Daily Current Affairs 02.02.2023(Odisha may prove to be first mover on PVTG Development Mission, Protection under Domestic Violence Act not available to male member, says Delhi HC, Finance Minister proposes amendments to banking laws, While promoting inclusive development, the Budget gives more to the affluent than to the poor, A Budget that signals growth with stability, The growth deceleration problem cannot be skipped)

Daily Current Affairs 02.02.2023(Odisha may prove to be first mover on PVTG Development Mission, Protection under Domestic Violence Act not available to male member, says Delhi HC, Finance Minister proposes amendments to banking laws, While promoting inclusive development, the Budget gives more to the affluent than to the poor, A Budget that signals growth with stability, The growth deceleration problem cannot be skipped)


1. Odisha may prove to be first mover on PVTG Development Mission

As Union Finance Minister Nirmala Sitharaman on Wednesday announced to launch the Pradhan Mantri PVTG (Particularly Vulnerable Tribal Group) Development Mission in order to saturate the PVTG families and habitations with basic facilities, Odisha being home to the highest number of PVTG communities in the country is likely to be benefited the most.

In fact, given the amount of experience Odisha possesses in handling focused and holistic programmes for PVTGs in the past decade, the State could be a first as well as best-mover among all States as far as the newly announced tribal programme was concerned.

Of the 75 PVTGs identified in India, 13 such tribes live in Odisha. As per the 2018 baseline survey, 2,49,609 persons belonging to PVTGs (58,708 households) live in 1,679 habitations in 14 districts of the State.

Union Finance Minister, in her Budget speech, said an amount of ₹15,000 crore would be made available to implement the mission in the next three years under the Development Action Plan for the Scheduled Tribes.

More than four decades ago, Odisha had implemented a micro project to address the basic needs and behavioural change of PVTGs in the State. At present, there are 20 micro projects focusing on the development of PVTGs.

Odisha has also been a beneficiary of the Conservation-cum-Development (CCD) scheme, for which the Union Ministry of Tribal Affairs allocates 100% financial assistance to the State governments having PVTG communities.

Odisha has already made a move towards the PVTG-focused programme without knowing that such a national mission is coming up.

Since 2015, the Naveen Patnaik government had launched the Odisha PVTG Empowerment and Livelihoods Improvement Programme (OPELIP) at an estimated expenditure of ₹711 crore, spread over seven years. The State government had secured 46% assistance for the OPELIP in the shape of a loan from the International Fund for Agricultural Development. Under this programme, 542 habitations have been taken up for intervention.

“With lessons learnt from OPELIP implementation, Odisha is best placed to handle the mission. The State has been able to reach the last habitation of PVTG through the programme,” said A.B. Ota, one of the country’s foremost tribal researchers.

2. Protection under Domestic Violence Act not available to male member, says Delhi HC

The Delhi High Court has stayed proceedings under the Protection of Women against Domestic Violence Act in a case where a man moved a local court accusing his wife of adultery, taking a prima facie view that protection under the DV Act is not available to the husband.

The High Court, which was hearing a petition filed by the wife challenging the local court’s November 5, 2022 order to summon her in the case, also issued a notice to the husband.

Listing the case for hearing on a later date, Justice Jasmeet Singh observed, “In the present case, the respondent i.e. the husband of the petitioner has initiated proceedings under Section 12 of the DV Act. Prima facie it seems in view of Section 2(a), the protection of the Act is not available to a male member of the family and more particularly the husband.”

Represented by advocate Ashima Mandla, the wife argued that the local court’s order had overturned the essential object and intent of the legislature to safeguard the rights of women in a domestic relationship.

“The very title of the Act is self-explanatory that the protection and recourse … is limited to a woman being an aggrieved person,” Ms. Mandla said. She added that the intent of the Act is resolute that recourse is intentionally and solemnly limited to only woman.

Ms. Mandla said the husband, in his complaint before the local court, makes reference to an April 18, 2017 order of the Karnataka High Court where it “erroneously” held that a male can be an aggrieved party under the DV Act.

She contended that both the husband as well as the local court failed to appreciate that the Karnataka High Court, vide another order passed on April 28, 2017, unconditionally revoked the previous order as “patently erroneous”.

