Daily Current Affairs 05.08.2022 (The coal mining protests in the Hasdeo Aranya region, The Kansas win on abortion and its bearing on other U.S. states, Subscribers say there is surplus money in EPS, ‘Inflation driving 8% of GST revenue rise’, Waiting for democracy in Jammu and Kashmir, Sop or welfare debate, Is the declining rupee a crisis or an opportunity? )

Daily Current Affairs 05.08.2022 (The coal mining protests in the Hasdeo Aranya region, The Kansas win on abortion and its bearing on other U.S. states, Subscribers say there is surplus money in EPS, ‘Inflation driving 8% of GST revenue rise’, Waiting for democracy in Jammu and Kashmir, Sop or welfare debate, Is the declining rupee a crisis or an opportunity? )


1. The coal mining protests in the Hasdeo Aranya region

Why has a private member resolution against coal mining in the Hasdeo forests been passed by the Chhattisgarh Legislative Assembly?

On July 26, the Chhattisgarh Legislative Assembly unanimously passed a private member resolution urging the Centre to cancel allocation of all coal mining blocks in the ecologically sensitive area of Hasdeo Aranya.  

Underneath the Hasdeo Aranya is a coalfield that comprises of 22 coal blocks. In 2010, the Centre categorised Hasdeo Aranya to be a “no-go” zone for mining. However, only a year later, the MoEF granted clearance for the mining. At present, of the 22 blocks, seven blocks have been allotted to different companies.

The resolution isn’t expected to change the status quo. While the Congress says the onus is on the Centre to stop mining, the BJP has been asking the State government to withdraw the clearances it has issued to mine developers and operators. 

Shubhomoy Sikdar

The story so far: The Hasdeo Aranya forests are called the lungs of Chhattisgarh. Over the past one year, protests against mining in this region have erupted several times and some still continue to sit-in demanding a complete stop to mining. Amidst this, on July 26, the Chhattisgarh Legislative Assembly unanimously passed a private member resolution urging the Centre to cancel allocation of all coal mining blocks in the ecologically sensitive area.

What is a private member resolution?

According to Chakshu Roy, who heads the legislative and civic engagement initiatives at PRS Legislative Research, an MLA who is not a Minister — whether she happens to be from the ruling party or not — is a private member. A private member resolution can be brought in by a private member and if passed, it becomes an expression of what the House thinks. This is different from a private member bill which would become law in case of approval.

Such private member resolutions were passed by the State Assemblies of Punjab and Kerala, during the farm law agitation, where both state legislatures had expressed their displeasure against the then proposed (now withdrawn) farm laws. In the given case, the Chhattisgarh Assembly has passed a resolution urging the Centre to cancel allocation of all coal mining blocks in the Hasdeo region.

Who moved the resolution and why?

Dharmjeet Singh, an MLA who represents Lormi, a segment of the Bilaspur Lok Sabha constituency introduced the resolution. Mr. Singh is one of the three MLAs from the Janata Congress Chhattisgarh (J) or JCC(J). The JCC(J) is a party founded by former Chief Minister Ajit Jogi and is currently being led by his son, Amit Jogi, and has three MLAs in the current Assembly. Mr. Singh has been a vocal supporter of the protests going on in the Hasdeo region and had also tried to move the resolution in the last Assembly session. With Assembly elections scheduled next year, Mr. Singh’s party is also looking to ride on the popular and intensifying anti-mining sentiments, say those from other parties.

What is the importance of the Hasdeo-Aranya region?

The Hasdeo Aranya (Aranya means forest) lies in the catchment area of the Hasdeo river and is spread across 1,878 sq km in North-Central Chhattisgarh. The Hasdeo river is a tributary of the Mahanadi river which originates in Chhattisgarh and flows through Odisha into the Bay of Bengal. The Hasdeo forests are also the catchment area for the Hasdeo Bango Dam built across the Hasdeo river which irrigates six lakh acres of land, crucial to a State with paddy as its main crop. Besides, the forests are ecologically sensitive due to the rich biodiversity they offer and due to the presence of a large migratory corridor for elephants.

When did the controversy surrounding coal mining start?

Underneath the Hasdeo Aranya is a coalfield that comprises of 22 coal blocks. In 2010, the Centre categorised Hasdeo Aranya to be a “no-go” zone for mining. It ruled out mining in any of these blocks. However, only a year later, the Ministry of Environment, Forest and Climate Change (MoEF) granted clearance for the mining for one coal block. At present, of the 22 blocks, seven blocks have been allotted to different companies, says the resolution.

Of these, two — the Parsa East Kete Basan (PEKB) and Chotia (I and II) — are operational. The PEKB Phase I has been completely mined while there has been local opposition to mining and deforestation in Parsa, PEKB Phase II and Kete Extension — all three allotted to the Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RRVUNL).

