EU launches WTO case against China for ‘targeting’ Lithuania
N. Korea fires 2 missiles as testing blitz continues
GS-3
India’s economy and the challenge of informality
250 Tiwa, Gurkha extremists lay down arms
Hockey legend Charanjit Singh passes away
Understanding the Budget formulation
Picture book on unsung heroes is out
Remembering the lesser-known Indian women who selflessly fought against the British Raj and immensely contributed to Indias freedom struggle, a new comic book honoring them was released at the national capital.
The comic book titled ‘India’s Women Unsung Heroes’ was launched by Union Minister for Culture and author Meenakshi Lekhi at IGNCA, New Delhi on January 27, 2022.
The unique book has been prepared by the Ministry of Culture, Government of India in partnership with Amar Chitra Katha.
India will be celebrating 75 years of independence this August 15. And so, the book celebrates the lives of 75 unsung women freedom fighters of India, including Chakali Ilamma, Padmaja Naidu, Durgabhai Deshmukh, among others.
Central Asia meet forms Afghan group
Overcoming the lack of land connectivity between India and Central Asia’s land–locked countries was one of the “main issues of discussion” during the first India-Central Asia Summit hosted by Prime Minister Narendra Modi with the Presidents of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, officials said on Thursday.
PM Modi also proposed a number of high-level exchanges between the two sides, including bi-annual summits, and annual meetings of the Foreign, Trade and Cultural Ministers and Secretaries of Security (National Security Advisors) to “strengthen cooperation in the areas of political and development, partnership, trade and connectivity, culture and tourism and security”, the officials said, adding that these proposals were accepted, along with a plan to build a “Central Asia Centre” in New Delhi. They also announced two “Joint Working Groups” (JWGs) on Afghanistan and the Chabahar port project.
The leaders discussed possibilities of increasing Indian trade with the region beyond the currently low levels of about $2 billion, welcoming options over sea provided by Iranian ports including the Chabahar port terminal managed by Indian and the International North South Transport Corridor (INSTC) through Bandar Abbas that is promoted by Russia and Iran, and which is due to include both Chabahar and Turkmenistan’s Turkmenbashi port.
Notably, the joint statement recorded that President Gurbanguly Berdimuhamedov had “stressed on the importance of TAPI gas pipeline project” that runs from Turkmenistan’s Galknyshk oil fields near Mary (Marv) through Afghanistan and Pakistan to India, but did not record any support from India on the project.
EU launches WTO case against China for ‘targeting’ Lithuania
The European Union angered China on Thursday by launching a case against Beijing at the World Trade Organization (WTO) for targeting Lithuania over its stance on Taiwan.
Note: Read our Old Coverage on this Topic for reference (January 15th)
The move by Brussels was a further deterioration in ties between China and the bloc, with a long-negotiated investment deal already on the rocks after both sides exchanged tit-for-tat sanctions.
The latest spat is over Lithuania, one of the smallest countries in the European Union, which made waves in July when it allowed Taiwan to open a diplomatic outpost in Vilnius.
The move outraged Beijing, which does not recognise Taiwan as a state and considers the self-ruled democratic island a rebellious territory of the mainland.
The European Commission handles trade policy for the EU’s 27-member states and takes the lead on conflicts at the WTO in Geneva, even if they involve a single state.
N. Korea fires 2 missiles as testing blitz continues
North Korea fired two suspected ballistic missiles on Thursday, Seoul said, its sixth weapons test this month in one of the most intense spates of launches on record that has delivered an emphatic rejection of Washington’s offers for talks on its nuclear programme.
Pyongyang has not fired these many missiles in a calendar month in decades, according to data compiled by the Center for Strategic and International Studies — a Washington-based think tank.
The last time they came close was in 2019, after high-profile negotiations between leader Kim Jong-un and then-U.S. President Donald Trump collapsed.
With U.S. talks stalled since then, Pyongyang has doubled down on Mr. Kim’s pledges of military modernisation, embarking on a string of sanctions-busting launches this month, including hypersonic missiles.
The sabre-rattling comes at a delicate time in the region, with Mr. Kim’s sole major ally China hosting Winter Olympics next month and South Korea gearing up for a presidential election in March.
250 Tiwa, Gurkha extremists lay down arms
Almost 250 members of two ethnicity-based extremist organisations in Assam laid down their arms before Chief Minister Himanta Biswa Sarma at a formal programme in Guwahati on Thursday.
