Please wait...
THANKU FOR BEING A PART OF OUR JOURNEY TO BRING "REVOLUTION IN EDUCATION"
We Genuinely APPRECIATE your PATIENCE

Daily Current affairs 9 January 2019

UPSC - Daily Current Affair

 

10% quota faces several legal and political challenges

The News

  • The 124th Constitution Amendment Bill, 2019, to provide 10% quota for ‘economically weaker sections of the people who are not covered by any of the existing schemes of reservation’ has been passed in the Lok Sabha. 

 

Background

  • It is a fact that there are poor individuals even among the Socially Advanced Castes (SACs) and they too do need help.
  • In this context, in 1990, V P Singh offered to bring a Constitutional amendment to enable provision of 5% or 10% reservation for individuals who are economically poor, without reference to and irrespective of caste. This received scant attention from the Opposition.
  • Subsequently, the P V Narasimha Rao government issued a memorandum to provide reservation of ‘10% of the vacancies in civil posts and services under the Government of India’ for other economically backward sections of the people who are not covered by any of the existing schemes of reservations.
  • This particular provision was struck down by the Supreme Court in its landmark Mandal casejudgment on the ground that the Constitution does not provide for reservation for any individual on economic basis alone or on the basis of poverty alone.
  • Also, certain state governments from time to time made for reservation for the poor among the non-SC, non-ST, and non-BC castes, which on challenge were struck down by the High Courts or the Supreme Court.
  • The issue discussed here is what specific problem is faced by the EWS from socially advance caste and what the appropriate constitutionally sustainable solution is for it.

                                                                                                                             

Constitutional provisions related to reservation

  • Under article 15 (1), there is the principle of Equality, which prohibits the State from discrimination against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them.
  • Under article 16 (1), it guarantees equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State, on the same grounds as in Article 15(1).
  • However, Article 15(4) empowers the State to make any provision for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and Scheduled Tribes.
  • Moreover, Article 16(4) provides for the reservation of appointments or posts in favour of any backward class of citizens, which in the opinion of the State, is not adequately represented in the services under the State.
  • Article 46 under directive principles of state policy provides for promotion of education and economic interests of SC, ST, and other weaker sections.
  • The term “backward class of citizens” has been generally understood, and also defined by the Supreme Court in the Mandal case (Indra Sawhney vs Union of India, 1992) judgment, to include the SCs, STs, and SEdBCs.

 

Highlights of the proposed reservation

  • The 124th constitutional amendment bill aims to bring in amendments to Articles 15 and 16 of the constitution to provide reservation of 10% for economically weaker sections of the people who are not covered by any of the existing schemes of reservation.
  • Eligibility for quota
    • It is applicable to all those who are not covered in existing quotas and have a family income below ₹8 lakh a year or agricultural land below 5 acres.
    • Those who have a house above 1,000 square feet or a 100-yard plot or above in a notified municipal area or a 200-yard plot or above in a non-notified municipal area are not eligible.
  • Steps required to implement the decision
    • The 124th Constitution Amendment Bill, 2019 will have to be passed by both Houses of Parliament by a special majority.
    • This means to be passed by two-thirds of the members present and voting, which should not be less than one-half of the total strength of the House.
    • The Bill will also have to be ratified by at least half the State Assemblies.
    • If it is not passed by both the Houses within the term of this Lok Sabha, it will lapse.

 

Challenges likely to be faced by the bill

  • Backwardness and Basic structure of constitution
    • Unlike the Previous attempt, the present Cabinet seems to have decided to introduce Constitutional amendments in Articles 16 and 15 to facilitate the provision of 10% reservation for the “economic backward” but it is a doubt if such an amendment will be constitutionally sustainable.
    • It can be challenged in the Supreme Court.
    • It is becausethe Constitution provides reservation only for any “backward class of citizens” because they suffered, in varying degrees, from exclusion from education and employment under the State and other opportunities of advancement.
    • However, individuals of the SACs did not suffer from such exclusion.
    • Hence, it is likely to be held that the proposed Constitution amendment and the proposed provision of 10% reservation for individuals of the SACs are violative of the basic structure of the Constitution.
  • 50 % cap on reservation by Supreme Court
    • Once passed, it will most likely have to stand the test of judicial scrutiny, as the Supreme Court had in the Indra Sawhney case capped quotas at 50% of the available seats.
    • It is also likely to be held that the grounds for this do not come within the exceptional circumstances in which breach of the 50% limit can be permitted.
  • Criteria for poor
    • The appropriateness of the proposed criteria for the SAC poor may also raise question marks.
  • Inadequacy in representation
    • In the case of reservation in the services, a specific criterion is inadequate representation in the services.
    • The SCs, STs and SEdBCs continue to be inadequately represented, whereas the SACs do not suffer from inadequacy of representation.

