Daily Current Affairs 23.01.2023(PM calls for prison reforms and repeal of obsolete laws, Exim data revised, trade deficit narrows by $10 bn, Economy at risk from move to clean energy, A reminder of the flaws in India’s urbanisation policies, Changing politics, incompatible Governors)

Daily Current Affairs 23.01.2023(PM calls for prison reforms and repeal of obsolete laws, Exim data revised, trade deficit narrows by $10 bn, Economy at risk from move to clean energy, A reminder of the flaws in India’s urbanisation policies, Changing politics, incompatible Governors)


1. PM calls for prison reforms and repeal of obsolete laws

At the annual police meet that concluded on Sunday, Prime Minister Narendra Modi suggested prison reforms to improve the jail management, and recommended repealing obsolete criminal laws.

Mr. Modi attended the 57th All India Conference of Directors-General and Inspectors-General of Police organised by the Intelligence Bureau (IB) on Saturday and Sunday.

A government statement said the Prime Minister suggested making the police forces more sensitive and training them in emerging technologies. He emphasised the importance of the National Data Governance Framework for smoothing of data exchange across agencies.

“The Prime Minister suggested that while we should further leverage technological solutions like biometrics etc., there is also a need to further strengthen the traditional policing mechanisms like foot patrols etc.,” the statement said. He recommended repealing obsolete criminal laws and building standards for police organisations across States. He also discussed strengthening of border as well as coastal security by organising frequent visits of officials to these locations.

He emphasised enhanced cooperation between the State Police and the Central agencies to leverage capabilities and share best practices.

“He suggested replicating the model of the conference at the State/district levels for discussing emerging challenges and evolving best practices among their teams,” the statement added.

Union Home Minister Amit Shah, the Ministers of State for Home, National Security Adviser Ajit Doval, and Home Secretary Ajay kumar Bhalla were present.

2. Exim data revised, trade deficit narrows by $10 bn

Exports between April and November now pegged at $298.3 billion, almost $12 billion higher than the initial estimates; import bill seen at $493.5 billion, about $1.7 billion up from the earlier figures

India’s foreign trade data for the first eight months of 2022-23 have been significantly revised, with the import bill being scaled up or down by at least two billion dollars in each of those months, in comparison to the preliminary estimates issued by the Union Commerce Ministry.

The total merchandise exports between April and November are now pegged at $298.3 billion, nearly $12 billion higher than what the original monthly data suggested. The import bill in those eight months is now estimated at $493.5 billion, about $1.7 billion higher than the initial numbers. The trade deficit in the first eight months of the year is $10 billion lower than indicated by adding up monthly preliminary estimates.

Economists said such wide variations in data are unusual and make it difficult to formulate policies, especially when a critical focus area for the economy is managing the current account deficit, fuelled by rising imports and a feared slowdown in exports amid a global recession. The import figure for September 2022 has seen the sharpest revision, from an earlier estimate of just $61.1 billion to the year’s highest tally at $64.7 billion.

September now marks the worst monthly trade deficit of $29.23 billion for India.

As per earlier data, July 2022 was reckoned to have the worst goods trade deficit on record of $30 billion, but its import bill has been subsequently scaled down sharply from $66.3 billion to a little short of $64 billion, while exports have been raised by $2.1 billion. Consequently, July’s deficit is now pegged at just $25.6 billion, which was, in fact, lower than the deficit recorded over the next three months.

October and August 2022 recorded the second and third highest monthly deficits in merchandise trade at $27.4 billion and $26.8 billion, with the import bill for these months being revised up by $2.3 billion and almost $2 billion, respectively.

The steepest revision in export numbers has been made for August and November at $3.1 billion and $2.8 billion, respectively. As per preliminary estimates, exports in November had grown just 0.6% to $31.99 billion, but revised numbers signal a 9.6% year-on-year rise, with shipments worth $34.85 billion.

‘Policy making affected’

“The trade numbers influence the current account deficit trajectory. Policy making to address this must be evidence-based, but if the data is going haywire, and not by a small margin, we have a problem,” said noted trade economist Biswajit Dhar, who is a Professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University. “A $3.5-billion discrepancy in import estimates for a month is not a small thing,” he said.

Queries about the trade data revisions mailed to the Commerce and Industry Ministry on Friday did not elicit a response till late Sunday evening.

In a report on November’s foreign trade data, rating firm ICRA also flagged the “large discrepancy between the monthly data on merchandise exports and the cumulative data for the same that accounts for revisions, both of which are released by the Ministry of Commerce and Industry”.

Widening gap

By November, the gap between preliminary export estimates for each month and the cumulative figure for the full year so far, stood at $8.6 billion, it said. This gap has now stretched to $11.6 billion after November’s exports were also revised higher.

