20 March 2024

MAINS DAILY QUESTIONS & MODEL ANSWERS

Q1. How financially sound are Panchayati Raj Institutions (PRIs) in India right now? Examine the obstacles PRIs encounter when trying to make money internally and make recommendations for how to improve their financial independence.

GS II – Government Policies and Interventions

Introduction:

• The Indian Constitution’s 73rd and 74th Amendment Acts grant local bodies autonomy over matters such as income generation and fiscal devolution. These acts also give rise to state-level Panchayati Raj Acts, which regulate taxation and collection. Panchayats have endeavoured to maximise their own resource generation based on the provisions of these Acts.

The present state of PRIs’ finances:

Revenue Information Statistics:

• Panchayats reported a total revenue of Rs 35,354 crore in FY 2022–2023, according to RBI data.
• Only Rs 737 crore, however, came from their own tax revenue, which comes from service tax, land revenue, stamp and registration fees, taxes on property, and taxes on professions and trades.
• A total of Rs 1,494 crore was received in non-tax revenue, mostly from interest payments and Panchayati Raj initiatives.
• The Central government gave Rs 24,699 crore to panchayats, while the State governments gave them Rs 8,148 crore.

Income for Every Panchayat:

• Only Rs 21,000 in personal tax revenue and Rs 73,000 in non-tax revenue were earned by each panchayat on average.
• On the other hand, the State government provided more than Rs 3.25 lakh each panchayat, while the Central government gave out almost Rs 17 lakh per panchayat.

State Revenue Distribution and Differences Across States:

• The portion of each State’s own money that panchayats receive is still quite little.
• For instance, panchayat revenue receipts make up just 0.1% of the state’s total revenue in Andhra Pradesh but 2.5% in Uttar Pradesh—the highest percentage among all the states.
• The average money received by each panchayat varies greatly between states.
• With average income per panchayat of more than Rs 60 lakh and Rs 57 lakh, respectively, Kerala and West Bengal are in the forefront.
• In the states of Assam, Bihar, Karnataka, Odisha, Sikkim, and Tamil Nadu, the revenue exceeded Rs 30 lakh per panchayat.
• With less than Rs 6 lakh in average revenue per panchayat, states like Andhra Pradesh, Haryana, Mizoram, Punjab, and Uttarakhand have much lower revenue levels.

The challenges PRIs have in producing internal revenue are as follows:

Overindulgence in Grants:

• It states clearly that 80% of the revenue comes from the Centre and 15% from the States, and that “Panchayats earn only 1% of the revenue through taxes,” with the remaining funds coming from grants from the State and the Centre.

Differences Between States:

• Gramme panchayats are not allowed to collect taxes in a number of states, while intermediate and district panchayats are not allowed to collect taxes in a large number of other states.
• To guarantee fair sharing, Own Source of Revenue (OSR) must be clearly defined for each of the three tier panchayats.

All Around Reluctance to Create Their Own Income:

• Panchayats’ interest in collecting OSR is declining as a result of the Central Finance Commission’s (CFC) increased grant allocation.
• The 10th and 11th CFCs allotted Rs 4,380 crore and Rs 8,000 crore, respectively, for rural local bodies.
• However, there was a significant increase in the 14th and 15th CFCs, with allocations of Rs 2,00,202 and Rs 2,80,733 crore, respectively.
• In the fiscal year 2018–19, the amount of tax collected was Rs 3,12,075 lakh, and it decreased to Rs 2,71,386 lakh in 2021–2022. The non-tax revenue obtained during the same period was Rs 2,33,863 lakh and Rs 2,09,864 lakh.

Encouragement from State Governments:

• A dependency on allocations and reimbursements through various financial commissions has replaced the rivalry amongst panchayats to generate OSR for their commitment to meeting fundamental necessities.
• While some states have matching grant policies as part of their incentive programmes, they have only occasionally been put into practice.

Barriers Owing to the Freebie Culture:

• Panchayats face several obstacles in their efforts to mobilise resources, even with all the favourable conditions to generate money. The prevailing “freebie culture” in the community is the root of people’s aversion to paying taxes, and elected officials believe that taxing the populace will negatively impact their standing.

Recommendations Needed to Increase PRIs’ Financial Resources:

Expert Committee Report Recommendations:

• The contents of State Acts that have integrated tax and non-tax revenue that can be collected and utilised by panchayats are expounded upon in the report of the expert committee on OSR of rural local bodies established by the Ministry of Panchayati Raj.
• The main OSRs where panchayats can make the most money include property tax, land revenue cess, additional stamp duty surcharge, tolls, profession tax, advertising, and user fees for lighting, water, and sanitation.

Creating a Friendly Environment:

Panchayats are supposed to create a tax-friendly atmosphere by putting in place suitable financial rules.

• Choosing the tax and non-tax bases, figuring out their rates, setting up procedures for regular adjustments, delineating exclusion zones, and passing efficient tax administration and enforcement legislation are all part of this process.