The organisations are the Tiwa Liberation Army (TLA) and the United Gorkha People’s Organisation (UGPO).
Formed in 2014 to cater to the aspirations of the Tiwa community, the TLA was active in the Morigaon, Nagaon and West Karbi Anglong districts of central Assam.
The UGPO, formed in 2007, was mostly active in the Bodoland Territorial Region and the Biswanath district.
The two outfits had 246 members. Together, they deposited 277 assorted firearms, grenades and 720 rounds of ammunition.
During the function, the Chief Minister also distributed a financial grant of ?1.5 lakh each to 462 members of five other extremist groups who had surrendered earlier.
These disbanded groups are Rabha National Liberation Front, Adivasi Dragon Fighters, National Santhal Liberation Army, National Liberation Front of Bengalis and United People’s Revolutionary Front.
About Tiwas
Tiwa (Lalung) is an ethnic group mainly inhabiting the states of Assam and Meghalaya in northeastern India. They are also found in some areas of Arunachal Pradesh, Manipur and Nagaland.
They are recognized as a Scheduled tribe within the State of Assam. They were known as Lalungs in the Assamese Buranjis and in Colonial literature and in the Constitution of India, though members of the group prefer to call themselves Tiwa (meaning the people who were lifted from below). Some of their neighbours still call them Lalung.
Hockey legend Charanjit Singh passes away
Captain of India’s 1964 Tokyo Olympics gold medal-winning hockey team, Charanjit Singh, died on Thursday at his home in Una, Himachal Pradesh after suffering a cardiac arrest that followed prolonged age-related illnesses.
Charanjit was also part of the 1960 Games silver-winning and 1962 Asian Games silver-winning team. The two-time Olympian was a part of India’s glorious days.
Charanjit was an alumnus of Col Brown Cambridge School, Dehradun and Punjab University. After his illustrious career in international hockey, he worked as the director of the Physical Education department in Himachal Pradesh University in Shimla.
Q. Who is the Current Captain of Indian Hockey Team?
Here is his picture.
India’s economy and the challenge of informality
(Focus on the Highlighted Portion)
Since 2016, the Government has made several efforts to formalise the economy. Currency demonetisation,
Introduction of the Goods and Services Tax (GST)
Digitalisation of financial transactions_nbsp;
Enrolment of informal sector workers
Numerous government Internet portals
are all meant to encourage the formalisation of the economy. But why the impetus for formalisation? The formal sector is more productive than the informal sector, and formal workers have access to social security benefits.
The above-mentioned efforts are based on the “fiscal perspective” of formalisation. This perspective appears to draw from a strand of thought advanced by some international financial institutions such as the International Monetary Fund, which foregrounds the persistence of the informal sector to excessive state regulation of enterprises and labour which drives genuine economic activity outside the regulatory ambit. It underplays informality as an outcome of structural and historical factors of economic backwardness. Arguably, excessive regulation and taxation ensure the endurance of informal activities. Hence, it is believed that simplifying registration processes, easing rules for business conduct, and lowering the standards of protection of formal sector workers will bring informal enterprises and their workers into the fold of formality.
The fiscal perspective has a long lineage in India going back to tax reforms initiated in the mid-1980s. Early on, in an attempt to promote employment, India protected small enterprises engaged in labour intensive manufacturing by providing them with fiscal concessions and regulating large-scale industry by licensing.
Questions of efficiency aside, such measures led to many labour-intensive industries getting diffused into the informal/unorganised sectors.
Further, they led to the formation of dense output and labour market inter-linkages between the informal and formal sectors via sub-contracting and outsourcing arrangements (quite like in labour abundant Asian economies). In the textile industry, the rise of the power looms at the expense of composite mills in the organised sector and handlooms in the unorganised sector best illustrates the policy outcome. While such policy initiatives may have encouraged employment, bringing the enterprises which benefited from the policy into the tax net has been a challenge. The challenge is only partly administrative. Political and economic reasons operating at the regional/local level in a competitive electoral democracy are responsible for this phenomenon, too.
Sign of underdevelopment
Undoubtedly, widening the tax net and reducing tax evasion are necessary. However, global evidence suggests that the view that legal and regulatory hurdles alone are mainly responsible for holding back formalisation does not hold much water.
