s 600 districts shows the spatial development trends in India are very different when compared with China and the US, given the clustering of the engines of growth and job-creation in megacities (see Klaus Desmet, Ejaz Ghani, Stephen O’Connell, Esteban Rossi-Hansberg, The Spatial Development Of India, Journal Of Regional Science, and World Bank).

Spatial development in any location is determined by the trade-offs between the forces of agglomeration economies and congestion costs. Agglomeration economies in the US are concentrated in locations with employment density below 150 employees per sq. km, while in India agglomeration economies are found in locations with densities above this threshold, with employment densities reaching thousands. For those levels of density, US locations exhibit substantial congestion. China has shown a similar spatial evolution to the US. In China, locations with employment density above 150 employees per sq. km have experienced reduced employment growth, indicating important congestion costs. These trades-offs between forces of agglomeration and congestion costs determine where engines of growth locate. The size of a location determines its effectiveness as an engine of growth and job creation.

India’s manufacturing sector is spatially spreading at a much faster pace than the services sector. The low-density manufacturing districts are growing at a much faster pace than high-density districts in India. This dispersion of the manufacturing sector from dense to less dense districts has accelerated structural transformation, improved allocation of resources, promoted growth of more efficient enterprises and reduced spatial mismatch of enterprises.

However, the manufacturing sector has not spread to all districts. Only those districts that have improved their physical and human infrastructure have attracted manufacturing enterprises. Though the spatial evolution trend in the manufacturing sector in India is similar to the trends found in China and the US, the speed and pace of spatial spread is much slower in India. While large manufacturing enterprises are moving away from more congested megacities into secondary cities, this is not happening at a faster pace to create more jobs.

India’s services sector, a bigger engine of growth and job creation, has experienced different spatial evolution trends. High-density service clusters have continued to grow at a much faster pace than less dense areas and more dense locations have become more concentrated over time. This stands in contrast with the US, where in the last decades services have tended to grow fastest in medium density locations, such as Silicon Valley. India’s experience is not common to all fast-growing developing economies. The spatial growth pattern of China looks more similar to that of the US than of India.

Why is India’s spatial evolution so different?

One explanation is that while India’s megacities suffer from severe congestion costs, they also benefit from huge agglomeration economies and knowledge spillovers. The Fourth Industrial Revolution and new technology have favoured the trade-offs toward a concentration in services and a spread of maturing manufacturing. Modern services are benefitting more from knowledge spillovers compared to the manufacturing sector. This explains why agglomeration economies in services are likely to dominate congestion costs even in megacities, thus allowing high-density locations in India to grow at a much faster pace.

However, this is an unlikely explanation, given that high-density districts in India are already a lot denser than the highest-density counties in the US. It is more likely that the megacities in India are more successful not because they are less congested, but because spatial development policies and frictions are preventing the secondary cities from growing. It is not obvious why Indians should dislike congestion less than Americans and Chinese, or why Indians benefit more than Americans and Chinese from agglomeration economies and knowledge spillovers. These forces are more technological and universal.

Future spatial trends

If we go by the spatial evolution experience of China and the US, India’s engines of growth and job creation will be in its secondary cities and not megacities. The relatively slow-growing Indian districts will grow much faster in the future. Of the well-known IT clusters in India, the medium-density places, such as Ahmedabad, Pune and especially Bengaluru, will have high growth rates in the future, while the high-density places, such as Chennai and Mumbai, will slow down.

Engines of growth and job creation are not tied to big cities. Services can spread spatially at a much faster pace than the manufacturing sector and contribute to more inclusive growth. For this to happen, policymakers will need to improve access to telecommunication and post-secondary education in secondary cities. It is unfortunate that the services sector, which has contributed more to growth and job creation than manufacturing during the last two decades, has not got a seat at the table in our development discourse.

 

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Changes in family law

Source: By Tarun Ramadorai: Mint

Indian households’ financial arrangements are unique in the international context. As the Reserve Bank of India’s (RBI) committee on household finance report highlights, many aspects of these financial arrangements can be altered in a manner that is beneficial to households.

For example, Indian households have substantial investments in real estate85% of total assets, on average, which barely declines even as households become wealthier. Most Indian households do little apparent saving for retirement and investment in insurance is woefully low relative to their counterparts in advanced economies. These issues significantly affect household well-being. The report notes that Indian households potentially stand to increase their annual real income growth by up to 10% by making a set of sensible changes to their financial arrangements.

