28 January 2021: The Hindu Editorial Analysis

1) Revise the text of the Budget speech.

The Finance Minister must move to an expansionary fiscal stance that prioritises job creation, public service provision.

GS-3: Government Budgeting

GS-2: Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes;

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CONTEXT:

1. The novel corona virus pandemic and economic crisis that budget speech will be of much significance speech that is likely to conceal more than it reveals.
2. Going by past experience, we can make predictions about the Budget Speech this year likely Largely formal sector-centric, of actual revenues being much less than the Budget projections:
3. Budget priorities must be on job creation, public service provision, and It maybe claim that the government’s policies have enabled the country to deal with the spread of COVID-19.

 

About Budget speech:

1. The Budget speech, delivered by the Union Finance Minister in Parliament, has two sections parts A and B. The first part of the budget speech provides an overview of the economy of the previous and current years, and also gives Budget estimates for the next financial year.

 

The budget contains the following:

1. Estimates of revenue and capital receipts;
2. Ways and means to raise the revenue;
3. Estimates of expenditure;
4. Details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year; and
5. Economic and financial policy of the coming year, that is, taxation proposals, prospects of revenue, spending programme and introduction of new schemes/projects

 

What might be said/ Predictetions:

1. It might full of self-congratulatory declarations of how the country, the economy and the government’s finances have withstood the pandemic and how the economy is set on a path of revival.
2. It might be claim that the government’s policies have enabled the country to deal with the spread of COVID-1 with inadequate health spending even in the face of the pandemic.
3. Government may take credit for controlling the fiscal deficit, despite the reduced tax collections, and Government munificent to the State governments by increasing their borrowing limits.
4. She will outline what will turn out to be completely unrealistic spending and taxation plans for the coming year

 

The budget goes through the following six stages in the Parliament:

1. Presentation of budget.

2. General discussion.

3. Scrutiny by departmental committees.

4. Voting on demands for grants.

5. Passing of appropriation bill.

6. Passing of finance bill

 

Largely formal sector-centric:

1. The formal sector can bridge this gap by employing people from low-income households, investing in them through on-the-job training along with social –security.
2. It is certainly true that COVID-19 infections are on the decline in India largely confined to the formal sector, while most informal activities are still facing crisis.
3. The “recovery” of employment is because of the absence of social security for the vast bulk of Indian workers, which forces them to seek out any income-generating opportunities, simply to survive.
4. Wage incomes are significantly lower than before the lockdown. The stock market reaching stratospheric heights is really more of an indication of how divorced it has become from the real economy and its prospects. 
5. The numbers for revenues and spending have been inaccurate, sometimes off by around ?1,50,000 crore as in Budget 2019-20.

 

IS Estimates Expenditure are legally mandate? (Issues/Solution)

1. The actual revenues being much less than the Budget projections, each year, this mistake is repeated and even amplified.
2. The expenditure estimates are even more disingenuous, because they understate the actual expenditures that should be counted.
3. the Comptroller and Auditor General of India (CAG) report in 2018 identified at least three methods of reducing the stated expenditure:
   1. not paying for the full fertilizer subsidy by using “special banking arrangements”

        (2)not paying the central government’s dues to the Food Corporation of India (FCI) for the food subsidy, and forcing the FCI to borrow from the market;

       (3) Using other special purpose vehicles to pay for infrastructure investment, like the Long Term Irrigation Fund.

4. Government likely not paying States their rightful dues under the Goods and Services Tax Compensation Fund,
5. Or  not paying what State governments have already spent on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA),
6. Which is legally mandated to pay estimate expenditure as budget prescribes.

 

Solution:

1. Estimates Expenditure is non-transparent: parliament provides some extra power to CAG and AGI for real time Auditing and monitoring the fund.
2. Executive pressure: They also force other agencies (like State governments and public sector enterprises) to go in for expensive commercial borrowing that unnecessarily adds to their future interest costs.
3. Limitation on parliament power:  either for current year projections, or for the next year’s estimates that the Parliament is reduced to approving a piece of fiction.

 

Constitutional Provisions with regard to the enactment of budget:

1. The President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of estimated receipts and expenditure of the Government of India for that year.
2. No demand for a grant shall be made except on the recommendation of the President.
3. No money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law.
4. No money bill imposing tax shall be introduced in the Parliament except on the recommendation of the President, and such a bill shall not be introduced in the Rajya Sabha.
5. No tax shall be levied or collected except by authority of law.
6. Parliament can reduce or abolish a tax but cannot increase it.

