The Central Board of the Reserve Bank of India (RBI) decided to transfer a sum of ₹1,76,051 ($24.4 billion) crore to the Government of India (Government) comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
The government has argued that relatively lower transfers crimped public spending for infrastructure projects and social sector programmes, considering the pressure to meet deficit targets and to provide space for private firms to borrow.
Why Central Banks(RBI) has to Maintain it :
After the global financial crisis when central banks had to resort to unconventional means to revive their economies, the approach has been to build adequate buffers in the form of higher capital, reserves and other funds as a potential insurance against future risks or losses.
The balance sheet of central banks is unlike that of the institutions that it regulates or supervises. They are not driven by the aim of boosting profits given their public policy or public interest role.
Their aim is primarily ensuring monetary and financial stability – maintaining confidence in the external value of the currency, of course, is a key mandate.
Essentially, the economic capital framework reflects the capital that an institution requires or needs to hold as a counter against unforeseen risks or events or losses in the future.
A higher buffer enhances the credibility of a central bank during a crisis and helps avoid approaching the government for fresh capital and thus maintain financial autonomy.
The potential risks
Traditionally, central banks have been factoring in risks such as
Credit risk — when there could be a potential default by an entity in which there has been an investment or exposure.
Interest rate risk — when interest rates either move up or slide, depending on the price of which securities or bonds held by a central bank or banks can be impacted.
Operational risk — when there is a failure of internal processes.
To measure these risks, both quantitative and qualitative methods are typically used.
These include stress tests to evaluate worst-case scenarios such as collapse of banks, value at risk and so on.
How does the RBI generate surplus?
A significant part comes from RBI’s operations in financial markets, when it intervenes for instance to buy or sell foreign exchange;
Open Market operations, when it attempts to prevent the rupee from appreciating;
As income from government securities it holds;
As returns from its foreign currency assets that are investments in the bonds of foreign central banks or top-rated securities;
From deposits with other central banks or the Bank for International Settlement or BIS;besides lending to banks for very short tenures and management commission on handling the borrowings of state governments and the central government.
RBI buys these financial assets against its fixed liabilities such as currency held by the public and deposits issued to commercial banks on which it does not pay interest.
Central banks do make money thanks to seigniorage, or the profits earned by issuing currency which is passed on to the owner of the central bank, the government.
The RBI’s expenditure is mainly on printing of currency notes, on staff, besides commission to banks for undertaking transactions on behalf of the government and to primary dealers that include banks for underwriting some of these borrowings.
The central bank’s total costs, which includes expenditure on printing and commissions forms, is only about 1/7th of its total net interest income.
What are these reserves, how will this amount help the Central government and does this move harm the RBI?
The Reserve Bank of India (RBI) has decided to transfer ₹1.76 lakh crore to the Central government from its own reserves. What are these reserves, how will this amount help the government and does this move harm the RBI?
Where do the reserves come from?
To understand what the transfer is, we must first understand where the funds come from. The central bank has three different funds that together comprise its reserves. These are the
Currency and Gold Revaluation Account (CGRA), largest and makes up the significant bulk of the RBI’s reserves.
the Contingency Fund (CF) and
the Asset Development Fund (ADF).
CGRA fund, which in essence is made up of the gains on the revaluation of foreign exchange and gold, stood at ₹6.91 lakh crore as of financial year 2017-18. The CGRA has grown quite significantly since 2010, at a compounded annual growth rate of 25%.
The CF is the second biggest fund, amounting to ₹2.32 lakh crore in 2017-18. It is designed to meet contingencies from exchange rate operations and monetary policy decisions and is funded in large part from the RBI’s profits.
The ADF makes up a much smaller share of the reserves.
Revaluation reserve is a nominal reserve. Contingency fund is a real reserve that the RBI built up from its earnings.
Transfer Mechanism : It is a book entry really. There is no hard cash getting carried to Delhi from Mumbai. The RBI is the bank of the government and manages its cash anyway. So the amount is debited from the RBI’s books and gets credited to the government’s books maintained with the RBI.
How much should the RBI keep?
