The fiscal year 2020-21 has been an extraordinary one, where India had to face an acute economic crisis triggered by a non-economic factor — a pandemic. The National Statistical Office has estimated that the economy would shrink by 7.7%. There are other estimates which put the shrinkage at an even higher level. Against this background, there were huge expectations from the Union Budget regarding stimulus to growth. The Budget, taken as a whole, has provided reasonable stimulus to growth through a change in the composition of expenditure and other measures to improve the climate for investment. But concerns remain about fiscal deficit.
Transparency versus stimulus
Proposed growth in central expenditure, both in 2020-21 Revised Estimates (RE) and in 2021-22 Budget Estimates (BE), indicates the extent of contemplated fiscal stimulus. Since three quarters of 2020-21 have already passed, the expenditure push in 2020-21 RE over actual expenditure in 2019-20 has to be implemented in the last quarter. Controller General of Accounts data for expenditures already incurred in the first nine months of 2020-21 indicate that for reaching the projected RE levels, the growth required in the last quarter of the current fiscal year over the corresponding period of the previous year would be 102.9% for total expenditure, 109.9% for revenue expenditure, and 60.3% for capital expenditure. These upsurges appear extraordinary. This involves transferring on to the Budget, the accumulated food subsidies amounting to Rs. 2,54,600 crore given to the Food Corporation of India through National Small Savings Fund (NSSF) loans. The balance of subsidies amounting to Rs. 1,68,018 crore would be the food subsidy pertaining to 2020-21 (RE). This is a desirable change towards transparency. Taking revenue expenditure figures as budgeted, a contraction of 2.7% is seen in 2021-22 BE over 2020-21 (RE). However, after adjusting for the NSSF-accumulated food subsidy amount, the growth in revenue expenditure in 2021-22 (BE) is 6.7%. A good part of expenditure for the last quarter of 2020-21 may also pertain to clearing unpaid dues of various stakeholders including the private sector, autonomous bodies and government-aided institutions. Clearing these payments is desirable and would add to demand. It is these overdue expenditures which would enable the government to reach the high expenditure growth levels in the last quarter of this fiscal year. The main expenditure push comes through a budgeted growth of 26.2% in capital expenditure in 2021-22. Relative to GDP, capital expenditure is expected to increase from 1.6% in 2019-20 to 2.3% in 2020-21 RE and 2.5% in 2021-22 BE, signalling a significant change in priority.
Budgeted increase in the Centre’s gross tax revenues is dependent on nominal GDP growth of 14.4%, with a buoyancy of 1.6 for direct taxes and 0.8 for indirect taxes. The assumed high buoyancy of direct taxes appears optimistic although there would be a positive base effect. The nominal income growth projected may also be optimistic.
Significant increases are planned in non-tax revenues and non-debt capital receipts. From a contraction of 35.6% in 2020-21 (RE), non-tax revenues are budgeted to grow by 15.4% in 2021-22. This increase is mainly predicated on higher dividends from non-departmental undertakings and spectrum sales. In the case of non-debt capital receipts, mainly covering disinvestment, a budgeted growth of 304.3% in 2021-22 stands in contrast with the contraction of 32.2% in 2020-21 (RE). Disinvestment initiatives have so far yielded minimal results.
An important initiative pertains to the launching of a National Monetisation Pipeline. This would be the first practical step towards asset monetisation. The pipeline may eventually start yielding revenues, but the time lags involved remain unpredictable because of various potential disputes and claims associated particularly with government-owned land. A transparent auction process needs to be set up to facilitate suitable price discovery. Slippage in revenue estimates may not be ruled out on account of realisation of lower than anticipated increases in nominal GDP growth, direct tax buoyancy, and disinvestment targets.
Infrastructure and initiatives
The budgeted increase in capital outlay would provide the central government’s share to the National Infrastructure Pipeline. However, success of the infrastructure expansion plan would depend on other stakeholders of the pipeline playing their due role. These include State governments and their public sector enterprises and the private sector. Some of the proposed Budget initiatives include setting up of a Development Finance Institution (DFI) with an initial capital of Rs. 20,000 crore, to serve as a catalyst for facilitating infrastructure investment. In order to manage non-performing assets of public sector banks, there is a proposal to set up an Asset Reconstruction Company and an Asset Management Company. These institutional initiatives may prove to be effective. Much depends upon the fine-tuning the operations of these institutions.