A well-regarded study, ‘Informality and Development’ argues that the persistence of informality is, in fact, a sign of underdevelopment. Across countries, the paper finds a negative association between informality (as measured by the share of self-employed in total workers) and per capita income. The finding suggests that informality decreases with economic growth, albeit slowly. A similar association is also evident across major States in India, based on official PLFS data. Hence, the persistence of a high share of informal employment in total employment seems nothing but a lack of adequate growth or continuation of underdevelopment.
Transformation in Asia
The defining characteristic of economic development is a movement of low-productivity informal (traditional) sector workers to the formal or modern (or organised) sector — known as structural transformation. East Asia witnessed rapid structural change in the second half of the 20th century as poor agrarian economies rapidly industrialised, drawing labour from traditional agriculture. However, in many parts of the developing world, including India, informality has reduced at a very sluggish pace, manifesting itself most visibly in urban squalor, poverty and (open and disguised) unemployment.
Despite witnessing rapid economic growth over the last two decades, 90% of workers in India have remained informally employed, producing about half of GDP. Combining the International Labour Organization’s widely agreed upon template of definitions with India’s official definition (of formal jobs as those providing at least one social security benefit — such as EPF), the share of formal workers in India stood at 9.7% (47.5 million). Official PLFS data shows that 75% of informal workers are self-employed and casual wage workers with average earnings lower than regular salaried workers. Significantly, the prevalence of informal employment is also widespread in the non-agriculture sector. About half of informal workers are engaged in non-agriculture sectors which spread across urban and rural areas.
It has many layers
It needs to be appreciated that informality is now differentiated and multi-layered. Industries thriving without paying taxes are only the tip of the informal sector’s iceberg. What remains hidden are the large swathes of low productivity informal establishments working as household and self-employment units which represent “petty production”.
To conflate the two distinct segments of the informal sector would be a serious conceptual error. Survival is perhaps the biggest challenge for most informal workers (and their enterprises), and precarity defines their existence.
Despite (well-intentioned) efforts at formalisation, the challenge of informality looms large for India. The novel coronavirus pandemic has only exacerbated this challenge. Research by the State Bank of India recently reported the economy formalised rapidly during the pandemic year of 2020-21, with the informal sector’s GDP share shrinking to less than 20%, from about 50% a few years ago — close to the figure for developed countries. As we have argued elsewhere, these findings of a sharp contraction of the informal sector during the pandemic year (2020-21) do not represent a sustained structural transformation of the low productive informal sector into a more productive formal sector. They are a temporary (and unfortunate) outcome of the pandemic and severe lockdowns imposed in 2020 and 2021. The informal sector will perforce spring back to life soon, for sheer survival, to produce whatever it can, using its abundant labour and meagre resources.
The necessary elements
Policy efforts directed at bringing in the tip of the informal sector’s iceberg into the fold of formality by alleviating legal and regulatory hurdles are laudable. However, these initiatives fail to appreciate that the bulk of the informal units and their workers are essentially petty producers (self-employed and casual workers) eking their subsistence out of minimal resources. Therefore, these attempts will yield limited results. The continued dominance of informality defines under-development. Policy-induced restrictions are minor irritants, at best. The economy will get formalised when informal enterprises become more productive through greater capital investment and increased education and skills are imparted to its workers. A mere registration under numerous official portals will not ensure access to social security, considering the poor record of implementation of labour laws.
Understanding the Budget formulation
(Focus on Highlighted Portion)
(This article is important for Static Portion as well)
With the economy still hurting from the pandemic, the Budget on February 1 is likely to address concerns around growth, inflation and spending. The Budget, which will be tabled in Parliament by Finance Minister Nirmala Sitharaman, is the Government’s blueprint on expenditure, taxes it plans to levy, and other transactions which affect the economy and lives of citizens.
What are the major components of the Budget?
There are three major components—expenditure, receipts and deficit indicators. Depending on the manner in which they are defined, there can be many classifications and indicators of expenditure, receipts and deficits.
Based on their impact on assets and liabilities, total expenditure can be divided into capital and revenue expenditure. Capital expenditure is incurred with the purpose of increasing assets of a durable nature or of reducing recurring liabilities. Consider the expenditure incurred for constructing new schools or new hospitals. All these are classified as capital expenditure as they lead to creation of new assets.