This has been a contentious issue. The RBI and the Finance Ministry have been at loggerheads over how much should be transferred to the Centre for a while. The most recent boiling over of tensions between the two was when the then RBI Deputy Governor, Viral Acharya, spoke up about the dangers of governments infringing upon central bank autonomy. One of the ways this was happening, he said, was in the government raiding the RBI’s coffers. The government countered that the RBI had reserves far in excess of what the global norms were and, so, should transfer the excess. Finally, the government in November 2018 set up a committee under former RBI Governor Bimal Jalan to look into the issue. That committee submitted its report, and the recent transfers have been made on the basis of its recommendations.
What did the Jalan Committee recommend?
The Jalan Committee, as it was called informally, is actually called the Expert Committee to Review the RBI’s Extant Economic Capital Framework.
The committee recommended that the RBI maintain a Contingent Risk Buffer — which mostly comes from the CF — of between 5.5-6.5% of the central bank’s balance sheet.
Since the latest CF amount was about 6.8% of the RBI’s balance sheet, the excess amount was to be transferred to the government.
The committee also decided, for the year under consideration, to use the lower limit of 5.5% of the range it recommended.
So, basically, whatever was excess of 5.5% of the RBI’s assets in the CF was to be transferred. That amount was ₹52,637 crore.
Regarding the RBI’s economic capital levels — which is essentially the CGRA — the committee recommended keeping them in the range of 20-24.5% of the balance sheet.
Since it stood at 23.3% as of June 2019, the committee felt that there was no need to add more to it, and so the full net income of the RBI — a whopping ₹1,23,414 crore — should be transferred to the Centre.
That ₹1.23 lakh crore plus the ₹52,637 crore is what comprises the ₹1.76 lakh crore that the RBI has decided to transfer to the government.
It must be noted that this ₹1.76 lakh crore includes the ₹28,000 crore interim dividend earlier transferred to the Centre and does not come over and above it.
Recommendation on a profit distribution policy has been endorsed by the Central Board meaning a more transparent and rule-based payout from next year, as in many other central banks, which could help narrow differences between the government and RBI.
Legal side of Transfer :
Under Section 47 of the RBI Act, “after making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds and for all other matters for which provision is to be made by or under this Act or which are usually provided for by bankers, the balance of the profits shall be paid to the Central government”.
Does this harm the RBI?
While it does not immediately do the RBI any harm, the fact remains that the central bank now has far less wiggle room in the event of a financial catastrophe, since its reserves have been emptied to their minimum levels or thereabouts.
That is, it has the minimum amount to deal with a crisis, but extra cash always comes in handy.
That said, given that the RBI’s transfers have now been as emptied as they can be, there is no scope for the government to rely on this source of funding in the near future.
The government in its Budget already accounted for a transfer of ₹90,000 crore from the RBI, and so the unexpected amount is ₹86,000 crore.
This is a one-time bonanza and does not fix the fact that tax revenues — both direct and indirect tax — are coming in much lower than they need to.
Reserves are a liability side item. After the transfer, the RBI’s liability side shrinks, but the asset side remains intact. So, the RBI can sell bonds from its asset side, or some of its other assets to shrink the balance sheet. But that will suck out liquidity from the system, something that the RBI has rectified after a lot of struggle in the recent past. Instead, it can print more currencies and increase the liability side. So, the currency in circulation increases.
What happens if currency in circulation increases?
If the currency in circulation is more than the demand, then the currency loses its value. That means more inflation, and as the rupee depreciates, import cost also rises and that causes additional inflation. At a time when the RBI is officially mandated to contain inflation within a specific range, increased currency in circulation works against that goal. Surely, the RBI will have to contain it at some point.
How Will Government Benefit ?
Normally, the money is transferred to the Consolidated Fund of India from which salaries and pensions to government employees are paid and interest payments done, besides spending on government programmes.
The large payout can help the government cut back on planned borrowings and keep interest rates relatively low.
Besides, it will provide space for private companies to raise money from markets.
The RBI’s transfer of ₹1.76 trillion to the government should offset any revenue shortfall from lower tax buoyancy amid slower growth this year, allowing more room to boost spending.
