Daily Current Affairs 11.07.2020 (Atmanirbhar Bharat, Fiscal Council, FRBM)

Daily Current Affairs 11.07.2020 (Atmanirbhar Bharat, Fiscal Council, FRBM)

1. 14% excess rain in India so far this monsoon

40% of districts have benefited from it

  • Monsoon rainfall since June has been 14% more than what is normal for this time of the year.
  • So far, India has received 28.7 cm rainfall as opposed to the typical 25.2 cm. Only on nine of the 40 days of monsoon so far has rainfall been less than the daily average, according to data from the India Meteorological Department (IMD).
  • About 40% of districts received excess rain while 27% others have seen deficient rain, having received at least 20% less rain than usual.
  • There are 29 districts in Uttar Pradesh, 17 in Gujarat and 16 in Jammu and Kashmir that have received deficient rain. Paradoxically, Uttar Pradesh also leads in the number of districts with excess rain (35), followed by Bihar (32) and Madhya Pradesh (28). Currently, the IMD collates rainfall data from 681 districts.
Description: How to measure rainfall in an area? |APPSC Material, Group 1 Group ...
Rain gauge A rain gauge is an instrument used by meteorologists and hydrologists to measure precipitation (e.g. rain, snow, hail or sleet) in a certain amount of time. It is usually measured in millimetres. Rain gauge is a meteorological instrument for determining the depth of precipitation (usually in mm) that occurs over a unit area (usually one metre square) and thus measuring rainfall amount. One millimetre of measured precipitation is the equivalent to one litre of rainfall per metre square. Usually a tapering funnel of copper or polyester of standard dimension allows the rain water to collect in an enclosed bottle or cylinder for subsequent measurement. The gauge is set in open ground with the funnel rim up to 30 cm above the ground surface. Some gauges are calibrated to allow the amount of rainfall to be read directly; with others it must be calculated from the depth of water in the container and the dimensions of the funnel.
Description: How to measure rainfall in an area? |APPSC Material, Group 1 Group ...

2.Solar energy will play big role in ‘Atmanirbhar Bharat’: PM

‘It will be a big energy medium for 21st century’


  • Prime Minister Narendra Modi on Friday said solar energy would play a major role in achieving self-reliance in energy, essential for an ‘Atmanirbhar Bharat’ (self-reliant India).
  • Inagurating a 750 MW solar power project in Rewa district, Madhya Pradesh, he said: “We won’t be able to use solar power entirely unless we have within the country improved solar panels, improved batteries and best quality storage. We need to work in this direction now.”
  • Solar energy, he asserted, would be a big medium for the energy needs of the 21st century.
  • “This is because solar energy is sure, pure and secure. Sure because other sources of energy can be exhausted, but the sun will continue to shine. Pure because instead of polluting the environment, it helps in protecting it. And secure because it’s a huge symbol, inspiration for Atmanirbhar Bharat,” Mr. Modi said.
Description: How to measure rainfall in an area? |APPSC Material, Group 1 Group ...
Atmanirbhar Bharat Recently, the Prime Minister has announced the ‘Atmanirbhar Bharat Abhiyan (or Self-reliant India Mission)’ with an economic stimulus package — worth Rs 20 lakh crores aimed towards achieving the mission. The announced economic package is 10% of India’s Gross Domestic Product (GDP) in 2019-20.The amount includes packages already announced at the beginning of the lockdown incorporating measures from the RBI and the payouts under the Pradhan Mantri Garib Kalyan Yojana.The package is expected to focus on land, labour, liquidity and laws.   Self-Reliant India Mission The Self-Reliant India Mission aims towards cutting down import dependence by focussing on substitution while improving safety compliance and quality goods to gain global market share.The Self-Reliance neither signifies any exclusionary or isolationist strategies but involves creation of a helping hand to the whole world.The Mission focuses on the importance of promoting “local” products. The Mission will be carried out in two phases: Phase 1: It will consider sectors like medical textiles, electronics, plastics and toys where local manufacturing and exports can be promoted. Phase 2: It will consider products like gems and jewellery, pharma and steel, etc. The Mission would be based on five pillars namely, EconomyInfrastructureSystemVibrant DemographyDemand The Mission is also expected to complement ‘Make In India Initiative’ which intends to encourage manufacturing in India.

