The economic crisis triggered by Covid – 19 has forced the government to take recourse to some extraordinary measures which include among others 30% cut in the salary of all Members of Parliament [MP] besides the President, Vice-President and the Prime Minister, suspension of the MPLAD [MP Local Area Development] scheme and steep cut in the expenditure by ministries and departments. Reportedly, barring some 18 ministries/departments connected with healthcare and medical infrastructure and other essential services who can spend 100% of their budgeted allocation, for all others, steep cuts are contemplated. Whereas, 33 ministries and departments can spend only up to 20% of the budget, in case of 50 others, the expenditure limit is even lower at 15%. This would...
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Peace Clause – unreliable shield against subsidy breach
In a notification submitted to the World Trade Organization [WTO] – the multilateral body which binds member countries to a common set of rules with regard to trade in goods and services with ‘fairness’ and ‘non-discrimination’ as its underlying principles – India has informed that the value of its rice production during 2018-19 marketing year was US$ 43.67 billion and for that it provided subsidies worth US$ 5 billion. This works out to 11.4% of the value of rice production. Under the Agreement on Agriculture [AoA] of the WTO, a developing country cannot give aggregate measurement support [AMS] – an acronym for subsidies in WTO parlance – in excess of 10% of the value of its agricultural production. The AMS...
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Corona pushes discoms to the brink
Even as Corona has triggered widespread devastation, a major casualty is the power sector. Following the nation-wide lock-down announced by the Prime Minister, Narendra Modi on March 24, 2020 [this was an absolute must given the hyper-contagious nature of the virus and an overarching need to pre-empt community transmission], most of the industries and businesses besides Railways [passenger segment] have downed their shutters. This has meant complete destruction of nearly 40% of the total electricity demand. All consumers – be it industries, shops and establishments, households, farmers etc – buy their electricity requirement from the power distribution companies [discoms] [earlier known as state electricity boards (SEBs)]. Mostly owned and controlled by state governments they in turn, source power from independent...
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Can Corona – crisis spur food reforms
To address the plight of tens of millions workers in the ‘informal’ sector viz. street vendors, craftsmen, construction workers, domestic help, agricultural laborers, self-employed etc affected by Covid – 19, on March 26, 2020, the finance minister, Nirmala Sitharaman announced a Rs 170,000 crore package under PM Gareeb Kalyan Scheme [PMGKS]. The most crucial component of this package is giving 5 kg of rice or wheat per person per month for ‘free’ to around 80 crore people through the public distribution system [PDS] plus one kg of preferred and region specific choice of pulse per household for 3 months. To understand the full implications of the relief which is estimated to cost the exchequer about Rs 50,000 crore, let us...
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Fiscal burden of Corona
In a span of less than a week, there have been three sets of official announcements enumerating the measures to alleviate the problems faced by industries, businesses and workers due to the economic disruption caused by Covid – 19. The first two were made by the Finance Minister [FM], Nirmala Sitharaman on March 24 and 26, 2020 and the third by the Governor, Reserve Bank of India [RBI], Shaktikanta Das on March 27, 2020. On March 24, 2020, FM announced reliefs for the industries and businesses, which are largely ‘procedural’. These include extending the date for filing returns [income-tax, GST, customs, excise and statutory filings under Companies Act], reducing interest chargeable on delayed payments, exemption from penalty, increasing threshold of...
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Corona attack on Union’s fragile finances
In his address to the nation on March 19, 2020, Prime Minister, Narendra Modi announced the setting up of an Economic Response Task Force [ERTF] under the union finance minister, Nirmala Sitharaman to come up with a package of measures to alleviate the problems industries, sectors, businesses and workers are facing due to the economic disruption caused by Covid – 19. The nerve shattering Covid – 19 has come at a time when the union government is facing a huge shortfall of about Rs 200,000 crore in the tax collection vis-à-vis even the revised estimate [RE] of Rs 1400,000 crore for 2019-20 [when compared to budget estimate, the shortfall is much higher at Rs 400,000 crore] and staring at substantial...
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Stop using fuel taxes as milch cow
Within a couple of months of beginning his first term, Modi was conferred with oil bonanza. The international price of crude oil [India depends on import for meeting over 80% of its requirement] had moved on a downward trajectory from a peak of US$ 117 per barrel in November 2014 to US$ 28 per barrel in January 2016. The government mopped up a major slice of this reduction by increasing the central excise duty [CED] on petrol from Rs 9.8 per litre to Rs 21.5 per litre and on diesel from Rs 3.8 per litre to Rs 17.3 per litre [the hike was given effect to in as many as 9 rounds]. After January 2016, the crude price increased gradually...
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Yes Bank saga – it’s a system failure
Much before the crisis at the beleaguered Yes Bank reached a flash point [when the banking regulator, Reserve Bank of India (RBI) on March 5, 2020, superseded its Board, appointed ex-chief finance officer (CFO) of the State Bank of India [SBI] as its administrator and imposed moratorium for a month on critical operations such as sanction of fresh loan, renewal of existing loans, Rs 50,000/- ceiling on withdrawal of money per account] some depositors had already sensed it coming. They withdrew about Rs 18,000 crore during the first six months of current year [deposits declined from Rs 227,000 crore as on March 31, 2019 to Rs 209,000 crore as on September 30, 2019]; of this, Rs 16,000 crore were withdrawn...
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Between the devil and the deep blue sea
An announcement of foreign direct investment [FDI] in India is normally welcome in recognition of its contribution to capital formation, accelerating growth and adding to our foreign exchange kitty. Deviating from this normal practice, last month, the union minister for commerce and industries, Piyush Goyal was dismissive about the decision of Amazon boss to bring a few billion dollars to India. Goyal meant that Jeff Bezos was bringing money to make up for the huge loss the company was incurring on its operations in India. Losses or gains are intrinsic to any business. So, what was so special about the terse observation by the minister? Amazon essentially operates the ‘market-place’ model of e-commerce – a special dispensation carved out by...
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Fiscal slippage – the denial syndrome
In the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman revised the fiscal deficit [FD] for 2019-20 to 3.8% of GDP – up from the budget estimate [BE] 3.3%. In absolute term, the RE is Rs 766,500 crore against BE Rs 700,000 crore. Sitharaman has explained away the slippage in terms of recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management [FRBM] Act which permits breach of the target in case of “far reaching structural reforms with unanticipated fiscal implications”. The justification is untenable as during the year, there was no reform measure that can be put in the category of ‘far reaching structural reforms’. The government could slip further even from the revised...
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