 

CGA data and spending (most reliable information):

1. Between April and November 2020, revenues of the central government predictably collapsed, by around 18%, or ?181,372 crore, compared to the same period of the previous year.
2. the government promised in three rounds of stimulus packages, it claimed to inject amounts of ?1.7-lakh crore in March, ?20-lakh crore in May and then ?2.65-lakh crore in November.
3. The public accounts show that total spending of the central government increased by only ?86,301 crore. That was only a 4.6% increase — not evens enough to keep pace with inflation.

 

Comptroller and Auditor General of India:

1. The Constitution of India (Article 148) provides for an independent office of the Comptroller and Auditor General of India (CAG).
2.  He is the head of the Indian Audit and Accounts Department1. He is the guardian of the public purse and controls the entire financial system of the country at both the levels–the Centre and the state.
3.  His duty is to uphold the Constitution of India and laws of Parliament in the field of financial administration.

 

Way forward/ways:

1. The Indian Army is estimated to spend more on pensions than salaries in FY21. Pensions and salaries together form about 76% of the Army’s budget. Such a high wage bill leaves little for the Army to spend on up gradation of equipments and weaponry needs reform.
2. The government acknowledged its fiscal challenges; resorting to the escape clauses in the FRBM (Fiscal Responsibility and Budget Management Act) pushing up the deficit to 3.8% in FY20 and 3.5% in FY21 but due to COVID government may take some liberty.
3. This fiscal stance obviously adds to the material suffering of the people and deprives them of basic goods and essential public services at a time of much greater need.
4. The macro economically stupid strategy, because it adds to contractionary tendencies in the economy, and prolongs the severe demand recession facing millions of small and informal enterprises and hundreds of millions of self-employed workers.
5. The government is striving to push spending into the most productive uses to spur the economy without becoming fiscally imprudent and has projected receipts and expenses in as realistic a manner as possible.
6. With regard to the interim report of the Fifteenth Finance Commission, the one thing you have rejected is the Special grants to States, for extraordinary situation may restore Special grants to state.

 

2) Keep the wheels of economic recovery turning

The fiscal stimulus needs to continue in FY 2021-22 to speed up India’s economic healing.

GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment .Inclusive growth and issues arising from it,

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CONTEXT:

1. The upcoming Economic Survey put first advance estimates of national income published on January 7 project a contraction of 7.7% for real GDP.
2. The estimates published by the National Statistical Office (MOSPI) had suggested an economic recovery in India. An improvement in the rate of contraction from 23.9% in Q1 to 7.5% in Q2 was seen as the beginning of a sustained recovery.
3. The Ministry of Finance, in its Monthly Economic Review highlighted ‘V’ shaped recovery and as a reflection of the resilience and robustness of the Indian economy.
4.  The Monetary Policy Statement of the Reserve Bank of India (RBI) released on December 4, 2020 also projects positive growth in the remaining quarters of the financial year. And focus to curve on the fiscal stimulus may be continuing.

 

Growth rate and policy of economy during pandemic:

1. Growth rate of the economy had collapsed from 8.2% in Q4 of 2017-18 to a mere 3.1% in Q4 of 2019-20, sliding continuously for eight quarters.
2.  The policy stance adopted by the government is the hope that private corporate investment will pick up momentum sooner than later, putting the economy back in the trajectory traced in the first decade of the new millennium.
3. The RBI did the heavy lifting through five consecutive lowering of repo rate, adding to a total of 135 basis points from February to October 2019 along with liquidity infusion programmes.

 

Fiscal stimulus:

1. It’s refers to increasing government consumption or transfers or lowering taxes and other recoveries. 
2. Effectively this means increasing the rate of growth of public debt, except that particularly Keynesians often assume that the stimulus will cause sufficient economic growth to fill that gap partially or completely.

 

Source: RBI

Revise monetary framework:

1. While being cautious of inflation, the RBI has decided to continue the accommodative stance in its latest monetary policy to support growth.
2. It has retained status quo in the policy rate of repo at 4%. The CPI inflation after crossing 7% has cooled off to 4.6% in December. Still, the real interest rates remain very low.
3.  The RBI expects inflation to ease to the specified band. The efficacy of the new monetary framework (NMF) the agreement between the RBI and Government of India in February 2016 to adopt inflation targeting in India will be reviewed in March 2021, and we flag the need for revising the framework.

