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Daily Editorials

The state of India’s poor must be acknowledged

Context:

  • If the economy is to be repaired, the number of the poor has to be meticulously counted.

Vishwaguru Vs. Country of Mass Poverty:

  • If the state of the decrepit Indian economy is to be repaired, is to be able to meticulously count the number of the poor and to prioritise them.

  • The World Bank $2-a-day (poverty line) might be inadequate but it would be a start and higher than the last line proposed by the C. Rangarajan committee.

  • There has been hesitation for a variety of reasons to wrestle with the rising numbers of the poor in India.

  • Not least, the pursuit of becoming ‘Vishwaguru’, has hampered this as that pitch works only if the leadership is able to mask the dramatic rise in poverty.

See the source image

Increasing Poverty in India- Indicators:

  • State of India’s poor needs to be acknowledged if India is to be lifted.

  • If we do not bother to know of the increased numbers sliding into poverty, there would be little possibility of moving toward a solution.

  1. Monthly per capita consumption expenditure: First time fall in the of 2017-18 since 1972-73.

  2. A survey in 2013 had said India stood at 99 among 131 countries, and with a median income of $616 per annum, it was the lowest among BRICS and fell in the lower middle-income country bracket.

  3. Global Hunger Index:  The fall of India in the Global Hunger Index to ‘serious hunger’ category.

  4. Malnutrition and Poor Health: India’s own health census data or the recently concluded National Family Health Survey or NFHS-5, which had worrying markers of increased malnutrition, infant mortality and maternal health.

  5. Bangladesh bettering India’s average income statistics, must also be a reason for Indians to introspect.

  6. SDG Index: What kind of growth path has led to India sliding in the sustainable development goals index (by at least two ranks last month) as well as in the per capita income rankings.

  7. Demonetisation + Pandemic: The precarious situation after the demonetisation in 2016 was rendered calamitous with the novel coronavirus pandemic and the shrinking of the economy.

  8. Multidimensional Poverty Index: In 2019, the global Multidimensional Poverty Index reported that India lifted 271 million citizens out of poverty between 2006 and 2016.

  9. In 2020, the Pew Research Center with the World Bank data estimated that ‘the number of poor in India, on the basis of an income of $2 per day or less in purchasing power parity, has more than doubled to 134 million from 60 million in just a year due to the pandemic-induced recession’.

  10. In 2020, India contributed 57.3% of the growth of the global poor. India contributed to 59.3% of the global middle class that slid into poverty.

  11. Country of mass poverty: The last time that ‘India reported an increase in poverty was in the first 25 years after Independence, when from 1951 to 1974, the population of the poor increased from 47% to 56%’. So, India is again a “country of mass poverty” after 45 years.

See the source image

Poverty line debate:

  1. The World Bank $2-a-day (poverty line) might be inadequate to count no of poor in India as it will give unprecedented rise to number of poor in India.

  2. Tendulkar Committee: In India, the poverty line debate became very fraught in 2011, as the Suresh Tendulkar Committee report at a ‘line’ of ?816 per capita per month for rural India and ?1,000 per capita per month for urban India, calculated the poor at 25.7% of the population.

  3. Rangarajan Committee: The anger over the 2011 conclusions, led to the setting up of the C. Rangarajan Committee, which in 2014 estimated that the number of poor were 29.6%, based on persons spending below ?47 a day in cities and ?32 in villages.

Need to Count the Poverty in India:

  1. Urgent cash transfers: The first is because knowing the numbers and making them public makes it possible to get public opinion to support massive and urgent cash transfers.

  2. Minimum wages + High fiscal support: The world outside India has moved onto propose high fiscal support, as economic rationale and not charity; it is debating a higher level of minimum wages than it has in the past.

  3. Gig Economy: Spain has accorded security to its gig workers by giving delivery boys the status of workers. In India too, a dramatic reorientation would get support only once numbers are honestly laid out.

  4. Policies based on true no: Recording the data is so that all policies can be honestly evaluated on the basis of whether they meet the needs of the majority.

    • Is a policy such as bank write-offs of loans amounting to ?1.53-lakh crore last year, which helped corporates overwhelmingly, beneficial to the vast majority?

  5. Accountability: It will create a climate that demands accountability from public representatives.

  6. Public debate: If government data were to honestly account for the exact numbers of the poor, it may be more realistic to expect the public debate to be conducted on the concerns of the real majority.

  7. Wealth Inequality: India has clocked a massive rise in the market capitalisation and the fortunes of the richest Indian corporates, even as millions of Indians have experienced a massive tumble into poverty.

  8. Rich on cost of Poor: Indians must have the right to question whether there is a connection and if the massive rise in riches is not coincidental, but at the back of the misery of millions of the poor.

  9. Similar to billionaire lists: If billionaire lists are evaluated in detail and reported upon, the country cannot shy away from counting its poor.

