DAILY NEWS ANALYSIS 09 JUNE
DNA 9TH June 2020
Editorial
The critical role of decentralised responses
This article makes some suggestions to improve local finance and argues that the extant fiscal illusion is a great deterrent to mobilisation.
Better position in handling disasters
-In terms of information, monitoring and immediate action, local governments are at an advantage, and eminently, to meet any disaster such as COVID-19.
-While increasing the borrowing limits of the state form 3.5% of GDP to 5%, there was a recognition that local governments should be fiscally empowered immediately.
-This is a valid signal for the future of local governance.
4 challenges posed by Covid and addressing them collectively
- economic,
- health,
- welfare/livelihood
- resource mobilisation.
These challenges have to be addressed by all tiers of government in the federal polity, jointly and severally.
Local government empowerment: 5 critical areas
- Own revenue is the critical lever of local government empowerment.
- But the several lacunae that continue to be devil local governance have to be simultaneously addressed.
- The new normal demands a paradigm shift in the delivery of health care at the cutting-edge level.
- The parallel bodies that have come up after the 73rd/74th Constitutional Amendments have considerably distorted the functions-fund flow matrix at the lower level of governance.
- There is yet no clarity in the assignment of functions, functionaries and financial responsibilities to local governments.
- Functional mapping and responsibilities continue to be ambiguous in many States.
- Instructively, Kerala attempted even responsibility mapping besides activity mapping.
- The critical role of local governments will have to be recognised by all.
Let’s look into resource mobilisation issue: 3 Heads
A few suggestions for resource mobilisation are given under three heads:
- Local finance,
- Members of Parliament Local Area Development Scheme-MPLADs,
- The Fifteenth Finance Commission (FFC)
1. Local finance
-Property tax collection with appropriate exemptions should be a compulsory levy and preferably must cover land.
-The Economic Survey 2017-18 points out that urban local governments or ULGs, generate about 44% of their revenue from own sources as against only 5% by rural local governments, or RLGs.
-Per capita own revenue collected by ULGs is about 3% of urban per capita income while the corresponding figure is only 0.1% for RLGs.
-There is a yawning gap between tax potential and actual collection, resulting in colossal underperformance.
-When they are not taxed, people remain indifferent.
-LGs, States and people seem to labour under a fiscal illusion.
-In States such as Uttar Pradesh, Bihar and Jharkhand, local tax collection at the panchayat level is next to nil.
-Property tax forms the major source of local revenue throughout the world.
-All States should take steps to enhance and rationalise property tax regime.
-A recent study by Professor O.P. Mathur shows that the share of property tax in GDP has been declining since 2002-03.
- The share of property tax in India in 2017-18 is only 0.14% of GDP as against 2.1% in the Organisation for Economic Co-operation and Development (OECD) countries.
-If property tax covers land, that will hugely enhance the yield from this source even without any increase in rates.
Other 2 options for raising finances
1) Land monetisation and betterment levy may be tried in the context of COVID-19 in India. To be sure, land values have to be unbundled for socially relevant purposes.
2) Municipalities and even suburban panchayats can issue a corona containment bond for a period of say 10 years.
We are appealing to the patriotic sentiments of non-resident Indians and rich citizens.
Needless to say, credit rating is not to be the weighing consideration.
That the Resurgent India Bond of 1998 could mobilise over $4 billion in a few days encourages us to try this option.
2) MPLADS
-The suspension of MPLADS by the Union government for two years is a welcome measure. The annual budget was around ₹4,000 crore.
-The Union government has appropriated the entire allocation along with the huge non-lapseable arrears.
-MPLADs, which was avowedly earmarked for local area development, must be assigned to local governments, preferably to panchayats on the basis of well-defined criteria.
3) Fifteenth finance commission-FFC
-A special COVID-19 containment grant to the LGs by the FFC to be distributed on the basis of SFC-laid criteria is the need of the hour.
-The commission may do well to consider this.
-The local government grant of ₹90,000 crore for 2020-2021 by the FFC is only 3% higher than that recommended by the Fourteenth Finance Commission.
-Building health infrastructure and disease control strategies at the local level find no mention in the five tranches of the packages announced by the Union Finance Minister.
Suggestions for grants
-The ratio of basic (i.e. with no conditions) to tied (with condition)grant is fixed at 50:50 by the commission.