Ms. Mandla argued that the local court admitting proceedings against the wife under the DV Act, will be tantamount to “judicial overreach”.

The couple had been married for over 14 years and have two children together.

3. Finance Minister proposes amendments to banking laws

Push for inclusivity: Financial sector regulators will carry a review of existing regulations and take suggestions from all.

Changes proposed in Budget to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act to improve bank governance and enhance investors’ protection

Union Finance Minister Nirmala Sitharaman on Wednesday proposed certain amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act to improve bank governance and enhance investors’ protection.

Further, to reduce the cost of compliance, financial sector regulators will carry out a comprehensive review of existing regulations and consider suggestions from public and regulated entities, Prem Rajani, managing partner, Rajani Associates, said. “It will be interesting to see the amendments that will be made,” he said.

He said the Budget re-emphasised the government’s commitment to deploying technology to augment the financial sector. “The focus on the deployment of DigiLocker and the development of a National Financial Information Registry will not only serve as the central repository of financial and ancillary information to promote financial inclusion but also considerably promote the ease of doing business,” he said.

To build capacity of functionaries and professionals in the securities market, SEBI will be empowered to develop, regulate, maintain and enforce norms and standards for education in the National Institute of Securities Markets and to recognise award of degrees, diplomas and certificates, Ms. Sitharaman said in her Budget speech.

4.  A raft of concessions amid consolidation

While promoting inclusive development, the Budget gives more to the affluent than to the poor

If budget making is a complex task, interpreting the Union Budget can be hazardous given the amount of fine print that one has to pore over. Finance Minister Nirmala Sitharaman’s fifth Budget, and the current Bharatiya Janata Party-led government’s final full-fledged one before next year’s general election, ticks all the right boxes on the face of it. Inclusive development that ensures prosperity for all, especially the youth, women, farmers, Other Backward Classes, Scheduled Castes and Scheduled Tribes, a focus on infrastructure and investment that serves as a multiplier for growth and employment, policies to enable green or environmentally sustainable growth, the rationalisation of direct taxes, including a raft of concessions to the middle and salaried classes, and pensioners, and, most importantly, doing all this while staying the course on fiscal consolidation. Terming it the “first Budget in Amrit Kaal”, Ms. Sitharaman sounded the poll bugle by emphasising the ruling dispensation’s achievements since 2014, when Prime Minister Narendra Modi first assumed office. Per capita income, she said, had more than doubled to ₹1.97 lakh as a result of the economy’s growth to being the world’s fifth-largest and the government’s efforts to ensure a better quality of living for all. She also cited an increase in formalisation of the economy and the widespread adoption of digital technologies, especially in the payments sphere, as other significant achievements.

With an eye on ‘India at 100’, the Budget proposals, Ms. Sitharaman said, were aimed at actualising a “technology-driven and knowledge-based economy with strong public finances, and a robust financial sector”. Emphasising that the economic agenda for achieving this vision would, among other things, require a focus on giving a strong impetus to growth and job creation, the Minister laid out her Budget proposals that were heavy on this government’s trademark acronyms describing the various schemes, but relatively light on details. PM VIKAS or Pradhan Mantri Vishwakarma Kaushal Samman, for instance, would for the first time offer traditional artisans and craftspeople, or Vishwakarmas, a package of assistance aimed at helping them improve the quality, scale and reach of their products, she said. Specifics, including a financial outlay and the likely mechanics of implementation, were, however, not spelt out. Similarly, a ‘Mangrove Initiative for Shoreline Habitats & Tangible Incomes’ or ‘MISHTI’, aimed at undertaking mangrove plantation along the coastline and on salt pan lands leaves the funding to a “convergence between MGNREGS and a compensatory afforestation fund”. With the rural sector’s mainstay employment guarantee scheme, one that was introduced during the Congress-led United Progressive Alliance government’s term, itself increasingly being starved of budgetary support, it is hard to fathom how the new initiative to protect and regenerate the ecologically sensitive mangroves will be funded. The decrease in outlay comes at a time when the rural economy is still to regain vigour from the ravages of the pandemic, the fallout on incomes from the uneven distribution of last year’s monsoon rainfall, and the relatively greater impact of high food inflation on hinterland households.

