25 August 2022

MAINS DAILY QUESTIONS & MODEL ANSWERS

Q1. The economic complement to political federalism is fiscal federalism. Provide appropriate examples to illustrate your point. ( 250 words)

Paper & Topic: GS III àIndian Economy

Model Answer:

Introduction:

• The financial interactions between units of government in a federal government system are known as fiscal federalism.
• It’s part of a larger public-finance framework.
• Richard Musgrave, a German-born American economist, coined the term in 1959.
• The separation of governmental activities and financial links among tiers of government is referred to as fiscal federalism.

Body:

• India has a federal government, which means it has a federal fiscal system.
• The backbone of a federal government’s successful operation is financial independence and adequacy.
• The necessity for fiscal federalism was stressed in the Economic Survey 2017-18.

Fiscal federalism and political federalism are linked:

• Fiscal federalism is concerned with the delegation of functions to various levels of government on the one hand, and the use of suitable fiscal tools to carry out these functions on the other.
• The central government is widely regarded to be required to deliver national public goods that benefit the entire people. Defense is a common example given.
• Sub-national governments are required to offer commodities and services that are only consumed within their borders.
• The identification of the exact fiscal tools that would enable the various levels of government to carry out their tasks is an equally essential subject in fiscal federalism. This is known as the ‘tax-assignment issue.’
• It is generally agreed that non-benefit taxes and taxes on movable units should be avoided at the decentralised levels of government.
• Income tax is only levied by the central government in India, albeit it is shared with the states. Many countries have an inter-governmental transfer system in place to address the possibility of resource and responsibility imbalances.
• The Indian Constitution establishes the functions of the Centre and States, as well as their taxing powers.
• Every Finance Commission has handled issues linked to the rectification of vertical and horizontal imbalances against this backdrop, taking into consideration the current set of circumstances.
• Transfers from the federal government to the states, on the other hand, are not limited to the recommendations of the Finance Commissions. Other options include the Planning Commission, which existed until recently, and the Central Government’s discretionary grants.

Concerns and obstacles that go along with it:

• Trends in Tax Revenue: A comparison of the proportion of central and state-owned taxes and expenditures reveals that the states own 38 percent and 58 percent of their own tax revenue and expenditure, respectively.
• This reflects the states’ higher-than-proportionate expenditure commitments, as well as their limited revenue-raising powers in comparison to the federal government.
• After the 80th Constitutional Amendment, the net earnings of all taxes levied by the union, except surcharges and cesses, are divided with the states under Article 270 of the Constitution.
• Article 279 of the Constitution defines net revenues as the center’s gross tax revenue less surcharges and cesses, as well as collection costs. The amount of net proceeds, however, is not included in the union’s budget statements.
• However, the proportion of surcharges and cesses in the federal government’s gross tax collection is increasing, counteracting the higher shares proposed by previous finance commissions.
• FRBM Acts and Asymmetric Impacts: In the early 2000s, the FRBM Acts were passed at the national and state levels.
• It was solely focused on meeting objectives. In exchange, if revenues could not be increased, expenditure (even if it was necessary) would be reduced.
• States have been required to restrict their deficits due to financial commission punishments, although the federal government is not bound by any such conditions.
• States have inefficient cash management because they are afraid of the implications of not adhering to deficit targets, which are not only a legislative constraint but also a conditionality enforced by finance commissions.

Steps to take/Conclusion:

• Perhaps now is the moment to alter the Constitution to ensure that the percentage of shared taxes that should go to the states is set at the appropriate amount.
• Because cesses and surcharges have risen dramatically in recent years, they must be included in the sharing tax pool.
• It appears reasonable to set the ratio at 42 percent of shareable taxes, including cesses and surcharges.
• Another option is to adopt the approach of the United States and Canada, which is to enable states to impose personal income taxes with limited restrictions.
• States must be restricted in their freedom. It’s crucial to highlight that the levy levied by the federal government and the states should be reasonable.
• The transfers from the Centre will also need to be adjusted once this power is given to the States.
• Horizontal Distribution:In India, the ability to achieve equalisation between states is limited.
• Even the relatively wealthier countries face problems and feel cheated as a result of the overuse of the equity criterion.
• Particularly in light of the surge in unconditional payments, a proper balancing of criteria is required.

Q2. It is imperative that the best of what digital currencies have to offer be integrated into the existing financial paradigm. Explain. (250 words)

Paper & Topic: GS III à Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment. Science and Technology- developments and their applications and effects in everyday life.