-In the context of the crisis under way, all grants must be untied for freely evolving proper COVID-19 containment strategies locally.
-The 13th Finance Commission’s recommendation to tie local grants to the union divisible pool of taxes to ensure a buoyant and predictable source of revenue to LGs (accepted by the then Union government) must be restored by the commission.
COVID-19 has woken us up to the reality that local governments must be equipped and empowered. Relevant action is the critical need.
Economy
Rising forex reserves and its importance
Context: Amid pandemic, India’s foreign exchange reserves are rising and are slated to hit the $500 billion mark soon.
In the month of May, forex reserves jumped by $12.4 billion to an all-time high of $493.48 billion for the week ended May 29.
Forex reserves
Forex reserves are external assets in the form of gold, SDRs (special drawing rights of the IMF) and foreign currency assets (capital inflows to the capital markets, FDI and external commercial borrowings) accumulated by India and controlled by the Reserve Bank of India.
Importance:
-Official foreign exchange reserves are held in support of a range of objectives like supporting and maintaining confidence in the policies for monetary and
-Exchange rate management including the capacity to intervene in support of the national or union currency.
-It will also limit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed.
Why are forex reserves rising despite the slowdown in the economy?
-Rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs).
-Fall in crude oil prices has brought down the oil import bill, saving the precious foreign exchange.
-Overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.
What’s the significance of rising forex reserves?
-The rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 1.5 per cent in 2020-21.
-It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year.
-The rising reserves have also helped the rupee to strengthen against the dollar.
-Reserves will provide a level of confidence to markets that a country can meet its external obligations.
- Demonstrate the backing of domestic currency by external assets.
-Assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.
Where are India’s forex reserves kept?
-The RBI Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.
-As much as 64 per cent of the foreign currency reserves is held in the securities like Treasury bills of foreign countries, mainly the US.
-28 per cent is deposited in foreign central banks.
-7.4 per cent is also deposited in commercial banks abroad.
India also held 653.01 tonnes of gold as of March 2020, with 360.71 tonnes being held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically.
Defence
Airborne Rescue Pod for Isolated Transportation (ARPIT)
-The Indian Air Force has designed, developed and manufactured an Airborne Rescue Pod for Isolated Transportation (ARPIT).
-This pod will be utilised for evacuation of critical patients with infectious diseases including COVID-19 from high altitude area, isolated and remote places.
-Requirement of an air evacuation system with facility to prevent spread of infectious aerosol from a COVID-19 patient during air travel was felt by IAF when COVID-19 was declared as a pandemic.
-This indigenously designed system has been developed at a cost of Rs. 60,000 only, which is very less as compared to the imported systems costing up to Sixty Lakh.
-The system has been developed as a lightweight isolation system made from aviation certified material.
-The ARPIT Design requirements have been evolved and are based on the guidelines issued by Ministry of Health and Family Welfare (MoHFW), National Accreditation Board for Hospitals & Healthcare Providers (NABH) and Centre for Disease Control (CDC), USA.
Polity
Central Administrative Tribunal
Context: 18th Bench of Central Administrative Tribunal (CAT) for the Union Territories of Jammu and Kashmir and Ladakh inaugurated recently.
The Central Administrative Tribunal was established by an Act of Parliament namely Administrative Tribunals Act, 1985 as sequel to the 42nd amendment of the Constitution of India inserting Article 323 A.
Functions:
The tribunal adjudicates disputes and complaints with respect to Recruitment and Conditions of Service of the persons appointed to the Public Services and Posts in connection with the affairs of the Union or any State or of any other Local Authorities within the territory of India or under the control of the Government of India.
Composition:
The Tribunal is headed by the Chairman and 65 Members, 33 from Judicial (including Chairman) and 33 from the Administrative stream. The Chairman is normally a retired Chief Justice of a High Court.
Source: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1630213
Health
COVID BEEP
Context: Union Minister Dr.Jitendra Singh launches COVID BEEP, India’s first physiological parameters monitoring system for COVID-19 patients.
More facts:
-It is India’s first indigenous, cost effective, wireless physiological parameters monitoring system for COVID-19 patients.
-It is developed by ESIC Medical College Hyderabad in collaboration with IIT Hyderabad and Department Of Atomic Energy.
-The latest version of COVID BEEP has also been incorporated in the ECG monitoring. COVID BEEP will greatly reduce the transmission risk as well as help save resources like PPEs.
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