In the action taken report, the Union government has accepted the recommended vertical share of 41% for the States in the shareable pool of central taxes. The government has accepted the Fifteenth Finance Commission’s recommendation for revenue deficit grants, local body grants and disaster-related grants. The scope of revenue deficit grants has been extended to cover 17 States in the initial years. The determination of these grants is not based on equalisation principle although some norms have been used in the assessment exercise. However, the government has put on hold the consideration of State-specific and sector-specific grants including performance-based incentives. The substantive issue pertains to the mode of transfers in terms of general-purpose unconditional transfersvis-à-visspecific purpose and conditional transfers. States had shown a preference for the former mode and it is for this reason that the 14th Finance Commission had raised the States’ share from 32% to 42%. The reduction from 42% to 41% is only on account of the consideration of 28 States excluding Jammu and Kashmir because of its new status. The increasing resort to the imposition of cesses which are almost permanent have reduced the shareable pool. In fact, the States’ share in the Centre’s gross tax revenues is only 30% in 2021-22 (BE).
A road map
The COVID-19 shock has fortified the sharp upsurge in fiscal deficits in 2020-21 and 2021-22. The Fifteenth Finance Commission has also proposed a revised fiscal consolidation road map for the Centre and States. The Fifteenth Finance Commission has recommended the setting up of a High-Powered Intergovernmental Group to re-examine the fiscal responsibility legislations of the Centre and States. In the context of COVID-19, some economists have gone to the extent of advocating almost giving up the prudential norms. This will be a wrong lesson to learn from the crisis. The Centre has indicated taking the fiscal deficit to 4.5% of GDP by 2025-26. The Finance Commission has also indicated a similar figure.
The issue of debt sustainability can be certainly re-examined by taking into account the evolving profiles of debt, interest payments, and primary deficits relative to GDP. Fiscal deficit must be related to household savings in financial assets and the interest payments to revenue receipts. It should not be forgotten that in fiscal 2021-22, interest payments to total revenue receipts will be 45.3%, pre-empting a significant proportion of revenue receipts. We must be conscious of the burden of the rising stock of debt.
C. Rangarajan is former Chairman, Prime Minister’s Economic Advisory Council and former Governor, Reserve Bank of India. D.K. Srivastava is Chief Policy Adviser, EY India and former Director, Madras School of Economics. The views expressed are personal
With the din and noise of Joe Biden’s inauguration as the 46th U.S. President behind us, what was striking about the horde of analyses that greeted the occasion was their disproportionate focus on the need to quickly contain the COVID-19 pandemic and to pull the economy out of the current morass. This is unexceptionable under the current, extraordinarily harrowing times. It is slightly disappointing, however, that many observers have chosen to either underplay or ignore the January 6 attack by Trump supporters on the Capitol in Washington, and the symbolism it carries for citizens.
There is a persistent fear that the rampage will launch further strikes at unexpected places and against soft targets. The ease with which the mob gained entry into the Congress precinct is an index of its destructive might. These elements do not trust the Constitution and are not reconciled to a government that vows to heal a fractured society.
A fragmented agency
The Capitol attack also highlighted the chinks in the armour of the fragmented law enforcement agencies, especially the police at the grassroots. The U.S. has more than 15,000 standalone forces under local Mayors, each of whom belongs to a political party. How can one standardise law enforcement procedures and responses in desperate situations like the one on January 6?
Federalism can no longer be an excuse for inaction in a country that is growing increasingly divided, disorderly and violent. The 50 States in the country will have to rise together to strengthen the hands of the Biden government in its efforts to unify the police and make them a reliable tool to root out lawlessness. Mr. Biden’s bipartisan approach alone can bring about this reform, which cuts across crass politics. Therefore, a huge challenge awaits the Biden administration in extirpating the kind of terrorism that was fuelled by white supremacists at the cusp of the shift in the power centre. Domestic terrorism seems to have gained roots, and it cannot be allowed to grow if the U.S. wants a respectable place within the comity of nations.