Some of these changes can be difficult for households to implement as a result of legal and regulatory impediments. Moreover, these impediments are often more detrimental for women than for men, leading to important gender imbalances in financial well-being. In this context, we highlight a perhaps surprising connection—between recent changes mooted in family law and their beneficial consequences for unblocking impediments that currently affect Indian household finance.

The Law Commission of India released a consultation paper on 31 August 2018, recommending a set of reforms to family law. The key recommendations include (i) a woman should, regardless of whether she contributes financially or monetarily to the family income, be entitled to an equal share in marriage property; (ii) abolition of the notion of coparcenary at the central level, thus extinguishing the right to property by sheer circumstance of birth; and (iii) abolition of the Hindu Undivided Family (HUF) structure.

To unpack these changes and their implications for household finance, a little further explanation is warranted. Under Hindu law, there is currently the notion of a coparcenary. Coparceners to an ancestral property acquire rights in it upon birth. The share of a coparcener is affected by births in the family, which reduce the available share to each coparcener, and deaths, which increase coparceners’ share. Coparcenary comes into effect immediately upon the birth of anyone with such claims, meaning that the property acquires the nature of an ancestral property (Rohit Chauhan vs Surinder Singh and Ors).

Turning back to implications for household finance, consider the fact that coparceners have the right to demand partition of an ancestral property (B. Chandrakala vs A. Anuradha and Ors). However, in practice, there are often long delays arising from the need to secure agreement between coparceners to dispose of ancestral property. There may also be significant judicial delays in the case that conflicts between them require court resolution.

This is a major friction preventing households from reducing exposure to real estate—the potential for prolonged disputes arising from the coparcenary structure weakens household incentives to liquidate unproductive investments in ancestral property. Indeed, in areas where ancestral real estate holdings are widespread, this issue has aggregate implications—reducing housing market liquidity as disputed properties are unsold for long periods of time. Within the HUF structure, there is a strong role for the karta, who is entrusted with the management of family wealth, as well as given the responsibility of the “general welfare of the family’’ (Gurpreet Singh vs Ram Saran and Ors).

Such centralized effective control of jointly owned ancestral assets makes problems more likely to occur. For instance, there may well be changes to the financial needs of individual HUF members over time. Moreover, disputes can arise from undemocratic decision-making if there are differences of opinion over the optimal arrangement of the HUF’s financial matters. However, there is often little flexibility for adjustment, given that the karta embodies strong centralized control over the management of the HUF’s affairs (Subhodkumar vs Bhagwant Namdeorao Mehetre and Ors). This can make streamlining financial arrangements in the face of reasonable variation in individuals’ circumstances or opinions very difficult.

It is imperative to do more to financially empower women. The proposed changes in the Law Commission’s consultation paper also promise positive change in this context, especially in the sense of remedying asymmetries in inheritance rules between males and females.

Why is this important? The life chances of individuals in a society are very different depending on their level of wealth, as the Harvard Equality of Opportunity project documents in the US. In India, where formal social security is inadequate, having claims to inherited wealth, however small, can sometimes mean the difference between financial security and destitution. If men’s claims to ancestral wealth supersede those of women, society consigns women to an inherently inferior financial position.

As the Law Commission’s consultation paper points out, both Hindu and Muslim law need reform to make inheritance truly gender-neutral. One particular area of concern is that numerous issues with the current legal framework make the financial position of widows and unmarried daughters especially fragile. Reforms in this area have thus far been piecemeal and more work is needed until the financial treatment of men and women is truly equal in law.

Reforming laws is not, of course, the only avenue towards better household financial arrangements, but it is an important one. In addition to the other concerns potentially addressed by adopting the reforms proposed in the Law Commission’s report, it is likely that we will see significant improvement in household finance.

 

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Singing an ARIA

Source: By Ishan Joshi: The Statesman

It’s not easy being a foreign office mandarin or geostrategic affairs policy wonk in New Delhi, nowadays. For, looking at the emerging Indo-US relationship from the Indian perspective, this breed is as cagey as those in power whom they advise on issues of such pith and moment about what precisely the Donald Trump Administration is up to. And the statements of intent and policy pronouncements by Washington over the first week of 2019 have only ratcheted up the uncertainty.

