Today Current Affairs English 4 February 2022

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Does the Budget deliver on Reforms?

Why in news?

The Finance Minister recently presented the government’s ninth comprehensive Budget under Prime Minister Narendra Modi, who was elected to power in 2014 on the promise of delivering “minimal government, maximum governance.”

How well has this Budget delivered on the government’s promise of ‘minimum government, maximum governance’?

The phrase “minimal government, maximum governance” refers to a government that is small but effective. Some scholars argue that in India, where the government is so pervasive at all levels of government, this is a tough goal to attain. However, the Modi government has made significant headway in formalising and measuring governance gains. Rather than delivering public goods, the government has focused on making private commodities more efficient. For example, instead of providing traditional public commodities like LPG, the focus has been on providing subsidised LPG and building bathrooms for certain communities.

 

There is no significant loosening of economic constraints. For example, instead of visiting many windows to obtain clearances, there is now a single one. However, that is still very much a control economics mindset. The concept of’ minimum government’ entails steadily shrinking the public sector’s footprint.

 

Except for the privatisation of Air India, this government has a poor track record when it comes to disinvestment.

What will be the impact of repealing or reducing thousands of laws and compliances?

Positives- Digitization of government procedures is one of the major initiatives that the government has been able to implement. While there are issues about privacy, digitization does make approvals easier.

 

While streamlining and digitization are great, we need a period like 1991, when government regulation is completely dismantled.

Negatives: The consolidation and streamlining of multiple labour laws into four does not result in any substantive changes to the content of the labour laws. The main issue in India is the way labour relations are managed. The concern of streamlining and digitization is that the government’s effective control over private people contracting with one other will become too great.

A common trend has been to criminalise civil offences, but we lack the state power to implement these criminal sanctions.

What is the government’s approach towards crypto currencies and introduction of digital rupee?

Positives– Digital currency is an efficiency-enhancing technology that allows for the reduction of the cost of managing and circulating real cash.

 

The government’s decision to tax virtual digital assets indicates that it no longer plans to outlaw them.

Instead of forcing it underground, it is better to integrate it with the rest of the economy so that everyone benefits.

 

Way forward– The government has capitalised on the opportunity to earn some tax income, but it will require some underlying policy framework because it wanted to ban crypto because it is too volatile.

 

The digital rupee will die before it is born if the government does not have a cohesive policy on the rest of the crypto market. No one will invest in the digital rupee without a robust crypto market.

 

The Indian digital rupee does not appear to be the worldwide norm in the crypto market.

 

If India wishes to avoid other countries, such as China, from dominating the industry, it should allow for a large crypto market with a variety of non-government-controlled crypto currencies.

What can be made out of Budget’s emphasis on Atmanirbhar Bharat?

Self-sufficiency is the essence of Atmanirbhar.

A large portion of it is currently focused on providing local protection as an incentive to investors who may wish to relocate their manufacturing operations from other parts of the world to India.

 

As a result, this isn’t really aiming to improve competitiveness, which is the best way to become a more robust economy. Because Atmanirbhar Bharat is protectionist, it may be detrimental to growth.

 

Furthermore, taxes on capital goods raise the cost of all other items produced in the economy.

What about the comment that public expenditure will “crowd in” private investment?

It would be fantastic for the business sector if public investment resulted in stronger infrastructure and long-term projects. However, it is dubious that public investment will be able to replace private goods production. Health and education spending were completely absent from this Budget, but these are the types of conventional public goods investments that have a long-term effect of crowding out private investment.

 

The multiplier of soliciting private investment in infrastructure is not very significant. When the government is unable to earn sufficient money and must borrow, it effectively crowds out the private sector’s capacity to borrow cheaply in the market.

Gross fixed private capital investment will continue to decline as a percentage of total gross fixed capital investment.

Will Global Minimum Corporate Tax deliver?

What in News?

According to a survey conducted by the Initiative on Global Markets, the Global Minimum Corporate Tax can successfully combat base erosion and profit shifting.

How did the Global Minimum Corporate tax evolve?