Revenue expenditure involves any expenditure that does not add to assets or reduce liabilities. Expenditure on the payment of wages and salaries, subsidies or interest payments would be typically classified as revenue expenditure.
Depending on the manner in which it affects different sectors, expenditure is also classified into
(i) General services
(ii) Economic services
(iii) Social services
(iv) Grants-in-aid and contribution.
The sum of expenditure on economic and social services together form the development expenditure. Economic services include expenditure on transport, communication, rural development, agricultural and allied sectors.
Expenditure on the social sector including education or health is categorised as social services. Again, depending on its effect on asset creation or liability reduction, development expenditure can be further classified as revenue and capital expenditure.
The receipts of the Government have three components —revenue receipts, non-debt capital receipts and debt-creating capital receipts. Revenue receipts involve receipts that are not associated with increase in liabilities and comprise revenue from taxes and non-tax sources. Non-debt receipts are part of capital receipts that do not generate additional liabilities. Recovery of loans and proceeds from disinvestments would be regarded as non-debt receipts since generating revenue from these sources does not directly increase liabilities, or future payment commitments. Debt-creating capital receipts are ones that involves higher liabilities and future payment commitments of the Government.
Fiscal deficit by definition is the difference between total expenditure and the sum of revenue receipts and non-debt receipts. It indicates how much the Government is spending in net terms. Since positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt. Primary deficit is the difference between fiscal deficit and interest payments. Revenue deficit is derived by deducting capital expenditure from fiscal deficits.
What are the implications of the Budget on the economy?
The Budget has an implication for aggregate demand of an economy. All Government expenditure generates aggregate demand in the economy since it involves purchase of private goods and services by the Government sector. All tax and non-tax revenue reduce net income of the private sector and thereby leads to reduction in private and aggregate demand.
But except for exceptional circumstances, the GDP, revenue receipt and expenditure typically show a tendency to rise over time. Thus, the trend in absolute value of expenditure and receipts in themselves has little use for meaningful analysis of the Budget. The trend in expenditures and revenue is analysed either by the GDP or as growth rates after accounting for the inflation rate.
Reduction in expenditure GDP ratio or increase in revenue receipt-GDP ratio indicates the Government’s policy to reduce aggregate demand and vice-versa. For similar reasons, reduction in fiscal deficit-GDP ratio and primary deficit-GDP ratios indicate Government policy of reducing demand and vice versa.
Since different components of expenditure and revenue can have different effects on income of different classes and social groups, the Budget also has implications for income distribution. For example, revenue expenditure such as employment guarantee schemes or food subsidies can directly boost the income of the poor. Concession in corporate tax may directly and positively affect corporate incomes. Though both a rise in expenditure for employment guarantee schemes or reduction in the corporate tax would widen the fiscal deficit, its implications for income distribution would be different.
What are fiscal rules and how do they affect policy?
Fiscal rules provide specific policy targets on the basis of which fiscal policy is formed. Policy targets can be met by using different policy instruments. There exists no unique fiscal rule that is applied to all countries. Rather, policy targets are sensitive to the nature of economic theory and depend on the specificity of an economy.
In India’s case, its present fiscal rule is guided by the recommendations of the N.K. Singh Committee Report. Allowing for some deviations under exceptional times, it has three policy targets —maintaining a specific level of debt-GDP ratio (stock target), fiscal deficit-GDP ratio (flow target) and revenue deficit-GDP ratio (composition target).
Though both expenditure and revenue receipts can potentially act as policy instruments to meet specific set of fiscal rules, tax-rates within the existing policy framework happen to be determined independent of the expenditure requirement of the economy. Accordingly, in the present institutional framework in India, it is primarily the expenditure which is adjusted to meet the fiscal rules at given tax-ratios.
Such an adjustment mechanism has at least two related, but analytically distinct implications for fiscal policy. First, independent of the extent of expenditure needed to stimulate the economy or boost labour income, existing fiscal rules provide a cap on expenditure by imposing the three policy targets. Second, under any situation when the debt-ratio or deficit ratio is greater than the targeted level, expenditure is adjusted in order to meet the policy targets. By implication, independent of the state of the economy and the need for expansionary fiscal policy, existing policy targets may lead the Government to reduce expenditure.
In the midst of the inadequacies of fiscal policy to address the contemporary challenges of unemployment and low output growth rate, the nature and objective of fiscal rules in India would have to be re-examined.