3. Editorial – Do we need a fiscal council?

An institutional behemoth with such a wide job chart will likely add more to the noise than to the signal

  • The government needs to borrow and spend more now in order to support vulnerable households and engineer economic recovery. But that will mean a steep rise in debt which will jeopardise medium-term growth prospects, an issue prominently flagged by all the rating agencies in their recent evaluations. It is possibly the fear of market penalties that is holding the government back from opening the money spigots.
  • Many economists have faulted the government’s fiscal stance, arguing that this is no time for restraint; the government should spend more to stimulate the economy by borrowing as may be necessary, but at the same time come out with a credible plan for fiscal consolidation post-COVID-19 in order to retain market confidence. But will the market be persuaded by the government’s assurance of future good conduct? Like St. Augustine who prayed, “god, give me continence, but not yet!,” will the markets instead see the government as asking, “god, give me fiscal rectitude, but not yet?” Not necessarily, say the commentators. The government can signal its virtue by establishing some new institutional mechanism for enforcing fiscal discipline, such as for example a fiscal council. The suggestion of a fiscal council actually predates the current crisis. It was first recommended by the Thirteenth Finance Commission and was subsequently endorsed by the Fourteenth Finance Commission and then by the FRBM (Fiscal Responsibility and Budget Management) Review Committee headed by N.K. Singh.

Present in 50 countries

  • According to the International Monetary Fund (IMF), about 50 countries around the world have established fiscal councils with varying degrees of success. Abstracting from country-level differences, a fiscal council, at its core, is a permanent agency with a mandate to independently assess the government’s fiscal plans and projections against parameters of macroeconomic sustainability, and put out its findings in the public domain. The expectation is that such an open scrutiny will keep the government on the straight and narrow path of fiscal virtue and hold it to account for any default.
  • Do we really need a fiscal council? Sure, we do have a chronic problem of fiscal irresponsibility, but is a fiscal council the answer? Recall that back in 2003 when FRBM was enshrined into law, we thought of that as the magic cure for our fiscal ills. The FRBM enjoins the government to conform to pre-set fiscal targets, and in the event of failure to do so, to explain the reasons for deviation. The government is also required to submit to Parliament a ‘Fiscal Policy Strategy Statement’ (FPSS) to demonstrate the credibility of its fiscal stance. Yet, seldom have we heard an in-depth discussion in Parliament on the government’s fiscal stance; in fact the submission of the FPSS often passes off without even much notice. If the problem clearly is lack of demand for accountability, how will another instrumentality such as a fiscal council for supply of accountability be a solution? It can be argued that a fiscal council will in fact be a solution because it will give an independent and expert assessment of the government’s fiscal stance, and thereby aid an informed debate in Parliament. A fair point, but do we need an elaborate permanent body with an extensive mandate for this task?

The council’s mandate

  • Consider for example the model suggested by the FRBM Review Committee. As per that, the fiscal council’s mandate will include, but not be restricted to, making multi-year fiscal projections, preparing fiscal sustainability analysis, providing an independent assessment of the Central government’s fiscal performance and compliance with fiscal rules, recommending suitable changes to fiscal strategy to ensure consistency of the annual financial statement and taking steps to improve quality of fiscal data, producing an annual fiscal strategy report which will be released publicly.
  • An institutional behemoth with such a wide job chart will likely add more to the noise than to the signal. For example, the fiscal council will give macroeconomic forecasts which the Finance Ministry is expected to use for the budget, and if the Ministry decides to differ from those estimates, it is required to explain why it has differed. As of now, both the Central Statistics Office (CSO) and the Reserve Bank of India (RBI) give forecasts of growth and other macroeconomic variables, as do a host of public, private and international agencies. Why should there be a presumption that the fiscal council’s forecasts are any more credible or robust than others? Why not leave it to the Finance Ministry to do its homework and defend its numbers rather than forcing it to privilege the estimates of one specific agency? Besides, forcing the Finance Ministry to use someone else’s estimates will dilute its accountability. If the estimates go awry, it will simply shift the blame to the fiscal council.
  • Another argument made in support of a fiscal council is that in its role as a watchdog, it will prevent the government from gaming the fiscal rules through creative accounting. But there is already an institutional mechanism by way of the Comptroller and Auditor General (CAG) audit to check that. If that mechanism has lost its teeth, then fix that rather than create another costly bureaucratic structure.