After the gram sabhas opposed mining in the Madanpur South and Gidmudi Paturia blocks that were allotted to the Andhra Pradesh Mineral Development Company (APMDC) and Chhattisgarh State Power Generation Company (CSPGC) respectively, clearances were withdrawn. Mr. Singh’s resolution notes that mining activities are halted in all five of these blocks.

Four other blocks had been listed for auction by the Centre but were taken off the list after the State government wrote a letter requesting the Centre to not allow mining in these blocks located in the catchment areas of the two important rivers Hasdeo and Mand. In his resolution, Mr. Singh has urged the State government to use the same principle to stop mining in the already allocated Hasdeo coal blocks where no activity has started thus far. He suggested that these companies may be allotted coal blocks elsewhere in Chhattisgarh or in rest of the mining-rich areas in the country.

Will mining stop after the resolution is passed?

Despite the members of both the ruling Congress and the principal Opposition BJP — that is in power at the Centre — adopting it, the resolution isn’t expected to change the status quo. While the Congress says the onus is on the Centre to stop mining, the BJP has been asking the State government to withdraw the clearances it has issued to mine developers and operators (MDOs) who handle all mining activities on behalf of the companies that hold the mining lease. Mr. Singh said in his speech that due to mining in PEKB and Parsa, three lakh trees will be felled which would be detrimental to Chhattisgarh. While urging the Centre to stop mining, he also mentioned the clearances provided by the State government such as the final clearance from the forest department and those under the Air Pollution Act and the Water Pollution Act.

During the discussion on the private member resolution, Chief Minister Bhupesh Baghel said it was for the Centre to decide to whom a coal block should be allocated and that the State government had no role in it. Activists, however, say that the clearances mentioned in Mr. Singh’s speech are like a veto power held by the State government that can stop mining activities from starting. They also reiterate, as did Mr. Singh in his speech, about Congress President Rahul Gandhi’s promise during a visit to Madanpur village in 2015 where he assured that he would fight for the local tribals opposing coal mining.

2. The Kansas win on abortion and its bearing on other U.S. states 

With mid-term polls coming up in November, will it be an election issue? 

In a referendum on August 2, voters in the conservative state of Kansas in the U.S. decided to protect rights to abortion.

The ‘Kansas No State Constitutional Right to Abortion and Legislative Power to Regulate Abortion Amendment’ was defeated.  It would have allowed elected representatives to pass laws regarding abortion.

The amendment’s failure will boost Democrats’ hopes that the abortion rights issue will lead voters to the party in the November 8 elections.

Sudipta Datta

The story so far: In a referendum on August 2, voters in the conservative state of Kansas in the U.S. decided to protect rights to abortion. This was the first electoral test in any state after the U.S. Supreme Court overturned Roe vs Wade in June, ending the constitutional right to abortion guaranteed by a 1973 judgment. The ‘Kansas No State Constitutional Right to Abortion and Legislative Power to Regulate Abortion Amendment’ was defeated, with almost 59% of voters saying no, according to projections, thus maintaining the legal precedent set by Hodes & Nauser vs Schmidt (2019) that the Kansas Bill of Rights provides a right to abortion.

What did the amendment propose?

The amendment, which was to be inserted in Section 22 of the Kansas Bill of Rights, proposed to change the constitution to provide that the state “does not require government funding of abortion and does not create or secure a right to abortion.” It would have allowed elected state representatives and state senators to “pass laws regarding abortion, including, but not limited to, laws that account for circumstance of pregnancy resulting from rape or incest, or circumstances of necessity to save the life of the mother.”

What does it mean for other states and political parties?

In her report for Politico, Alice Miranda Ollstein said the surprise win in one of the most conservative states in the country highlights the “gap between what a majority of voters want and what a number of Republican candidates and lawmakers are pushing — both in Kansas and in several other states sure to play a key role in the upcoming mid-term elections.” The former U.S. Secretary of State Mike Pompeo (Republican) had urged pro-life Kansans to get behind the amendment to ban abortion and vote ‘yes’. Democrat Senator Elizabeth Warren who had campaigned for the ‘Kansans for Constitutional Freedom’, opposing the amendment, tweeted that the “Supreme Court doesn’t get the last word in a democracy. We the people are fighting back. And it’s working.”

The amendment’s failure in the conservative state will boost Democrats’ hopes that the abortion rights issue will lead voters to the party in the November 8 elections. President Joe Biden said the Kansas vote “makes clear what we know: the majority of Americans agree that women should have access to abortion and should have the right to make their own health care decisions.”

Appealing to Congress, Mr. Biden said it should “listen to the will of the American people and restore the protections of Roe as federal law.”

How is the situation on the ground?