The need for a global minimum corporation tax (GMCT) has been debated and emphasised since the OECD launched it in 2019.In 2021, 136 countries agreed to the OECD’s GMCT proposal, which includes a 15% corporate minimum tax. This suggestion was later endorsed by the G20 conference.

What does the accepted proposal call for?

Based on an OECD analysis on base erosion and profit shifting from 2015, the agreed plan argues for a two-pillar solution to address the issues of taxation in the digital economy.

 

Pillar 1: Countries will be able to tax firms that operate within their borders and make an excess profit of more than 10% on sales. It is proposed that the tax rate be set at 25%.This would allow governments to tax corporations wherever they generate revenue, resulting in a tax shift of 125 billion dollars to countries where corporations generate revenue.

 

This measure is projected to have an impact on the world’s top 100 corporations.

Pillar 2- It aims to set a minimum corporation tax rate of 15% over the world.

 

Corporates having annual revenues of more than 750 million euro will be subject to this minimum tax rate. If a corporation pays less than 15% corporate tax in any of its operating countries, its home nation can levy a tax on the company to bring it up to the minimum of 15%.

 

According to the OECD, the new tax regime will encompass 90% of the global economy and generate $150 billion in income for governments.

What were the findings of the IGM Forum Survey?

The Chicago Booth Initiative on Global Markets (IGM) forum provides the opinions of US and European economic expert panels on current and pertinent economic issues such as GMCT.

Benefit- The GMCT would limit the benefits of transferring profits to low-tax jurisdictions while remaining neutral in terms of where corporations invest. Concerns- In order to adopt such a worldwide strategy, all poor countries and tax havens must agree. The political will to put such a policy in place is questionable.

 

It would deter investment in countries where taxes are now low.The effectiveness of taxing corporations where they sell rather than where they manufacture or have their headquarters drew a mixed response.

What is there for India?

Every year, India loses roughly $10 billion in tax income due to profit shifting, making it Asia’s second-largest tax revenue loss. India had already taken steps to prevent foreign corporations from evading taxes. This includes the following:

Levy for equalization SEP (Special Economic Presence) regulations. The most recent tax on digital services

TIEAs (Tax Information Exchange Agreements) between the United States and tax havens

Following the implementation of the GMCT, India is required to repeal these regulations and adopt the proposed two-pillar international norms. This would entail foregoing Rs 4,000 crore in revenue from the equalisation charge, but the minimum rate would open up a new revenue stream. According to the Tax Justice Network, India will gain nearly $4 billion per year under the new rules. Because India’s current corporation tax rate is higher than the recommended worldwide minimum of 15%, a drop in foreign direct investment seems unlikely.

What is the way forward?

The deal’s successful implementation necessitates not excluding any countries that could become tax havens from the pact. Another issue with implementation is that governments have too much incentive to stray. The difficulties in coordinating and enforcing international treaties are demonstrated by OPEC and the EU.

 

Its success is more dependent on political will than economics, as it is determined by how much pressure large countries apply to tax havens. For it to succeed, active and sincere cooperation among the countries is required.

Ignoring green commitments: Weak political will, lack of a monitoring system.

What is the issue?

Despite the fact that several government expert teams have rejected or questioned the sustainability of flagship projects, their approval is rationalised with large compensation measures under the umbrella of strategic interest.

What reflects the negligence in ensuring environmental regulation compliances?

Manpower shortages and resource constraints –

The Ministry awarded about 11,500 environmental and forest clearances between 2014 and 2019.The Environment Ministry, on the other hand, has less than 80 officials in charge of field verification under green rules. At least once a year, they are expected to visit thousands of project locations.

Lack of a reliable compliance mechanism – The lack of an efficient compliance mechanism is what has gone wrong with mega projects’ sustainable development strategy. Self-certification has helped to reduce non-compliance, largely on paper, to a minimum. The rejection rate for forest clearance is less than 1%, demonstrating this.

Lack of strong political will – The government incentivizes states to resolve environmental issues quickly, but environmental institutions are limited in their budget. The “lack of strong political will” in India, according to an OECD analysis from 2006, is to blame. Since then, not much has changed.