Model Answer:

Introduction:

• Cryptocurrencies are digital currencies that operate independently of a central bank and employ encryption techniques to govern the production of units of money and verify the transfer of funds.
• It is built on the blockchain platform.
• Anurag Thakur, the Union minister, stated that the government is willing to analyse and investigate emerging technologies, such as cryptocurrencies, in order to improve governance.

Body:

• In India, cryptocurrencies are gaining popularity.
• In 2018, the Reserve Bank of India (RBI) outlawed banks and companies regulated by it from providing virtual currency (VC) services.
• The Indian cryptocurrency sector has been decimated since the prohibition took effect in April 2018.
• This provision was declared illegal by the Supreme Court.
• The central government is expected to consider a new bill titled Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which has not yet been approved.
• The Bill also aims to outlaw all private cryptocurrencies in India, with few exceptions to encourage cryptocurrency’s underlying technology, such as blockchain, and its applications.

Concerns about digital currency include the following:

• Cryptocurrencies are feared not only for their speculative potential, but also for their potential to destabilise sovereign currencies (the latter is an exaggerated apprehension).
• This might cause market instability, and if banks start trading crypto currencies, the problem of fraud could become more prevalent.
• Virtual currency is traded anonymously via the Internet and is utilised for a variety of anti-national and illegal activities, including terror financing, illicit arms and drug trafficking, and so on.
• This is a serious concern to India, as there have been reports of drug trafficking utilising bitcoins on the dark web in Punjab.
• The online use of this currency was without any geographical or border limits, putting the nation’s integrity and sovereignty in jeopardy.
• It has the potential to drastically alter global monetary policymaking. People will trade their national currencies for the new digital coin, which will be used to buy and sell the various things that will be valued in it. This will have a negative impact on bank profits and put stress on their balance sheets.
• The ability of governments and policymakers to manage inflation will be harmed. When inflation rises, central banks usually take actions to limit it by adjusting monetary rates. Because cryptocurrency will be independent of the central bank, liquidity will be a problem.

Regulation of digital currencies is urgently required:

• A prohibition on something based on distributed ledger technology cannot be applied for all practical purposes, hence smart regulation is preferable.
• Even in China, where cryptocurrencies are banned and the Internet is censored, cryptocurrency trade is minimal but not non-existent, according to a report by an India inter-ministerial committee. Japan, for example, has regulated the usage of bitcoin.
• The SC Garg committee advocated for the creation of an official digital currency as well as the promotion of the blockchain technology that underpins it. Other cryptocurrencies, on the other hand, were not banned.
• Regulation must take place at the point of exchange, where it is most easily observed.
• The Supreme Court ruled that the government’s outright prohibition on virtual currency would be unfair when there are several less intrusive options.
• It’s important to note that virtual currency transactions aren’t completely unregulated.
• Several current laws, including the Consumer Protection Act, the Information Technology Act, the Foreign Exchange Management Act, and the PMLA, as well as tax, deposit-related, and criminal regulations, apply to virtual currencies in the same way that they do to any other economic activity.
• In fact, errant persons and businesses operating in the virtual currency sphere have already been prosecuted in India under many of these laws.
• The government should reject the notion of a ban and instead advocate for reasonable regulation.

Conclusion:

• Instead of imposing bans, it would be more practical to launch public awareness campaigns to alert investors to specific risks and to monitor trades for fraud and scams. The fintech industry and the RBI must collaborate to develop a positive policy framework for cryptocurrencies in India.

Q3. The official secrecy statute directly contradicts the 2005 Right to Information Act. Examine the statement in light of the policies introduced during the Covid 19 pandemic. (250 words)

Paper & Topic: GS II àGovernment policies and interventions for development in various sectors

Model Answer:

Introduction:

• The details of pandemic response, vaccination cost, and expert committee meeting schedules are not available to the public.
• The workings of PM-CARES have been shrouded in secrecy, making it difficult to hold the government accountable.
• The ethos of Right to Information is undermined by bureaucratic concealment.

Body:

• According to the Official Secrets Act of 1923, any government official can mark a document as confidential in order to prevent it from being published.
• In the event of a dispute between the two laws, the RTI Act’s provisions take precedence over the OSA’s
• Section 22 of the RTI Act provides that its requirements would take effect despite anything in the OSA that contradicts them.
• However, this has not been the case in the case of pandemic data. Official secrecy is at odds with RTI.