First, President Trump iterated that the US will no longer be the world’s policeman and cop abuse for it in the bargain. Afghanistan, Iraq, Syria… a substantial US withdrawal from these engagements is now a fait accompli. While that can be explained away as an articulation of the Trump Administration’s utilitarian approach to geopolitics, and the US President’s sarcastic pot-shot at India showcasing its non-military nation-building efforts in Afghanistan — “Prime Minister Narendra Modi keeps telling me the Indians have built a library (actually the national parliament building) in Kabul” – is par for the course, as it were. There is, counter-intuitively, a simultaneous initiative by Washington to engage more deeply with the Asia-Pacific region by headlining India’s role while seeking to rein in China.

President Trump signed an Act designed to counter the encroaching influence and growing threat allegedly emanating from Beijing which seemed to underline an Indo-US leadership for the region. The Asia Reassurance Initiative Act or ARIA, allocates a five-year budget of $1.5 billion to enhance cooperation with the US’ strategic regional allies in the Asia-Pacific region. Calling for strengthening of diplomatic, economic, and security ties with India, the new legislation cites “China’s illegal construction and militarization of artificial features in the South China Sea and coercive economic practices”, and authorises appropriate action to “counter China’s influence to undermine the international system”.

The Act notes “the increased presence throughout Southeast Asia of the Islamic State and other international terrorist organizations that threaten the United States”. The law states that the US “recognizes the vital role of the strategic partnership between the United States and India in promoting peace and security in the Indo-Pacific region” and “calls for strengthening and broadening of diplomatic, economic, and security ties between the United States and India”. It also reiterates US commitment to all “bilateral and security agreements and arrangements” between the two countries, including the New Framework for the United States-India Defense Relationship, and the United States-India Defense Technology and Trade Initiative.

Emphasising the “designation of India as a major defense partner, which is unique to India,” the new law also refers to the Quadrilateral Security Dialogue between the US, Australia, India, and Japan, calling it “vital to address pressing security challenges in the Indo-Pacific region in order to promote a rules-based order; respect for international law; and a free and open Indo-Pacific.” It, however, clarifies that such a dialogue is intended to augment, rather than to replace, current mechanisms.

The ARIA Act, in light of the details above, ought to have sent the Indian strategic establishment into raptures as it attempts to build an effective security-economic architecture within which to fully unleash the country’s potential as a regional powerhouse. Additionally, struggling as New Delhi is with working out a viable stand vis-à-vis its more powerful northern neighbour, especially given its concerns over China’s One Belt One Road (OBOR) initiative which India believes has the potential to chip away at its sovereignty, Trump singing the ARIA would have in any other context been excellent leverage. Yet, the mood in New Delhi is far from sanguine.

While the argument has been made that the Trump Administration’s shift in strategic emphasis and security-foreign policy aims away from Russia, West Asia and Europe and to the Asia-Pacific is a natural corollary to the rise of China, there is no unanimity on whether this represents a corresponding shift in the priorities of the American deep state as well. What is giving the US’ interlocuters such as India sleepless nights is whether to buy into the narrative of the largely Democrat-leaning, liberal think-tanks and institutions that portray the Trump Administration as a rogue element in the continuum of American policies on the global stage. Showing too much enthusiasm for what could possibly be an aberration in the US’ strategic thinking would naturally be construed as a disaster when normal service resumes.

The flip side, though, is that while Donald Trump’s abrasive style and shoot-from-the-lip articulation of Washington’s priorities may not have endeared him to most Republicans, the influential conservative establishment and institutional America, they are in the main simpatico to the geostrategic paradigm shift his administration has undertaken and are working behind-the-scenes to soften the transactional edge that comes through in the US President’s policy pronouncements. If this assessment is correct, then New Delhi would be loath to have missed out on the first-mover advantage on offer if it responds more keenly to Washington’s very clear signals that India is the key player in its strategic scheme of things not only in South Asia but also the larger Asia-Pacific region.

Indian foreign policy over the past decade has essentially been a tightrope walk, balancing its way between the changing priorities of the only superpower in the world, staying engaged with a Russia that harbours ambitions of restoring itself to its former glory and dealing with the exponential growth in economic and military heft of the dominant regional power which is China; all of it premised on its own security concerns and economic interests, naturally.

Now, the advent of Trump singing the ARIA means that its diplomats’ safety-first approach could well be subject to the law of diminishing returns. But to take a call on which way to go in too decisive a manner is fraught with dangers in foreign policy terms. Before doing so, therefore, a deeper understanding of the motivations and seriousness of Washington’s definition of a rules-based Asia-Pacific order is vital. Donald J Trump’s presidency, unfortunately, is hindering rather than aiding that process in global capitals including New Delhi.

