1. ‘India expected to invest $1 billion in AI by 2023’
‘Poor practices may cause $81-mn loss’
Global enterprises are expected to invest $98 billion in artificial intelligence (AI) by 2023 and India’s share in it will be about $1 billion, said Project Management Institute (PMI), a Philadelphia-based non-profit organisation with about 28,000 individual members in India.
However, some $54 billion — 55% of this proposed global investment — may go waste due to lack of familiarity or understanding of newer practices, technologies and tools and inability to optimise data. Consequently, the corresponding wastage in India will be $484 million, as per PMI’s estimates.
Further, poor management practices alone may lead to global losses of $11 billion, that is 11.4% of the total investments of $98 billion. India’s individual share in the losses would be $81 million, based on data shared by the professional body. The global failure rate of 55% was applied to India as well, as there was no comparable data available for the country as of now, said Srini Srinivasan, MD, PMI South Asia.
- AI is a constellation of technologies that enable machines to act with higher levels of intelligence and emulate the human capabilities of sense, comprehend and act. Thus, computer vision and audio processing can actively perceive the world around them by acquiring and processing images, sound and speech.
- The natural language processing and inference engines can enable AI systems to analyze and understand the information collected.
- An AI system can also take action through technologies such as expert systems and inference engines or undertake actions in the physical world.
- These human-like capabilities are augmented by the ability to learn from experience and keep adapting over time.
- AI systems are finding ever-wider application to supplement these capabilities across various sectors.
Potential of Artificial Intelligence
Artificial Intelligence has the potential to provide huge value to different sectors and can become a key source of competitive advantage for firms.
Helps address the issue of access to healthcare facilities, particularly in rural areas that suffer from poor connectivity and the limited supply of healthcare professionals.
- It can address challenges such as inadequate demand prediction, lack of assured irrigation, and overuse/misuse of pesticides and fertilizers.
- Improves crop yield through real-time advisory, advanced detection of pest attacks, and prediction of crop prices to informed sowing practices.
Smart Mobility, including Transports and Logistics
- Autonomous fleets for ride sharing,
- Semi-autonomous features such as driver assist, and
- Predictive engine monitoring and maintenance.
To improve user experience and sale through
- personalized suggestions,
- preference-based browsing
- image-based product search
- customer demand anticipation
- improved inventory management
- efficient delivery management
To create a flexible and adaptable technical system to automate processes and machinery to respond to unfamiliar or unexpected situations by making smart decisions.
Energy system modeling and forecasting to decrease unpredictability and increase efficiency in power balancing and usage.
Integration of AI in smart cities and infrastructure help meet the demands of a rapidly urbanizing population and provides enhanced quality of life.
Education and Skilling
- Improving the learning experience through personalized learning,
- automating and expediting administrative tasks, and
- Predicting the need for student intervention to reduce dropouts or recommend vocational training.
Global Developments in AI
Different countries have identified different focus areas for AI development and deployment
- Areas of interest include industrial productivity improvement, healthcare, medical care and welfare, mobility and information security.
- Japan is focusing on moving from the “Industry 4.0” paradigm to “Society 5.0” through the development of AI for delivering public services
Areas of interest include healthcare, environment, transport, mobility, defence-security. The government is planning to support AI startups through data availability, public spending and talent reskilling.
Areas of interest include economic prosperity, educational opportunities, quality of life, national and homeland security.
- Areas of interest include education, healthcare, energy, transport, quality of life, city planning /IoT / robotics.
- China is focusing on developing and using AI for delivery of public services through financial support, developing talent pipeline, and leveraging international cooperation.
Artificial Intelligence in India
A national AI strategy needs to be created on a framework based on India’s unique needs and aspirations, while at the same time capable of achieving the country’s full potential of leveraging AI developments.
Impact of AI in India
- It will improve the quality of life and access of choice to a large section of the country.
- Increased access to quality health facilities (including addressing the locational access barriers)
- Inclusive financial growth for large sections of the population who have been excluded from formal financial products.