Government criticism:

• The government’s responses to RTI queries filed over the past year have been characterised by blatant denials.
• Opacity serves as a cover for large-scale over-centralisation and misgovernance in COVID-19-related topics, from vaccine manufacture and pricing decisions to last year’s lockdown planning and the establishment and running of the ten-thousand-crore-plus PM CARES fund.
• Vaccine-related details:Bharat Biotech hasn’t released any peer-reviewed interim efficacy assessments from Phase 3 clinical studies until now.
• The DCGI has denied RTI requests regarding its decision to give Covaxin and Covishield emergency approval, saying that information about efficacy and safety is considered privileged commercial information.
• The ICMR will receive a 5% royalty on the vaccination.
• Only because the Supreme Court heard a suo motu PIL on the pandemic has these and other bits of information become public.
• The government’s summary dismissals not only violate citizens’ fundamental right to information, but also force RTI petitions into a two-year appeals procedure.
• Citizens must seek Information Commissions and High Courts to obtain basic information, wasting time and money.

Effects on governance and the general welfare:

• Effective planning and administration cannot take place in the dark, and experts blame incompetence and a lack of preparation as much as the virus for the high death toll and misery.
• Official secrecy is jeopardising scientists’, public health experts’, and policy experts’ ability to provide timely input and recommendations to the government.
• The information blackhole is so bad that over 900 scientists have petitioned the Prime Minister for access to data and information.
• However, not much has changed.
• Because the government receives a large number of charity gifts, it must be accountable to the public for how these funds are spent.
• A lack of medicines, hospital beds, vaccines, and oxygen raises questions about the government’s preparedness to confront the pandemic.

Conclusion:

• In accordance with Sections 4 and 7 of the RTI Act, which deal with proactive and urgent disclosures with life and liberty implications, the Supreme Court should require the government to suo motu reveal material connected to COVID-19 policies.
• Amartya Sen stated in a paper about famines in colonial India that mass hunger and death do not occur if information flows freely.
• The same may be said for pandemic preparedness.

Q4. What is the Gram Panchayat Model Citizen Charter? Throw light on its main characteristics and significance. (250 words)

Paper & Topic: GS II àImportant aspects of Governance & Citizens’ Charter

Model Answer:

Introduction:

• A citizen’s charter is a voluntary, written document that outlines a service provider’s efforts to focus on their commitment to meeting the requirements of residents/customers.
• A Model Panchayat Citizens Charter/framework for delivering services across 29 sectors, aligning actions with localised Sustainable Development Goals (SDGs), prepared by the Ministry of Panchayati Raj (MoPR) in collaboration with the National Institute of Rural Development and Panchayati Raj (NIRDPR), was recently released through a virtual programme for Panchayats to adopt and customise.

Body:

Features to look for:

• The Panchayats will use this model and, with Gram Sabha’s agreement, will draught a Citizens Charter that will include a list of the many categories of services offered by the Panchayat, as well as their condition and time limit.
• “A Citizens’ Charter is a tool to create good governance,” the model framework declares.
• The successful implementation of the Citizens’ Charter improves service delivery, increases Panchayat functionaries’ responsiveness, and increases citizen satisfaction.”
• It is expected to empower residents and improve the operation of Panchayats.

The following information must be disclosed under service standards, according to the paper released:

• Service name
• Service details, such as beneficiaries and eligible individuals, fees, and so on
• The length of time it will take to deliver the service
• Name and contact information for the Panchayat official in charge of providing the service

Redress of grievances:

• The Sarpanch and the Panchayat Secretary shall be available to citizens to listen to their problems and provide contact information for the authorities to whom citizens should direct any such complaint.
• The framework further stipulates that the Panchayat should solicit the views of the Panchayat Secretary and other officers from the appropriate line departments when drafting the charter.
• PRIs are responsible for delivering basic services as enshrined in Article 243G of the Indian Constitution, specifically in the areas of Health & Sanitation, Education, Nutrition, and Drinking Water.
• PRIs are responsible for delivering basic services as enshrined in Article 243G of the Indian Constitution, specifically in the areas of Health & Sanitation, Education, Nutrition, and Drinking Water.
• The goal of establishing a Citizen Charter is to provide services to the people in a timely manner, resolving their grievances and improving their lives.
• This will help in making citizens aware of their rights on the one hand, and making Panchayats and their elected representatives directly accountable to the people on the other.

Conclusion:

• A Citizens’ Charter is a tool to ensure that the citizen is always at the centre of any service delivery mechanism, rather than an end in itself.
• Citizen’s Charter can benefit from best practise models like the Sevottam Model in becoming more citizen centred.