According to the Center for Reproductive Rights, at the time of the Roe overturning, high courts in 10 states — Alaska, Arizona, California, Florida, Kansas, Massachusetts, Minnesota, Montana, New Jersey, New Mexico — “recognised that their state constitutions protected abortion rights independently from and more strongly than the federal constitution.” These protections can be overturned only through referendums. The Kansas referendum win is important because things are difficult on the ground in a conservative state like Kansas, where there has been “continuing efforts to restrict abortion access”. A Center for Reproductive Rights report on state constitutions points out that there are only four medical abortion clinics in Kansas, and that 98% of Kansas counties have no clinics that provide abortions.

It allows pregnancies to be terminated up to 22 weeks with other restrictions, including a compulsory 24-hour waiting period and parental consent for children. The Kansas legislature is controlled by anti-abortion Republicans but the governor, Laura Kelly, is Democrat and will have to slug it out at the mid-terms against her Republican opponent and state attorney general Derek Schmidt.

Abortion is currently illegal in seven states including Oklahoma, Missouri, Louisiana, Mississippi, Alabama, South Dakota and Arkansas, and other states are working to enforce abortion bans like Kentucky. Calling the referendum verdict an “enormous victory” for the people of Kansas, Nancy Northup, president and CEO, Center for Reproductive Rights, said that the win would “protect the fundamental right to personal and bodily autonomy” of women.

What is happening in Congress?

In July, the House of Representatives voted to restore abortion rights nationwide. It also passed a second bill to prohibit punishment for a woman or child who decides to travel to another state to get an abortion. But the bills do not have a chance of becoming law as support is lacking in the 50-50 Senate. House Speaker Nancy Pelosi told AP: “We have to elect a couple more Democratic senators so that we can get around the filibuster …[and] can pass legislation that truly impacts a woman’s right to choose. There’s no halfway measure.”

3. Subscribers say there is surplus money in EPS

Supreme Court informed that interest earnings are more than what is paid as monthly pension

Employees and pensioners in the Supreme Court on Thursday tore into the controversial amendments on “determination of pensionable salary” introduced into the Employees Pension Scheme (EPS) of 1995.

Appearing before a Bench led by Justice U.U. Lalit, senior advocate Jayant Muth Raj, appearing for employees of Kerala district cooperatives, trashed the claims made by the Centre and the Employees Provident Funds Organisation (EPFO) in court that the EPS-1995 was facing “huge financial difficulties”.

“There is surplus money in the scheme. Whatever they (government and EPFO) are earning as interest is more than what they are paying as monthly pension,” Mr. Muth Raj submitted.

Mr. Muth Raj said the dispute revolved around the controversial amendments made to Clause 11(3) of the EPS-1995. The changes introduced in the scheme had forced pensioners and employees from all walks of life to move to court, apprehensive that the amendments have dashed their hopes of a secure retirement. The Kerala High Court had struck down the amendments, following which the EPFO had appealed in the Supreme Court.

Mr. Muth Raj drew the court’s attention to how the pensionable salary was an average of 12 months’ pay before the date of the employee’s exit from the EPS. The amendments had extended the period of calculation of average salary from 12 months to 60 months. “This is detrimental to the interests of the employees and takes away their vested right to a decent pension,” he argued.

He added that salaries were usually the highest during the last year before retirement. An extension of the period of calculation of average pensionable salary from 12 to 60 months would see a corresponding depletion in the pension, he contended. “There would be 40% difference in the salary and at least 20% change in the pension,” he submitted.

On the increase in the maximum pensionable salary cap from ₹6,500 to ₹15,000, Mr. Muth Raj pointed out that the amendments said only employees, who were existing EPS members as on September 1, 2014 could continue to contribute to the pension fund in accordance with their actual salaries. They were given a window of six months to opt for the new pension regime.

However, the changed pension regime introduced through the amendments meant that someone who became an EPS member after September 1, 2014 would not get pension on par with his or her actual salary.

Mr. Muth Raj trained the spotlight on how the amendments create an additional obligation for employees whose salaries exceeded the ₹15,000 ceiling. He said they had to contribute 1.16% of their salary in addition to their EPF contribution.

Employees’ Provident Fund Organisation (EPFO)

Employees’ Provident Fund Organisation (EPFO) was established by an act of Parliament of India, to provide social security to workers working in India. It came into force by Employee Provident Fund and Miscellaneous Provision Act, 1952. EPFO comes under the control of the Ministry of Labour and Employment, Government of India.

There are 3 major schemes of EPFO

1. EPFO Scheme 1952

Salient features of EPFO schemes

  1. Accumulation plus interest upon retirement and death
  2. Partial withdrawals allowed for education, marriage, illness and house construction
  3. Housing scheme for EPFO members to achieve the Prime Minister’s vision of Housing for all by 2022.

2. Pension Scheme 1995 (EPS)

Salient features of the Pension Scheme

  1. The monthly benefit for superannuation/benefit, disability, survivor, widow(er) and children
  2. Minimum pension of disablement
  3. Past service benefit to participants of the erstwhile Family Pension Scheme, 1971.