 

4. The RBI is continuing its liquidity infusion programmes including the on-tap Targeted Long Term Repo Operations (TLTRO) under the Emergency Credit Line Guarantee Scheme (ECLGS 2.0).
5. The RBI is also continuing its ‘operation twist’ — the elongation of debt maturity structure through simultaneous buying of long-term bonds and selling of short-term bonds — with Open Market Operations (OMO) of ?10,000 crore scheduled for December 17, 2020.

 

Stimulus moves by the State’s:

1.  The private sector in India final consumption expenditure is sluggish, contracting 26.7% and 11% in Q1 and Q2, respectively, a “fiscal dominance” is expected in India for sustained economic recovery.
2. Government Final Consumption Expenditure (GFCE) at Current Prices is estimated at ?24.34 lakh crore in 2019-20 as against ?21.35 lakh crore in 2018-19.
3. At Constant (2011-12) Prices, Government Final Consumption Expenditure  ( GFCE)  is estimated at ?16.65 lakh crore in 2019-20 as against ?15.06 lakh crore in 2018-19.
4. The Biden Plan of $1.9 trillion will make the pandemic response of the United States a massive $5.2 trillion one. Compare this with the $800 billion worth U.S. fiscal response to the global financial crisis
5. The fiscal stimulus for India is 1.8% of GDP. The corresponding figures are: for Brazil 8.3%, Russia 2.4%, China 4.6%, and South Africa 5.3%.
6. The time series methodology showed that public infrastructure investment is the prime determinant of private corporate investment in India.

 

Flexible fiscal rules are the Solution:

1. Flexible fiscal rules on the Policies and fiscal behavior of fiscal policy with propensity scores-matching techniques, thus mitigating traditional self-selection problems.
2. The design matters. Specifically, investment-friendly rules reduce the Policies and fiscal behavior of both overall and investment spending.
3. Structural factors, such as past debt, the level of development, the volatility of terms of trade, natural resources endowment, government stability, and the legal enforcement and monitoring arrangements backing the rule also influence the link between fiscal rules and counter cyclicality.
4. The path of economic recovery will be determined by the degree of containment of the pandemic and the sustained macroeconomic policies.
5. Any abrupt withdrawal of ongoing economic policy support, both by the monetary and fiscal authorities, will be detrimental to growth in times of the pandemic.
6.  The fiscal rules at the national and sub national government levels need to be made flexible to enhance the fiscal space to deal with the extraordinary situation.
7. The public debt deficit dynamics in India, therefore, needs a careful calibration in the forthcoming Budget 2021-22.

 

CONCALUTION:

1. Nevertheless, the RBI Governor has rightly pointed out that the signs of recovery are far from being broad-based and are dependent on sustained policy support. He has also pointed out that it is a no-brainer that Union Budget 2021-22 will be pro-growth.
2. We argue for fiscal stimulus not based on “business cycle” arguments to trigger animal spirits, but from the perspective of much needed targeted state interventions in public health, education, agriculture and physical infrastructure, and to redress widening inequalities in the time of the novel corona virus pandemic.
3. India cannot afford fiscal stimulus at the rates of advanced economies, due to a lack of fiscal space. The pandemic has hit many crucial sectors and has left millions jobless. It is in this context that the Finance Minister has promised a “never before like budget” on February 1, 2021.
4. to address the falling effective enrolment rates due to the digital divide, the employment and livelihood crises and the need for strengthening social and physical infrastructure spending.

 

3) Emphasizing self-reliance in science:

The draft science policy is a rambling document, but it contains nuggets of scientific vision and information. (OPED)

GS-3: Achievements of Indians in science & technology; indigenization of technology and developing new technology.

GS-3: Science and Technology- developments and their applications and effects in everyday life.

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CONTEXT:

1. The resolution stated On March 4, 1958, under the leadership of Jawaharlal Nehru, for the first time in the history of independent India, Parliament passed a resolution on science policy.
2.  Since that resolution for 2nd (1983), 3rd (2003) 4th (2013) successive emphasis on chosen objectives and goals, often echoing the existing national and global imperatives and the ruling dispensation’s ideology.
3. The 5th National Science Technology and Innovation Policy 2020 has been finalized. Recently released by “India’s Department of Science and Technology” make India self sufficient.

 

Aim of the 2020 draft policy:

1. It aims to foster, develop, and nurture a robust system for evidence and stakeholder-driven STI planning, information, evaluation, and policy research in India.
2. The objective of the policy is to identify and address strengths and weaknesses of the Indian STI ecosystem to catalyze socio-economic development of the country
3.  Make the Indian STI ecosystem globally competitive. And self sufficient in field of science and technology.

