Today's Editorial 09 September 2014

   Can poverty ever be abolished?

Source: By Meghnad Desai: The Financial Express
The poor, as the Bible tells us, are always with us. Here we are 150 years since the Victorians discovered the problem of poverty, which, they believed, could be eliminated—we are still measuring poverty, urging ourselves to eradicate it and devising policies to do so effectively. India has had an ongoing National Sample Survey of family expenditure wherein there is a poverty level based on a calorific count standard (later augmented by Suresh Tendulkar) which gives us the head count of poverty. Yet every time the poverty standard is published in terms of rupees per capita per day, there is a storm in the media and people appear to be shocked at how low that number is. Despite careful and continuous measurement which tells us that the headcount may now be down to below 22%, people in public life resist the conclusion. Estimates of poverty rate in India can range from 22% up to 80% depending on whether you take Tendulkar (29.8% in 2009, 21.9% in 2013), World Bank (32.7% in 2009) or Arjun Sengupta (77%) as you’re measuring rod.

The World Bank tells us that if we fix $5 as our standard, then 96% will qualify as below the poverty line. In its recent report, the Asian Development Bank (ADB) concluded that poverty in Asia has been underestimated. The real poverty line, according to the report, is not $1.25 PPP but $1.51 PPP, which takes the poverty rate from 20.7% to 30.5% for 2010. If you give more weightage to food as against non-food prices while constructing the poverty line, there are extra 141 million poor. If you adjust the poverty standard for vulnerability, you add another 11.9 percentage points and 418 million. Adding all these factors, Asia’s poverty rate goes up to 49.5%—1.75 billion people. The poverty line is income-elastic; as per capita income rises, so does the poverty line. In any society, where the poverty line is income-elastic, it would be difficult to reduce the poverty count, much less abolish poverty altogether.

It may also be argued that the issue here is not that of poverty but of inequality. A society with a lower degree of income inequality may end up with a lower headcount than another even at the same per capita income. Indeed, the European Union defines poverty in terms of people below 60% of median income and extremely poor if below 40%.

The non-abolition of poverty is not bad news. It is good news because it reflects our ambition that the poorest among us get a growth dividend as we do who are above the poverty line. Maybe we should track the poverty numbers under each generation’s definition going back to what we wanted to achieve in the previous generation. We can then ask whether we have succeeded not by our standards but by the last generation’s. It may be (and I am only guessing) that by the Dandekar/Rath standard of R15 per month per capita as of 1971, poverty headcount is less than 10%.

Even so, a sharp upward revision as the one proposed by the ADB in its latest report is disconcerting. Has poverty gone up in Asia over the last two or three decades of historically high growth rate or has only our poverty line? Should the ADB not have asked the question I put above in reverse? Was poverty in Asia higher on the triple standard now introduced—basic plus higher weightage for food prices plus an insistence on low vulnerability—50 years ago than it is now?

The ADB standard then says in terms of the original Roosevelt norm that for a household to be classified as non-poor it must have a level of income/expenditure high enough to accommodate all shocks (the ADB press release lists “natural disasters, financial crises, illness or other negative shocks”) which can be reasonably anticipated. To define the poverty level as the ADB wants to do, imply that to be non-poor, an individual or a family or a household must have a permanent income above a certain level defined by consumption needs under all possible conditions of uncertainty.

Another way to put it is that the ADB finds the median income as the poverty line since half the Asia’s population is below it. If that is the case, perhaps the ADB should move to median income as the cut-off line of poverty as of now just as the European Union sets 60% of median income as its benchmark. But is it reasonable to set the poverty standard which is something of a minimum at that level?

The problem of measuring poverty must not become an obstacle in doing something about it. If we had sustained growth of employment for the millions trapped in low productivity jobs, we could get them a livelihood which will protect them from poverty. That is all we need.

Today's Editorial 08 September 2014

         The Asian enigma

Source: The Statesman
Water and sanitation problems have reached boiling point: children are dying unnecessarily at the rate of 20 jumbo jets crashing every single day.

~ Ravi Narayana, a health activist

The importance of proper sanitation facilities for a healthy life can hardly be overemphasized. It has a strong connection not only with personal hygiene but also with human dignity and wellbeing. Jawaharlal Nehru once said: “The day every one of us gets a toilet to use, I shall know that our country has reached the pinnacle of progress”. The impact of inadequate water and sanitation can affect all sectors of development ~ health, gender equality, economic development, food security and national security. Around the world, nearly 780 million people do not have access to safe drinking water and 2.6 billion (36 per cent of the global population) do not use  safe, clean toilets, and one billion still defecate in the open (15 per cent of the global population).

Issues related to sanitation have not been accorded the priority they deserve.  India accounts for a swathe of the global population that makes do without basic sanitation. According to “Squatting Rights”, a research report prepared by the philanthropic foundation Dasra, more than 1,600 children under the age of five die each day due to diarrhoea caused by lack of sanitation.

Poor sanitation has a direct impact on the high rate of malnutrition in this country. Stunting (low height for age) is the preferred parameter that is used by the World Health Organization (WHO). Indian children are on an average shorter not only than children in the poorer sub-Saharan African (SSA) countries, they are among the shortest in the world. Almost 61.7 million Indian children are stunted.  This astonishing reality is the 'Asian enigma', one that can hardly be explained in terms of genetic differences.  Poor sanitation has a direct impact on the high rate of stunted children in India. Experts have ascribed this puzzle to the consequences of widespread open defecation (OD).  An analysis of as many as 140 demographic and health surveys, conducted by Dean Spears, revealed that the height of Indian children correlates with their and their neighbour's access to toilets, and that OD accounts for much of the stunting in India.  Surprisingly, OD has risen from 55 per cent in 2006 to around 61 per cent in 2011 (WHO and UNICEF 2013).  It is much less common in sub-Saharan Africa, China and Bangladesh.