The new regime would be assessed on its success in stemming the rot and in mending, at least partially, a criminal justice system that is widely perceived as lax and weighed against minorities, especially African-Americans. This is particularly so in the context of Mr. Biden’s assurances that he will work to remove the glaring inequalities in American society. In his inaugural speech, he pulled no punches in referring to the burgeoning black-white divide.
Vice-President Kamala Harris, with her rich experience as a prosecutor and Attorney-General in California, and her multiracial identity, may be able to inject more fairness into the system. Incidentally, a few years ago, she also unveiled her own criminal justice reform measures that addressed the twin problems of mass incarceration and drug abuse.
What is predominant now in the country is the perception that African-Americans are unfairly treated by security agencies, especially the police. The healing process that Mr. Biden talks about cannot ignore the deep mistrust of most African-Americans over the alleged discriminatory treatment received by them at the hands of police and prison officials.
Criminal justice history in the U.S. is pockmarked by outrageous police and prison atrocities on hapless citizens, like the assault on Rodney King in 1991 in the heart of Los Angeles. And who can forget the most recent of all such incidents, in which George Floyd, 46, was killed on May 25 last year, by one of the Minneapolis policemen who arrived on the scene after a shop owner tipped off the police that Floyd was walking away after tendering counterfeit currency for cigarettes? The incident triggered countrywide protests, confirming that the relationship between the average African-American and the police had gone far beyond repair.
The U.S. population is currently over 320 million. Of them, African-Americans account for around 45 million. Though they make up a large portion of the population, the crushing poverty within the community has a disturbingly negative impact on the criminal justice system. Crime is generally — if not always — believed to be proportional to economic status. Over the years, an impression, albeit not wholly supported by raw statistics, has therefore gained ground, that it is African-Americans who commit more crime per capita than the whites. This is often cited to explain the high number of African-Americans in prisons. According to recent official statistics, although incarceration rates have been coming down, at the end of 2019, there were still 1,096 African-Americans in prisons for an aggregate of 100,000 black residents. The corresponding ratio for whites was just 214.
A similar phenomenon was witnessed decades ago, when the New York Police Department (NYPD), under its famous Chief William Bratton, introduced the controversial ‘Stop-and-frisk’ procedure to bring down crime. It got wide backlash from African-American leaders after it was found that more from the community were being searched than others. In the course of time, the practice had to be withdrawn for its blatant unfairness. This is another example of the lack of faith in the police’s efforts to handle crime. African-Americans strongly believe that all anti-crime measures are aimed at them. This is the dilemma that faces those who believe in stern policing.
The Biden government will have to deal with this while handling disorder on the streets. While policing is essentially within the domain of States, the Federal government cannot be a mute spectator.
A non-inclusive force
There is another problem that both Federal and State governments face. Mr. Biden believes in diversity in governance. In this respect, there is no arm that needs greater attention than the police. Despite all efforts over the decades, the police remain a heavily white-dominated force. African-Americans are unwilling to join the police for several reasons, the most important of which is the fear of harassment at the hands of their white supervisors. A magical formula will have to be worked out to make police forces reflect the diversity of the country.
One can go on expanding on the list of reforms that are needed for criminal justice agencies in the U.S, but what is most urgently needed is restoring the police’s credibility in the eyes of African-Americans. This is more easily said than done. A bipartisan approach alone can manage to achieve this.
The author is a graduate in criminal justice from Temple University, Philadelphia and a former visiting fellow at the Harvard Law School and Rutgers University
After its invitation to British Prime Minister and arch-Brexiteer Boris Johnson to visit India, New Delhi plans to start negotiations on investment and trade agreements with the European Union (EU). These are likely to run into the same problems as the discussions that began on a comprehensive free trade agreement in 2007 but were aborted due to differences on movement of professionals, labour, human rights and environmental issues and India’s high tariffs, inconsistent tax regime and non-payment of arbitral awards. Before COVID-19 and Brexit, the EU had the same GDP as the United States and was one of India’s major trade and investment partners. Being the largest democracies and unions of linguistically, culturally and ethnically diverse States, both the EU and India are well suited for a special relationship, but the reality is that the status is one without any spark of mutual chemistry.