 

Vision of policy 2020:

1. its broad vision of achieving technological self-reliance and position India among the top three scientific superpowers in the decade to come,
2. Also to attract, nurture, strengthen and retain critical human capital through a ‘people centric’ science, technology and innovation (STI) ecosystem,
3. And  to double the number of Full-Time Equivalent (FTE) researchers, Gross Domestic Expenditure on R&D (GERD) and private sector contribution to the GERD every 5 years .
4. To build individual and institutional excellence in STI with the aspiration to achieve the highest level of global recognitions and awards in the coming decade.

 

Is it People centric policy?

1. The developing a “people-centric” science, technology, and innovation “ecosystem”.
2.  It states that the private sector’s contribution to the Gross Domestic Expenditure on Research and Development should be doubled every five years.
3. The new policy revolves around the core principles of being decentralized, evidence-informed, bottom-up, experts-driven, and inclusive.
4. It aims to bring in the concept of dynamic policy with a robust policy governance mechanism incorporating features such as implementation strategy,
5. And periodic review, policy evaluation, feedback, and adaptation, and most importantly, a timely exit strategy for various policy instruments.

 

Science and society

1. The concerns on the dis connect between science and society is valid. But the fact is that hyper-nationalism is not conducive to the propagation of evidence-based science and a rational outlook.
2.  The “develop a scientific temper, humanism and the spirit of inquiry and reform.” But it is silent on how this can be achieved when pseudoscience is deliberately propagated in the name of traditional science with the help of some arms of the government.
3. Our belief systems, values, and attitudes have an impact on the quality of research. That partly explains why Indians who have chosen to work in labs abroad are able to make path-breaking discoveries.
4. The ruling dispensation has a moral obligation to facilitate an environment that encourages a mindset that constantly challenges conventional wisdom as well as open-minded inquiry among the students.

 

Criticism of 2020 policy:

1. The 2020 draft policy fails to discuss what we have achieved on these fronts since 2013 policy.
2. The 2020 draft policy blames this on “inadequate private sector investment” and adds that “a robust cohesive financial landscape remains at the core of creating an STI-driven Atmanirbhar Bharat.”
3. It looks like government is trying to shift the responsibility of financing R&D to different agencies such as the States, private enterprises, and foreign multinational companies.
4.  But it is doubtful funding if the various funding models that are presented are workable or practical, especially during a pandemic.
5. The private sector cannot be expected to pay for basic research. This is because the return on investment in basic research takes too long from a private sector perspective.
6. The fact is that basic science research in India is suffering from the lack of adequate funding despite grand proclamations.
7. Even elite institutes like the Indian Institutes of Technology are finding it difficult to run their laboratories on a day-to-day basis because of paucity of funds.
8. The document does not mention how to stem the rot within, although it speaks extensively about science communication and scientific temperament.
9. The report says in 2019  more than 2,400 students dropped out from the 23 IITs in just two years, with over half of them belonging to the Scheduled Caste/Scheduled Tribe and Other Backward Classes.
10.  The number of suicides of students is also on the increase in the IITs. Caste discrimination could be one of the reasons for these tendencies.

 

Solution:

1. The draft policy visualizes “a decentralized institutional mechanism balancing top-down and bottom-up approaches, focusing on administrative and financial management,
2. Also research governance, data and regulatory frameworks and system interconnectedness, for a robust STI Governance.
3. The need for efficient bureaucracy in science administration. Decentralization of administrative architecture is essential, but we need to explore the practical option of providing more autonomy to research and academic centers for financial management.
4.  The policymakers are considering alternative mechanisms of governance of the financial landscape may be increases funding.
5. The problems in cultural and administrative dimensions. Solve With the  new disruptive technologies, global competitiveness will be increasingly determined by the quality of science and technology,
6.  The global exposer for raising the standard of Indian research/education centre’s and on the volume of R&D spending.
7. The new policy promises to tackle discriminations “based on gender, caste, religion, geography, language, disability and other exclusions and inequalities” It mentions more representation of women and the LGBTQ community

 

Conclusion:

1. India R&D investment in science continues to hover between 0.5% and 0.6% of the GDP, Raising it to 2% of the GDP has been a national goal for a while.
2. Despite strong recommendations in the past by several scientific bodies and leading scientists and policymakers, we are still well short of that goal.
3. to promote holistic growth and development by developing scientific temperament, quality, access, equity, incorporating citizenship education; to promote linkages between higher education and industry to revamp economic systems;
4. And to build R&D infrastructure, its effective usage with easy and equitable access, is another aspect of strengthening the STI

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