Increasing the Variety of Non-Tax Revenue Sources:

• Fees, rent, income from investment sales, employment charges and receipts, and creative ventures that might produce OSR are just a few of the enormous potential non-tax revenue streams.
• This includes revenue from donations and Corporate Social Responsibility (CSR) money, creative commercial endeavours, renewable energy projects, carbon credits, and rural business hubs.

Making Use of Local Resources:

• By utilising local resources for income creation, gramme sabhas play a vital role in promoting self-sufficiency and sustainable development at the grassroots level.
• They might be involved in the design, selection, and execution of projects aimed at generating income, ranging from small-scale businesses to tourism and agricultural.
• They can levy taxes, fees, and levies and use the money collected to finance social welfare initiatives, public works initiatives, and local development projects.

Building Collaborations:

• Gramme sabhas provide accountability and build community trust through open financial administration and democratic involvement, which eventually enables villages to become resilient and economically independent.
• Gramme sabhas must therefore encourage entrepreneurship and cultivate alliances with outside parties in order to maximise the efficiency of their efforts to generate cash.

RBI’s recommendations:

• The RBI advocates for steps to improve the financial autonomy and sustainability of Panchayati Raj and recommends further decentralisation and local leaders and officials’ empowerment.
• The study underlined that by implementing open budgeting, financial restraint, community engagement in development priorities, employee training, and stringent monitoring and assessment, PRIs may improve resource use.

Educating the Public and Elected Officials:

• The public and elected officials must be made aware of the importance of revenue raising for the advancement of panchayats as autonomous organisations.
• Panchayats can only become self-sufficient when committed efforts are made at all levels of governance, including the State and central level. In the end, the dependency syndrome for grants must be reduced gradually so that panchayats can become self-sufficient.

Q2. Evaluate the accomplishments and shortcomings of the World Trade Organization’s (WTO) 13th Ministerial Conference and suggest reform initiatives to help the WTO stay relevant in the face of shifting global dynamics.

GS II – Government Policies and Interventions

Introduction:

• The World Trade Organisation recently held its 13th Ministerial Conference (MC13) in Abu Dhabi, United Arab Emirates. The conference brought together ministers representing various geopolitical perspectives and development levels to discuss a wide range of important issues, such as e-commerce, food security, fisheries subsidies, WTO reform, domestic service regulations, and investment facilitation.

The 13th Ministerial Conference of the WTO’s main achievements were:

• Two least-developed nations, Comoros and Timor-Leste, were approved for membership in the World Trade Organisation (WTO) by MC13. With 166 members, the organisation represents 98% of global trade.

Restructuring the Roles of Negotiation and Deliberation:

Ministers at MC13 praised the efforts previously made to:

• Boost the efficiency of WTO committees, councils, and negotiating groups
• Boost the efficacy and efficiency of the organisation, and
• Encourage members to take part in WTO activities.
• They gave officials instructions to carry out their “reform by doing” strategy and to update the 14th Ministerial Conference (MC14) on their progress.
• Ministers reaffirmed at MC13 that by 2024, they will have a fully operational dispute resolution process that is open to all Members.

Online shopping:

• Ministers voted at MC13 to extend the moratorium on e-commerce until MC14 or March 31, 2026, whichever comes first.

Situation Complaints and TRIPS Non-Violation:

• Ministers also voted to extend a moratorium on so-called “non-violation” and “situation” complaints under the TRIPS Agreement, a decision that has frequently been connected to the e-commerce moratorium.

Specialised and Distinctive Care:

• A decision was made by ministers to enhance the application of special and differentiated treatment (S&DT) clauses, specifically those found in the Sanitary and Phytosanitary Measures Agreement and the Agreement on Technical Barriers to Trade.

Initiatives and Accords on a Plurilateral Basis:

• WTO plurilateral initiatives are WTO conversations in which only a portion of Members participate. These discussions may focus on establishing new procedures, mutual tariff liberalisation, new regulations, or initiating a dialogue.
• During MC13, a number of these multilateral initiatives came to agreements or presented their findings in significant fields.
• Investment Facilitation for Development (IFD) is a major multilateral project.

Internal Service Regulation:

• The agreement struck at MC13 to apply new norms for domestic service regulation and integrate them into the WTO framework was a commercially significant outcome.
• These disciplines aim to simplify and streamline regulatory processes in order to promote commerce in services.

Initiatives Associated with Sustainability:

• Additionally, members have formed several groups to collaborate on a number of projects pertaining to sustainability.
• A group of 78 members, the Dialogue on Plastics Pollution and Environmentally Sustainable Plastics Trade, identified trade and trade-related policies and actions to lessen plastics pollution.
• Lastly, 48 Members provided an update on the reform of fossil fuel subsidies.

Subsidies for Fisheries:

• An Agreement on Fisheries Subsidies (AFS), which forbids the granting or maintenance of subsidies to organisations engaged in overfished stock fishing or illicit, unreported, and unregulated (IUU) fishing, was reached by members at MC12.
• 71 Members had ratified the agreement as on 1 March 2024; ministers at MC13 praised the advancement made over the previous 20 months towards the AFS’s entrance into force.