 

Implications of the proposed quota

For Economically Weaker Sections

  • If the EWS is treated as a category just like the SC, ST and OBC, a large chunk of general category candidates will apply for just 10% seats and the cut-offs can rise even greater than the general category.
  • The latest example of this is the recent Rajasthan state services where the OBC cut-off was more than that of general.
  • This can give rise to litigations and delay in concluding the exams.
  • Moreover, so many who are above the general cut-off may still occupy this 10% quota, as they get a better service or cadre with reservation.

 

Social and Political implications

  • If the Supreme Court indeed agrees to lift the 50% cap, all States of India can extend the quantum of reservation and “upper castes” will stand to lose in State services.
  • If the Supreme Court rejects the idea of breaching the 50% cap, Economically Weaker Section (EWS) quotas can be provided only by eating into the SC, ST and OBC quota pie, which will have social and political implications.
  • Upper castes may react positively to the move, which may have some appeal to upper castes in States where the BJP is weak, but one does not know the extent of the political benefit.

 

Way forward

  • The major problem faced by children and young people of Socially Advanced Castes who are genuinely poor is that they are not able to afford education to the fuller level for want of financial capacity.
  • This problem can be resolved by having a comprehensive scheme of scholarships and educational loans, so that no child or youth of any caste has to drop out of education at any stage only on account of financial incapacity.
  • At the same time, this should not be at the cost of the SCs, STs and SEdBCs whose needs have till now not been fully provided for, and have to be fully provided for.

Show full text

Section : Polity & Governance

 

Lok Sabha passes DNA technology Bill

The News

  • In a step towards establishing gold standard in criminal investigations, the Lok Sabha passed the landmark DNA Technology (Use and Application) Regulation Bill 2019.

 

Objectives of the bill

  • The bill seeks to regulate the use of DNA technology to establish the identity of certain defined categories of persons including missing persons, victims, offenders, under trials, unknown deceased persons and determine biological relationships between individuals.
  • It seeks to allow the use of DNA technology in matters of crime, parentage dispute, emigration or immigration and transplantation of human organs.
  • Thereby supporting the criminal investigation and justice delivery system in the country, allowing the storage of genetic information of select persons.

 

Key Provisions of the bill

  • DNA Profiling
    • The bill seeks to authorise and regulate the collection and storage of DNA information from a limited category of individuals "in conflict with the law".
    • It involves only individuals involved in cognisable offences under criminal laws.
    • Dubbed as the DNA profiling bill, it allows law enforcement agencies to collect DNA samples, create “DNA profiles” and special databanks for forensic-criminal investigations.
    • However it doesn’t aim to create a database of DNA profiles.
    • The databanks can only store information related to criminal investigations and the DNA details of suspects will be deleted.
  • DNA databanks
    • The bill provides for establishment of National and Regional DNA Data Banks that will store the data on DNA profiles to assist in forensic investigations.
    • The national and regional DNA data banks will maintain the indices, including crime scene index, suspects’ or undertrials’ index and offenders’ index for the data so collected.
  • Regulation of DNA laboratories
    • The bill provides for establishment of a DNA Regulatory Board.
    • The DNA Regulatory Board would be the final authority that would authorise the creation of State-level DNA databanks, approve the methods of collection and analysis of DNA-technologies.
    • The bill also seeks to regulate the quality of DNA laboratories by providing for mandatory accreditation and regulation of DNA laboratories.
    • This will ensure that DNA test results are reliable, apprehend repeat offenders and protect against privacy infringement.
  • Identification
    • The bill also enables cross-matching between persons who have been reported missing and identifying dead bodies, including victims of mass disasters.