3. Insurance Scheme 1976 (EDLI)

Salient features of the scheme

  1. The benefit provided in case of the death of an employee who was a member of the scheme at the time of death.
  2. Benefit amount 20 times the wages, maximum benefit of 6 Lakh.

EPFO is the largest social security organization in the world in terms of the number of covered beneficiaries and the largest in terms of the volume of financial transactions undertaken. On 1st October 2014, Prime Minister launched Universal Account Number for Employees covered by EPFO to enable PF number portability.

Organization Structure of EPFO

Central Board of Trustees administers the EPFO. Central Board and Executive Committee are part of the Trustees Board. Both the Central Board and Executive Committee have a chairman. There is a vice-chairman on the central board while the central PF commissioner on the Executive Committee. Both of them are represented by the central government, state government, employees and employers’ representatives (Numbers vary.)

The regulative structure of EPFO:

  1. The organization is divided into zones which are headed by an Additional Central Provident Fund Commissioner
  2. At present, there are 10 Zones across the country
  3. States have one or more than one regional offices headed by Regional Provident Fund Commissioners (Grade I)
  4. Regions are subdivided into Sub-Regions headed by Regional Provident Fund Commissioners (Grade II)
  5. Districts have a district office

Steps taken by the EPFO to facilitate efficient services

Online facilities provided by the EPFO for the following processes

  1. Nominations
  2. Ascertaining balances
  3. Settling claims
  4. File online cases by members

EPFO UAN (Universal Account Number)

It is a 12 digit number allotted to an employee working in an organization. If a person has multiple member ID’s issued by multiple organizations, all the ID’s will come under one single UAN number which will be the same for a lifetime. This number will not change even when an employee changes his organization.

The various benefits are attained due to UAN.

  1. Reduces confusion of multiple ID’s and will have one single UAN number
  2. Easy transfer and withdrawal of claims
  3. Online-pass book
  4. SMS services
  5. Online KYC update
  6. Download UAN EPF book
  7. Check EPF balance online

Code on Social Security 2020

The Code on Social Security 2020 mandates social security to any establishment as notified by the central government. The other important points about the Code on Social Security 2020 are::

  1. Central government to set up Social security funds for unorganised workers, gig workers and platform workers.
  2. Separate social security funds to be established and administered by the state governments for the unorganized workers.
  3. National Social Security Board may also act as the Board for the purposes of the welfare of gig workers and platform workers and can recommend and monitor schemes for gig workers and platform workers.
  4. The Code on Social Security 2020 mentions the list of aggregators that will participate in the funding of schemes for gig workers and platform workers. Learn about Social Security Schemes in the linked article.
  5. The Social Security Code 2020 changes the definitions of the following:
  1. Employees – The Code expanded the definition of employees to include workers employed through contractors.
  2. Inter-State Migrant Workers – Self-employed workers from another state are now too included in the definition.
  3. Platform Workers – Central Government to notify additional categories of services or activities under this definition.
  4. Audio-visual Productions – Films, web-based serials, talk shows, reality shows and sports shows are now included in the existing definition.
  5. Building or other construction work – Construction works with the total cost of construction work exceeding Rs 50 lakhs are exempted from the ambit of the definition.
  6. The 2020 Bill reduces the gratuity period from five years to three years for working journalists.
  7. The National Social Security Board for unorganised workers will now have 10 representatives from the central government. The State Social Security Boards will have 10 representatives from state governments.
  8. The 2020 Bill adds new clauses which may become applicable in the cases of an epidemic. For example, the central government may defer or reduce the employer’s or employee’s contributions (under PF and ESI) for a period of up to three months in the case of a pandemic, endemic, or national disaster.

4. ‘Inflation driving 8% of GST revenue rise’

SBI Research sees current account deficit widening to 3.7% of GDP, pegs trade deficit at 8.5% in 2022-23

High inflation is driving about 8% of the current surge in Goods and Services Tax revenues, and inflation-adjusted GST collections so far this year are 26% higher than pre-COVID levels, SBI Research said in a report on Thursday, suggesting this rise could be driven by higher consumption.

SBI Research also raised its current account deficit target for this year to 3.7% of GDP, projecting the trade deficit to widen to 8.5% of GDP in 2022-23. The bank’s researchers attributed the entire expansion in India’s trade deficit in July over June, to the dip in exports caused by government measures to control inflation, such as the windfall tax on petroleum products.

GST collections have clocked over ₹1.4 lakh crore for five successive months, with July recording the second-highest revenues since the indirect tax regime’s introduction at almost ₹1.49 lakh crore, 28% higher than a year earlier.

“Various reasons, including better compliance, economic recovery and higher inflation are considered as some of the factors leading to higher GST revenue,” Soumya Kanti Ghosh, SBI group chief economic advisor, wrote in the report.