In India, diarrhoea resulted in the deaths of around 2.12 lakh children under five in 2010, accounting directly for 12.6 per cent of child mortality.  The impact of  sanitation is not limited to health alone. Investments in education are undermined by inadequate sanitation at home and in school. Sick children do not attend school and inadequate sanitation in schools reduces girls' attendance.  One in every four girls drops out of school due to lack of toilet facilities. The failure to address sanitation in schools not only widens the gulf between the opportunities afforded to girls and boys through education; it also seems to be a significant barrier to the achievement of Millennium Development Goals, chiefly to remove gender disparity in primary education.

India has been struggling to achieve universal sanitation coverage since 1986 when it launched the Central Rural Sanitation Programme, a supply-driven scheme with subsidy. In 1999, the programme was recast as demand-driven Total Sanitation Campaign (TSC), but again with subsidy. In 2012, it was re-christened Nirmal Bharat Abhiyan (NBA) with the focus on community-led, demand-driven approach, but with even more subsidies.  The fact remains that India has the world's largest population that defecates in the open. According to data released by the National Sample Survey Office (NSSO) in December 2013, 59.4 per cent of rural India defecates in the open. Jharkhand and Odisha are the worst performers with 90.5 per cent and 81.3 per cent of their population without toilets. Indeed, different government agencies provide different data on the number of rural households with toilets. The 69th survey conducted by the National Sample Survey Office between July and December 2012 has put the figure at 41 per cent, the Baseline Survey's abstract report accessed on December 2013 at 40 per cent, and the 2011 Census at 31 per cent.

The rude shock came in 2012 when the Union Ministry of Drinking Water and Sanitation (MDWS) denied the figures and placed its estimate at 68 per cent. This triggered a political debate.  The difference between the ministry and census data translates into 37.5 million 'missing toilets'. The denial on the part of the government can be interpreted as conscious refusal to accept the vital facts, information and the reality.  Admittedly, in terms of modern psychiatry, any denial is “an unconscious defence mechanism characterized by refusal to acknowledge painful realities, thoughts, or feelings.”

In fact, sanitation has rarely occupied centrestage in any public discourse on the problems that plague the country. It is at best accorded lip-service. About half of India's 1.2 billion residents possess a mobile set, but only around one-third of the population has access to toilets. Despite the compelling moral and economic imperatives for action on sanitation, progress seems to be too little and too slow.

 In 2008, then Prime Minister Manmohan Singh lamented that 50 per cent of the toilets built under the government's sanitation programme were not in use. Indeed, India needs a latrine policy as much as it needs latrines for raising our dignity in the international community. A national task force under someone like Bindeshwar Pathak of Sulabh fame could be a good beginning. It would be pertinent to conclude with the message that was advanced by UN Secretary-General Ban Ki-moon for the World Toilet Day 2013:  “By working together and by having open and frank discussion on the importance of toilets and sanitation, we can improve the health and well-being of one-third of the human family”.

Today's Editorial 07 September 2014

                   Genetically modified

Source: By Bharat Jhunjhunwala: The Statesman
The UPA Government had permitted trials of about 60 Genetically Modified (GM) food plants, such as wheat. The NDA Government has put such tests on hold in view of doubts and anxieties. Nature carries out gene modification via breeding. The male and female genes from different parents combine to produce a new strain. But the modification is gradual and limited to within the species. A wheat male cannot breed with “Congress Grass female” in natural conditions. Genetic Modification speeds up and widens the process. Genes from a particular plant are isolated and these are “bombarded” onto the genes of a parent plant. The donor and host plant can be of different species altogether. The two genes combine under the “bombardment”, so-called. But we do not know which qualities of the two will join. For example, bombarding the wheat plant with the gene of Congress Grass could produce a variety of wheat that is resilient to drought; or it could also produce wheat that causes asthma. This gene modification activity is undertaken by seed companies like Monsanto in their laboratories.

The varieties that appear promising to the seed company are sent for field trial to assess their performance in farm conditions. It is here that the Government of India enters the picture. The Ministry of Environment and Forests has established a Genetic Engineering Appraisal Committee (GEAC) that decides whether to allow a seed company to undertake field trials in the country and to sell the GM seeds. The GEAC did not give permission for field trials when Jairam Ramesh and Jayanthi Natarajan were environment ministers. However, it was Veerappa Moily who reversed the stand and approved the field trials. Now the NDA Government has again reversed the stand and put the trials on hold.

As of now, the seeds of only one GM cotton are allowed to be sold in India. American bollworm is a pest that can damage the cotton crop. Bt is a poisonous bacterium that kills the bollworm. Scientists have taken the poisonous Bt gene and genetically implanted it in the cotton plant. As a result, the entire cotton plant-roots, stem, leaves and the cotton fibre of the Bt Cotton becomes poisonous. The Bt poison enters the digestive system of the bollworm when it eats the leaves of the Bt Cotton.

The Bollworm dies. The cost of cultivation of cotton is reduced. It is no longer necessary to undertake an extensive spraying of other chemical insecticides to kill the bollworm. Bt Cotton constitutes almost 95 per cent of the cotton that is produced in the country.