And if it manages to meet its revenue targets, the windfall gain can lead to a lower fiscal deficit. It will also make it easier for the government to meet its budget deficit target of 3.3% of GDP for fiscal 2020.
The other option is to earmark these funds for public spending or specific projects, which could lead to a revival in demand in certain sectors and boost economic activity.
Statistics on Goods and Services Tax (GST) collections for 2018-19 show that there was a shortfall of ~1 lakh compare to what was budgeted. This is not a minor slippage, but a windfall loss, or rather, a misplaced windfall gain.
Surviving on the fiscal front via windfall gains, and faltering when they do not materialise, has been an integral part of India’s fiscal trajectory in the last few years.
This is unsustainable, and avoidable. RBI’s mandate is to pump-prime the economy via monetary policy, while the government has to manage the fiscal front. RBI’s extra transfer this year means it has effectively taken care of the fiscal task as well. This cannot be the norm.
Way forward :
The bottom line however remains unchanged. India’s economy has weakened in the last few years. To reverse this trend and bring ‘animal spirits’ back, government needs to unleash a new round of reforms which encompass factors of production such as land, labour and capital.
Value Addition :
Is the profits governments make by minting currency. It is the difference between the face value of a currency note or coin, and its actual production cost.
For instance, if the cost of printing a ₹2,000-note is about ₹4, printing one such note and putting it into circulation fetches a profit of ₹1,996.
Usually central banks ‘earn’ this profit and transfer it to the Government.
It is normal to assume that whenever the it issues new currency, the RBI will pocket a profit. Higher denomination notes earn higher profits.
Special Drawing Rights (SDRs) international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, U.S. dollars ($), euro (€), pounds sterling (£), and Japanese yen (¥).
A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate.
The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways:
first, through the arrangement of voluntary exchanges between members; and
second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.
In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.
Why Is it in the news ?
The International Monetary Fund, which manages the SDRs, is conducting a five-yearly review of the basket of currencies that form its value. China wants it to bring the yuan into the basket.
IMF staff on Saturday recommended that the currency be included in the IMF’s benchmark foreign exchange basket, a move that will indirectly benefit India as well
This is a big decision, meaning that the IMF has in effect recognised the yuan as a reserve currency, despite China’s extensive capital controls. It would not suddenly turn the yuan into a rival to the dollar . But it would be a symbolic boost to its international standing, giving countries more confidence to add the yuan to their currency reserves.
Managing Director of the IMF Christine Lagarde also endorsed the yuan’s inclusion in the IMF’s Special Drawing Rights basket.
“The staff of the IMF has today issued a paper to the Executive Board on the quinquennial review of the SDR (Special Drawing Rights). A key focus of the Board review is whether the Chinese renminbi (RMB)… also meets the other existing criterion, that the currency be ‘freely usable’, which is defined as being ‘widely used’ for international transactions and ‘widely traded’ in the principal foreign exchange markets,” Ms. Lagarde said in a statement.
The inclusion of the yuan in this basket has been endorsed by almost all of the major economies of the world, including Germany, Britain, France and Italy. The U.S. was historically cautious about this, but recently softened its stance in September when President Obama said the U.S. would support China’s bid for inclusion in the SDR basket as long as it met the IMF’s technical specifications, which it now has.
The Indian Angle
“The yuan’s inclusion in the SDR basket, when it happens, will be a great victory for China. It will mean a global economic coming of age for them, and will mean that the yuan is now a reserve currency for the world and all that entails,” Mr. Subramanian said.
However, to meet the various requirements to achieve this, China has had to open up its closed capital account, he added, saying that this is ‘unambiguously a good thing’ for India.
“The ability of China to manipulate its exchange rate has become more restricted. Not only did India have to deal with China’s over-capacity, but also its devalued currency,” he said, adding that the latter will be less of a problem once the yuan enters the SDR basket.
Article is modified version of Hindu Article. From various sources.
In order to comprehend Raghuram Rajan’s warning, the causes of 1930’s Depression as they were linked to the Stock Crash of 1929 need to be understood.