Starting it small

  • Let us, despite my arguments above, grant that a fiscal council will indeed add value. Then the way forward is to start small and scale it up if it proves to be a positive experience. I would suggest the following low cost and reversible start-up.
  • A week before the scheduled budget presentation, let the CAG, a constitutional authority, appoint a three-member committee for a five-week duration with a limited mandate of scrutinising the budget after it is presented to Parliament for its fiscal stance and the integrity of the numbers, and give out a public report. The CAG’s office will provide the secretarial and logistic support to the committee from within its resources. The Finance Ministry, the RBI, the CSO and the Niti Aayog will each depute an officer to serve in the secretariat. The committee will be wound up after submitting its report leaving no scope for any mission creep.
  • Bureaucratic expansion is a one way street. It is wise to cross the river by feeling the stones.
Description: How to measure rainfall in an area? |APPSC Material, Group 1 Group ...
What is a fiscal council? Fiscal councils are independent public institutions aimed at strengthening commitments to sustainable public finances through various functions, including public assessments of fiscal plans and performance, and the evaluation or provision of macroeconomic and budgetary forecasts. Fiscal councils are now part of the institutional fiscal apparatus of over 50 countries, including several emerging and developing economies. Composition and How should they function? (Recommendations by 14th FC) The 14th Finance Commission recommended that an independent Fiscal Council should be established through an amendment to the FRBM Act, by inserting a new Section mandating the establishment of an independent Fiscal Council to undertake ex ante assessment of budget proposals and to ensure their consistency with fiscal policy and Rules.The council is supposed to be appointed by, and report to, Parliament and should have its own budget.The functions of the council include ex ante evaluation of the fiscal implications of the budget proposals which includes evaluation of how real the forecasts are and their consistency with the fiscal rules and estimating the cost of various proposals made in the budget.The ex post evaluation and monitoring of the budget was left to the CAG.

4. Editorial – In the name of ‘cooperative federalism’

There is a huge gap between what the 14th Finance Commission promised to States and what they have received

  • India is in the midst of the Bharatiya Janata Party (BJP)’s decade of governance. The previous time one party dominated for nearly 10 years was four decades ago, when the Congress had brute majorities between 1980 and 1989. In that period, the tussle for the rights of States was focused on Article 356. Using pliant Governors, regional party governments were politically destabilised. There was lip service paid to the report of the Justice R.S. Sarkaria Commission on Centre-State relations, but its spirit was twisted.
  • History is repeating itself but much more cripplingly. The principal tool of combating State governments is no longer Article 356. Once more a well-meaning report, the report of the 14th Finance Commission, is being cited, but it is also being sabotaged step by step. And all this is being done while supposedly upholding “cooperative federalism”. This began well before COVID-19, but the pandemic and its economic disruption have brought things to an edge.