At a broader level, the Budget estimate for expenditure on rural development in 2023-24 is pegged at ₹2.38 lakh crore, a marginal 0.1 percentage point increase when measured as a proportion of overall expenditure at 5.3%, compared with the 5.2% in the previous Budget Estimate. When viewed against the revised estimate, the outlay is a good 0.6 percentage point lower. Food subsidy too has been sharply pared: at ₹1.97 lakh crore, it is almost 5% lower than the 2022-23 Budget estimate and a steep 31% down from the revised estimate. To be sure, the government’s resolve to stay the course on fiscal consolidation, especially after the COVID-19 pandemic had led it to spend more even as revenue receipts dipped amid the unprecedented economic contraction, left Ms. Sitharaman with little leeway on the expenditure front once she had decided that the government would concentrate its resources on increased public outlays on infrastructure and investment. Capital expenditure has been allocated ₹10 lakh crore, a 33% jump from this fiscal’s Budget estimate. If one adds the almost ₹3.7 lakh crore set aside for grants-in-aid to States for the creation of capital assets, the Minister’s laudable intent to apply the force multiplier of government capital spending as the primary lever to spur economic activity becomes clearly evident. With global demand uncertain this year on account of the slowdown in the developed economies, as the Economic Survey pertinently pointed out, India’s domestic market will necessarily have to serve as the economy’s bulwark. Ms. Sitharaman has also attempted to woo the middle class with a raft of changes in personal income tax that would, in combination with tweaks to customs duties, in total cost the government ₹ 37,000 crore in foregone direct tax revenue. Some of these changes are aimed at leaving more money in the hands of the salaried and pensioners, cash that the Budget planners hope would find its way back either as savings or increased spending on vital consumption. The biggest beneficiaries of the income-tax changes though are likely to be those in the highest income bracket, where the effective rate has been cut by 3.74 percentage points reinforcing a perception that this government bats for the affluent.

5. A Budget that signals growth with stability

Faced with the challenge of increasing infrastructure spending while continuing with fiscal consolidation, the Finance Minister’s balancing act has given India a well-crafted Budget

The Economic Survey that was placed in Parliament before the presentation of the Budget for 2023-24 has laid emphasis on the point that India has staged a remarkable broad-based recovery to reach the level of income that existed before the outbreak of the novel coronavirus pandemic. There have been a series of shocks that began with the pandemic, followed by the war between Russia and Ukraine and the accompanying sanctions that have been imposed by the West on Russia, the slowdown and the recession in major parts of the world and the rise in inflation leading to sharp increases in interest rates, followed by capital outflow and the pressure on the exchange rate.

Growth and the fiscal deficit shadow

Even though the economy has staged a recovery and surpassed the pre-pandemic income level, it is still 7% below the pre-pandemic GDP trend; growth has to be fuelled by increasing public investment. At the same time, with inflation still beyond the upper tolerance limit and aggregate fiscal deficit (Centre and States) still in the range of 9% to 10% of GDP, ensuring macroeconomic stability requires continued fiscal consolidation. Thus the government is faced with the dilemma of accelerating growth by increasing public investment while containing the fiscal deficit. With interest payments accounting for 40% of the net revenues of the Centre, there is hardly any room for complacency.

Interestingly, keeping the fiscal deficit limited to 6.4% of GDP in the current fiscal has come about despite a sharp increase in food and fertilizer subsidies, by ₹2 lakh crore. While the higher than budgeted buoyancy in net tax revenues by almost ₹1.6 lakh crore has helped, a significant part of the adjustment is due to an increase in the denominator, the nominal value of GDP as compared to the assumption made in Budget 2022-23. The Budget estimate had assumed the nominal GDP for 2022-23 at ₹258 lakh crore whereas the first advance estimate of GDP released a few days ago estimated it at ₹273 lakh crore. In other words, despite the revenue deficit increasing in absolute terms, from ₹9.9 lakh crore in the Budget estimate to ₹11.1 lakh crore in the revised estimate, as a percentage of GDP, it was from 3.8% of GDP to 4.1%. In the case of fiscal deficit, the increase was by ₹1 lakh crore — from ₹16.6 lakh crore to ₹17.6 lakh crore, but it was contained at 6.4% of GDP mainly due to the increase in the nominal value of GDP and also the increase in tax collections.