The 1929 crash brought the Roaring Twenties to a shuddering halt. The crash marked the beginning of widespread and long-lasting consequences for the United States. Businesses found it difficult securing capital markets investments for new projects and expansions. Business uncertainty affected job security for employees, and as the American worker (the consumer) faced uncertainty with regards to income, the propensity to consume declined. The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including contraction of credit, business closures, firing of workers, bank failures and other economic depressing events.
The resultant rise of mass unemployment is seen as a result of the crash. The Wall Street Crash is usually seen as having the greatest impact on the events that followed and therefore is widely regarded as signaling the downward economic slide that initiated the Great Depression. The consequences were dire for almost everybody. It wiped out billions of dollars of wealth in one day, and this immediately depressed consumer buying.
About 4,000 banks and other lenders ultimately failed.
Exuberance on stock markets drove the crisis. According to Raghuram Rajan, same could be happening now also with stock markets going higher by the day with real economy not supporting it and thus financial bubbles building that could eventually take down the real and financial economy with it.
India’s “Calorie Consumption Puzzle” has attracted the attention of many scholars in recent years. The relevant question is : why has the country’s nutritional intake been declining over the past few decades while people’s purchasing power is increasing. When it is generally true that richer people consume more calories, why is the Indian trend the opposite? Why do China and Vietnam show normal trend of rising food consumption with growth while only India is going the other way?
Several explanations for the puzzle have been offered by researchers. One theory that has become popular is declining calorie needs – people are choosing to consume fewer calories since they need less energy as s the workforce shifts from physically demanding agricultural work to while collar occupations in cities and as agriculture becomes mechanised, calorie requirements of the population are expected to decline. Another explanation centres on diseases such as diarrhoea that result in loss of energy. Greater availability of safe drinking water and better sanitation in India has led to better epidemiological conditions, resulting in fewer cases of diarrhoea and other diseases, and ultimately leading to falling calorie requirements.
Other explanations include increase in food inflation, supplies not matching demand in protein food, vegetarianism that shifts from cereals but cant have protein as it costs more nor meat, voluntary choice of luxuries like TVs over food, and underreporting of calorie intake due to eating outside the home.
RBI Governor used the term Goldilocks economy while delivering the bimonthly credit and monetary policy yesterday so this is a post explaining the Goldilocks term in brief.
In economics, a Goldilocks economy sustains moderate economic growth and low inflation, which allows a market-friendly monetary policy. Goldilocks economy is characterized by a low unemployment rate, increasing asset prices (stocks, real estate, etc.), low interest rates, steady GDP growth and low inflation. A bullish economy, with steep growth in market values and low losses due to inflation, denotes strong economic growth, though it may lead to rising inflation. In contrast, a bearish economy is the opposite, with stagnant economic performance and inflation rates soaking up any gains. In either extreme, the RBI acts to either cool off or heat up the economy, primarily by raising or lowering the official interest rates. When there is a balance, i.e. not rapid or stagnant growth, but sustained growth and a reasonably low inflation rate, it is a comfortable zone for investors to find long term growth and attractive values in various asset classes. Therefore, experts have labeled this balance between a bull economy and a bear economy, the Goldilocks Economy.
The name Goldilocks economy comes from children’s story, The Three Bears, when Goldilocks proclaims that the porridge is “not too hot and not too cold…it is just right.” Indeed, with sustained growth and a low inflation rate, the economic is usually considered “just right.”
Currency manipulation occurs when countries sell their own currencies in the foreign exchange markets, usually against dollars, to keep their exchange rates weak and the dollar strong. These countries thereby subsidize their exports and raise the price of their imports, sometimes by as much as 30-40%. They strengthen their international competitive positions, increase their trade surpluses and generate domestic production and employment at the expense of others. It becomes competitive devaluation whcih is a form of ” Beggar , thy neighbour policy” in which those economies that can afford to devalue lose.
Currency manipulation extends throughout the Pacific Rim: in Japan, where Tokyo’s central bank has printed more yen to help its slumbering economy grow; in China, where the renminbi has long been fixed to the dollar rather than allowed to fluctuate in response to market forces; and in Malaysia, where the government has intervened to protect the ringgit against currency traders.The Swiss National Bank (SNB) undervalued swiss francs saying the high value of the franc is a threat to the economy. The SNB said it would enforce the minimum rate by buying foreign currency in unlimited quantities.