Even with megaprojects, a lack of political will is exacerbated by a lack of compliance. The oddity – Rather than enhancing the monitoring process and implementing effective punitive instruments, successive governments have relied on amnesty (post-facto clearance), incentives, and other forms of bribery (subsidies).

What are some real life examples?

Project to connect Ken and Betwa

Several experts deemed the proposal unviable due to its high environmental costs, and it was rejected in 2011.However, it was resurrected in 2016 after receiving techno-economic approval.In 2017, it was decided to clear the forest on a conditional basis.

The addition of an equal amount of revenue land to the Panna tiger reserve should compensate for the diversion of 60.17 sq km of forest land.Though the Environment Ministry does not have the authority to change a restriction imposed by its expert panels, the Ministry of Jal Shakti and the Madhya Pradesh government have been requesting relaxations since 2018.

 

Arunachal Pradesh’s hydel projects

The Environment Ministry and the State have been neglecting the fundamental condition imposed by the Supreme Court in 2004 for the clearance of the 2,000-MW Subansiri project for the past 17 years.

 

Arunachal had not met the essential prerequisite of establishing the watershed woods as a national park for the Dibang multipurpose project.

 

Despite this, the twice-rejected 3,000-MW Dibang multipurpose project has received final forest approval.

 

Tamnar thermal plant and Kulda coal mine

In providing clearances to these projects in the “national interest,” a number of exclusions were made.

The developers — Mahanadi Coalfields Limited and Jindal Power Limited — continued to move coal across village roads, according to the ministry and its expert panels.

 

In Goa, compensatory afforestation is taking place.

In terms of compensatory afforestation, Goa is 50 percent behind. On paper, however, an unprecedented 10-for-1 plantation aim for the intended international airport was authorised.

What does this indicate?

Whether or whether they are justified, developments in strategic industries and locations will incur environmental costs. Promising green solutions that neither regulators nor developers are willing to implement goes against the Constitutional requirement to uphold precautionary principles of sustainable development and public confidence.

 

This also communicates the message that they don’t care about legal obligations, such as court orders.

Other Important Current Affairs:

National Adaptation Fund for Climate Change

The National Adaptation Fund for Climate Change (NAFCC) is a Central Sector Scheme established in the 2015-16 fiscal year. It was created to aid adaptation efforts in Indian states and union territories that are particularly vulnerable to the effects of climate change.

The NAFCC is being implemented in a project-based manner, with 30 projects sanctioned in 27 states and UTs thus far.NAFCC’s National Implementing Entity (NIE) is the National Bank for Agriculture and Rural Development (NABARD).

Adaptation initiatives in areas such as agriculture, animal husbandry, water, forestry, tourism, and others are eligible for funding under the NAFCC.

Coastal operations are included in the NAFCC projects performed in the states of Kerala, Tamil Nadu, and Andhra Pradesh.

 

Fund for Adaptation

In 2001, the Adaptation Fund (AF) was formed.

The AF was created to help developing countries fund concrete adaptation projects and programmes. Parties to the Kyoto Protocol who are particularly vulnerable to climate change’s negative consequences.It is supported by a portion of the earnings from Clean Development Mechanism (CDM) project operations as well as other financial sources.

A CDM project activity’s share of revenues is equal to 2% of certified emission reductions (CERs) issued. The Fund’s Management – The Adaptation Fund Board is in charge of overseeing and managing the fund (AFB).The AFB meets at least twice a year and is made up of 16 members and 16 alternates.

 

Har Ghar Nal Se Jal Scheme

The ‘Har Ghar, Nal Se Jal’ scheme was given INR 60,000 crores in the Union Budget 2022-23 for providing tap water connections to 3.8 crore households for the financial year 2022-23.

The Jal Jeevan Mission, which is implemented by the Jal Shakti Ministry, is responsible for the ‘Har Ghar Nal Se Jal’ Scheme. The goal of this programme is to supply every family with a working household tap connection (FHTC).This will be done in order to relieve family ladies of the duty of fetching water.

The government hopes to give all people of the country with sustainable water supply connectivity and clean drinking water by 2024 as part of the project.

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