Background

  • In 1987, the DNA fingerprinting was utilised as a tool for criminal investigation, to establish blood relations and trace medical history.
  • Prior to the use of DNA, identification was heavily based on finger prints, foot prints, blood, or other evidence at the crime scene.
  • National Crime Records Bureau’s crime statistics 2016 suggests that the conviction rate for rapes is 25 per cent.
  • The NCRB statistics have documented over 300,000 crimes directly affecting people or property but conviction rates remain at about 30 per cent.
  • Only a small proportion of these crimes are at present investigated through DNA testing.
  • 271st Report of the Law Commission of India, titled “Human DNA Profiling” has recommended a separate legislation to regulate the use of DNA testing.

 

Need for a separate bill

  • DNA profiling technology has been found to be very effective for social welfare, particularly, in enabling the Criminal Justice Delivery System to identify the offenders.
  • Use of DNA based technology is much appreciated in judicial proceedings, particularly, identification of persons accused of offences under the Indian Penal Code 1860 (IPC) and other laws, identification of missing persons and disaster victims apart from its use in medical sciences; a need has long been felt to have a special legislation to regulate human DNA profiling.
  • However DNA analysis offers substantial information which if misused or used improperly may cause serious harm to individuals and the society as a whole.
  • Merely amending the Code of Criminal Procedure, 1973, may not serve the purpose.
  • In view of the scope of the use and misuse of human DNA profiling, it has been felt that it is required to be regulated by a special law with well delineated standards, quality controls and to ensure the credibility of the DNA testing and its restricted use
  • Thus, there is a need to regulate the use of human DNA profiling through a standalone law of Parliament so that such use is appropriately regulated and restricted to lawful purposes only.

 

Science behind DNA profiling

  • DNA stands for deoxyribonucleic acid.
  • DNA is a molecule that all living organisms carry in every cell in their body.
  • The DNA from different humans is almost completely identical.
  • More than 99.9% of the sequences of two individuals are the same because we are all from the same species.
  • Even so, in a genome of three billion base pairs, even a tenth of a percent difference translates to about three million base-pair differences.
  • These differences are responsible for the fact that all individuals have their own unique genome.
  • The lone exception is Identical twins, whose DNA is exactly the same.
  • There are several dozen of these highly variable regions in the human genome.
  • Some of the most highly variable parts of the DNA are regions called VNTRs, because they contain a variable number of tandem repeats.
  • A DNA profile is created by counting the number of times that a repetitive sequence of base pairs occurs on an individual’s chromosomes.

 

A case for DNA testing: Advantages

  • It helps establish beyond doubt the biological identity of an individual.
  • Also it helps beyond doubt to determine whether there is any biological relationship between two persons.
  • The retention of DNA profiles in a database will help apprehend repeat offenders.
  • The bill is in line with similar practices in the developed countries.
  • The reliability of DNA for identification is likely to help an increase conviction rate which at present is only around 30% in cases of murder, rape or human trafficking, among other crimes involving the human body.
  • Where fingerprints are unavailable, DNA will help establish identity.
  • The information in the 17 DNA positions uniquely identifies an individual, his or her gender, and relationship with biological relatives.
  • It provides absolutely no information about age, race, behaviour, or body or health features or susceptibility to diseases, thereby protecting the privacy of the individuals.

 

Show full text

Section : Science & Tech

 

SC refuses to stay NGT order to reopen Sterlite plant in Tuticorin

The News

  • In a setback to Tamil Nadu government in Sterlite issue, the Supreme Court has refused to stay the NGT order allowing Vendanta to resume operations in its Sterlite copper plant, Thoothukudi.

 

Background

  • In April 2018, the TN State’s Pollution Control Board had rejected Sterlite's plea to renew its Consent to Operate certification over pollution concerns.
  • Following violent protests, the Tamil Nadu government in May 2018 ordered the permanent closure of the copper smelter plant.
  • The Tamil Nadu Pollution Control Board had ordered for closure and disconnection of electricity supply under:
    • Section 33A of the Water (Prevention and Control of Pollution) Act, 1974
    • Section 31A of Air (Prevention and Control of Pollution) Act, 1971
  • Consequently Vedanta had appealed to the NGT against the closure orders after which a 3-member committee of was formed to probe the matter.
  • In December 2018, the NGT finally set aside the closure orders on the grounds that it was non-sustainable and unjustified.
  • It also directed the State Pollution Control Board to restore electricity be to the copper smelter plant.
  • Further the NGT order also directed Sterlite to spend the amount of Rs100 crores within a period of three years for the welfare of the inhabitants in Thoothukudi district.
  • In response, the Tamil Nadu government had challenged the order in the Supreme Court on the grounds that NGT had no jurisdiction to hear Vedanta’s plea.
  • The Supreme Court in its order now has refused to stay the NGT order on reopening the Sterlite plant.