The issues presently threatening the WTO’s efficacy are as follows:

A decline in multilateralism:

• With the growth of unilateral trade acts and the escalation of trade conflicts, multilateralism has clearly deteriorated in recent years.
• The efficacy of the WTO as a platform for settling trade disputes and negotiating trade agreements is being weakened by this tendency.
• The MC13’s inability to advance important topics like fisheries subsidies also revealed significant differences among its 166 members.

Trade wars and protectionism:

• The spread of quotas, tariffs, and other trade restrictions jeopardises the rules-based trading system and weakens the fundamentals of free trade.
• For example, the US-China trade dispute has put pressure on the multilateral trading system and called into question the WTO’s ability to arbitrate and settle such disputes.

Crisis of Dispute Settlement Mechanisms:

• The WTO’s dispute resolution process, which is frequently hailed as the organization’s crown jewel, has had difficulties recently.
• The US’s obstruction of fresh nominations to the Appellate Body, which is in charge of resolving trade disputes, has rendered the body inoperable.
• The lack of a functional dispute resolution mechanism fosters unilateralism and undermines trust in the multilateral economic system.

Disparities in Development and Particularised and Distinctive Care:

• Even with the Special and Differential Treatment (S&D) principle, which tries to give developing countries flexibility and support, differences still exist in their ability to take part in trade discussions and carry out trade-related reforms.
• The underutilization of resources and technical support by least-developed countries (LDCs) results in their continued exclusion from the global economy.

Digital Commerce & Trade:

• While digital technologies have the potential to improve trade efficiency and facilitate economic growth, they also raise new regulatory and policy issues that are outside the purview of traditional trade agreements. As a result, the WTO faces both opportunities and challenges from the rapid growth of digital trade and e-commerce.
• The WTO must modify its agreements and regulations to take into account the changing nature of digital trade while maintaining fair competition for all of its members.

Concerns about the environment and sustainability:

• Climate change, biodiversity loss, and other environmental concerns have major implications for global trading patterns and practices, and the WTO is under increasing pressure to include environmental and sustainability factors in its trade rules and agreements.
• It takes creative thinking and collaboration among WTO members to create regulations that support both economic expansion and environmental sustainability in order to strike a balance between environmental goals and trade liberalisation objectives.

Public Health and Medication Access:

• The Covid-19 pandemic has brought attention to the significance of public health factors in trade policy. Obtaining reasonably priced medications and medical supplies has become a vital concern, especially for poorer nations who are having difficulty obtaining basic medical supplies.
• The World Trade Organisation (WTO) must strike a balance between protecting intellectual property rights and guaranteeing universal access to medications, especially in times of public health emergency.

Agricultural Practices and Food Security:

• Since 2000, members have been discussing upgrading WTO disciplines on agriculture; nevertheless, little progress has been made; at MC13, members once again failed to agree on the parameters, composition, and schedule of agriculture negotiations.
• The main cause of this failure was the widespread discord about the matter of “public stockholding for food security purposes.”

Requirements for World Trade Organisation (WTO) Reforms:

Reviving the Dispute Settlement Process:

• It is imperative that the Appellate Body’s operations be restored in order to guarantee the prompt and efficient settlement of trade disputes.
• To maintain the integrity of the WTO’s dispute resolution process and resolve the impasse over the appointment of new members to the Appellate Body, prompt action is required.

Appropriate Measure for Penalties:

• If a nation violates an agreement, it should promptly make amends and offer compensation or face appropriate retaliation that includes some sort of remedy; note that this is not punishment per se, but rather a “remedy” that aims to have the nation abide by the ruling.
• If these nations are judged to be in violation, they may be required to voluntarily contribute a certain amount to the Green Climate Fund.

Modernising Trade Regulations to Accommodate New Situations:

• In order to handle new concerns like digital trade, e-commerce, and environmental sustainability, the WTO’s agreements and regulations must be revised.
• Modernising trade regulations to take into account new technology, advance sustainable development, and enable inclusive economic growth should be the main goal of immediate reforms.

Bolstering the S&D provisions:

• For developing and least developed nations (LDCs) to achieve their development goals, S&D provisions must be made more effective.
• The goal of immediate reforms should be to improve the functionality and responsiveness of S&D laws to the unique requirements and obstacles encountered by developing nations, especially in sectors like services trade, IPRs, and agriculture.

Handling Subsidies and Trade Distortions:

• Trade-distorting practices, such as subsidies that stifle fair trade and distort market competition, must be addressed immediately.
• For the purpose of guaranteeing fair competition for all WTO members, reforms should concentrate on tightening regulations on subsidies and other types of state assistance.

Encouraging Multicultural Decision-Making:

• Strengthening the credibility and efficacy of the WTO requires ensuring inclusive decision-making procedures.
• Promoting increased involvement and representation of all member nations, including developing and LDC nations, in WTO committees and decision-making bodies ought to be the primary goal of immediate reforms.
• To remain legitimate and continue to play a pivotal role in the rapidly changing global economy, the World Trade Organisation (WTO) needs to implement bold reforms. These reforms should prioritise inclusivity in order to guarantee that all member countries’ voices are heard; promptly respond to new opportunities and challenges by modernising and innovating; and maintain accountability and transparency in order to foster stakeholder trust.