A balancing act

Considering the challenges of increasing infrastructure spending while continuing with fiscal consolidation, it has been a fine balancing act on the part of the Finance Minister. She has continued the trend of making a greater allocation to infrastructure spending, and the capital expenditure is budgeted to increase from 2.7% of GDP to 3.3%. In absolute terms, the increase is from ₹7.3 lakh crore to ₹10 lakh crore, which is almost 37%, and considering that capital expenditure has a significant ‘crowding in’ effect, it should help to increase private capital expenditures as well. This comes after the 25% increase in capital expenditures in the last Budget.

The Reserve Bank of India has estimated the multiplier effect of capital expenditure at 1.2 — and that should help revive the sagging investment climate. Commercial lending by banks is already on the rise and with deleveraged balance sheets, the increased capital spending should help revive the investment climate further and arrest the declining trend in the overall investment-GDP ratio in the country. Further, the continuation of the interest-free loan to States to augment their capital expenditures should help in increasing States’ capital expenditures as well. Perhaps, the 6.5% growth rate for 2023-24 estimated in the Economic Survey, which was otherwise considered too optimistic, could indeed materialise with the budgeted increase in infrastructure spending.

The Finance Minister in the 2020-21 Budget had stated that she would bring down the fiscal deficit to 4.5% by 2025-26. That means that in the next three years, the deficit will have to be reduced by 1.9 percentage points. In keeping with this, the fiscal deficit for 2023-24 is slated to come down to 5.9%. However, it will make the adjustment in the two years ahead that much harder. Although nine States will have elections this year, front-loading the adjustment would have eased the situation next year when the country has the next general election. Perhaps, the Finance Minister assumed that by propelling growth this year through higher capital expenditure, the fiscal adjustment will become easier in the next two years.

Compression in subsidies

The fiscal adjustment is proposed to be achieved by mainly containing revenue expenditure, which will improve the quality of public spending if it happens. The budgeted increase in revenue expenditures for 2023-24 is just 1.2% higher than the revised estimate for the current year. There is a significant compression in subsidies. The fertilizer subsidy is expected to be reduced by ₹90,000 crore from ₹2.87 lakh crore to ₹1.87 lakh crore. The policy to this effect has already been made in December 2022, when the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) under which 5 kg of foodgrains were given from April 2020, in addition to the foodgrains given under the National Food Securities Act has been discontinued. Similarly, the fertilizer subsidy is expected to be compressed by ₹50,000 mainly as fertilizer prices have come down. In addition, allocation to centrally sponsored schemes is expected to come down marginally by about ₹20,000 crore, and the overall current transfer to States is kept constant at 3.3%-3.4% of GDP.

On the tax side, there is some tinkering of customs duty, and the overall protectionist stance has continued. On the personal income tax front, the attempt has been to incentivise taxpayers to move to the new tax regime with no concessions and lower rates. Even so, the increase in the number of tax brackets is cause for worry. Perhaps, it would have been preferable to move over to the new tax regime with fewer brackets.

On the whole, this is a well-crafted Budget, but its success will depend on its implementation.

6. The growth deceleration problem cannot be skipped

The Budget’s renewed commitment to investment-led growth is fine, but it fails to look at the longer-term issues and find solutions.

The much-anticipated Budget for 2023-24 has been presented. The Budget speech began with a self-congratulatory note: that India has successfully overcome the troubles that came with the COVID-19 pandemic, to a large extent, by ensuring the free food distribution scheme for 800 million people and other ongoing food security programmes. And, it added, India has fully recovered from the output contraction after one year to emerge as one of the world’s fastest growing economies. In fact, while commenting on the Economic Survey that was presented on the day preceding the Budget, Finance Minister Nirmala Sitharaman reportedly said that the economy can now get on with the growth trajectory that it was charting before the outbreak of the pandemic in 2020.

Reversal in aggregate parameters

So, what was the economic situation like before the pandemic? It was an economy in decline for the entire decade of the 2010s — perhaps contrary to the Finance Minister’s perception. Real average annual GDP growth rate in the 2010s, that is, net of inflation, had decelerated 5%-6% from 7%-8% in the previous decade, that is, the 2000s. If the professional criticisms of GDP estimates are valid, its annual growth rate is perhaps lower at 4%-5% than official estimates.