The risk is that the Bt gene may spread and contaminate the entire cotton gene. The pollen of the Bt Cotton can “jump” from the fields and fertilise the indigenous varieties of cotton. That will render the indigenous varieties of cotton poisonous. The USA had approved the cultivation of a Genetically Modified (GM) variety of maize. Only about one per cent of this maize crop was grown. Yet, a study revealed that the modified gene had entered into almost half of the American maize crop. A similar spread of Bt gene to indigenous varieties will mean that non-poisonous cotton may become extinct.

A UK Government report on GM trials found that genetically modified plants such as oilseed and rapeseed have contaminated conventional crops up to 200 yards away. They have also interbred with weeds, making them resistant to herbicides and raising the spectre of ‘superweeds’, which would be almost impossible to eradicate. The study also revealed that GM oilseed results in fewer broad-leaved weed seeds, which are a major source of food for farmland birds, bees and butterflies. This means that a single GM crop has the potential to harm the entire ecology of an area. What might happen if the wheat crop becomes poisonous because of a stray gene entering the crops?

In Bhatinda, farmers had been cultivating guar and bajra till the 1970s. In the Eighties, they started growing cotton and earned a tidy profit in the first few years. Then the American bollworm attacked their crops. They were advised to use insecticides. Initially a few sprays were successful in killing the insects. But soon the bollworm developed resistance to the pesticides. As a result the farmers had to undertake up to 25 sprays, yet they lost their crops. They became heavily indebted and some committed suicide. Had they relied on the traditional methods of pest control, they might have been able to avert the predicament. According to Mr Som Pal, former Member of the Planning Commission, traditional pest control technologies are quite effective. Cow urine and garlic can be sprayed. Tall crops like that of bajra can be planted amidst the cotton. That enables the birds to perch on the bajra plant. They can then spot the bollworm and eat it. Such pest control technologies are less expensive. But the sprays are more effective and profitable if resistance does not develop.

There is no global consensus on GM Crops. France has banned all genetically engineered crops, though Spain has adopted them. In India, Maharashtra and Punjab are supportive of the variety, while Tamil Nadu and Kerala have opposed the experiment. This confusion indicates that there is inadequate information about these issues. Therefore, caution should be the watchword.

The safety norms for GM trials are still in preparation globally. Environmental activist Vandana Shiva says that Article 19.3 of the Convention on Biological Diversity called for a Biosafety Protocol that is currently being negotiated. There seems to be no reason to move in utter haste as Mr Moily had done.

Let us now consider the arguments in favour of quick adoption of GM Crops. The first relates to malnourishment and the need to increase food production. Actually malnourishment has become a problem because we have diverted large tracts of land for the production of biodiesel or for export crops. There can be no shortage of food if we stop diversion of land presently being done for the cultivation of these crops. The second problem is that of competition in the global market. Indeed we are engaged in a “race to the bottom.” The use of GM crops by one country will enable it to produce cheap goods and all other countries will have to perforce adopt the technology if they are to withstand the competition. The remedy is not to destroy our ecology but to impose barriers to the import of cheap GM crops and provide subsidies to exports of our non-GM crops.

Today's Editorial 06 September 2014

 Alcohol under GST-States’ objection defies logic
Source: By Satya Poddar: The Financial Express
Even as the Union finance minister engages with the states to build consensus on the Constitution (115th Amendment) Bill for GST implementation, the states continue to resist GST which is irrational and unfortunate. This has become a serious hurdle in the government’s plan to revive the economy and provide a boost to manufacturing and employment growth. One of the points of contention is the states’ opposition to the inclusion of petroleum and alcohol in the GST base. They argue that they raise a lot of revenue from these products, which would be undermined by their inclusion in the GST base.

This argument is baffling and defies logic. The strongest virtue of GST is that it leads to more revenues, not less. Virtually all countries that have adopted this tax have done so to strengthen the tax system to gain revenues. It has proven to be a cash cow for them. How can then GST on petroleum and alcohol cause revenue loss to the states?

Let us take the case of the alcohol sector. Inclusion of alcohol in the GST base can lead to revenue gains in three ways. First, assuming a state GST (SGST) of 10%, the application of GST to alcohol will provide about R10,000 crore additional revenue to the state governments, according to the sales reported by the industry to the tax authorities. This revenue will be over and above the revenue from excise duty and other taxes such as licence fee and bottling fee which the states currently levy on alcohol. The states will continue to have the powers to levy the existing taxes as the Constitutional framework for GST does not contemplate dilution of these powers in any way.

The second aspect is that GST will create an audit trail which will allow a more effective control and monitoring of the taxes paid on alcohol products. It is no secret that unreported sales in this industry are rampant and that cartels are a pervasive feature of the industry. These cartels thrive on opaqueness of the system, corruption and collusion. They peddle spurious products to the innocent, causing serious health hazards. The GST audit trail will provide greater exposure of the unreported activities.

The most significant source of leakage for the states is the inter-state movement of goods. Alcohol is no exception. The states have been trying to monitor such movement of goods through check-posts at entry points, but these have proven to be completely ineffective. Rather than contributing additional revenue to the government, the check-posts have become a source of comfortable retirement income for those manning them. Under the proposed GST regime, movement of goods across state borders will be subject to a Central levy (IGST) which will create an audit trail and facilitate a more effective monitoring of the sales reported for Centre and state GST.

Another important source of leakage is imports smuggled into the country. Under a GST regime, imports would be subject to tax, which would be collected and enforced by the Customs authorities. Application of GST will create incentives for customs officials to devise more effective ways of controlling smuggling.