SBI sought to estimate inflation-adjusted revenue by deflating actual revenue with the Consumer Price Index used to measure retail inflation while excluding fuel.

“The gap between the two (actual GST revenue versus inflation-adjusted revenue) started increasing since May 2020 with a significant difference between the two since mid-2021. Currently, nearly 8% of the increase in GST revenues can be attributed to higher inflation,” Mr. Ghosh noted. SBI’s estimates peg inflation-adjusted GST revenue for the first four months of 2022-23 at an average of ₹1.2 lakh crore.

“This is a 26% jump in inflation adjusted GST from the pre-pandemic level at ₹95,000 crore. In simple terminology, this shows that even after accounting for higher inflation, GST collections have remained robust and this increase could be the pure consumption impact,” he concluded.

‘Lower than the peak’

With the record goods trade deficit of $31 billion in July, compared with the previous high of $26.2 billion in June, taking the deficit past $100 billion for the year already, the bank’s researchers estimated the full-year deficit at 8.5% of GDP.

“Interestingly, this is much lower than the peak deficit of 10.7% of GDP achieved in 2012-13,” Mr. Ghosh observed. “Thus, the current situation is much better than that in 2012-13,” he added.

5. Editorial-1: Waiting for democracy in Jammu and Kashmir

The long haul back to stabilisation from a dangerous situation needs to begin; the first step is Assembly elections

It has been three years since then President Ram Nath Kovind issued the fateful orders that read down Article 370 of the Indian constitution, allowing the Narendra Modi administration to divide the State of Jammu and Kashmir and demote its two new units to Union Territory status. These measures, Prime Minister Modi said, would extend the rights and benefits of Indian democracy to the people of the State. The irony of the fact that his administration felt compelled to simultaneously arrest more than 5,000 political leaders, activists and mediapersons in order to achieve this laudable goal appeared to escape him.

Draconian actions

Three years later, the promise of democracy seems as far away as it was on August 5, 2019. Several hundred of those arrested in 2019 are still in jail without trial. Fresh arrests of dissidents and human rights defenders have become routine. The media continues to be muzzled, and the few journalists who brave a silent censorship suffer from the ‘vicious circle’ of repeated arrests that the Supreme Court of India criticised in the case of Mohammed Zubair. Despite the completion of the delimitation commission’s exercise, Legislative Assembly elections have still to be announced. Jammu and Kashmir has been under President’s rule and then Lieutenant-Governor’s rule for four years now.

The Modi administration’s initial rationale for the draconian actions of 2019 was that security would improve and militancy would be eradicated; that the former State would integrate with the Indian economy and its people would prosper; that Kashmiri Pandits who have been internal refugees for over three decades would be able to return; and that a new era of non-dynastic politics would emerge.

How far have any of these stated goals met with success, if at all? The answer is dispiriting. Security has clearly not improved. According to Home Ministry figures, the number of civilians killed between 2019 and 2021 was higher than in Mr. Modi’s first term (2014-19) — 87 in two years as against 177 in five years. Civilian fatalities did decline between 2021 and 2022, as did the number of security personnel killed, partly because India and Pakistan agreed to a ceasefire in February 2021. The numbers have, however, begun to rise again, and suggest a worrying pattern of targeting Kashmiri Pandits, elected officials of local government (panches) and the Jammu and Kashmir police.

Alienation and insurgency

Military and police experts talk about ‘hybrid militants’ — and, more recently, ‘faceless militants’ — which are, in current conditions, meaningless euphemisms for the fact that Valley alienation from the Indian Union is such that public support for insurgency is touching the heights of the 1990s. According to the South Asia Terrorism Portal, 437 Kashmiri youth joined insurgent ranks between 2019 and 2021. While counter-insurgency operations have eliminated the known militant leadership, i.e., those that had been identified by 2016, they have not been able to interdict the small arms that are in circulation or identify those in possession of them. The Union Home Ministry’s distrust of local police — while putting them on the front line of conflict — has disabled a key source of intelligence.

Economic decline

Between 2019 and 2021, the former State’s economy tanked, first due to a security lockdown and then a year-and-a-half of COVID-19 lockdowns. From being in the top performing States of the Indian Union, according to the NITI Aayog, Jammu and Kashmir was ranked among the bottom last year. A record tourist inflow this year might help some recovery, but has to be set off against losses in the fruit, manufacturing, carpet and handicrafts industries. Local supplier complaints abound: that government agencies commission them on projects but do not pay the agreed amount.

Kashmiri Pandits have once again become targets of militant attack, as they were during the 1990s. Four Kashmiri Pandits were shot in 2021, along with 10 Hindus, including migrant workers, and one this year, allegedly in retaliation for the film Kashmir Files’s portrayal of Pandit killings by armed groups during the 1990s insurgency. According to the Kashmiri Pandit Sangharsh Samiti, around 100 Pandit teachers who had returned to the Valley under the 2008 Prime Minister’s Reconstruction Plan fled. The rest demanded relocation to safer areas, a demand that the administration refused. According to the soon-to-be released report of the Forum for Human Rights in Jammu and Kashmir (I am a member), they now live in such tight security that they cannot even go out to buy groceries.