 

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UBI is Universally

Source: By Shruti Rajagopalan: Mint

The latest trend in development policy is universal basic income (UBI). The idea of UBI has become fashionable recently in developed countries to alleviate stress caused by the unemployment resulting from automation and globalization. In developing countries, it solves a different problem. The leakages from targeted welfare transfers caused by low state capacity and corruption can be solved by replacing the flawed schemes with a single income transfer available to all. UBI is being sold as the solution to all developmental and social problems, but it is far from perfect. While there are many problems with UBI—in its current form—for India, the most important one is that it takes the pressure off politicians to undertake the structural reforms required to unshackle economic growth.

UBI seeks to eliminate all other welfare benefits and entitlements, which are prone to mis-targeting and leakage, and replace them with a single, clean direct cash transfer offered to everyone. This has some clear benefits. Most importantly, there is no need to evaluate the eligibility criteria, and therefore, there is far lesser discretion in the hands of politicians and bureaucrats. While other kinds of subsidies can create distortions in the market, UBI is a very clean welfare instrument. But the success of UBI depends on actually eliminating all other schemes and using those resources towards the UBI. One of UBI’s great advocates, former chief economic adviser Arvind Subramanian has pointed out that there are 950 welfare schemes administered by the Union government and, many more, if one adds state government schemes. These can potentially be scrapped and replaced by a single UBI.

The Indian politicians’ versions have obviously missed the most fundamental element of UBI and botched it conceptually. Instead of replacing welfare schemes with UBI, they intend to add UBI, or in some case a quasi-universal basic income (QUBI), to the existing schemes. This is most clear in the case of the agrarian crisis, which is caused by the many regulations robbing farmers of their economic choices. Scrapping these regulations would actually help farmers increase productivity, and even help them exit farming. However, politicians have responded by upping subsidies, announcing loan waivers and now, adding QUBI to the mix.

The Bharatiya Janata Party, which championed UBI in the economic survey, has failed to take steps to evaluate the existing welfare schemes that will be replaced by UBI. Opposition-controlled states, such as Telangana and Odisha, have most recently announced QUBI schemes, but the existing subsidies to farmers remain untouched. The Congress, in its version of the UBI—minimum income guarantee—has explicitly said that it will not replace all the existing welfare schemes, but instead, attempt to rationally combine UBI with the most crucial subsidies. Once a welfare scheme or subsidy is announced, it is almost impossible to rescind. So, what we have in India is a proliferation of schemes, to which they may soon add the very fashionable UBI. As economist Thomas Sowell famously said: “The first lesson of economics is scarcity:There is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."

This brings up the other major problem with UBI—the enormous fiscal burden on taxpayers. If UBI, as conceptualized in developed countries, provides a basic living income to all households, then the Indian state simply cannot afford it with its small tax base and young demographic. Subramanian (along with economists Josh Felman, Boban Paul, M. R. Sharan), has instead suggested a more fiscally tenable QUBI—to transfer ₹18,000 annually (₹1,500 per month) to eligible rural households. Even this modest sum—not paid universally, but to those who need it the most—is costly. The estimated cost of this QUBI is 1.3% of the GDP, most of which would be financed by scrapping other farmer subsidies and rural welfare schemes. However, no political party wants to follow prudent economics. They intend QUBI to supplement existing schemes without scrapping them, causing the fiscal burden to get out of hand.

The biggest problem with the current focus on UBI in India is that it takes the pressure off the political class to genuinely support structural reforms. After the 1990s, India’s reform agenda has all but ceased, and India is only witnessing a proliferation of regulations, subsidies and welfare schemes. Every government announces new pet schemes, while changing the names of existing ones, and the Indian economy chugs along.

While post-liberalization India has lifted approximately 130 million out of poverty, it still has a long way to go. Schemes, such as UBI, if implemented well, can relieve financial stress and vulnerability, but the real solution to poverty is sustained economic growth. India knows from experience that structural reforms in agriculture, land, labour and capital are essential to unleashing the next bump in growth. Focussing on double-digit growth through reforms would do far more for the poor than simply renaming schemes and adding new transfers.

Indians want opportunities and jobs, not transfers. Politicians on the other hand, want voters to have dependence on welfare transfers such as UBI so as to garner votes. QUBI, and eventually UBI, may be here to stay—just like every other scheme that preceded them.