If alcohol were to be excluded from the GST, the states would not only lose out on the R10,000 crore income from sales already declared, but also forego the opportunity for improvement in compliance, reduction in inter-state leakages and leakages from imported products. On the other hand, if alcohol is included in the GST, the only losers will be the cartels and the people they collude with.

The GST will also bring in greater efficiency in production of alcohol and simplification of tax compliance. The current system suffers from the problem of tax cascading which increases the cost of production and introduces inefficiencies in the production decisions. Removal of cascading and the efficiencies in the production system will provide a 2% boost to the GDP. Any sector excluded from the GST will be deprived of this benefit.

This is the reason why the industry has been pleading the government to include alcohol in the GST base. Even though it will mean an additional R10,000 crore tax burden on them, they are hoping that inclusion in GST will bring greater transparency and fair competition in this industry.

Exclusion of any sector from GST creates economic distortions in the supply chain and adds to the overall complexity. An ideal GST is one that is levied at a modest rate to a comprehensive range of goods and services. Any exclusion or exemption creates classification disputes and a compliance nightmare, particularly for the small and medium taxpayers.

Take, for example, restaurants and hotels that serve alcohol. Currently, they generally attract three different taxes: state sales tax or VAT on alcoholic beverages, state sales tax or VAT on food and non-alcoholic beverages (F&B), and the Central service tax on 40% of the invoice amount which is deemed to be a charge for the services provided to the customer. If alcohol was excluded from the GST, the complexity of these taxes would be compounded even further. The restaurant bills could be subjected to potentially five different taxes: State sales tax or VAT on alcoholic beverages, Central GST (CGST) on 40% of the invoice amount for alcohol (which is deemed to be a charge for the services provided to the customer), SGST on the same 40% of the invoice amount and CGST and SGST on the charges for other F&B. Managing such complexity is beyond the ability of small and medium enterprises even with significant incremental effort.

It is strange that all the above arguments repeatedly put forth by the industry before the states have had little impact on them and they remain entrenched in their demand for exclusion of certain sectors from the GST base. If there was any merit to their demands, why weren’t they raised at the time of introduction of VAT in 2005? In concept, GST is nothing but VAT applied to both goods and services. Virtually all states experienced a significant growth in revenues as a result of the switch to VAT in 2005.

The states must re-examine their demands for exclusion of alcohol (and petroleum) from GST and certainly not exclude it under the Constitution Bill itself. Even if it is excluded at the inception of GST, the Constitution should allow the flexibility of bringing it within the ambit of GST at a later date. It is a view shared by the Parliamentary Standing Committee on Finance and the erstwhile Chairman of the Empowered Committee, Sushil Modi. One hopes that wisdom dawns on the states and they will come together as ‘Ek Bharat’ to build a ‘Shreshtha Bharat’.

Today's Editorial 05 September 2014

       Earth’s final frontier

Source: By H  Khasnobis: The Statesman
There are two challenges that the sovereign nations have failed to address. One is a nuclear-free world and the other is to reform the composition of the Security Council so that it reflects new geopolitical realities. Without a sincere effort to meet these two challenges, the world will remain unsafe and a handful of strong nations will dictate terms over the multitude of weak nations.

To create a nuclear-free world, the nuclear countries should first disarm and create a “global zero” that will discourage proliferation by other countries. That is not likely to happen in the contemporary world. As regards the Security Council, the rising powers need to be integrated as full partners to address the common challenges and seize opportunities that transcend national frontiers.

There has been an increasing demand for international cooperation in the modern world due to deepening economic interdependence, worsening environment, proliferating security threats and accelerating technological change. Whereas in domestic politics, governance is provided by the actual government with authority to establish and enforce binding rules, governance in international or the transnational sphere is more complex, ambiguous and anarchic because independent sovereign nations do not recognise any higher authority. What we see today in the name of international cooperation is a welter of informal arrangements and piecemeal approaches. In contemporary global governance, the existing institutions have been facing problems in dealing with traditional challenges.

Contemporary global governance can be of great help in responding to the non-traditional challenges.  This relates to the space that no nation controls but all sovereign nations rely on for their security and prosperity. The most important of these “global commons” are the maritime, outer space and cyberspace domains that carry the flow of goods, data, capital, people and ideas on which globalization rests. Many of these “global commons” are now disputed due to overcrowding, cut-throat competition and political ambitions of rival countries. Preserving their openness, stability and resilience will require an agreement between nations and private stakeholders.

A glaring example of the current maritime dispute is the South China Sea. The implications are profoundly economic. Surrounded by dynamic and globalized economies, the sea is a key trade route. Through this sea, more than $ 5 trillion worth of commerce passes every year. The sea lanes are the crucial pathway for oil and other inputs that fuel the energy-hungry but resource-poor industrial economies of East Asia. Most of the oil that China imports is channelled across the South China Sea from the Middle East and Africa. For China, the sea is also the gateway to the Indian Ocean. It is here that China is locked in dangerous sovereignty disputes with Brunei, Malaysia, the Philippines, Taiwan, and Vietnam over some 1.3 million square miles of ocean, the contested islands, and the exploitation of undersea gas and oil reserves.

China has been drilling for oil in waters that Vietnam regards as inside their EEZ. China insists that their rig has been operating inside its own waters, attached to Paracels islands that have remained under their occupation since 1974. China’s stance on rights over South China Sea raises an important question ~ whether a rising country can disrupt the regional and international order or whether it can, with reasonable adjustments, be accommodated and integrated. Maritime disputes are not confined to South China Sea alone. All rising powers from China to Iran are seeking blue-water capabilities and are investing in military acquisitions that seek to deny other countries access to their regional waters.  Global governance should ensure that freedom of the seas is not jeopardized by the action of some littoral countries. Peaceful resolution of all competing claims will require all stake-holding countries to submit their claims to binding arbitration under the 1982 UN Convention on the Law of Sea (UNCLOS).  Thus far, China has not agreed to submit its claims under the convention for arbitration. The peaceful resolution to competing regional claims on South China Sea will require China and ASEAN to agree on a binding code of conduct addressing matters of territorial jurisdiction.