- Providing real-time advisory to farmers and help address unforeseen factors to increase productivity,
- Building smart and efficient cities and infrastructure to meet the demands of the rapidly urbanizing population
Key challenges in adoption of AI in India
- Lack of enabling data ecosystems.
- Low intensity of AI research
- Core research in fundamental technologies
- Transforming core research into market applications.
- Inadequate availability of AI expertise, manpower and skilling opportunities
- High resource cost and low awareness for adopting AI in business processes
- Unclear privacy, security and ethical regulations
- Unattractive Intellectual Property regime to incentivize research and adoption of AI
2. Myanmar activists call for non-cooperation campaign
People urged to stop paying electricity bills, farm loans
Activists opposed to Myanmar’s military junta called on people to stop paying electricity bills and agricultural loans from Monday, and to keep their children away from school, scorning the top general’s pledge at a regional summit to end the post-coup crisis.
Scattered protests took place in Myanmar’s big cities on Sunday, a day after Senior General Min Aung Hlaing reached an agreement at a summit of the Association of Southeast Asian Nations (ASEAN) in Indonesia.
The junta chief did not submit to calls for the release of political prisoners, including the leader of the ousted civilian government, Aung San Suu Kyi, and the ASEAN accord lacked any timeline for ending the crisis.
An activist monitoring group says 751 people have been killed by security forces.
A civil disobedience campaign of strikes has crippled the economy and raised the prospect of hunger, international aid agencies have warned.
Pro-democracy activists have called for an intensification of their effort from Monday by refusing to pay electricity bills and agricultural loans, and for children to stop going to school.
“All of us, people in townships, wards and then regions and states must work together to make a successful boycott against the military junta,” activist Khant Wai Phyo said in a speech at a protest in Monywa on Sunday.
“We don’t participate in their systems, we don’t cooperate with them.”
A spokesman for the junta did not answer calls seeking comment.
Non-Cooperation & Khilafat Movement in India
The Non – Cooperation Movement launched by Mahatma Gandhi on August 1,1920 was the first mass movement organized nationwide during India’s struggle for freedom. In this article, we will read in detail about the Non – Cooperation Movement’s causes, methods, impact, and end.
Causes of Non-Cooperation Movement
The Non – Cooperation Movement has had four main causes:
1. Jallianwala Bagh Massacre and Resultant Punjab Disturbances
On April 13, 1919, a large but unarmed crowd gathered at Amritsar in the Jallianwala Bagh to protest the arrest of their popular leaders, Dr. Saifuddin Kitchlew and Dr. Satyapal. However, this unarmed crowd of women and children, among others, was fired mercilessly with rifles and machine guns on General Dyer’s orders. Thousands of people have been killed and injured. Martial law was proclaimed throughout Punjab after this massacre and the people were subjected to the most uncivilized atrocities.
In order to investigate the Jallianwala Bagh incident and the role of General Dyer, the British government set up the Inquiry Disorders Committee, popularly known as the Hunter Committee after its chairman Lord William Hunter. While the Hunter Committee held General Dyer responsible for the Jallianwala Bagh massacre, it upheld his reasons for ordering the firing on the unarmed crowd as well as for imposing martial law in Punjab.
The people of India, due to their clear biases, did not accept the recommendations of the Hunter Committee. There has been unrest among the masses to ensure justice for the wrongs of Punjab has been delivered. In protest, Mahatma Gandhi gave up the Kaiser – I – Hind title granted to him by the British government.
2. Unhappiness with the reforms in Montagu – Chelmsford
The 1919 Government of India Act was enacted based on the 1918 Montagu – Chelmsford proposals recommendations. This Act introduced the ‘ Dyarchy ‘ system and divided topics into lists – Reserved and Transferred. The Legislative Assembly (lower house) was introduced with direct elections, but the right to vote was severely curtailed. In addition, there was no control over the Governor General and his Executive Council by the Legislative Assembly.
Indian nationalists, however, had gone far beyond such stopping concessions. The Indian National Congress met under Hasan Imam’s presidency at a special session in Bombay in August 1918 and condemned the reforms of Montagu – Chelmsford and instead called for effective self – government.