The EU now finds itself in an unusually turbulent situation. COVID-19, Brexit and international tensions caused by former U.S. President Donald Trump have unsettled the EU and exacerbated internal discords. The crises of 2020 obfuscated the structural lack of unity in the EU, because despite its desire for greater integration, it faces obstacles from adherence to the rule of law to a strategy for dealing with China, Russia, Turkey and Iran. After months of tortuous negotiation over Hungary and Poland’s objections, member States finally agreed on a long-term budget and a COVID-19 recovery package of $2 trillion. The two countries had opposed anti-COVID-19 support being linked to good governance, in particular, accusations of suppression of human rights and lack of independence in the judiciary.
Shadow of Euroscepticism
The EU’s attempt to condition its budget on the rule of law during the pandemic and recession only sharpened the emphasis on the veto power to which every member State is entitled. Apart from the two main defaulters, many others also resiled on civil liberties, making the option of approving COVID-19 recovery funds by excluding the dissenters a proposition that would have risked a dangerous controversy on how united the EU should be.
It was not only Britain that spawned a populist movement agitating to leave the EU. Europe’s many Eurosceptic parties now focus on preventing closer unity, which has been lacking on the eurozone and migration crises and implementing COVID-19 lockdowns. Elections are due in many EU States, including Germany and the Netherlands, which both have strong Eurosceptic movements. The Alternative für Deutschland (Alternative for Germany) is the official opposition in Germany, while in the Netherlands, Geert Wilders leads the largest opposition party.
The fear of Eurosceptic parties forces mainstream politicians, as in Britain, to adopt populist rhetoric. Dutch Prime Minister Mark Rutteand French President Emmanuel Macron have criticised Islam and anti-secular immigrants, a pattern repeated in other EU countries including Germany, the Czech Republic and Austria.
Trump and a recalibration
The Trump presidency forced Europe to reassess its relationship with America, which stimulated the EU’s drive for greater self-reliance in security, economics, supply chains and climate change, and an attempt to emerge as a major global pillar alongside the United States and China. While there is relief that the U.S. may now be more predictable, Europe will resist taking sides in any U.S.-China tug of war. This is underlined by the EU-China Comprehensive Agreement on Investment concluded after minimal consultation with Washington.
A common security and defence policy also causes division. Mr. Macron would like to see Europe take greater control of its security, but Germany, the Netherlands, Portugal and others are uncomfortable with the prospect of building larger military capabilities, and remain content with security being subsidised by the North Atlantic Treaty Organization and the U.S. while they continue to engage in profitable business with China and Russia.
The COVID-19 pandemic led to riots in the Netherlands for the first time in 40 years, and the resignation of the Italian Prime Minister. It also introduced divisive vaccine nationalism into the Union. The EU hoped that its central vaccination procurement would be a symbol of solidarity, although initially some members closed their borders, Germany and France restricted exports of personal protective equipment, and there was suspicion by some about the motives of others that were hosts to big vaccine producers. Those fissures are now overshadowed by the EU’s procurement programme for the bloc from Astra-Zeneca, Moderna and Pfizer, which warn that vaccines cannot be delivered as scheduled due to production problems despite advance payment, and the anticipated shortfall will be up to 60% in the current year’s quarter. Lately, it transpires that the German government, ostensibly a strong advocate of European solidarity, had negotiated a separate vaccine contract with Pfizer in September last year.
For the EU to resolve these innumerable and diverse problems without further widening existing ruptures will require enormous political will and adroit skill. Trade agreements with India will be the least of its problems.
Krishnan Srinivasan is a former Foreign Secretary
The movement led by farmers against the Central government’s agricultural laws has become a part of our national and international discourse. Keeping aside the merits and demerits of the contentious legislation, the manner in which the Centre introduced the Bills and its actions towards countering the movement have raised plenty of concerns.