Global warming has been turning the Arctic Ocean into an emerging epicentre of trade and industry akin to the Mediterranean Sea. Geopolitical and economic competition has intensified.  During the summer of 2012, the portion of the Arctic Ocean covered by ice had shrunk by 3, 50,000 square miles, an area equal to the size of Venezuela.  A study suggests that in just three decades, the Arctic sea-ice has lost half its area and three quarters of its volume. The region’s melting ice and thawing frontier are yielding access to rich natural resources , including nearly a quarter of the world’s estimated undiscovered oil and gas and massive deposits of valuable minerals. During summer, the Arctic sea routes can save thousands of miles between the Pacific Ocean and the Atlantic Ocean. Thus the Arctic may become a central passageway for global maritime transportation, just as it already is for aviation.

While Arctic warming is inevitable, it should not be taken as a licence to recklessly plunder a sensitive environment. All Arctic countries realized the need for cooperation in the interest of sustainable development. In 2008, the five states with Arctic coasts ~ Canada, Denmark, Norway, Russia and the United States ~ signed the Ilulissat Declaration in an effort to settle their overlapping claims in an orderly manner and within the framework of UNCLOS and the Arctic Council. These five states have agreed to use the Convention as a legal basis for settling maritime boundary disputes and enacting safety standards for commercial shipping. UNCLOS also provides a forum for submission of claims to the extended continental shelves. The United States has drafted the Convention and has been following its guidelines without ratifying it in Congress amidst fears that the Convention would place limits on US sovereignty. As an outsider, the United States legally forfeits its claims over vast areas of sovereign space on earth. Experts also believe that by remaining apart, the United States has undermined its professed commitment to a rule-based international order.

The international rules governing the use of outer space have become outdated. As nations and private corporations compete and contest for scarce orbital slots for their satellites, the number of actors operating in space has skyrocketed. Nearly 70 nations and government consortiums regulate civil, commercial and military satellites. Geopolitical competition raises the spectre of an arms race in space. Although the Outer Space Treaty of 1967 has put in place several useful principles, such as a prohibition on sovereignty claims in space, it has certain limitations. The treaty lacks a mechanism to resolve disputes, is silent on space debris, and does not clearly address interference with space assets of other countries. Experts have suggested options ranging from a binding multilateral treaty banning space weapons to a non-binding international code of conduct that would establish broad principles and parameters for responsible behaviour in outer space. Intensive dialogue between the space-faring nations in a spirit of cooperation and consensus should lead to a new regulatory regime that would best ensure stability and sustainable use of earth’s final frontier.



These examples suggest that existing institutions, treaties and conventions can to a considerable extent mitigate non-traditional challenges arising from “global commons”. But they are not enough. The stakeholding countries need to turn to complementary frameworks for collective action, including ad hoc coalitions of the willing, regional and sub-regional institutions and informal codes of contact. The structure for global cooperation may be a heterogeneous mix, but might be useful in terms of good governance.

Today's Editorial 04 September 2014

        A course correction

Source: By Ashwani Mahajan: Deccan Herald
In his first speech from the ramparts of the Red Fort, on August15, Prime Minister Narendra Modi announced that the Planning Commission will become history very soon. He also said that the circumstances under which Planning Commission came into existence, no longer exist and therefore in the changed circumstances we need some different institution in its place. Later an expert group was formed, which included many stalwarts including Bimal Jalan, Vijay Kelkar, Yashwant Sinha and many others; it has started its work to suggest the nature and the functions of the proposed new institution.

We understand that since national as well as international environment has undergone major changes there is a need to relook and redefine the role of state governments in the development of the country; and the policy making bodies also need to be revamped. The prime minister hinted that an altogether new institution would be created, instead of bringing changes within the Planning Commission, when he said that renovation of a house is costlier than making a new house itself.

It is notable that the Planning Commission has so far made 12 five-year plans and has been guiding resource allocation for plans and schemes for development. Critics of the Planning Commission maintain that this institution has lost its relevance and there is a need for an alternative structure for guiding the course policy of direction for the country.

The development model adopted by the government after the independence, was the one influenced by USSR, in which public sector was given a major role and therefore the Planning Commission was assigned a leading role for making and implementing five-year plans by allocating resources mobilised in order to achieve objectives set forth in the plans.

It is important to note that Planning Commission is the only important institution in India with such a major role, mention of which is not found is the constitution. It is therefore is not subject to scrutiny by parliament. India has a federal system of government; however Planning Commission is solely under the Central government and many a times it is felt that existence of Planning Commission erodes our federal spirit.

It is notable that the prime minister is the chairman of Planning Commission and its deputy chairman and other members are nominated by the Central government. Therefore it is possible that thinking at Planning Commission is influenced by the ruling party and/or its alliance partners. Under these circumstances, it is possible that states ruled by opposition parties are subject to bias against them. We also understand that in a federal system, it is imperative to have a clear-cut division of financial resources between the Centre and states, to carry out their respective functions. However we find that there is always a dearth of resources with the states. Interestingly, it is the Finance Commission, which is a constitutional body designated to recommend transfer of resources from the Union to states. But we find that a major portion of transfer from the Union to states is done through Planning Commission. Therefore Planning Commission comes in the way of smooth functioning of the federalism.