 

What is Tamil Nadu’s contention?

  • The TN government had ordered the closure of the plant under Section 18 (1)(b) of the Water (Prevention and Control of Pollution) Act, 1974.
  • The main reasons given by the state government for refusal to grant consent to operate to Sterlite Copper  are:
    • Not furnishing groundwater analysis report
    • Not removing copper slag stored along the River Uppar and not constructing physical barrier between the river and the slag
    • The unit did not have authorization to generate and dispose hazardous waste
    • The unit has not analyzed parameters of heavy metals in the ambient air quality
    • The unit has failed to construct gypsum pond as per CPCB guidelines
  • Further according to TN, an order under the act is not appealable before the NGT.
  • Further, according to TN, NGT has jurisdiction over civil disputes relating to the environment under Section 14 and Section 16 of the NGT Act 2010 and not a policy decision taken by the State government.
  • According to the state, closure of the plant is a policy decision taken by the State of Tamil Nadu under Article 48-A of the Constitution of India coupled with Section 18 (1) (b) of the Water Act, 1974.

 

Past Controversies

  • Sterlite Copper unit has been in operation in Tuticorin since 1997.
  • In September 2010, the Madras High Court had directed Vedanta to shut down the Tuticorin plant following petitions.
  • The petitions were seeking suitable action over alleged failure to take safety measures.
  • Following this the TN government had ordered measures due to which there were pollution and industrial accidents at the plant.
  • In March 2013, people living in the vicinity of the plant complained of eye irritation and suffocation.
  • Sterlite's factory was closed by TN government in March 2013 when a gas leak led to the death of one person.
  • The company had appealed to the NGT which had overturned the government's order.

 

Environmental issues

  • The environmentalists have cited following issues
  • Rise in throat and eye cancer cases in the area.
  • Copper Smelters are water guzzlers and may lead to depletion of drinking water and shortage for agricultural supply.
  • Smelter with shorter chimney stacks prevents dispersion of air pollutants
  • Copper smelters release sulphur dioxide and dust particles leading to air pollution.
  • According to them, Sterlite has a poor design of pollution mitigation infrastructure.

 

Show full text

Section : Environment & Ecology

 

Supreme Court sets aside Delhi HC order invalidating Monsanto’s patent on BT cotton seeds

The News

  • Recently, the Supreme Court has set aside an order of the division bench of the Delhi High Court which had invalidated the patent right of US-based agro major Monsanto Technology over BT cotton seeds for its Bollgard technology.

 

About Bt cotton:

  • Bt cotton is a genetically modified organism (GMO) or genetically modified pest resistant plant cotton variety, which produces an insecticide to bollworm.

 

What is Bt (Bacillus Thuringiensis)?

  • Bacillus thuringiensis (Bt) is a bacterium that occurs naturally in the soil and produces proteins that kill certain insects.
  • Through biotechnology, scientists can use these naturally occurring Bt proteins to develop insect-protected crops that protect against insect damage and destruction.
  • When targeted insects eat the plant containing the protein, they ultimately die; but impact of Bt on humans and other animals is still being questioned.

 

About Monsanto:

  • Monsanto is a multinational agricultural biotechnology corporation. It is the largest producer of genetically engineered (GE) seeds (Eg: Bt Cotton).
  • Monsanto sells GM cotton seeds in India through its joint venture with Maharashtra Hybrid Seeds Co — Mahyco Monsanto Biotech (India) Ltd (MMBL).
  • In 2002, a joint venture between Monsanto and Mahyco introduced Bt cotton to India.
  • India has become the largest producer of cotton partly due to Bt cotton, which accounts for over 90% of the total cotton acreage in the country.