The Reserve Bank of India (RBI), in an article on the state of the economy in its latest bulletin, has alluded to the corrections in trade numbers, while referring to the merchandise trade deficit reaching an all-time high of $83.5 billion and the current account deficit (CAD) rising to 4.4% of the GDP in the second quarter (Q2) of 2022-23.

“It is noteworthy, however, that the CAD for Q1 was revised down from 2.8% to 2.2% on account of downward adjustment in customs data. Similar adjustments may impinge on the CAD for Q2:2022-23 as customs data or imports are revised,” the article said.

Incidentally, revised goods trade estimates for July to September included in the same bulletin peg the deficit for the second quarter lower at $81.69 billion.

Net exports’ contribution

In its December bulletin, the central bank said that the net exports’ contribution to aggregate demand in Q2 was negative as imports grew faster. Net exports were “the highest drag on aggregate demand from the external side since Q4 of 2012-13”, it cautioned.

The RBI also noted that imports continued to decelerate and November’s $55.9 billion import bill marked “a ten-month low”. Subsequent data revisions put November’s imports at 58.2 billion, which was the lowest in seven months.

3. ‘Economy at risk from move to clean energy’

The NTPC Simhadri power plant in Visakhapatnam, the world’s third biggest emitter of greenhouse gases, plans to more than triple its clean-energy capacity by the end of the decade. File Photo

Study says 60% of lending to the mining sector is for oil and gas extraction, while one-fifth of the manufacturing sector debt is for petroleum refining and related industries. Electricity production — the largest source of emissions — accounted for 5.2%, but only 17.5% of this is to pure-play renewables

India’s financial sector is highly exposed to the risks of the economy transitioning from being largely dependent on fossil fuel to clean energy, says a study in the Global Environmental Change journal, published last week.

An analysis of individual loans and bonds found that 60% of the lending to the mining sector was for oil and gas extraction, while one-fifth of the manufacturing sector debt is for petroleum refining and related industries. Electricity production — by far the largest source of carbon emissions — accounted for 5.2% of outstanding credit, but only 17.5% of this lending is to pure-play renewables. Moreover, there was a shortage of experts in India’s financial institutions who had the expertise to appropriately advise the institutions on such a transition, the authors noted.

“Fewer than half of the 154 finance professionals surveyed were familiar with environmental issues, including climate change mitigation and adaption, greenhouse gas emissions or transition risks. Only four of the 10 major financial institutions surveyed collect information on environmental, social and governance (ESG) risks, and these firms do not systematically incorporate that data into financial planning,” the authors noted.

“Our findings suggest that financiers, regulators and policymakers in emerging and developing economies should be acting swiftly to ensure an orderly transition to net-zero,” they said.

Trillion dollars needed

In 2021, Prime Minister Narendra Modi committed India to reach net-zero emissions by 2070. India has also announced plans to source half of its electricity needs from non-fossil fuel sources by 2030. However, the country has also maintained that it needs financing to the order of at least a trillion dollars to meet these commitments.

Mapping India’s policy commitments against these lending and investment patterns reveals that India’s financial sector is heavily exposed to potential transition risks.

“Financial institutions will need to ramp up their capacities relatively quickly as the RBI-led momentum further picks up. The other side of risks is the tremendous opportunity to move finance towards sustainable assets and activities,” said a statement from Neha Kumar, one of the co-authors and the head of South Asia programmes at the Climate Bonds Initiative.

India is expected to launch its first-ever sovereign green bonds auction later this week, with the Reserve Bank of India expected to launch five- and 10-year green bonds worth ₹40 billion.

India’s Presidency of the G-20 also means a focus on the energy transition and mobilising sustainable finance.

High debt

High-carbon industries — power generation, chemicals, iron and steel, and aviation — account for 10% of outstanding debt to Indian financial institutions. However, these industries are also heavily indebted, and therefore have less financial capacity to respond to shocks and stresses.

Coal currently accounts for 44% of India’s primary energy sources and 70% of its power generation.

The country’s coal-fired power plants have an average age of about 13 years and India has 91,000 MW of new proposed coal capacity in the works, second only to China.

According to the Draft National Electricity Plan, 2022, coal’s share in the electricity generation mix will decrease to 50% by the year 2030, compared to the current contribution of 70%.

“The financial decisions of Indian banks and institutional investors are locking the country into a more polluting, more expensive energy supply. For example, we find that only 17.5% of bank lending to the power sector has been to pure-play renewables. Consequently, India has much higher electricity from carbon-sources than the world average, despite its vast potential for cheap solar, wind and small hydropower. Shifting resources towards these renewables would deliver huge benefits: cheaper electricity, cleaner air and fewer emissions,” said Sarah Colenbrander, Director of climate and sustainability at the Overseas Development Institute and a co-author of the study.

4. Editorial-1: A reminder of the flaws in India’s urbanisation policies

A recent report on urban financing for India is another case of a top down approach that is over dependent on technocentric solutions and capital-intensive technologies.