Those who question the relevance of Planning Commission also say that due to the new economic policy pursued in the last more than two decades, the importance of Central plans has come down and the importance of private sector has increased manifold. It is undoubted that the projects run by private sectors and/or with the cooperation of the private sector, the role of market forces is much greater. Decision to undertake private investment and its implementation is guided by thinking, which is much at variance with the thinking of the bureaucrats sitting in the Planning Commission.

Largescale privatisation

Development of the economy by planed industrialisation was the need of the hour after independence. However, today we rarely find any sector where private sector is not a partner. Moreover government is withdrawing its investments from public sector by way of disinvestment. Even the social services like education and health are also being privatised.

Under these circumstances, it is difficult to synchronise Planning Commission and the privatisation, which is the rule of the game today. While addressing the last meeting of the Planning Commission, the then prime minister and chairman of Planning Commission Dr Manmohan Singh had also raised questions regarding Planning Commission, stating that whether it has changed its role and way of functioning in the changed circumstances. He said that today there is a need to change the outlook of Planning Commission from’control and planning’ to that of ‘governance and regulation.’ It is notable that in the last 10 years Planning Commission has been subject to criticism on various occasions. Sometime back when the Planning Commission was adamant on its definition of poverty line of Rs 32 of daily income for urban areas and Rs 28 for rural areas despite objections from the Supreme Court. The commission was subjected to huge public resentment when it was revealed that the commission got one of its toilets renovated at a cost of Rs. 35 lakh.

Today the Planning Commission is exhibiting its extreme insensitivity not only in the context of the definition of poverty, but also in terms of providing minimum education and health facilities for the masses. Twelfth Five Year Plan is full of big talks about privatisation of education and health services. In the present circumstances it is imperative to have a new system in place, in which big agencies do not burden the government. Instead the new system should be able be offer solutions to the problems of unemployment, poverty and lack of health and education for our masses.

Today's Editorial 03 September 2014

         A republic of experts

Source: By Ashok V. Desai Modi: The Telegraph
I have recently been giving talks on economics to intelligent non- economists. It revealed to me a difference between economics and the natural sciences. A non- scientist who goes to a talk on science is unlikely to claim any knowledge about the subject. But non- scientists often come with well- formed, even if incorrect, economic preconceptions. They will firmly believe that the oil crisis was orchestrated by the American government, or that the industrialization policy was a personal invention of Jawaharlal Nehru. The preconceptions generally are only tangentially related to facts; they are closer to conspiracy theories, which are typical of paranoia.

They are so strongly held that they would seem to be a part of their holders' religion or psychosis. Thomas Piketty puts this point somewhat differently in the introduction to his famous book, Capital in the 21st Century. He points out the strong convictions of many people about trends in distribution: some believe incomes have become more equal, whilst others believe just the opposite, and both engage in a dialogue of the deaf. "Social scientific research is and always will be tentative and imperfect. It does not claim to transform economics, sociology and history into exact sciences. But by patiently searching for facts and patterns and calmly analyzing the economic, social and political mechanisms that might explain them, it can inform democratic debate and focus attention on the right questions.

It can help to redefine the terms of the debate, unmask certain preconceived or fraudulent notions, and subject all positions to constant critical scrutiny. In my view, this is the role that intellectuals, including social scientists, should play, as citizens like any other but with the good fortune to have more time than others to devote themselves to study ( and even to be paid for it — a signal privilege)." In other words, intellectuals are common people just like the opinionators in my audiences, but are trained to judge the solidity of evidence, and eliminate wrong or poorly grounded positions.

I thought that Piketty's point was relevant to the debate that currently rages about the future of the Planning Commission. Intellectuals have been writing feverishly in the press; almost to a man, they are shocked by the prime minister's decision to disband the Planning Commission. I do not have to go into their arguments in its defence; but it can be confidently said that none of them makes Piketty's point. The reason is obvious: whatever its original conception, the Planning Commission never publicly played an intellectual role. In the beginning, it was the product of a religion called socialism. Later it was used as an implement to steer the economy in directions favoured by the rulers, which changed marginally from time to time.

That was not so always. I had informal entry into the Planning Commission in the 1960s because my brother Mahendra was its information adviser. At lunchtime, the bright young economists assembled by Pitambar Pant in the planning unit of the Indian Statistical Institute would gather together in Mahendra's room and vigorously debate economic issues. But that debate was confined to Yojana Bhavan; people outside got no inkling of it. Indian governments have hosted limited economic debates from time to time, but always within the confines of ministries. And in recent decades, they have never involved anyone who differed with official positions in a meaningful way.

So I would not have shed tears on the demise of the Planning Commission. But then, the prime minister has gone back on his promise to demolish it. He may not have changed his mind about its uselessness or malignity as the case may be. Perhaps he was overwhelmed by the barrage of criticism that followed his announcement; maybe he felt that he had overreacted. Anyway, he asked the public to give him ideas about what to replace it with; and Yashwant Sinha has been collecting the views of selected prominences for him.

This is where Piketty's point comes in. I understood its relevance when, some two decades ago, I spent two years advising the then finance minister, Manmohan Singh. I realized the naïveté of the views of my political masters: not just theirs, but also of their bureaucrat advisors and implementers. I tried to improve their judgment. But my views were confined to file notings and interventions in the meetings of senior bureaucrats the minister called in his room. They did not even extend to larger meetings, with other ministers and their bureaucrats; no one spoke there except on the finance minister's invitation, and he never asked anyone except Montek Singh Ahluwalia.