More seriously, India has de-industrialised prematurely since the mid-2010s, with a steep fall in annual output growth rates, from 13.1% in 2015-16 to negative 2.4% in 2019-20 even before the pandemic struck. Deindustrialisation is accompanied by falling aggregate fixed investment rates and domestic savings rates by 4 percentage -5 percentage points of GDP, compared to that of the previous decade of the 2000s. Never in post-independent India has the economy witnessed such a reversal in crucial aggregate parameters.

The Budget’s vision and expenditure priorities need to be viewed in this context. The Finance Minister’s speech rightly emphasised the role of infrastructure and public investment as virtuous since such investments crowd-in private investment. The Budget seeks to raise capital investment outlay to 3.3%, the highest during the last three years. If the grant-in-aid to States is included, the ratio could be up to 4.5% of the outlays. While this is welcome, it is not clear on what specific sectors and schemes this is to be spent.

The Budget’s extension of the interest-free loans of a 50-year tenure to States for infrastructure investment is also welcome. However, their utilisation has been mixed at best, as the conditions seem onerous on poorer States. There is, perhaps, a need to engage with States to improve their utilisation.

Capital expenditure on railways is proposed to be enhanced to ₹2.40 lakh crore, nine times what it was in 2013-14. This is also welcome, but we need to know what this means in real terms or as a proportion of budgetary outlays. Moreover, without knowing the nature of the proposed expenditure, its effectiveness cannot be assessed. For instance, if the railway investment is on much-needed modernisation of rail tracks and rolling stock, it would enhance efficiency. However, if the spend is on station modernisation or other such ‘glamorous’ projects, it may add little to productivity.

The government of the day has all along favoured infrastructure investment over directly productive investment in agriculture and industry, whose share in gross fixed capital formation (GFCF) rate (that is, as a proportion of GDP) has declined. However, evidence shows that the share of infrastructure real GVA and GFCF has hardly improved over the decade of the 2010s, as in estimates reported by the Reserve Bank of India. Therefore, there is a need for caution in accepting the budgetary numbers at their face value.

Import dependence on China

Premature deindustrialisation and the consequent growing dependence on Chinese imports are serious challenges to India in following an independent path of national development. The government’s flagship initiatives ‘Make in India’ (launched in 2014) and Aatmanirbhar Bharat Abhiyan (launched in 2020), are meant to overcome these shortcomings. The “Production Linked Incentive (PLI) Scheme (launched in 2021) was to give incentives for such investments. However, the Budget has hardly furthered these efforts, or had an assessment of how they have performed. The Budget speaks in glowing terms of how the phased manufacturing programme in the mobile phone assembly industry has succeeded in boosting exports. While the headline numbers may be true, they hide the fact that imports of the kits of mobile parts or (kits) have also gone up proportionately as domestic value addition is minimal. Careful research shows that backward integration to produce components and sub-assemblies has made little progress.

Another piece of evidence that shows rising import dependence on China is the growing trade deficit with that country — going up from $57.4 billion in 2018 to $64.5 billion in 2021. The Budget, regrettably, has little to say about the growing threat of structural dependence on China.

The truth about bank credit growth

The Budget mentions rising bank credit growth as a positive sign of investment revival. Again, while the headline is correct, the share of the credit accruing to industry has barely inched up, with most increase accruing to personal loans, which may add to luxury (imported) consumption, and not boost the economy’s productivity capacity.

One of the reasons for private long-term investment lagging is the lack of access to long-term credit, as is widely acknowledged. In 2021 the government promoted The National Bank for Financing Infrastructure and Development (NBFID) with substantial equity investment. Unfortunately, the Development Financial Institutions seem to have made modest progress in boosting industrial and infrastructure investment. If the Budget is serious about boosting private investment it has to ensure better performance of the NBFID. However, the Budget has little to say about the much publicised initiative.

In sum, the Budget’s renewed commitment to investment-led growth is well taken. However, the investment magnitudes mentioned (without details) seem to come up short. The Budget seems to fail to grapple with the problem of the decade-long growth deceleration in the 2010s, the unprecedented fall in investment and savings rates compared to the previous decade and premature de-industrialisation since the mid-2010s. Without appreciating these longer-term constraints and finding their solutions, it is perhaps hard to make India Atmanirbhar Bharat.

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