India is running a huge trade deficit with China and is becoming de-industrialised because of the undervaluation of Chinese renminbi through manipulation.
The U.S. trade deficit has been several hundred billion dollars a year higher as a result and lost several million additional jobs during the Great Recession. As a result, it joined the currency wars through QE. Currency manipulation is, by far, the world’s most protectionist international economic policy in the 21st century, but e International Monetary Fund and the World Trade Organization failed to check it.
Since the global financial crisis, policymakers have sought to address the fault lines that helped trigger one of the most devastating financial crises in a century, and to enable a more inclusive, stable financial system that promotes stability as well as economic development and growth.
Islamic finance offers several features that are consistent with these objectives. Islamic finance refers to financial services that conform with Islamic jurisprudence, or Shari’ah. Instead of trading in money and earning profit from the interest, Islamic banking trades in goods and services and earns profit from real economic transactions. It also has restraints on highly speculative transactions, and refrains from financing or participating in businesses and activities dealing in alcohol, gambling, tobacco, and pornography, as these are not permissible under Islam. All other activities remain very much as with any other banking and financial institution. It requires fair treatment; and institutes sanctity of contracts. And these principles hold the promise of supporting financial stability, since a key tenet of Islamic finance is that lenders should share in both the risks and rewards of the projects and loans they finance.
Islamic finance has an important potential to act as an engine of stability and inclusion. Since investors are required to bear losses that may arise on loans. there is therefore less leverage, and greater incentive to exercise strong risk management. These risk-sharing features also serve to help ensure the soundness of individual financial institutions and help discourage the types of lending booms and real estate bubbles that were the precursors of the global financial crisis.
The focus on asset-backed and risk-sharing financing also has the potential to improve access to finance by small- and medium-sized enterprises, and to support inclusive growth- by having more money for lending to stable businesses.. It is well-suited to financing large-scale infrastructure projects, whereby—similar to public-private partnerships—investors finance the construction of roads, bridges, and similar projects, and receive the returns on these investments. Finally, Islamic financial services also promise to improve financial inclusion for the large number of Muslims that are discouraged from using banks for religious reasons.
Many secular countries such as the United Kingdom (UK), France, and Singapore are promoting Islamic finance to improve financial inclusion of their domestic population and also to attract funds and investments from other countries. UK alone has more than 25 Islamic financial institutions including five full-fledged Islamic banks. In June 2014, it became the first non-Muslim country to issue a sovereign sukuk (Islamic bond). Other countries which followed suit were South Africa and Thailand. The latter already has a state-run Islamic Bank since 2002. At present, more than 75 countries offer Islamic banking products and the global market for these assets is around $2 trillion.
However, India recently saw the deferment of the launch of State Bank of India’s Shariah Equity Fund in December 2014.
This video is about Goods and services tax- Features,Benefits, Challenges by Mrunal, the language is Hindi but all the slides are in english so most people can understand.This is one and only video you need to know every thing about GST in India for UPSC.
Also the summary of the Constitution 122nd Amendment (GST) Bill, 2014 is also given here so that polity angle is also covered, do read Laxminath for Indian Polity.
The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced in the Lok Sabha on December 19, 2014 by the Minister of Finance, Mr. Arun Jaitley.
The Bill seeks to amend the Constitution to introduce the goods and services tax (GST). Consequently, the GST subsumes various central indirect taxes including the Central Excise Duty, Countervailing Duty, Service Tax, etc. It also subsumes state value added tax, octroi and entry tax, luxury tax, etc.
Concurrent powers for GST: The Bill inserts a new Article in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.
Integrated GST (IGST): However, only the centre may levy and collect GST on supplies in the course of inter-state trade or commerce. The tax collected would be divided between the centre and the states in a manner to be provided by Parliament, by law, on the recommendations of the GST Council.
GST Council: The President must constitute a Goods and Services Tax Council within sixty days of this Act coming into force. The GST Council aim to develop a harmonized national market of goods and services.