So the prime minister has two problems to solve: whom to plant in the Planning Commission, and how to bring their wisdom to bear on his ministers — for they too are common people, and even more impervious to wisdom because they tend to attribute their political success to their own wisdom. I shall give a brief answer since I have only 400 words left.

The prime minister should recruit 139 bright young economists — let me call them gophers — chosen not just for their knowledge but also for their communicative ability, and plant them in rooms on the ground floor of the new thought commission. Any moderately important person ( MIP) — which would include any minister, bureaucrat down to joint secretary, or member of parliament — should be entitled to approach any gopher with a question, personally, on phone or by email. The gopher would give an immediate answer, or tell the MIP by when he would send an answer.

The gophers should have a library within the building at their disposal; it would comprise any book, article or document they may ask for. The librarian may get them from one of Delhi's many libraries, official and unofficial, or abroad, but once received, they must be digitized: the library must aim to become India's most comprehensive digital library, and give free universal web access to all its holdings, except those under copyright.

Why 139? That is the number of best Indian economists listed by RePec in its Ideas list. These are the Indian economists who have published work that meets international standards. Each of them should have one of the 139 gophers attached to him or her; the gopher should consult his or her mentor in case of doubt. The 139 economists should have free access to the new library, and be able to use their gophers as research assistants. They should get a fellowship to come and live comfortably in Delhi whenever they want to work in the thought commission.

They should be invited to give at least one talk a year, attended by a minister, on topics of interest to ministers. They should hold at least one conference a year on policy matters, open to MIPs. The MIPs and gophers should be free to take their advice on a consultancy basis. In brief, the Planning Commission should be converted into a market for ideas; the MIPs should be the buyers without having to pay.

India's best economists should be the sellers, but not profit maximizers. The product should be good economics, which should go into policy. The output of the thought commission should be exposed to the critical view of the entire world.

Today's Editorial 02 September 2014

       India-US defence cooperation

Source: By Ashok B Sharma: The Echo of India
Prime Minister Narendrabhai Damodardass Modi is slated to visit US in September for the UN General Assembly. He will also meet Barak Obama in Washington and co-chair the India-US Summit. Defence cooperation will be one of the area to come up for discussion. The US Defence Secretary Chuck Hagel during his recent visit to India has spelt out in broad terms what US seeks from India in matters of defence cooperation.

It is the US policy of rebalancing in the Indo-Pacific region that has made the super power to seek reliable allies in the region. The emerging economy and political power in the region, India, with its strategic location, has come as a best bet for US.

With India recently hiking the cap on the entry of foreign direct investment (FDI) in defence sector from 26 per cent to 49 per cent, the US views it as an unique opportunity. The India-US Defence Trade and Technology Initiative (DTTI) inked two years ago when the UPA government led by Dr Manmohan Singh was in power, has come as handy to further the defence engagements between the two countries.

The Initiative, which was presented by the then US Defence Secretary Leon E Panetta and subsequently shepherded by the then US Deputy Defence Secretary Ash Carter, has on its agenda the proposals for co-production and co-development. The Modi Government which is aggressive in its effort to modernise the Indian Defence Industry by liberalising its FDI policy is seeking to take the DTTI forward. The Indian Defence Minister Arun Jaitley and the US Defence Secretary Chuck Hagel, who was recently on a three-day visit to India, agreed to extend the New Framework for the US-India Defence relationship well before it expires in July 2015.

Jaitley, however, is hopeful that the cooperation would result in increased indigenisation capabilities of the Indian defence industry through co-production and co-development. He has said: “The development of our own indigenous capabilities is a major objective that guides our present policies. In this direction, we have taken steps to raise the FDI cap in the defence sector. We look forward to work closely with the US in this regard.” The FDI policy has stipulated that that the projects will have full Indian management and control.

Technology transfer is the key to modernisation and Jaitley should note the words of Ash Carter who had earlier said : We’ve adapted our system in ways that will speed our release process for India…..especially in the Department of Defence, recognising that for all partners this process is subject to case-by-case review and there will always be some technologies that we will keep to ourselves.” This means that India will not receive some key sensitive latest technologies.

There are other issues like relaxation in US export control regime, licencing agreements, licence exceptions, end-use monitoring which need to be sorted out by both sides. However, Hagel said that DTTI now has on the table over a dozen specific cooperative proposals that would transfer significant qualitative capability, technology and production know-how. “To build a broad foundation for co-development, and because both our nations hone the leading edge of scientific and technological innovation, we are also working together to advance our joint cooperative science and technological priorities. This includes areas ranging from big data to cognitive sciences to chemical and biological defence and material sciences,” he has said.

Other items on the table for co-production and co-development are maritime helicopter, naval gun, surface-to-air missile system and scatterable anti-tank system. Hagel has reiterated that India and US would co-produce and co-develop the next generation Javelin anti-tank missile. “This is an unprecedented offer that we have made only to India and no one else,” he said. Javelin is a man-portable, fire-and forgets, anti-tank missile employed by dismounted infantry to defeat current and future threat armoured combat vehicles.

While for the Javelin project US will partner only with India, there are several other defence projects US have with other countries, particularly with Australia, a strategic country in the Indo-Pacific region and with UK. To rightly quote Carter “We’ll ensure that those innovative projects receive priority funding. This is an approach we’ve only ever taken with the United Kingdom and Australia and now India will join that company.”