Recently-elected panches suffer the same fate. With his customary hyperbole, Home Minister Amit Shah claimed that a new political leadership would emerge from panchayat ranks to replace the dynasts of the National Conference and People’s Democratic Party. But 12 panches have been shot since 2019, according to the Jammu and Kashmir Panchayat Conference. Most have since been lodged under tight security in Srinagar hotels from where it is difficult for them to attend duties in their constituencies.

There is a chasm

The delimitation commission’s report is equally worrying. The new constituencies it has carved out appear to consolidate Hindu and Muslim-majority constituencies. The most likely result will be to cement the chasm that already yawns between the two communities. That, incidentally, is a goal that terrorist organisations such as the Lashkar-e-Toiba and the Jaish-e-Mohammed have long worked towards.

Admittedly, the implementation of the Modi administration’s stated goals was always going to be difficult. Bringing security or prosperity to a State that had been conflict-ridden for decades was, as Atal Bihari Vajpayee or Manmohan Singh could have told Mr. Modi, a long-term task. Yet, each achieved a certain degree of success. A.B. Vajpayee broke the peacemaking ground and Dr. Manmohan Singh continued A.B. Vajpayee’s policy, adding a tightened security grid that sharply reduced both casualties among civilian and security forces, and opened the State’s economy to cross-border trade, an initiative that benefited Jammu as much as the Valley. There was a peace dividend for the economy. Five thousand Kashmiri Pandits returned, albeit somewhat uncertainly. Independent media proliferated, even if its quality was uneven.

Parliament can act

The Modi administration has thus far chosen another way, of unilateralism over electoral democracy and freedom of expression. In doing so, it has dissipated the gains made by A.B. Vajpayee and Dr. Singh between 2000 and 2014. But it can still begin the long haul back to stabilisation of what is today a miserably dangerous situation. Assembly elections are a first step which should be taken immediately. If they could be held under the earlier delimitation and the commission’s present report be put to the new Assembly for consultation, it would be in the spirit of ‘cooperative federalism’ (an oxymoronic formulation that applies to India’s partially federal structure).

Home Minister Shah has repeatedly promised the restoration of statehood. Three years is a long time to hold up that promise without implementing it. Parliament is currently in session and could easily amend the Jammu and Kashmir Reorganisation Act, 2019. What could be a more fitting conclusion to the 75th year of Independence than the return to basic elements of electoral democracy in Jammu and Kashmir, which alone would lead to an improvement in human rights on the ground?

6. Editorial-2: Sop or welfare debate

Steps to limit freebies or to discourage populism should come through Parliament

A general concern over ‘freebies’ pushing the economy to ruin or unviable pre-election promises adversely affecting informed decision-making by voters seems reasonable. However, few will disagree that what constitutes ‘freebies’ and what are legitimate welfare measures to protect the vulnerable sections are essentially political questions for which a court of law may have no answer. In this backdrop, the Supreme Court’s decision to form a body of stakeholders to examine the issue raises the question whether the legislature can be bypassed on such a far-reaching exercise. The Chief Justice of India, N.V. Ramana, heading a Bench hearing a petition filed in public interest against the distribution or promise of ‘freebies’ ahead of elections, has made it clear that the Court is not going to issue guidelines, but only ensure that suggestions are taken from stakeholders such as the NITI Aayog, Finance Commission, Law Commission, RBI and political parties. All these institutions, he has said, can submit a report to the Election Commission of India (ECI) and Government. A suggestion that Parliament could discuss this issue was met with scepticism by the Bench, which felt that no party would want a debate on this, as all of them support such sops. The Bench also disfavoured the ECI preparing a ‘model manifesto’ as it would be an empty formality. The Court’s concern over populist measures seems to resonate with the Government too, as the Solicitor-General submitted that these distorted the voter’s informed decision-making; and that unregulated populism may lead to an economic disaster.

The Supreme Court, in S. Subramaniam Balaji vs Government of Tamil Nadu (2013) addressed these questions and took the position that these concerned law and policy. Further, it upheld the distribution of television sets or consumer goods on the ground that schemes targeted at women, farmers and the poorer sections were in furtherance of Directive Principles; and as long as public funds were spent based on appropriations cleared by the legislature, they could neither be declared illegal, nor the promise of such items be termed a ‘corrupt practice’. It had, however, directed the ECI to frame guidelines to regulate the content of manifestos. The ECI subsequently included in its Model Code of Conduct a stipulation that parties should avoid promises “that vitiate the purity of the election process or exert undue influence on the voters”. It added that only promises which were possible to be fulfilled should be made and that manifestos should contain the rationale for a promised welfare measure and indicate the means of funding it. Any further step, such as distinguishing welfare measures from populist sops and pre-election inducements, or adding to the obligations of fiscal responsibility and fiscal prudence ought to come from the legislature. That politicians invariably back ‘freebies’ should be no reason to bypass Parliament.