 

 

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Amend FRA 

Source: By Deccan Herald

The ‘Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006’ or Forest Rights Act (FRA) is more than a decade old now. However, the controversy around its non-implementation has become an issue of regular debate across the country. The Act provides for two kinds of rights to tribals and other forest dwellers. One is individual right over the dwelling and cultivation lands under their occupation. Two is the community tenure/ rights over ‘community forest resources’ on common forest land within the traditional and customary boundaries of the village.

One reason the Act receives so much attention is due to the rejection rate of the claims. Approvals and rejections are the result of decisions taken by the three-tier scrutiny committees constituted at the levels of village (Gram Sabha Level Committee), taluk (Sub-divisional Level) and district (District Level Committees). At village level, the Forest Rights Committee (FRC), constituted with 10-15 elected members from among its own residents, verify the claims before placing them before the Gram Sabha.

The other two committees have equal representation of officials and commons. Members belonging to tribes or other forest dwellers nominated by taluk and district panchayats to their respective committees and in-charge officers (or equivalent) at their levels of jurisdiction representing revenue, tribal and forest department, complete the membership composition.

In hindsight, the genesis of the problem lies in the legislation itself. One should understand that only such laws are practically possible to implement which are legislated considering the overall implications on ground. This is true with FRA, too, as a consensus was never arrived at between the different stakeholders during its enactment. On one side, there were rights-based activists and NGOs arguing for the rights of the tribals. The other side was comprised of conservationists, whose voice was in tune with that of the Ministry of Environment and Forests, wildlife activists and like-minded NGOs. The opposition was mainly on grounds of the inevitable destruction of forest cover and wildlife if the recognition of rights were extended on forest lands.

Although the subject was widely debated inside and outside Parliament, it eventually ended up in the pro-rights lobby having its way in the legislation. Hence, the conservationists labeled the FRA as a hurried political decision by the then government under political pressure exerted by its alliance partners. The Joint Parliamentary Committee and the Group of Ministers constituted to resolve the differences between the important stakeholders, too, failed in their purpose. In the entire saga, the only agreement between the two sides was recognition of the hardships and treatment meted out to the indigenous peoples since the arrival of the British, which continued into independent India.

Looking at the present situation, the legislation appears to have failed in its objective of undoing the ‘historical injustices’ suffered by the tribals. Following the Act, three scenarios have emerged. One, regions/areas within states where the implementation process, including the grant of rights, has been completed. This happened in the initial period itself; two, the areas where implementation process has not taken place at all (like pockets of Chhattisgarh, where insurgency is the excuse); three, the process has been initiated but is not able to reach the final stages of awarding the rights.

The last situation exists mostly in such areas where a majority of the claims: (1) have evidence of occupation of forest land after October 25, 1980; (2) have a demand of more than 2.5 hectares of forest land per nuclear family; (3) were in wildlife sanctuaries or parks; and (4) are made by the ‘other forest dwellers.’ In this, a clear underlying pattern in implementation can be noticed, which is in accordance with the line of thinking adopted by the Forest Department. However, they brush aside the allegation and defend that their objections are purely against claims over forest lands that have been encroached after the passing of the Act.

Other forest dwellers

In reality, the Forest Department perceives the cut-off date extended to December 13, 2005 as a violation of Forest Conservation Act (FCA), 1980, despite a clear clause in the FRA about superseding all existing laws. Similarly, the Forest Department contends that the initial draft of the legislation had a provision of 2.5 hectares as the maximum forest land that can be claimed for a nuclear family and that should apply to claims, not the four hectares that finally emerged from the Act. Further, they see the inclusion of wildlife sanctuaries or parks and inclusion of ‘other forest dwellers’ as eligible for claiming the land as late entries into the Act, and hence lacking legitimacy. Interestingly, a good number of tribals in Andhra Pradesh, Chhattisgarh, Gujarat, Karnataka and Telangana, with whom this researcher has been interacting since the Act was legislated, appeared unconvinced by either the extension of the cut-off date or inclusion of ‘other forest dwellers’ to benefit through it.

Given the facts, only a naïve individual can believe that the Act will be implemented as envisaged, particularly when an important stakeholder, the Forest Department, is not in agreement in principle on major issues. Further, it becomes tough when there is no political will to see it through by the regimes at the Centre and in the states alike. The best option remains revisiting the Act and amending the populist clauses that emerged dramatically in the last stages of the legislation process, leading to an increase in the number of claimants over forest lands. This will largely help the cause of the tribals, whose claims are genuine but have not received their rights yet. At the same time, it provides ample scope to soothe the nerves of the conservationists.