3. Rowlatt Act
The government enacted the 1919 Anarchical and Revolutionary Crimes Act, popularly called the Rowlatt Act, based on the findings of the Rowlatt Committee. This act allowed the government to imprison any person suspected of terrorism for a maximum period of two years without trial. The government passed Montagu Chelmsford Reforms and Rowlatt Act in succession, which were part of the British ‘ Carrot and Stick policy. This action gave the movement a new direction. At all levels of India, Gandhi organized a mass protest.
4. Khilafat Movement
The Khilafat Movement, which began in 1919, brought the Muslims and the Hindus on a common platform against the British rule, was the most important cause of the Non – Cooperation Movement.
Khilafat Movement in India
Turkey had aligned itself in the First World War with Germany – led Axis powers that were defeated by Great Britain – led Allied powers. The political – conscious Muslims were critical of British and their allies treatment of the Turkish (Ottoman) Empire that had divided it and properly removed Thrace from Turkey.
The Muslims also regarded the Sultan of Turkey as the Caliph or the religious head of the Muslims and they strongly felt that his position over the Muslim religious places should not be undermined.
Under the leadership of the Ali Brothers (Maulana Mohammed Ali and Maulana Shaukat Ali), Maulana Azad, Hakim Ajmal Khan and Hasrat Mohani, and countrywide Khilafat agitation, a Khilafat Committee was soon formed. The All – India Khilafat Conference held in November 1919 in Delhi decided to withdraw all government cooperation if the government did not meet its demands.
Mahatma Gandhi saw the Khilafat agitation as “an opportunity not to unite Hindus and Muslims in a hundred years time.”Also, the Muslims League gave full support to the National Congress and its political agitation.
In early 1920, Gandhi declared that the Khilafat question overshadowed the constitutional reforms and the Jallianwala massacre and announced that he would lead a non – cooperation movement if the terms of peace with Turkey did not satisfy the Indian Muslims.
Who were the Leaders of the Khilafat Movement?
The Ali Brothers (Maulana Mohammed Ali and Maulana Shaukat Ali), Maulana Azad, Hakim Ajmal Khan, and Hasrat Mohani were the leaders of the Khilafat Movement. Mahatma Gandhi later also became one of the leaders of the Khilafat Movement in India by strongly advocating the Khilafat cause.
The launch of the Non-Cooperation Movement
The above mentioned causes resulted in unrest among the masses anxious to take political action against the British government. Only added fuel to the fire was the economic hardship suffered by ordinary Indians. On August 1, 1920, the Non – Cooperation Movement was officially launched.
Congress Nagpur session in December 1920 defined the Non – Cooperation program clearly in detail. Following changes to the Indian National Congress Constitution at the December 1920 Nagpur Session:
1. The Congress goal has been shifted from achieving self – government through constitutional and legal means to achieving Swaraj through peaceful and legitimate means.
2. The Congress now had to have a 15-member Working Committee to look after its daily affairs.
3. Linguistically, Provincial Congress Committees were to be organized now.
4. The membership fee was reduced to 4 years per year to make it possible for the poor to join.
5. Congress was to use Hindi as far as possible.
The non – cooperation movement method and spread
Together with the Ali brothers, Mahatma Gandhi undertook a nationwide tour of numerous student and political worker rallies and meetings. This led to thousands of students leaving schools and colleges to join over 800 national schools and colleges throughout the country.
The educational boycott in Bengal was especially successful. C.R Das played an important role in promoting the movement and Subhash Bose became the head of the Calcutta National Congress. The educational boycott was also very successful in Punjab, and Lala Lajpat Rai played the leading role here.
The other successful boycott observed was lawyers such as C.R Das, Motilal Nehru, M.R Jaykar, Saifuddin Kitchlew and others boycotting the law courts.
However, the Non – Cooperation Movement’s most successful item was the foreign cloth boycott. A major form of the boycott was also the picketing of shops selling foreign cloth. Liquor shops were also picketing.
Gandhi and Congress put a lot of stress on handspun Khadi in support of domestic textiles. Charkhas were widely popularized and khadi became the national movement’s uniform.