Way Forward:

  • National Commission for Enterprises of the in the Unorganised Sector: In 2004, had concluded that 836 million Indians still remained marginalised.

  • Commission’s recommendations on social security resulted in the enactment of the Unorganised Sector Workers Social Security Act.

  • At the time his conclusion was ignored — that 77% of India was marginalised — emphasising that it was a problem of a much bigger magnitude, than the figure of 25.7% conveyed.

  • Institutional response: It could not be wished away by simply looking away. The massive slide into poverty in India that is clear in domestic and international surveys and anecdotal evidence must meet with an institutional response.

Source: The Hindu

Fiscal Federalism

Context:

  • If States directly collect more tax, they will become less dependent on the Central government.

See the source image

Centralized Federalism:

  • Preserving the unity of India was a great concern at the time of independence.

  • The rulers of Hyderabad, Jodhpur, Bhopal and Junagadh wanted their own separate countries. In October 1947, Kashmir was invaded with the backing of a very young Pakistan government.

  • Goa was liberated from the Portuguese only in 1961.

  • Hence It was natural that India opted to be a Union unlike the U.S. and many other countries which have federal governments.

  • The essential difference is that the Central government has more authority and power in a Union government.

Issues in Revenue distribution/ Fiscal Federalism:

  1. Collection of Direct taxes: These are income tax and corporate tax. In the U.S., both the federal and State governments collect such taxes from individuals and corporations. This is true in Switzerland and some other countries as well.

    • However, in India, direct taxes go entirely to the Central government.

  2. State’s revenue: State governments also raise their own funds largely through taxes on liquor, property, road and vehicles.

    • At an all-India level, the States get 26% of their total revenue from the Central government.

  3. Share of Gross tax revenues: The Central government is supposed to distribute 41% of its gross tax revenues to the State governments.

    • In the U.S., the federal government distributes about 15% of its revenues.

  4. FC as Sharing Mechanism: State governments get funds from the Central government according to the Finance Commission’s recommendations.

    • Though this is based on some formula, often politics intervenes and some States get less and some more.

  5. Not share 41%: Usually the Central government does not meet the 41% target. We see various States either petitioning or coming into conflict with the Central government on this issue.

  6. Cess: Meanwhile, the Central government has added cess on various items which adds up to over ?3.5 lakh crore.

    • This is not shared with the State governments.

  7. Dependent on Centre: Some of the so-called poorer States get up to 50% of their total revenue from the Central government, making them even more dependent.

    • This gives more economic power to the Central government and allows ruling parties at the Centre to use these funds to their advantage.

  8. Regional disparity in Tax contribution: Another issue is regional disparity. Maharashtra, Delhi and Karnataka contribute the lion’s share of taxes to the government.

    • These three regions along with Tamil Nadu and Gujarat contribute 72% of the tax revenue.

    • Uttar Pradesh, which has the largest population in India, contributes only 3.12% but gets over 17% of the revenue distributed by the Central government.

  9. Revenue distribution: It is based on complex considerations including population and poverty levels.

    • For every ?100 contributed, southern States get about 51% from the Central government, whereas Bihar gets about 200%.

  10. Population Factor and cross subsidy: The population growth rates in the south have come down to near zero, whereas the population in central and north India continues to grow.

    • The cross subsidy from the south to the north will therefore grow.

    • Meanwhile, job seekers and those looking for higher quality education are flocking to the south.

  11. Political power division: On the other hand, political power is concentrated in the north because there are more Lok Sabha seats.

    • The number of seats in each State will be revised in 2026 perhaps based on population and other factors.

  12. Politically marginalisation: This has already created apprehension in the southern States that they will be further politically marginalised.

    • The periodic attempts to declare Hindi a national language fuels widespread resentment.

Beyond the current framework/ Way Forward:

  • Some experts support cross subsidy and others oppose it. Suggestions usually work within the current framework.

  • Making the fund allocation fairer is almost impossible because of politics. We need to look beyond this framework.

  • Greater economic power to states: One step could be to provide greater economic power to the States so that they can directly collect more taxes.

    • It will make them less dependent on the Central government.

    • This would improve Centre-State relations.

  • Period of transition: For poorer States, a period of transition is perhaps required.

  • Focus on external threats: A transition to a more federal structure will allow the Centre to focus on external threats instead of internal dissensions.

    • Today there are threats from China. There may be threats from Afghanistan after the U.S. withdraws its troops.

    • Our internal divisions helped invaders from West Asia and the British. Hopefully, we will learn from our history.

Conclusion:

  • Political and Language Division: Unfortunately, politics does not depend on expert opinion.

    • Why we should subsidise those people who disrespect our language and do not give us political power.

  • Regional differences led to violence in Yugoslavia, Sri Lanka and between East and West Pakistan. Hopefully, we may not see that kind of violence.

  • India’s hard-won independence and unity needs to be preserved.

Source: The Hindu