 

Background of the dispute:

  • The matter relates to a dispute between Monsanto Technology LLC and Nuziveedu Seeds Ltd. Nuziveedu Seeds under a 2004 sub­licence agreement with Monsanto.
  • Under the sub-licence agreement, which the former could develop “Genetically Modified Hybrid Cotton Planting Seeds” with help of the technology provided by Monsanto and to commercially exploit the same subject to the limitations prescribed in the agreement.
  • It also provided for payment of licence fee by Nuziveedu for use of the plaintiffs’ patented technology.
  • MBBL terminated its sub-license with Nuziveedu Seeds Ltd (NSL) in 2015 after a royalty payment dispute.
  • The case reached court when NSL continued to sell genetically modified seeds even after its contract was terminated, with the latter seeking an ad-interim injunction.
  • In November 2016, a single judge bench of the High Court restrained NSL from selling BT cotton seeds using the trademark of Monsanto or MMBL. However, a division bench of the Delhi High Court (DHC) had overturned this.
  • The division bench DHC had earlier ruled that Monsanto could not claim patents of GM (genetically modified) cotton seeds since items like seeds, plants and animals can’t be patented under Indian laws
  • But recently, the SC ruled that the division bench should have limited itself to examining the validity of the injunction. The order of the single judge dated March 28, 2017, is restored and the suit is remanded to the single judge for disposal in accordance with law.
  • Thus, the apex court restored the order of the single judge bench of the high court which was not seized of the issue of patent but had dealt with the issue of trademark infringement claimed by Monsanto over the BT cotton seeds by Nuziveedu Seeds Ltd.

 

Advantages of Bt cotton over non-Bt cotton:

  • Increases yield of cotton due to effective control of three types of bollworms, viz. American, Spotted and Pink bollworms.
  • Insects belonged to Lepidoptera (Bollworms) are sensitive to crystalline endotoxic protein produced by Bt gene which in turn protects cotton from bollworms.
  • Reduction in insecticide use in the cultivation of Bt cotton in which bollworms are major pests.
  • Potential reduction in the cost of cultivation (depending on seed cost versus insecticide costs).
  • Reduction in predators which help in controlling the bollworms by feeding on larvae and eggs of bollworm.
  • No health hazards due to rare use of insecticides (particularly who is engaged in spraying of insecticides).

 

Limitations of Bt cotton:

  • High cost of Bt cotton seeds as compared to non Bt cotton seeds.
  • Effectiveness up to 120 days, after that the toxin producing efficiency of the Bt gene drastically reduces.
  • Ineffective against sucking pests like jassids, aphids, whitefly etc.

Show full text

Section : Environment & Ecology

 

Why Assam and other NE states are opposing Citizenship Bill

Context:

  • Recently, the north-east erupted in protest against the Citizenship (Amendment) Bill, 2016 with Assam being the worst affected as several parts of the state were in the grip of violence.
  • The states of Tripura, Mizoram, Arunachal Pradesh, Manipur and Meghalaya were also hit by the bandh which was marred by violence in some parts.

 

Background

  • The Citizenship (Amendment) Bill, 2016 was introduced in the Lok Sabha on July 15, 2016, which seeks to amend the Citizenship Act, 1955.
  • The Bill paves way to grant citizenship to six religious minorities, Hindus, Jains, Sikhs, Parsis, Christians and Buddhists from Pakistan, Afghanistan and Bangladesh who came to India before 2014.
  • There was a strong resistance to the Bill in Assam as it would pave the way for giving citizenship, mostly to illegal Hindu migrants from Bangladesh in Assam, who came after March 1971, in violation of the agreement of the Assam Accord, 1985.
  • Later a 16-member JPC (Joint Parliamentary Committee) was formed in August 2016 under the headship of MP Satyapal Singh to hear representations of various stakeholders.
  • The report was submitted by the JPC on 7th January 2019, which recommended that Assam government should help settle migrants “especially in places which are not densely populated, thus, causing lesser impact on the demographic changes and providing succour to the indigenous Assamese people".
  • The committee also rejected the amendment to exclude Bangladesh from the list of benefactor countries.
  • Recently, the Union Cabinet has cleared the redrafted Citizenship Amendment Bill, and it is likely to be tabled in the Parliament today.

 

Reason of the protests:

  • The immediate cause is the Citizenship (Amendment) Bill, 2016, seeking to facilitate granting of Indian citizenship for non-Muslim migrants from Bangladesh, Pakistan and Afghanistan on grounds of religious persecution.
  • The bill stretches the cutoff date for granting citizenship to December 31, 2014 from March 24, 1971 as mentioned in the 1985 Assam Accord.
  • In Assam, illegal migrants are not identified along religious lines and people want such migrants from Bangladesh, both Muslims and Hindus, who are incidentally Bengali-speaking, to be deported.
  • The Assamese fear that illegal migrants from Bangladesh pose a threat to their cultural and linguistic identity.