7. Editorial-3: Is the declining rupee a crisis or an opportunity?

There is an expectation of further depreciation, which can lead to further capital outflows

The rupee’s steep slide to the 79-to-a-dollar range is bound to impact importers, widen the current account deficit (CAD) and increase India’s external debt burden. But how much of a problem is this going to be for the Indian economy, given that the rest of the world is facing economic challenges as well? Zico Dasgupta and Indranil Pan discuss whether the declining rupee presents a crisis or an opportunity, in a conversation moderated by Bharat Kumar K. Edited excerpts:

The declining rupee has several consequences. In sum, is it a crisis or an opportunity?

Zico Dasgupta: This is a matter of concern because the question of opportunity arises when one talks about the positive impact of the declining rupee on trade balance and net exports. That seems to be limited for two reasons. First, despite depreciation in the nominal exchange rate, the real exchange rate has not really depreciated in recent times and that is what matters for questions of trade balance and exports. Second, in the last two-three decades, the sensitivity of exports has been weak as far as changes in the real exchange rate is concerned. The depreciation is concerning — not exactly on the lines of the instability we have seen in Sri Lanka or other developing countries, but because it adds to the inflationary pressure and squeezes the purchasing power of those whose incomes are not linked to the crisis.

Some predict CAD could rise to 4% of the GDP in the first half of this fiscal. Is this unhealthy or can we live with it?

Indranil Pan: A broad indication that we are working with at this time is 3% CAD as a proportion of GDP with the assumption that oil is at about $110 per barrel. If oil is at $120, the CAD goes up to 3.3%. From the RBI (Reserve Bank of India)’s perspective, the moment CAD crosses 2.5%, red flags come up. More importantly, rather than only looking at the CAD, we need to find out whether we have adequate flows on the capital side to bridge the CAD. And if we do, then even if the CAD is at 3%, it might not be very strenuous for the economy. Currently, because of the changing landscape in terms of the monetary policy cycle globally, emerging market inflows have dried up. There are more outflows from emerging markets. So, the RBI has to sell dollars in the spot market to contain the depreciation. Depreciation pressures are relatively more contained than in 2013. I don’t mean it’s time to sleep over it; definitely, you need to see in what ways the capital flow can be improved — RBI has come out with certain policies on that — or determine how the current account gap can be closed by reducing imports. There can be a natural adjustment: the higher inflation and tighter monetary policy domestically would dampen local demand. So, non-oil, non-gold imports are expected to be softer. Fears of a global recession could also lead to a downward bias in crude oil prices; that could be positive for the current account. But global slowdown may also pull down exports and that is worrying from the CAD perspective.

ZD: Right now, it’s not a crisis as serious as Sri Lanka’s, but it’s a matter of concern. Whenever the rupee or any currency starts depreciating, there is always an expectation of further depreciation, which can lead to further capital outflows. In that context, the central bank needs to keep an eye on the situation.

The RBI is said to be prepared to spend another $100 billion, if needed, to defend the rupee. If that happens, are we still in a healthy position?

IP: In terms of how much reserves you need, there is no thumb rule to indicate that this is enough. Earlier, flows were adequate, the CAD was low and the RBI actually managed to mop up a lot of forex and built up reserves to about $635 billion. On the downside, again, there is no maximum extent to which you can reduce your forex reserves. But the RBI must watch the import cover of forex reserves; that has now fallen sharply as the import bill remains high and forex resources have depleted. The consequent impact on the rupee liquidity is another factor the RBI needs to watch.

The critical issue for the rupee is not the level, it’s the volatility. If the depreciation pressure is gradual, in line with the fact that global monetary policy is tightening and other emerging market currencies are also weakening, the RBI shouldn’t mind allowing the rupee to also depreciate. We probably need to tell the corporates that they need a better hedging strategy when the currency is more or less stable or slightly appreciating. Currency depreciation is per se not bad, because it helps maintain the competitive advantage. Also, it helps keep a check on imports, because the moment currency depreciates, the prices of imported goods go up and that dampens the demand for importables. Of course, the demand for oil is relatively inelastic.

ZD: There is hardly any way to say that if you spend X amount of dollars, one is safe… think about the East Asian experience in the mid-1990s. Those countries were doing pretty well on the external sector or the economy. When the crisis hit and the capital started flowing out, it was not only a question of depletion of forex reserves; it was the expectation of depletion of the reserves combined with currency depreciation which led to the instability. So, as long as the capital doesn’t stop flowing out, it will always be a matter of concern for us, no matter to what extent the forex reserve is depleted.