 

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Global trade and India’s prosperity

Source: By Narayan Ramachandran: Mint

The international, rules-based, multilateral trading system enshrined through the World Trade Organization (WTO) faces an existential threat. WTO accession played a major role in China’s rise to prosperity. China’s foreign trade rose 10-fold from $475 billion on WTO accession in 2001 to about $4.5 trillion today. India’s total foreign trade in goods and services of approximately $1 trillion in 2018 is roughly the same as China’s in 2003. Can the multilateral trading system play a similar role for India as it did for China, but under very different global circumstances?

First the background; the first wave of globalization spanned 1870-1914. This wave, triggered by the industrial revolution, was facilitated by the movement of goods on steamships and railways with financial intermediation centred in London. Exports as a percentage of global output rose to about 15% from single-digit numbers during this period.

This phase was interrupted by World War I, the Wall-Street crash of 1929 and the economic depression that followed. In 1940-42, legendary economist John Maynard Keynes proposed a new global trade system based on a “reserve currency" called the bancor and a settlement system that would require an International Clearing Union. Neither of these was established since the dollar became the de-facto reserve currency under a pegged exchange rate system that the Bretton Woods Conference accepted after World War II.

The second wave of globalization began around 1950 and was facilitated by the rise of commercial aviation and telecommunication, and sustained towards the end of the 20th century by the rise of the internet. These technologies also facilitated a dramatic increase in global services trade. This second wave greatly benefited from the global institutions set up in the Bretton Woods Conference—the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT), which subsequently became the WTO in 1994 after the Marrakesh Agreement. Exports as a percentage of global output have now risen to about 25% on an average, even as global output has grown materially in the 75 years since World War II.

The first globalization wave resulted in the developed world becoming prosperous and other countries remaining poor. The second wave of globalization has resulted in the developing world making rapid strides and, in the particular case of China, lifting an entire nation out of poverty. The distribution of prosperity both across countries and within countries has become uneven. This imbalance has led to significant domestic pressure on politics, in turn leading to policies such as “America First" and “Made in China 2025". Followed to the extreme, nation-first ideologies conflict directly with a multilateral trading system.

India too has brought a nation-first form of policy in “Make in India", even though it stands to be the biggest beneficiary of global trade for the next couple of decades. A WTO-like system helps countries most when they are lifting from about $2,000 in annual per capita income to about $5,000 with favourable demographics—this is the situation India finds itself in. Trade creates a virtuous cycle of competitive dynamism, employment and economic growth. China embraced this challenge two decades ago and has benefited enormously. Even though India finds itself in an increasingly protectionist world, it should become an enthusiastic supporter of the world trade system and make its voice heard.

Only last week, the new Indian government announced eight cabinet committees, including two new ones on investment and employment/skill development. To give it due importance, I propose that we should add another one for foreign trade made up of ministers from external affairs, commerce, petroleum, agriculture and finance, and led by the external affairs minister. This new cabinet committee should have the mandate to be much more proactive at the WTO. It should start with submitting a position paper on WTO reform (the US, Japan and China have done so already). India’s position should explicitly suggest reforms for rule-making, dispute-settlement and the restoration of the WTO appellate body. India has already taken a positive step saying it will not oppose the end of its special and differential treatment status. Over time, this will force the Indian export industry to be more competitive.

The key is for India to embrace this engagement with WTO fully, as China did in the late 1990s, for its own national interest. Before and after China’s accession to the WTO, it undertook structural and institutional reform to maximize its return. In the same way, India should use the opportunity for betterment. Unlike the prevailing American view, global trade is not a zero-sum game.

For India, it can be a win-win proposition and a modernized WTO is its best chance. There are inferior choices like regional or bilateral free-trade agreements. These should be our least favoured choice only to be engaged if the multilateral system collapses. India probably does not realize it, but in the same way that China was seen as a success in the first 10 years after it joined the WTO, India can provide purpose and direction to the WTO for the next decade or two.

 

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Contours of Research 4.0

Source: By Kapil Vishwanathan: Mint

As the adage goes, an expert is someone who knows more and more about less and less, until everything is known about nothing at all. Indeed, many of the major breakthroughs of the past decades have come as a result of deep research specialization in specific disciplines. However, this approach has led to isolated research, where even within the same university, the work of one researcher or one department often remains disconnected from the work of other researchers and departments. We have created and continue to create new knowledge in narrow slivers within disciplinary boundaries.