Hagel did not miss to spell out US game of rebalancing. While he was in Delhi at a public lecture at Observer Research Foundation he said : “But today, as India ‘Looks East’ and the United States ‘rebalances’, our interests across the full span of the Indo-Pacific region are aligning more closely than ever.”

In March 2009 Obama administration cleared $2.1 billion sale of eight P-8 Poseidons aircraft to India that are patrolling the shores of the Andaman & Nicobar Islands. During President Obama’s visit to India in November 2010, US signed $5 billion agreement to supply Boeing C-17 Globemaster III military transport aircraft and general electric F414 engines. US also agreed to supply six C-130 J Super Hercules special operations aircraft. US is also mulling sale of 22 Apache attack helicopters, 15 Chinook heavy lift helicopters, 145 ultra light howitzers, M777 guns of BAE systems.

However, Hagel has spelt out that in rebalancing game in Indo-Pacific region, US would have ä constructive relationship” with China and “seek to manage competition, but avoid traps of rivalry” and at the same time India-US-Japan trilateral security cooperation should be elevated to ministerial level building upon the joint naval Malabar exercise.

India-US defence relations is waiting to take a final shape when the Indian Prime Minister Narendrabhai Damodardass Modi is scheduled to meet the US President Barak Obama for a summit level meeting in Washington in September and subsequently the Indian Defence Minister Arun Jaitley visits Pentagon in October.

Today's Editorial 01 September 2014

      Need to look beyond DTC

Source: By Dinesh Kanabar: The Financial Express
Given that tax terrorism was one of the important poll planks for the BJP in the general elections, expectations had been rather high that the Modi government would expedite necessary corrections to India’s existing tax regime and deal with the fetters it has put on FDI.

The Union Budget FY15 had, as expected, only an interim measure as the government had just been voted to power and was coming to grips with the issues. Now, expectations are strong that the comings Budget will deal with the tax issues substantively and, hopefully, address them. In this background, taking stock of the tax-related developments in the first 100 days of the government is in order, to see if the needle points to the right direction.

There are some very positive developments which were ushered in by the last Budget. With the right implementation, these could provide a significant positivity on the tax front. The two key developments are the Authority for Advance Rulings (AAR) and the Transfer Pricing (TP) changes.

The extension of the AAR benefit to domestic tax payers is a very significant move. One of the key vagaries of Indian tax regime is the uncertainty of the outcome. Enabling the tax-payer to get an advance ruling, and thus be certain about the tax implications of a transaction is a major step changing the tax regime. Now, ensuring implementation of this is key. Multiple benches need to be constituted and appropriately staffed. More important, there is a need to adhere to the 6-month timeframe within which orders are to be passed. So far, the lone existing bench for AAR has been without a chairman for great length of time and it takes years to get an “advance” ruling!

The TP changes, too, are commendable. The roll forward of the Advance Pricing Agreements for four years and the introduction of range within which arm’s length price has to fall (as compared to the current provisions of arithmetical means) should substantially help abate litigation in this field. The Rules implementing the changes are awaited.

Coming to the misses, two key ones are: not pushing back the introduction of GAAR and not dealing with the retrospective amendment on overseas transfers. There is indeed no argument to say that GAAR should not be introduced. The issue is how to remove the subjectivity (and the attendant litigation) around it and have a constructive dialogue prior to its implementation. There is a need to consider a pushing back of GAAR by at least two years. Enough and more has indeed been said about the need to address the retrospective amendment issue.

Apart from retrospective application, there are a number of uncertainties in the way the Section 9 amendment has been worded. As a result, there is substantial uncertainty on the tax implications in India on global transactions. These need to be addressed urgently, without waiting for the outcome on the Vodafone matter. The Shome Committee recommendations in this regard need to be accepted and implemented urgently.

Ironically, the two recent circulars issued by the CBDT to ‘clarify’ issues seem to be creating more uncertainty on the tax front. The first circular is on the imposition of new conditions on the use of manpower on tax holiday undertakings and is likely to lead to considerable litigation on the subject. The circular seems to ignore the fact that the BPO industry has a common bench-strength instead of employing people for specific undertakings. The circular runs contrary to the recommendation of Rangachary Committee set up by the government. The second circular, relating to AIFs, again, is likely to create significant problems for taxation of domestic mutual funds. On the one hand, the Budget clarified that gains to FIIs would be characterised as capital gains and provided clarity of taxation to them. On the other, the circular on AIF is a huge negative for domestic mutual funds. There is a need to provide conditions for domestic mutual funds to earn capital gains and have a pass-through status.

The key expectation of the tax-paying community is that there is no high-handedness in the implementation of tax regime and the litigation on tax matters are concluded fast. A lot of work needs to happen in both the directions. There are several recommendations made in this regard which need to be implemented.

There is an acute need for a relook at revenue targets handed out to the tax officials, which result in aggressive assessments. There is a clear need to widen the tax base rather than being aggressive with existing tax payers.

There is then an overhang of the Direct Taxes Code (DTC) which has been twice redesigned. Each time the Bill has undergone a change, the original objectives seem to be lost sight of. The need of hour is to ease the implementation of the existing law rather than to bring in a whole new piece of legislation. Many of the changes proposed in the original DTC have already been incorporated in the existing Act. The balance provisions need to be renewed and, if found appropriate, brought in the existing Act rather than try and ‘simplify’ the law by a whole new Act of Parliament.

Finally, the government seems to be moving in the right direction on the implementation of GST. This is indeed a need of the hour and one hopes that the Centre and the states will converge to make this implementation happen. Overall, there is positivity about what has been achieved and the implementation of changes and the next round of tax reforms are awaited.