 

General stand of Bengali-speaking people on the issue:

  • In Bengali-dominated Barak Valley, most people welcome religion-based citizenship rules,which, they hope, will shield them from the National Register of Citizens (NRC).
  • Bengali-speaking Muslims, who outnumber everyone else in at least eight districts of western and central Assam, are against the proposal to offer citizenship only to non-Muslim migrants.
  • In terms of percentage, Assam has the country’s second highest Muslim population after Jammu & Kashmir. Muslims, mostly Bengali-speaking, comprise 34% of Assam’s little over 3 crore people.
  • Assamese-speaking Muslims, who are miniscule in number, support campaigns against migrants from all religious denominations.

 

Steps taken by the Centre to end the unrest:

  • It has been proposed to extend Article 371 of the Constitution and implement Clause 6 of the Assam Accord and to protect and preserve political rights, ethnic identity, cultural, literary and other rights of the state’s indigenous people.
  • However, the use of Article 371, which has provisions for reservation of parliamentary and assembly seats for indigenous people, may upset Hindu Bengalis as well as Muslim Bengalis.

 

Why other N.E. states are also against this?

  • All NE states ( Bengali-majority Tripura partially) are against it.
    • Mizoram fears Buddhist Chakmas from Bangladesh may take advantage of the Act.
    • Meghalaya and Nagaland are apprehensive of migrants of Bengali stock.
    • Groups in Arunachal Pradesh fear the new rules may benefit Chakmas and Tibetans.
    • Manipur wants the Inner-line Permit System to stop outsiders from entering the state.
    • In Tripura, Indigenous People’s Front of Tripura, and opposition Indigenous Nationalist Party of Twipra are opposed to the Centre’s move.

 

What is the Assam Accord, 1985?

  • Assam witnessed a range of law and order problems and political turbulence driven by the anti-foreigners movement, in the early 1980s.
  • The Assam Accord (1985) was a Memorandum of Settlement (MoS) signed, signed by the Centre and the All Assam Students’ Union (AASU).
  • Accordingly, those foreigners who had entered Assam between 1951 and 1961 were to be given full citizenship, including the right to vote while the entrants between 1961 and 1971 were to be denied voting rights for ten years but would enjoy all other rights of citizenship.

 

About the Citizenship Amendment Bill, 2016

  • It makes illegal migrants who belongs to Hindus, Sikhs, Buddhists, Jains, Parsis and Christians (Non- Muslims) communities from Afghanistan, Bangladesh and Pakistan, eligible for citizenship.
  • The bill, also, widens the ground for the cancellation of an OCI registration by the Central Government. For example on violating any law (major as well as minor) in force in the country.
  • The Bill also seeks to reduce the requirement of 11 years of continuous stay in the country to six years to obtain citizenship by naturalisation.

 

Section : Polity & Governance

 

The overdue step to a simpler GST Editorial 9th Jan’19 Livemint

GST getting simplified:

  • The Indian tryst with indirect tax reform (that is, GST) is moving from chaos to order.
  • The initial version of the new goods and services tax (GST) was extremely complicated.
  • There are now welcome moves to simplify it.

 

Three core economic principles around GST

  1. Division of labour and market:
  • One of the key insights from Adam Smith is that the division of labour is limited by the extent of the market.
    • That is, if the size of the market is large and demand for a product is great, the manufacturer will augment the scale of manufacture. Subsequently, he will split manufacture into diverse procedures and sub procedures which will be functioned by diverse persons. This augments the division of labour.
    • Conversely, if the market and demand are small, the manufacturer will employ only a small number of workers. Here one worker will perform a number of operations and the division of labour will be small.
  • With GST, India now has a truly common market some seven decades after its political integration. 
  • The integration of the Indian market as well as the rewiring of supply chains because of GST should lower transaction costs and improve economic efficiency.
  • Now with GST creating a single large market, various parts of a product can be manufactured at various most-efficient location leading to more economic efficiency.
  1. Not taxing the production of intermediate goods:
  • Studies on optimal taxation tell us that a good fiscal system should not tax the production of intermediate goods. (classic papers by Peter Diamond and James Mirrlees)
  • That is the logic underlying all value-added taxes such as GST, which, in effect, eliminate taxes on production and distribution.
  • The tax is paid on final consumption.
  • It is a destination tax that is collected at the point of consumption.
  1. Indirect taxes tend to be regressive in nature:
  • Indirect taxes tend to be regressive in nature.
    • A regressive tax is a tax applied uniformly, taking a larger percentage of income from low-income earners than from high-income earners. It is in opposition to a progressive tax, which takes a larger percentage from high-income earners.
    • For example, on a tooth paste, poor man and rich man pay the same amount of indirect tax.
  • GST structure originally tried to take account of this by having multiple rates.
  • A better way to deal with this is having lower indirect rates and progressive direct taxes:
    • However, the preferred solution should not be a complicated GST structure with many rates, but a low standard or modal rate with a small list of exemptions.
    • A better way to make a tax system more just is by lowering regressive indirect tax rates while widening the base for progressive direct taxes on income and corporate profits.
  • The scope for lowering the GST rate is umbilically linked to direct tax reform.