In July 1921, at the All India Khilafat Conference in Karachi, Mohammed Ali declared that continuing in the British Army was ‘ religiously unlawful for the Muslims. Gandhi repeated Mohammed Ali’s exhortation, adding that every civilian and army member should sever links with the repressive British government.
A movement against Union board taxes has been launched in Midnapore district of Bengal. No – tax movements were also organized in the Andhra district of Guntur in Chirala – Pirala and Pedanandipadu taluka.
In U.P, where a powerful Kisan Sabha movement was underway, Jawaharlal Nehru led the non – cooperation movement among others.
The Non – Cooperation and Khilafat propaganda in the Malabar region of Kerala helped to arouse Muslim tenants, called the Moplahs, against their renters, but the movement sometimes took on a common color.
In Assam, tea plantation laborers went on strike. While Andhra became popular with defiance of forest laws.
The Akali movement took place in Punjab as part of the Non – Cooperation Movement to wrest control of the gurudwaras from the corrupt mahants (priests)
End of the Non-Cooperation Movement
While in 1921 the Non – Cooperation Movement was in full steam, the masses were awakened from their slumber and the grass root workers of Congress, as well as the leadership, were asking Mahatma Gandhi to launch the next phase of mass civil disobedience.
Gandhi announced that massive civil disobedience would begin in the Bardoli Taluka district of Surat and that all other parts of the country should cooperate by maintaining total discipline and silence in order to concentrate the entire attention of the movement on Bardoli.
However, the Chauri Chaura incident occurred before mass civil disobedience could be launched.
Chauri Chaura Incident
A Congress – Khilafat procession took place at Chauri Chaura in U.P. district of Gorakhpur on February 5, 1922. Irritated by some policemen’s behavior, they were attacked by a crowd section. The police opened fire on the unarmed procession in retaliation. Instigated by this, the whole procession attacked the police and the mob set fire to the building when the police hid inside the police station. The cops who were trying to escape were hacked into pieces and thrown into the fire. In the Chauri Chaura incident, 22 police officers were killed.
Gandhi was profoundly disturbed by the Chauri Chaura incident news. Gandhi decided to withdraw the movement because it violated the strict condition of non – violence that he had set for the launch of the civil disobedience phase and the continuation of the non – cooperation movement. Thus, the Non – Cooperation Movement came to an end on February 12, 1922.
Impact of the Non-Cooperation Movement
Despite the failure of the Non – Cooperation Movement to achieve its primary goal of Swaraj, it has succeeded on many other counts highlighted below:
1. The National Congress has shown that it represents the country’s majority opinion. It cannot be charged with representing a ‘ microscopic minority ‘ anymore.’
2. The movement’s geographical spread was also nationwide. While some areas were more active than others, few areas, if any, remained entirely passive to the call for non – cooperation.
3. The Non – Cooperation Movement was the masses ‘ first opportunity to participate in politics and combat injustice and economic hardship caused by years of foreign rule.
4. Notwithstanding the incidents of Malabar, which were not seen later during the Civil Disobedience Movement, there was considerable involvement of Muslims in the movement and the maintenance of communal harmony.
3. India ranked 49th in CGGI
India has been ranked 49th in the Chandler Good Government Index (CGGI), which classifies 104 countries in terms of government capabilities and outcomes. Reuben Abraham, CEO of IDFC Foundation and IDFC Institute, and CGGI Advisory Panel Member, said: “Civil service innovation and capacity building is a key focus for the Indian government. The CGGI shows the importance of investing in governance capabilities.”
Finland topped the CGGI list. The index focuses on seven pillars: leadership and foresight; robust laws and policies; strong institutions; financial stewardship; attractive marketplace; global influence and reputation; and helping people rise.
Good Governance Index (GGI)
It is a tool to assess the status of governance and the impact of various interventions taken up by the State Government and UTs.
The objectives of GGI are:
- To provide quantifiable data to compare the state of governance in all states and UTs.
- To enable states and UTs to formulate and implement suitable strategies for improving governance.