Delayed payments

  • The 14th Finance Commission report was accepted in 2015 with the promise that it would devolve more finances to the States. As part of the process, States would have new responsibilities, especially in the social sector. Two years later, the introduction of the Goods and Services Tax (GST) regime was also justified as a grand bargain that would eventually leave all States better off.
  • In reality, tax devolution to States has been consistently below 14th Finance Commission projections. One reason for this has been the economic slowdown, caused primarily by the Central government, and lower-than-expected GST collections. The shortfall in GST collection for 2018-2019 was 22% when compared to projections. Payments have been delayed as well. For example, Centre owed States about ₹35,000 crore as GST compensation for December 2019 and January 2020, which was only paid in June 2020 after a delay of more than five months.
  • The Centre has imposed a series of cesses, which are not part of the divisible pool and not shared with the States. There are now rumours of a COVID-19 cess as well. According to a study by the Centre for Policy Research, there is a ₹6.84 lakh crore gap between what the 14th Finance Commission promised to States and what they have received. And while this has happened, the nature of public spending in India has undergone a massive shift. In 2014-2015, States undertook programmes and projects spending 46% more than the Central Government; today the figure is 64%. Despite this, the Centre’s fiscal deficit exceeds the consolidated State deficit by 14%! India is paying for a profligate Centre.
  • The COVID-19 situation has deepened the crisis. According to a State Bank of India report, the collective loss to GSDP due to the pandemic is ₹30.3 lakh crore or 13.5% of GSDP. States are being required to spend more to help common citizens and save livelihoods. The Centre is providing almost negligible support. In West Bengal, as of June 30, the State government had spent ₹1,200 crore in fighting COVID-19. The Centre has given ₹400 crore under the National Health Mission and to the State Disaster Response Mitigation Fund, but absolutely nothing specifically for the pandemic.
  • Cyclone Amphan, the worst cyclone in Bengali memory, devastated 2.8 million houses and 1.7 million hectares of farm land. The loss was estimated at ₹1.02 lakh crore. The Mamata Banerjee government in Kolkata immediately released ₹6,250 crore; the Centre has offered just ₹1,000 crore.
  • Following the pandemic, the Ministry of Finance has asked all Union Ministries to cut expenditure. The immediate impact is being felt by States, and grants-in-aid are drying up. Crucial rural development programmes have come to a standstill.
  • The Union Rural Development Ministry is supposed to transfer Rs. 4,900 crore to West Bengal in 2020-21 for projects to be undertaken by panchayati raj institutions. A quarter of the financial year has passed but not a single paisa has come. Around 70% of this money is meant for gram panchayats and 30% for panchayat samitis and zilla parishads. This formula came after a recommendation from Chief Minister Mamata Banerjee, which the Prime Minister accepted. The funds are meant for building roads, culverts and bridges, local drinking water projects and similar schemes that create jobs and help village economies. All this has come to a halt.
  • Overall if one considers dues for Centrally-supported schemes (₹36,000 crore); the cut in devolution of funds (₹11,000 crore); outstanding GST receipts (₹3,000 crore); and dues for food subsidies and other heads (₹3,000 crore), the Centre owes West Bengal ₹53,000 crore. I can’t speak for all States but for West Bengal this is a huge burden, especially in a calamity-hit year such as 2020.

FRBM provisions

  • As they put more money into people’s hands, governments across the world are struggling to meet fiscal deficit targets this year. In India, even States that have maintained fiscal discipline in recent times have had to cope with needs of suffering citizens and spend more under essential, social sector heads. The fiscal deficit for States, collectively, is inevitably going to breach the projection of 2.04%.
  • As per provisions of the Fiscal Responsibility and Budget Management (FRBM) Act, the Gross State Domestic Product (GSDP) can actually accommodate a fiscal deficit of 3%. The States have respected the limit for years and the projection for 2020-21 reflected this. Now, post-pandemic, this limit will be crossed. The FRBM has an “escape clause” that allows for a one-time relaxation of the fiscal deficit threshold upto 0.5% in a time of exigency. The escape clause has been utilised by the Centre but it has proven woefully insufficient in addressing the current crisis.
  • Fiscal policymakers and technocrats agree that the rigidity of the FRBM has to be revisited. It should allow for greater flexibility and consultation as to when and how the “escape clause” can be applied. This goes beyond the current COVID-19 situation, but has come to light because of it — and because the Centre has gone in for subjective interpretation, imposing conditions that are outside the scope of the FRBM.
  • In theory, the Centre has raised the fiscal deficit limit for States, under the FRBM, from 3% to 5%. But only 0.5% of this rise is unconditional. The remaining 1.5% is dependent on fulfilling certain unrealistic and impractical measures — including privatisation of power distribution,and enhancing revenues of urban local bodies.
  • States are being set up for failure. This is the true picture of the BJP’s “cooperative federalism”.
  • Derek O’Brien leads Trinamool Congress in the Rajya Sabha
Description: How to measure rainfall in an area? |APPSC Material, Group 1 Group ...
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