A report by the World Bank, released in November last year, on financing India’s urban infrastructure needs, focuses on private investments ameliorating urban problems. The push to attract private capital, since the 1990s, followed by the urban reforms under the United Progressive Alliance I regime, the Smart City mission, and now this report, continues to plague India’s policy paradigm in the urban sector.

So, has the reform process really been able to attract private capital to urban infrastructure?

After three decades of reforms, urban finance predominantly comes from the government. Of the finances needed to fund urban capital expenditures, 48%, 24% and 15% are derived from the central, State, and city governments, respectively. Public–private partnership projects contribute 3% and commercial debt 2%.

In the last few years, various reports have estimated a huge demand for funding urban infrastructure; for example, the Isher Judge Ahluwalia report says that by 2030, nearly ₹39.2 lakh crore would be required. Likewise, the 11th Plan puts forth estimates of ₹1,29,337 crore for four basic services, ₹1,32,590 crore for urban transport and ₹1,32,590 crore for housing. A McKinsey report on urbanisation has a figure of $1.2 trillion, or ₹90 lakh crore.

World Bank estimates

The World Bank estimates that nearly $840 billion (₹70 lakh crore) would be needed for investment in urban India to meet the growing demands of the population, and $55 billion would be required annually. The flagship programmes of the government, the Smart City mission, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the Pradhan Mantri Awas Yojana (PMAY), etc., are not more than ₹2 lakh crore (that too for a period of five years). So, how will such a gap between demand and supply be matched?

The core idea of the report and the solutions suggested include “improving the fiscal base and creditworthiness of the Indian cities. Cities must institute a buoyant revenue base and be able to recover the cost of providing its services”. In simpler terms, it means increasing property taxes, user fees and service charges to name a few.

This report already points out that nearly 85% of government revenue is from the cities. This means that urban citizens are contributing large revenues even as the World Bank report’s emphasis is on the levying of more burdens in the form of user charges on utilities, etc. But the point is even by enhancing the tax base, will it be sufficient to meet the rising demands of urban infrastructure in the cities?

The answer is that it will not.

Finding alternative paths

The basic problem with this report and other reports drawn up in a similar fashion is that they are made using a top to bottom approach, with too much of a focus on technocentric solutions using very high capital-intensive technologies.

For the urban context, plans must be made from below by engaging with the people and identifying their needs.

Empowering the city governments and the people at large is the second point. In the national task force that reviewed the 74th Constitutional Amendment, chaired by K.C. Sivaramakrishnan, many suggestions were made such as empowering the people, transferring subjects to the city governments, suggesting that 10% of the income-tax collected from cities be given back to them and ensuring that this corpus fund was utilised only for infrastructure building. This would ensure that city governments had an advantage in ensuring rapid transformation.

Another important aspect of urban infrastructure is linked to urban governance, which is in a shambles in most parts of the country. Regular elections should be held in cities and there must be empowerment through the transferring of the three Fs: finances, functions, and functionaries.

Cities primarily are run by parastatals and the city governments hardly have any role to play in the smooth functioning of such parastatals.

The World Bank in its report has stated in the report (page 69): “As an example, state-level management of urban water and sewerage functions may be devolved in a time-bound manner. An improved urban legal framework that includes a stable and certain fiscal transfer regime, accords financial powers to ULBs [urban local bodies] along with attendant rules/regulations… will determine the medium- to long-term scale of investment flows for urban infrastructure.”

The Shimla example

However, the exact opposite is happening. The Shimla water story is an example. The Shimla water works was transformed into a single utility in 2016-17, called the Greater Shimla Water Supply and Sewage Circle (GSWSSC) under the Shimla Municipal Corporation. The Bank rendered help in the form of a soft loan, ensuring an adequate supply of water and proper distribution by the utility, but under the Shimla Municipal Corporation. However, in 2017-18, it changed the character of GSWSSC to a company and formed the Shimla Jal Prabandhan Nigam Limited, now run under a board of directors, but outside the ambit of the municipality.

Such machinations shall not serve the purpose and will be perilous to the entire purpose of the urbanisation in India. The World Bank report is another reminder of the tragedy which Indian urbanisation is witnessing — “policy paralysis from the top”.

5. Editorial-2: Changing politics, incompatible Governors

While the constitutional reasoning that resulted in the institution of Governor may still hold good today, the metamorphosis in Indian politics calls for transformed gubernatorial functioning

The Governors are once again becoming public spectacles in many States, as seen in Punjab, Maharashtra, Kerala, Tamil Nadu, Telangana, West Bengal, Jharkhand, Delhi, and in a few others earlier. Three issues stand out in their grandstanding with the elected governments in the States in question.