- To shift to result-oriented approaches and administration.
How is the GGI calculated?
The GGI takes into consideration 10 sectors — agriculture and allied sectors, commerce and industries, human resource development, public health, public infrastructure and utilities, economic governance, social welfare & development, judicial and public security, environment and citizen-centric governance.
These 10 governance sectors are further measured on a total of 50 indicators. These indicators are given different weightage under one governance sector to calculate the value.
The states and UTs are divided into three groups — big states, north-east and hill states, and Union territories.
Key Findings of the first GGI Report:
- Top performers among the big states: Tamil Nadu, Maharashtra, Karnataka, Chhattisgarh, Andhra Pradesh and Gujarat. The bottom six states are Odisha, Bihar, Goa, Uttar Pradesh and Jharkhand.
- Among the North-East & Hill States: Top 3 states are Himachal Pradesh, Uttarakhand and Tripura. The bottom 3 states are Meghalaya, Nagaland and Arunachal Pradesh.
- Pondicherry leads among the UTs followed closely by Chandigarh with Delhi bagging the third spot. Lakshadweep is at the bottom among the UTs.
- Sector-wise ranking: In the environment sector:
- The top three states are West Bengal, Kerala and Tamil Nadu.
- The bottom 3 states are Telangana, Andhra Pradesh and Goa.
- Judicial and public security ranking: West Bengal is at the bottom two in the judicial and public security ranking. Tamil Nadu tops the chart here.
- Economic governance: Karnataka is at the top under the economic governance category.
- Health: Kerala is at the top in the public health sector.
4. DRDO develops crystal blades for aero engines
60 such blades supplied to HAL
In a major technological breakthrough, the Defence Research and Development Organisation (DRDO) on Monday said it has developed single crystal blade technology and supplied 60 of such blades to the Hindustan Aeronautics Limited (HAL) as part of their indigenous helicopter development programme for helicopter engine application.
“It is part of a programme taken up by the Defence Metallurgical Research Laboratory (DMRL), a laboratory of the DRDO, to develop five sets, 300 in number, of single crystal high pressure turbine (HPT) blades using a nickel-based super alloy,” the DRDO said in a statement. The supply of the other four sets would be completed in due course, it said.
Very few countries such as the U.S., the U.K., France and Russia have the capability to design and manufacture such single crystal components, it said. The DRDO has been working for a long time to develop this technology which is a critical component in aero engines.
Helicopters need compact and powerful aero-engines for operating at extreme conditions and to achieve this, state-of-the-art single crystal blades having complex shape and geometry, manufactured out of nickel-based super alloys capable of withstanding high temperatures of operation are used.
5. Editorial: Another wave spells more nutrition loss
The inability of those already on the brink of subsistence to absorb a second economic shock cannot be overlooked
The political and social handling of the COVID-19 pandemic have added to the persisting issues of food insecurity faced by millions in India even prior to the novel coronavirus pandemic India consistently has ranked poorly in all international rankings on hunger (ranking 102 among 117 countries in the Global Hunger Index 2019). With the second, more vigorous wave of COVID-19, the inability of those already on the brink of subsistence to absorb a second economic shock cannot be overlooked even as the current health crisis is creating havoc. Rural distress specifically needs closer examination and urgent policy attention.
Data collection, findings
The Rapid Rural Community Response, or RCRC (https://bit.ly/3etWSsE) to COVID-19, a collective of over 60 non-governmental organisations has collected three rounds of data since the lockdown. The data provide crucial evidence of the nature and persistence of food and financial insecurity among the poor residing in rural areas.
The third round conducted between December 2020-January 2021 has collected data from 11,766 households across 64 districts, in Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Telangana and Uttar Pradesh.