With a declining rupee, the value of our external debt has risen. Is that a concern?

IP: It’s a tricky question. The point should be whether the ECB (external commercial borrowing) flows are hedged or not for currency depreciation. If they have been hedged, there is no problem. But if they have not, the amount to be repaid in terms of the rupee will have surely gone up. Companies will have to adjust it into the balance sheets and hence, we can see some squeeze in the balance sheets of some companies. Some companies may still look at hedging their near-term payables. In the Indian context, the bigger worry is short-term debt with residual maturity of three-six months. Depreciation next year may be slower, because the global atmosphere could have changed by then. And who knows? If the recession hits larger parts of the world, there can be a faster reversal of the current tightening than what we anticipate now.

I’m not worried about the longer-term ECBs. Because if you take the average, the last 10 years have given a currency depreciation of only about 3.5-3.8%. The RBI has been trying to push ECBs by relaxing end-use and also increasing the interest rate cap for the ECBs. This will enable relatively lower rated companies to attempt to raise funds abroad.

Given the recent moves by the government and the RBI, have we exhausted policy options?

ZD: No. Of course, it is an exogenous shock, but it’s not that there hardly exists any policy instrument to deal with that, at least for damage control. First, why is the falling rupee a problem? It could result in instability, which is not the case at this juncture, but there is also a question of inflationary pressure. If we look at the nominal exchange rate and the real exchange rate, the latter has remained stable in India in the last two years or so, despite the nominal exchange rate depreciating. This means domestic prices are rising faster than international prices. As there are domestic factors related to the question of prices, policy actions might come in there. For example, how to ease inflationary pressure in the agricultural [sector], how to compensate those whose incomes are getting squeezed due to higher prices because their incomes are not linked to the prices… The RBI needs to ensure a mix of exchange rate adjustment and depletion of forex reserves to maintain some stability in exchange rates.

What could the government or the RBI do differently if they could do it all over again?

ZD: Till now, the policy measure has been exclusively dependent on monetary policy. That has its own limitations. The interest rate is expected to stabilise the inflation rate primarily. But the trend in the Indian economy would suggest that the relationship between output and inflation rate, termed the Phillips Curve in literature, has been flat, in that the inflation rate changes for reasons other than demand factors. Those factors cannot be combated by interest rate charges. On the other hand, higher interest rates or higher repo rates have an adverse impact on output, which affects GDP growth. And that’s the reason why the RBI has predicted a fall in GDP growth in the coming days. What is needed is greater dependence on the fiscal instrument. There are only two ways to do that. The first is to increase corporate tax in some form, to finance additional government expenditures, particularly in compensating labour’s income. The second is to rethink fiscal policy rules – review to what extent rules we follow are relevant and useful in the current context.

Historically, corporate tax rate changes have hardly had an impact on corporate investment rates over time. For example, in 2018-19 when there was a huge corporate tax concession, there was hardly any impact on the corporate investment rates. The other option would be to do away with different corporate tax concessions. At this point, such concessions amount to around ₹5 lakh crore. So, even if one squeezes that amount of concessions, there would be a lot of fiscal space available.

IP: I would have been happier seeing [recent] policies coming through in the monetary policy commentary rather than a knee-jerk announcement in the middle of a month, for it affects the sentiment of the market and raises doubts on whether the RBI is running out of resources to defend the currency, which is not the case. These policies forming a part of the monetary policy statement might have led to a more balanced view by the market. The critical areas the government needs to look at are how to prevent inflationary pressures from getting more widespread. Today’s twin deficit problem in India, which was also there in 2013, is coming more from the fiscal side rather than the current account side. If you cumulate the fiscal deficit as a proportion of GDP and the CAD together, we are as wide today on the twin deficits as we were in 2013. Now, we are expecting CAD at around 3%; in 2013, it was around 4.5%. The critical action we need is more on how to manage government finances and have a course chalked out on how to bring the deficit and government debt down. The government’s outstanding debt is large and increases in interest rates will raise the interest bill. Correcting for fiscal imbalances will also improve the overall macro atmosphere and offer a positive signal to the external world, providing comfort to investors.

What did you mean by rethinking policy rules?

ZD: Fiscal policy targets a specific level of debt to GDP ratio, i.e., it targets debt stability, and the job of the monetary policy is to target the output gap and thereby control inflation. Now, the intensity of the slowdown is such that the interest rate is unable to compensate for either the output growth rate or labour income, and now there is the added pressure of increasing interest rates. Fiscal policy needs to play a role in helping boost demand, but that is not exactly consistent with the present policy framework. By its very design, fiscal policy is meant to stabilise debt to GDP ratio, it is not meant to boost aggregate output growth rate or labour income. So, we need to think about the purpose of the fiscal policy rule given the crisis we’re facing.

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