 

Why was GST structure complicated to begin with?

  • The complicated GST structure we began with can partly be explained by the messy federal bargaining in the GST Council and partly by a flawed incentive structure.

Flaws in incentive design: 

  • Economists have pointed out to two major incentive design flaws during the initial GST negotiations.
  • 1. Making all GST decisions unanimous - any state can block decisions:
    • The first incentive problem arose because of the political decision that all decisions in the GST Council should be unanimous.
    • There was a valid reason why such a decision had to be taken. The states had just given up most of their taxation powers.  Their fears needed to be assuaged.  Everybody needed to be on board.
    • However, the unanimity principle also meant that blocking decisions became almost costless for even the smallest state.
    • The bargaining that followed led to a mess.
  • 2. Centre guaranteeing increase in State revenues from GST - GST structure not linked to growth:
    • The second incentive problem was that New Delhi guaranteed the states that their revenues from GST would grow at 14% a year. Any shortfall would be compensated.
    • The fixed guarantee means states' revenues from GST were not linked to an underlying growth in nominal output.
    • This meant that the states went into GST Council meetings with little incentive to select a rate structure that would maximize growth.
    • The insurance policy handed to them gave them little incentive to push for a more sensible GST.

This led to India having highest and most complicated GST:

  • A World Bank study published in May 2018 said that the Indian GST rate was the second highest among the 115 countries with a national value-added tax.
  • It was also the most complicated, with five main tax rates, several exemptions, a cess and a special rate for gold.
  • It said that only five countries had four or more non-zero tax rates—India, Italy, Pakistan, Luxembourg and Ghana.
  • In contrast, forty-nine countries had a single indirect tax rate while 28 had two slabs.

This has only imposed costs on us:

  • The cost of the policy failure is obvious. GST collections have been weaker than expected while compliance costs for enterprises have increased.

Recent changes in GST welcome in this regard:

  • The recent rationalization of GST rates and the simplification of some reporting procedures is welcome.

 

Arbind Modi committee recommendations on GST: 

  • A committee headed by Arbind Modi (set up by the Thirteenth Finance Commission) in 2009 made recommendations on the design of the GST.
  • It provided 10 key principles for the design of an efficient GST, including:
    • Covering all goods and services including immovable property
    • A single low rate
    • Zero rate on exports
    • Threshold exemption for small enterprises
  • Recommended single 12% rate:
    • The Modi committee had recommended a 12% GST rate, of which 5% would go to the Union government, 5% to the state governments and the other 2% to the third tier of government.
      • The "2% to the third tier" was a revolutionary idea that needs constitutional changes or at the very least functioning state finance commissions.

Government now moving towards a single, although higher, rate of 18%:

  • The government now seems to be moving towards an 18% standard rate, much higher than what had been recommended by the Arbind Modi committee.
  • A higher rate is perhaps warranted given the subpar GST collections.

 

Going forward - must move to a lower rate:

  • There are two shades of opinion on GST - one of fiscal economists who want a clean structure that will maximize efficiency and another of tax administrators who fear revenue losses if the tax rate is unrealistically low.
  • The problems of the complicated GST with high compliance costs are now evident.
  • The next government should plan to eventually move to a lower standard rate as exemptions are reduced, real estate and petroleum are brought into the GST net, tax compliance improves, and there is more revenue buoyancy.
  • The next government —of whatever political persuasion—will have the onerous task of untangling the mess.

 

Importance:

GS Paper III: Indian Economy

Show full text

Section : Editorial Analysis

Comments