Cutting down on food
The most recent data suggest a persistence of cutting down on food even nine months after the first lockdown, during the seeming “revival” period. While 40% of the sample cut down on food during the first lockdown, an alarming 25% reportedly continued to cut down on food during the most recent survey conducted between December and January 2021. Households reported cutting down on nutritious food — 80% cut down on milk, vegetables, pulses and oil (around 50% reported cutting down on pulses alone). Disaggregating the figure, we find that the poorer, socially marginalised Dalits, and those with lesser access to food security schemes (such as migrants) faced more severe food insecurity. Comparing similar households, we find households in Uttar Pradesh and Jharkhand were faring among the worst performing States. These reductions will undoubtedly further accelerate the impending effects on children’s nutrition, as highlighted in the National Family Health Survey or NFHS-V (2019-20) and the Global Food Policy Report, 2021.
The loss in nutrition may have come as a consequence of people losing their jobs and/or being pushed into lower income brackets over time due to the nature and handling of the pandemic.
Reduction in incomes
Pew Research Center has indicated that the middle class in India has shrunk by over 32 million households in the past year (https://pewrsr.ch/2R3J3sU). We find an indication of a downward shift in incomes even among a much poorer sample of households. Our survey suggests an over 70% reported reduction in incomes post the pandemic, with many falling into significant precarity. While 55% of households recalled earning less than ₹5,000 per month prior to the pandemic, around 74% reported doing so in December 2020-January 2021. It is thus unsurprising that around 30% households were also seeking loans, and among them, at least half of them reported needing loans for food, all indicative of the debilitating food and financial insecurities that poor households continue to face.
Migrants on the margins
The second wave of the pandemic comes on the back of an uneven recovery and persistence of crippling food and financial insecurity among the poorest households, especially migrants. Migrants who have travelled to cities only months ago are again travelling back to their villages. In our sample, 74% households had migrant members who had returned to the village during or after the lockdown (in mid-2020); 57% among them had gone back to the destination city by December-January, with 59% of those remaining also wanting to go back. It was the relatively disadvantaged who had not been able to find their way back to the cities. There was limited support for migrants even in existing social protection schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). For example, among the poorest, households with migrants were more likely to seek work than those without (43% versus 32%), but less likely to get work (49% versus 59%) under the scheme.
It is clear that households have not had a chance to rebuild, and with many completely exhausting their savings and facing massive debt, they are bound to be more severely hit than last year. In the face of such a threat, including high unemployment that is steadily rising again, the state must ensure immediate, sustained action.
Food security is a must
The Government has promised to restart the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) with 5 kg of rice/wheat per person per month for the next two months. The government needs to provide similar support for stabler longer periods; expand the current offering to include nutritious foods like pulses; address issues faced in existing schemes such as MGNREGA (like delays in wages and rationing); and new schemes such as a potential urban employment scheme should be explored. Food security schemes such as ration provided to children through anganwadis, Public Distribution System and mid-day meal scheme in primary schools need to be ramped up systematically and urgently. For migrants stuck in cities without work, community kitchens (such as Amma canteens) are required. The most vulnerable will need more predictable and stable support than ever before.
6. Editorial-5: An idea on taxation that is worth a try
The proposal for a minimum global corporate income tax could be a game changer
United States Secretary of the Treasury Janet L. Yellen’s proposal for global coordination of corporate taxation has huge implications. She has proposed a global minimum tax rate. If the major world economies agree and the U.S. Congress approves the increased tax rates, it would constitute a reversal of the trend in tax policies since the collapse of the Soviet Bloc 30 years back. Would Ms. Yellen succeed in convincing OECD countries and the U.S. Congress? David R. Malpass, President of the World Bank, representing the interest of global capital, has voiced his opposition. He was shooting from the shoulders of the poor countries when he said the proposal “…would hinder poor countries’ ability to attract investment”.
The initiative which has been long overdue is being forced on the rich countries by the impact of the pandemic. Presently, governments need resources to help people through transfer of incomes, provision of more public services and also prevent business failures. But their resources have been adversely impacted by the economic downturn. Consequently, fiscal deficits have reached record high levels. In the pre-pandemic era, such levels of deficit would have led to the tanking of the stock markets but now they are booming in anticipation of demand being pumped in by these high deficits. The result is a massive increase in inequality between those who have gained in the stock markets and those who have lost employment and incomes.