The research imperative of the 21st century is more holistic. It is now well-recognized that we need to develop a broader but rigorously researched understanding of the rapidly changing world of the future. We are also wiser today of the unintended consequences of human progress in the past century. We can ill-afford to repeat these mistakes as we shape our future.

For example, the first plastics were introduced in the early part of the 20th century, and found widespread use in subsequent decades. Today, we are battling to curb the environmental and human impact of plastic use. On a similar note today, must we not today understand how the continued growth of Artificial Intelligence (AI) could potentially change perceptions of what it means to be human? This study needs to draw upon technology, social theory and psychology, combined with carefully constructed trials and data analysis, which eventually feed into policy-making at multiple levels in society.

Therefore, in order to frame the contours of Research 4.0, we must ask ourselves one dominant question—what are the most important issues that the world needs to understand and address in the 21st century? The intent is to identify broad, long-term themes, rather than specific time-bound issues.

As a first example, we might consider the issue of sustainable human-machine relationships in a world of AI and robotics. Second, there is the looming millennial question of human purpose and ethics—what role humans would play in a machine-dominated world.

Third, there is the matter of a sustainable human-environment relationship, which covers topics such as climate change, pollution, Sanitation and water availability. Fourth a sustainable and inclusive model of capitalism. Fifth, with substantial predicted increases in lifespan, how will demographics and societal structures evolve sustainably?

Research 4.0 needs to be structured along such themes. Staying with the above examples, one might consider a human-machine lab, a human-environment lab, a human purpose lab, a poverty alleviation lab and a demographics and society lab. Research at a university would then be directed largely through these labs.

Each of these labs or themes would be divided into sub-themes, over and over, until one arrives at the level of detail where a specific question can be taken up by a faculty member for research. As an example, consider the theme of human-machine relationships. This could encompass the following four sub-themes—human-centered AI, ubiquitous robotics, virtual and augmented reality and digital humanities. Each one of these sub-themes could be further broken down into greater levels of detail. Human-centred AI, for example, could be divided into three —human-society impact, augmenting human capabilities and human-inspired AI. Within the realm of human-society impact, one might question the impact of ethics and gender or racial biases in AI algorithms.

In this manner, one could cascade down from the big question of human-machine relationships to a specific researchable question. Conversely, this is the structure with which we could consolidate narrow slivers of new knowledge into a holistic and meaningful view of the future. This is Research 4.0.

The challenge of bringing Research 4.0 to life begins with finding the right faculty. Ideally, a faculty candidate’s research trajectory would fit into the university’s research vision and one of its labs. Candidates must not only have the scholarly rigour to dig deep into their slivers of knowledge, but also have the overall perspective and curiosity to understand and study how their research ties in with research at other parts of the university in order to address the world’s most important challenges. Further, since research and learning form a continuous feedback loop, candidates must also have the bent of mind to incorporate their research into curriculum.

An inevitable challenge is that of funding. Universities with large endowments must spend generously and wisely on research. In India, research is largely funded by the government. There is very little private funding in research. As a country, we invest less than 1% of our gross domestic product in research, while China, for example, invests more than 2%. This must soon change. Substantial tax incentives for companies would create an added incentive to look past quarterly pressures and invest in long-term research projects.

Society today is at an inflection point in many ways, as we journey into an unpredictable future. Modern universities have a major role to play at this juncture, to help society holistically understand and prepare for the future. Research 4.0 is here and now. 

 

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Ushering in a golden era in education

Source: By Bhamy V Shenoy: The Financial Express

The newly released 480-page draft report on ‘New Education Policy’ by a nine-member committee headed by K Kasturirangan is a delight to study. It constantly reminds us of our civilisational contribution that has been down played or often ignored by the current education system. The NEP, if implemented fully, will completely transform India’s education sector.

Unfortunately, it is a crying shame that some our political leaders have tried to highlight the non-issue of three-language policy to build political capital rather than discussing the more substantive issue of how the NEP will help the country. Since children learn languages quickly between the ages of 2 and 8, the NEP suggests that encouragement should be given to children to learn many languages. No priority has been given to Hindi and, in fact, more emphasis is placed to teach India’s classical languages like Sanskrit, Kannada, Tamil, Telugu, etc. Still, after the protests, the government tweaked the draft NEP to make sure that for non-Hindi speakers Hindi is not mandatory.

If the NEP is implemented even partially, it will usher in a new era in India’s education sector. There will be no fear of one examination deciding the destiny of a student. Going to school will be enjoyable, and not boring like today. Students will have far more flexibility to select courses. Rote-learning will be replaced by creative thinking. It paves Minimum bureaucracy, less regulation and less scope for corruption. Only honest elected leaders will opt to become education ministers.