Composition of the GST Council: The GST Council is to consist of the following three members: (i) the Union Finance Minister (as Chairman), (ii) the Union Minister of State in charge of Revenue or Finance, and (iii) the Minister in charge of Finance or Taxation or any other, nominated by each state government.
Functions of the GST Council: These include making recommendations on: (i) taxes, cesses, and surcharges levied by the centre, states and local bodies which may be subsumed in the GST; (ii) goods and services which may be subjected to or exempted from GST; (iii) model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply; (iv) the threshold limit of turnover below which goods and services may be exempted from GST; (v) rates including floor rates with bands of GST; (vi) special rates to raise additional resources during any natural calamity; (vii) special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (viii) any other matters.
Resolution of disputes: The GST Council may decide upon the modalities for the resolution of disputes arising out of its recommendations.
Restrictions on imposition of tax: The Constitution imposes certain restrictions on states on the imposition of tax on the sale or purchase of goods. The Bill amends this provision to restrict the imposition of tax on the supply of goods and services and not on its sale.
Additional Tax on supply of goods: An additional tax (not to exceed 1%) on the supply of goods in the course of inter-state trade or commerce would be levied and collected by the centre. Such additional tax shall be assigned to the states for two years, or as recommended by the GST Council.
Compensation to states: Parliament may, by law, provide for compensation to states for revenue losses arising out of the implementation of the GST, on the GST Council’s recommendations. This would be up to a five year period.
Goods exempt: Alcoholic liquor for human consumption is exempted from the purview of the GST. Further, the GST Council is to decide when GST would be levied on: (i) petroleum crude, (ii) high speed diesel, (iii) motor spirit (petrol), (iv) natural gas, and (v) aviation turbine fuel.
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Ahead of the Union Budget on Saturday, FM Arun Jaitley tables Economic Survey 2015 report; economic growth in India seen at 8.5 pct in 2015-16 – indicating scope for big bang reforms.
As per the Economic Survey 2015 tabled in Parliament today, India must adhere to medium-term fiscal deficit target of 3 percent of the country’s gross domestic product (GDP).The government should ensure expenditure control to reduce fiscal deficit, the report suggests. (Read Full Report: Economic Survey)
What is the Economic Survey of India?
The Finance Ministry of India presents the Economic Survey in the parliament every year, just before the Union Budget. It is the ministry’s view on the annual economic development of the country. A flagship annual document of the Ministry of Finance, Government of India, Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
This document is presented to both houses of Parliament during the Budget Session. It contains certain prescriptions that may find a place in the Union Budget which is presented a day or two later. It is authored by the Chief Economic Advisor in the Finance Ministry. There is no statutory obligation to present the document.
Economic Outlook, Prospects, and Policy Challenges
‘Wiping Every Tear From Every Eye’ : The JAM Number Trinity Solution
The Investment Climate: Stalled Projects, Debt Overhang and The Equity Puzzle
Credit, Structure and Double Financial Repression: A Diagnosis of the Banking Sector
Putting Public Investment on Track: The Rail Route to Higher Growth
What to Make in India? Manufacturing or Services?
A National Market for Agricultural Commodities – Some Issues and Way Forward
From Carbon Subsidy to Carbon Tax: India’s Green Actions
The Fourteenth Finance Commission (FFC) – Implications for Fiscal Federalism in India?
State of the economy and Public Finance
Monetary management and financial intermediation
External sector and Service sector
Prices, agriculture and food management
Industrial, corporate and infrastructure performance
Climate change and sustainabke development
Social infrastructure, employment and human development
What is JAM Trinity, according to the Economic Survey 2015 and why is it emphasized?
A. Government subsidises many commodities like rice, wheat, pulses, sugar, kerosene, LPG, naphtha, water, electricity, fertilizer etc The estimated direct fiscal cost of subsidies is about Rs 3.78 lakh crore or about 4.24 per cent of GDP.Prime Minister Narendra Modi recently stated that leakages in subsidies must be eliminated without reducing the subsidies themselves. Price subsidies are often regressive, meaning “a rich household benefits more from the subsidy than a poor household”. It gives the example of good, electricity and kerosene, to name a few, and explains how price subsidies distort and lead to leakages( leakages means that the intended beneficiaries do not receive the benefit).