Massive deficits in the budget
The Joe Biden administration is proposing a massive $3 trillion package to boost the economy. A large part of this will be spent in 2021 but some of it will be staggered. This will be in addition to the $1.9 trillion package of relief already approved soon after the Biden administration took office. This package came after former President Donald Trump signed on the $900 billion stimulus package in end December 2020 and more than $2 trillion in mid-2020. Thus, in addition to the pre-existing deficits in the budget an additional 15% of GDP is being added in both 2020 and 2021. These are unprecedented levels.
Additional tax collections can help reduce these large deficits and that is the reason for the U.S. administration’s current proposal. But businesses and conservative legislators will resist. However, some rich Americans like Jeff Bezos have supported the idea of taxing the rich more. Such proposals have been around since 2011 when many of the rich in the U.S. and Europe had supported higher taxation on the rich. Warren Buffet had floated this proposal to strengthen capitalist economies after the global financial crisis of 2007-09. Subsequently, this proposal has come up several times. But, instead of raising the tax rate on corporations, the Trump administration cut the highest marginal tax rate from 35% to 21% with effect from January 1, 2018. This gives a hint as to why it is both difficult to raise corporation tax rates and why Ms. Yellen has proposed a global agreement on corporate taxation.
When the Soviet Bloc collapsed in 1990, nations in east Europe were badly hit and needed capital infusion to overcome their economic woes. To attract global capital, they cut their tax rates sharply. This resulted in a ‘race to the bottom’. Nations in Europe were forced to cut their tax rates one after the other to not only attract capital but also to prevent capital from leaving their shores. This had global implications.
Nations became short of resources and cut back expenditures on public services and encouraged privatisation. Governments lacked resources for education, health and civic amenities. The developing countries followed suit even though private markets do not cater to the poor. Thus, disparities increased within nations.
BEPS and loss of revenue
The world experienced Base Erosion Profit Shifting (BEPS). Namely, companies shifted their profits to low tax jurisdictions, especially, the tax havens. For instance, many of the most profitable companies like Google and Facebook are accused of shifting their profits to Ireland and other tax havens and paying little tax. EU has levied fines on Google and Apple for such practices. Former U.S. President Barack Obama in 2009 had said that the U.S. was losing $100 billion in taxes due to such practices.
Since all the OECD countries have suffered due to cuts in tax rates and BEPS, initiatives have been taken to check these practices. But they will not succeed unless there is agreement among all the countries. Any country facing economic adversity can cut its tax rates to attract capital and force others to follow suit. India has also cut its tax rates since the 1990s. Most recently in 2019 the corporation tax rate was cut drastically to match those prevailing in Southeast Asia. Such cuts have implications for both inequality as well as for funding the schemes for the poor and the quality of public services.
The regressive tax structure
Another implication of the reductions in direct tax rates has been that governments have increasingly depended on the regressive indirect taxes for revenue generation. Value-Added Tax and Goods and Services Tax have been increasingly used to get more revenues. This impacts the less well-off proportionately more and is inflationary. Direct taxes tend to lower the post-tax income inequality. The rising inequalities result in shortage of demand in the economy and to its slowing down which then requires more investment and that calls for more concessions to capital. However, that does not guarantee revival because investment in response to a tax cut is uncertain. Instead, increased government expenditures are sure to raise demand.
Global financial capital which is highly mobile has effectively used tax havens and shell companies to shift profits and capital across the globe. This mobility has enabled it to extract concessions from countries by making them compete with each other to match the concessions given by another — that is the ‘race to the bottom’. So, without global coordination, corporation tax rates cannot be raised.
The U.S. is crucial to this coordination — without its cooperation and agreeing, other countries cannot raise the rates. Now that the U.S. is taking the lead, perhaps this will happen even though it will not be easy given the clout of global capital in the corridors of power in all countries. There will also have to be cooperation among countries to tackle the lure of the tax havens by enacting suitable global policies. The impact of all this will be far-reaching impacting inequalities, provision of public services and reduction of flight of capital from developing countries such as India and that will impact poverty. So, a global minimum tax rate is worth a try in spite of the objection raised by the World Bank President.