Although the report deals with all aspects of school education, higher education and professional education (health, technical, legal and healthcare), greater emphasis is given to school education. Early childhood education, which has been more or less totally neglected, is given the highest priority. This is influenced by the fact that over 85% of cumulative brain development occurs prior to the age of 6.

The current 12 years of schooling will be replaced by 15 years, but still students can complete high school by the age of 18. The current 5+3+2+2 will be replaced by 5+3+3+4. The current system consists of primary, upper primary, secondary and pre-university. It will be replaced by a Foundational stage from ages 3 to 8, Preparatory stage from ages 8 to 11, Middle stage from ages 11 to 14, and High School from ages 14 to 18. The Foundational stage will comprise five years of flexible, multilevel, play-based, activity-based and discovery-based learning, and is the most important stage.

It is at the High School stage where there is complete transformation. Pre-university or higher secondary is eliminated. Each year will be divided into two semesters, for a total of eight semesters. Each student would take 5-6 subjects each semester. There will be some essential common subjects for all. Simultaneously, there will be a great flexibility in selecting elective courses, including in the arts, music, vocational subjects and physical education. SSLC (Secondary School Leaving Certificate) and PUC (pre-university course) examinations will be eliminated. In each semester, students can take Board examinations in the subjects they have taken and there will be no in-class final examinations. Thus, the pressure of examinations will be eliminated and so also the student suicide rate.

All stages will heavily incorporate Indian and local traditions, as well as ethical reasoning, socio-emotional learning, quantitative and logical reasoning, computational thinking and digital literacy, scientific temper, languages, and communication skills.

School education will develop scientific temper, aesthetic sense, communication, ethical reasoning, digital literacy, knowledge of India, and knowledge of critical issues facing the community and the world.

Since teachers are the critical factor in the education sector, the NEP deals extensively with this topic. The teacher education system will be overhauled completely. Teacher preparation for all school stages will be offered only in multidisciplinary universities through a four-year programme, with the curricula and processes being revamped to address current issues with teacher preparation. Institutions currently offering the two-year programme will either transition to this mode or be phased out; no new two-year programmes will be given recognition.

The objective of higher education is to create world-class multidisciplinary higher education institutions (HEI) across the country, and to increase the gross enrolment ratio (GER) to 50% by 2035 from the current level of 25%. Ancient Indian universities of Takshashila and Nalanda have served as role models in developing these efforts.

There will be three types of institutions. The first is Research Universities offering PhD and master’s degree to focus on research. The second is Teaching Universities focusing on high quality teaching across all disciplines. The third is Individual Colleges offering only undergraduate courses. Every such college, irrespective of private or public, will be autonomous. All these HEIs will have the rights to award degrees, unlike today where only universities have the right. There will be no affiliating universities or affiliated colleges in the future.

In order to drive the vision of the NEP and to facilitate the efficient and holistic implementation (in India, the best of reforms have failed at the implementation stage) of the NEP, a high-level body called the Rashtriya Shiksha Aayog (National Education Commission) headed by the Prime Minister has been proposed. This body will be responsible for developing, articulating, implementing, evaluating and revising the vision of education in the country on a continuous and sustained basis.

The NEP should have discussed what the key success factors for its implementation are. One such factor is honest, competent, dedicated teachers and managers at all levels. While the NEP is exhaustive, substantive policies, especially concerning school education, could have been discussed in fewer pages.

These are: (1) Getting rid of public examinations; (2) No transfer of government school teachers; (3) Developing a system to hold teachers and administrators accountable based on the performance of students; (4) Closing down of ‘small’ schools and integrating them into larger and integrated schools like Kendriya Vidyalayas with library and laboratory facilities, and children residing away from these schools can be transported by buses like children going to private schools; (5) The government should allocate at least 6% of GDP towards education sector, which is currently at the 3% level.

With the elimination of public examinations, it will be the end of coaching schools. Teacher unions are unlikely to favour the recommendations since they will be held accountable and also they need to teach unlike preparing children to take exams. Anganwadi unions will also not be happy since pre-schooling will take place in large school complexes. But the general public and students should rejoice and welcome the NEP. Unless there is a vibrant movement to support the NEP, it will remain a pipe dream, and India would have a lost another golden opportunity to usher in a million mutinies in the education sector, as recommended by the NEP.

 

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