A principal concern among these has been the recurrent shutdowns, ordered by the Ministry of Home Affairs, of Internet services around many border areas of NCR since the unruly incidents on January 26. Unfortunately, these blockages are not new. India shuts down Internet services more than any other democracy in the world. The past four years have seen over 400 such shutdowns. Many parts of Jammu and Kashmir saw a partial restoration of digital services after a long period of 223 days — the longest Internet shutdown across the world — since the abrogation of Article 370 in the erstwhile State. Many, including UN rights groups, termed these shutdowns a form of collective punishment for people, and an overreach of governments on citizens’ rights and liberties.
Currently, Indian laws have vague provisions for suspending telecommunication services, including the Internet, during times of public emergencies, or, if required, for protecting ‘public interest’. Meanwhile, the Supreme Court had declared in January 2020 that the right to access the Internet is one of our fundamental rights, alongside the freedom to carry on any trade, business or occupation over the medium of Internet, under Article 19 of the Constitution.
The impact of shutdowns becomes even more pronounced during a pandemic. During the COVID-19 outbreak, the ones with good connectivity and know-how of digital tools were able to carry on with their lives with relatively fewer disruptions. Meanwhile, the ones without digital literacy or connectivity found themselves completely left out of all social and economic systems.
Blanket bans on digital connectivity during the COVID-19 crisis may breed deep-rooted societal difficulties. The most vulnerable among us may be cut off from health and welfare alerts; there could be breaks in vital digital services, including those currently being used by hospitals to monitor the well-being of their patients at risk of infection, including the elderly, and pregnant women; students may lose access to avenues of learning as classes shift online; journalists may find it impossible to do ground-reporting from already volatile areas.
Today, almost all white-collar employment sectors, including IT, financial and consulting services, are encouraging their employees to work from home. Internet shutdowns will freeze economic activity in affected areas and cause large-scale disruptions in economic output. India is estimated to have lost over Rs. 20,000 crore in 2020 because of Internet shutdowns. Despite the costs and inconveniences involved, the shutdowns, on very rare occasions, do become necessary evils. However, it is hard to classify the ones initiated by the Central government in recent years under those categories.
Internet bans should be a last resort and must be enforced following well-formulated protocols. Emergency response and relief systems for the vulnerable have to then work in parallel. Upgrading cyber divisions of law enforcement agencies with new-age innovations may offer several alternatives. The use of some of these technologies, including mass surveillance systems and communication interceptors, also presents its own ethical dilemmas.
As the pace of globalisation, digitisation and connectivity accelerates, balancing civil liberties with security concerns will become an increasingly difficult task. Governments, especially in democracies, will have to create modern, independent institutions that have the authority and expertise to create frameworks that meet these challenges, without falling back on measures that result in state overreach.
Anil K. Antony is the national co-coordinator of AICC’s social media department, and the national coordinator of PIIndia.org
The RBI’s Monetary Policy Committee (MPC) has expectedly yet again left benchmark interest rates unchanged and reiterated that it will continue with its accommodative stance, at least into the next fiscal year, in order to secure a sustained economic recovery. The central bank’s rate setting panel has reasoned that while there are promising signs in the welter of data that it has looked at, the ongoing recovery is “still to gather firm traction” making it crucial to provide continued policy support for restoring growth. The sharp deceleration in retail inflation in December, when headline CPI inflation eased to 4.6% after being stuck above the RBI’s upper tolerance threshold of 6% for six straight months, clearly appears to have smoothed the brow for the six members of the committee and provided them the space to stay focused in the near term on prioritising growth. The rollout of the COVID-19 vaccination programme as well as the Union Budget’s proposals to give a boost to infrastructure, and innovation and research, among other things, have been recognised as factors likely to restore confidence and lend a fillip to the growth momentum, respectively. Rural demand’s persistent resilience is what the MPC sees undergirding the demand recovery, aided, in its view, by good prospects for agriculture. And here, while overallrabisowing has been 2.9% higher year-on-year as on January 29, the farmers’ agitation involving cultivators from key crop-growing States including Punjab, Haryana and U.P. is a cause for concern as a protracted impasse has the potential to disrupt farm output threatening both growth and inflation dynamics.