First, these are States where non-Bharatiya Janata Party (BJP) governments are in power. Second, the contrarian interventions of Governors are in the name of the supposed powers of the Union or constitutional rectitude. And third, their disagreements spill out in the open, to the media, reinforcing a political divide. Recently, the Governor of Tamil Nadu, R.N. Ravi, seems to have opened another front, i.e., defining the idea of Indian nationalism and imparting lessons to Tamil people. Fortunately, there are a few Governors, even under non-BJP regimes in States, who have shown the sagacity of sorting out issues with their respective governments without attempting to muddy the waters.

While there have been endless arguments on whether the Governor enjoys discretionary authority or not — and if he does, under what constitutional and legal provisions — they may not be able to clinch the argument on an issue as they do not necessarily rule out the contrarian stances. One of the examples of populist posturing is to play the blame game and accuse the other party of doing the same when it was in power. While such charges may be factually correct or close to the charge, bad precedents may not be good examples to imitate. These charges also do not take into account the great churning that the Indian polity has undergone over the years and the challenges that institutions confront to remain abreast with them.

Sea change in States

The arena of the relative autonomy of States underwent a decisive turn from the late 1980s without formally altering the constitutional frame very much. This transformation was manifest in the rise of new political parties with their focus on States, liberalisation of the economy, and greater devolution of economic responsibility to the States. States were made to realise that they could not pass on this responsibility somewhere else.

This shift of power and responsibility was also reflected in policy measures such as the 73rd and 74th Amendments to the Constitution authorising local governance, inclusion and devolution of powers; reforms initiated by P.V. Narasimha Rao-Manmohan Singh team on the economy; and judicial verdicts such as the Bommai case that mandated that the invocation of President’s rule in States called for wider political consensus.

Admittedly, the relative autonomy of States has enhanced their presence as well as responsibilities. This enhanced role of the States does not in any way challenge Union powers, but generally tends to complement and supplement the new challenges and opportunities that it faces. The fears of centripetal tendencies that marked the early years of Independence no more hold good as far as the broad expanses of India are concerned. Atal Bihari Vajpayee detected this shift early and made a remarkable attempt at coalition building (1999-2004) that reflected much sensitivity to the new role that States were called upon to play.

This initiative was also an acceptance of strong regional leaderships in general and regional parties in particular. Strong States were not seen as an affront to national unity but the latter itself was conceptualised as being forged through robust regional bonds. In fact, Vajpayee’s political initiative jolted the Congress party from its focus on a centralised polity predisposing it to pre-poll coalitions at its Pachmarhi (1998) and later Shimla conclaves.

While the rise of the BJP and its shift to Hindutva as its ideological plank from 2014 onwards have affected the re-articulation of Indian federalism, the groundswell that led to the appreciation of State autonomy continues to persist even today. Sound reasoning iterates, loud and clear, that States cannot be cordoned off within the boundaries of the fiat of the Centre any longer.

State leadership to the fore

Given the metamorphosis of politics that India has registered, State leadership, be it of the ruling party in the Centre or regional parties, is invariably called upon to assume greater initiative and responsibility. Its performance has a bearing not merely on the States concerned but on the nation as a whole. State-based initiatives have a cascading impact on the neighbouring States as well. If a regional party has performed well, the Centre should try and outshine it by promising to do better. Interestingly, India’s constitutional frame — and particularly its interpretation by the judiciary hitherto — has been in synchrony with this shift in the political arena.

A reality check

In the changed context, Governors assuming that they know better than elected State leadership goes against a reality check, and may not even serve the interests of the ruling party at the Centre. If they invoke constitutional provisions in defence of their actions, such a reading often turns out to be a shibboleth.

While the constitutional reasoning that resulted in the institution of Governor in India may still hold good today, it calls for a re-orientation. As the constitutional head of the State, there are innumerable concerns, particularly the Directive Principles of State policy, that could be the frame of conversation of the Governor with his government. Such a conversation, however, needs to be in the form of an engagement with his government and the State legislature rather than meant to project him as an independent power centre. The changed context also calls for listening to and closely following public voices and deliberated reasoning in the State and elsewhere rather than harping on constitutional status. Moreover, as a link between his State and the Centre, a Governor brings the wider concerns and promises of the State to the attention of the Centre as well as the public at large, which partisan politics may tend to sidestep.

To be in tune with these demands, Governors should not merely have their ear to the ground but also be attuned to the embedded idea of the common good manifest in its institutions and public culture. In a country such as India it is not difficult to find such persons. It is handy to have in these positions elderly politicians who are surplus in the ruling dispensation or retired bureaucrats and public personnel who are subservient to their political masters. Although criticised for some of his administrative preferences and political views, one Governor who I can recall who measured up to the mark in the changed context was T.N. Chaturvedi, Governor of Karnataka (2002-07), during a difficult period of change of governments both in the State as well as at the Centre.

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