The central bank has also understandably sought to privilege its role as the government’s debt manager through a clutch of regulatory announcements accompanying the latest monetary policy. The two main measures involve extending the enhanced ‘held-to-maturity’ dispensation for banks buying debt issued by the Centre and States by a year up to March 31, 2023, and allowing retail investors to make direct online purchases of government securities via a ‘Retail Direct’ gilt securities account held with the RBI. With the Centre alone targeting to borrow as much as Rs. 12-lakh crore at the gross level in the coming financial year, the debt manager faces the unenviable task of ensuring that the flood of debt not only finds takers at a price that does not push up borrowing costs for the rest of the real economy but also of trying and preventing it from crowding out demand for private investment credit. With interest rates being held at near record lows and inflation still persisting above the RBI’s benchmark repo rate of 4% resulting in negative real returns for savers, the RBI can ill afford to drop its guard on vigilance over prices.
Australian Open 2021, starting in Melbourne on Monday, will be one of sport’s boldest experiments in the coronavirus era. It can indeed draw upon the experiences of the US Open and French Open, which were successfully held last year even as the pandemic raged in North America and Europe. But the backdrop Down Under is markedly different. Australia has been commended for its COVID-19 response, which has seen robust testing and contact-tracing strategies employed alongside severe lockdowns and border closures to limit the total number of cases to 28,850 and deaths to 909. To airlift more than 1,000 participants from across the world to such an environment has understandably raised hackles in Australian society. That there were eight positive cases among those associated with the tournament did not help, especially after Victoria — of which Melbourne is the most populous city — recently conjured a 61-day streak without a single locally acquired case. Tennis Australia has left no stone unturned, pushing the Major back by three weeks, spending a whopping $40 million on players’ quarantine, organising six warm-up events including the ATP Cup, keeping the overall prize purse same as previous year’s nearly $55 million and securing permission to allow up to 30,000 fans a day. But last week, one positive case at a tournament hotel was all it took to eliminate a full day’s tennis and send 500-odd players and staff into isolation and testing, showing how tenuous things are.
However, once the first ball is struck, events leading up are unlikely to distract from the on-court excellence. Barring 20-time Major winner Roger Federer, who is recovering from a knee injury, the full constellation of tennis stars has arrived. This will be the first opportunity for Rafael Nadal to take sole possession of the men’s record for most Slams, but the Spaniard is yet to play a match this season because of a bad back. Two-time defending champion Novak Djokovic, the clear favourite having triumphed a record eight times here, will want to add to his 17 Slams, while Dominic Thiem, the reigning US Open champion and a losing finalist in Melbourne last year, will look to burnish his credentials as a regular title-contender. Among women, World No.1 and home favourite Ashleigh Barty returns after skipping most of 2020, while a fit-again Serena Williams targets a record-equalling 24th Major. Defending champion Sofia Kenin and the current leading lady of the sport, Naomi Osaka, are the other top draws. Surprise French Open winner Iga Swiatek, and the trio of Daniil Medvedev, Stefanos Tsitsipas and Alexander Zverev among men will be watched with interest. Sumit Nagal, the lone Indian in the singles draw, would like to ruffle a few feathers. But when the mood is of cautious optimism, nothing can be taken for granted.
[Houston, Feb.7] Apollo 14 streaked earthwards to-day and astronauts Alan Shepard, Edgar Mitchell and Stuart Roosa relaxed after successfully completing man’s third and by far most arduous moonlanding mission.
“Okay, we had a good burn, we’re on our way home,” the weary but elated Shepard told Mission Control after firing the spacecraft’s main engine behind the moon to rocket out of lunar orbit and into the 250,000-mile (400,000 kms.) journey that ends with splashdown in the Pacific on Wednesday.
The Apollo to-day fired two of its four jet thrusters in a course correction designed to place it right in the centre of its “entry corridor” for a splashdown in the Pacific.
Meanwhile, the Apollo-14 has begun picking up speed. The increase in speed came as the earth’s field of gravity began to have its effect on the spacecraft, although there still was some effect from the moon’s gravity.
At 3:56 p.m. I.S.T. to-morrow, earth’s gravity will take over completely and the speed of Apollo-14 will increase even more.
The ten-hour rest period scheduled for the spacemen ended at 7:58 p.m. I.S.T..