Economic Survey says ‘JAM Trinity’ of Jan Dhan Yojana, Aadhaar and Mobile numbers should be linked effectively for better transfer of subsidies to the intended beneficiaries. JAM has potential to “wipe every tear from every eye” with direct transfer of benefits.
It says the JAM allows the state to offer this support to poor households in a targeted and less distorting way. There are many other benefits as we discussed in the class like fiscal savings etc.
The survey also made a case that Post Offices can fit into the Aadhaar linked benefits-transfer architecture.
India has the largest postal network in the world with over 1,55,015 Post Offices of which (89.76 percent) are in the rural areas.
“Similar to the mobile money framework, the Post Office (either as payment transmitter or a regular Bank) can seamlessly fit into the Aadhaar linked benefits-transfer architecture by applying for an IFSC code which will allow post offices to start seeding Aadhaar linked accounts,” it said.
Economic Survey: Outlook and challenges:
A) Macroeconomic fundamentals have dramatically improved in 2014-15
1. Inflation has declined by over 6 percentage points since late 2013
2. Current Account Deficit down from a peak of 6.7% of GDP (in Q3, 2012-13) to an estimated 1% in 2014-15
3. Foreign portfolio flows have stabilized the rupee
4. After a nearly 12-quarter phase of deceleration, real GDP has been growing at 7.2% since 2013-14, based on the new growth estimates of the
B. Central Statistics Office
5. Notwithstanding the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging economy
6. Going forward inflation is likely to remain in the 5-5.5% range, creating space for easing of monetary conditions.
7. Using the new estimate for 2014-15 as the base, GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5% in 2015-16.
8. Private investment must be the engine of long-run growth.
9. There is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment
10. India faces an export challenge, reflected in the fact that the share of manufacturing and services exports in GDP has stagnated in the last five years.
C. Fiscal Framework:
11. India must adhere to the medium-term fiscal deficit target of 3 percent of GDP
12. India must move toward the golden rule of eliminating revenue deficits
13. Expenditure control with growth recovery and GST will ensure that medium-term targets are met
14. The quality of expenditure needs to be shifted from consumption to investment.
D. Subsidies and the JAM Solution:
15. The direct fiscal cost of all the subsidies is roughly Rs. 378,000 crore or 4.2 percent of 2011-12 GDP.
16. 41% of PDS kerosene is lost as leakage and only 46% of the remaining 59% is consumed by poor
17. The JAM Number Trinity – Jan DhanYojana, Aadhaar, Mobile – can eliminate leakages and distortion
D. The Investment Challenge
18. The stock of stalled projects stands at about 7% of GDP, accounted for mostly by the private sector.
19. Manufacturing and infrastructure account for most of the stalled projects.
20. This has weakened the balance sheets of the corporate sector and public sector banks,
21. Despite this, the stock market valuations of companies with stalled projects are quite robust, which is a puzzle
22. Expectation that the private sector will drive investment needs to be moderated
23. Public investment may need to step in to ramp up capital formation.
E. The Banking Challenge
24. Indian banking balance sheet is suffering from ‘double financial repression’
25. Going forward, capital markets and bond-financing need to be given a boost.
26. Private sector banks did not partake in the biggest private-sector-fuelled growth episode in Indian history during 2005-2012
F. The Rail Route to Higher Growth.
27. Econometric evidence suggests that the railways public investment multiplier — the effect of a Rs 1 increase in public investment in the railways on overall output — is around 5.
28. However, in the long run, the railways must be commercially viable and public support must be linked to railway reforms.
G. A National Market for Agricultural Commodities
29. India has not one, not 29, but thousands of agricultural markets
30. APMCs levy multiple fees of substantial magnitude that are non-transparent
31. The Model APMC Act, 2003 could benefit from drawing upon the ‘Karnataka Model’
32. The key here is to remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector
I thank Sri Ram IAS and Financial Express for the data.
The 14th Finance Commission report has been accepted by the center,the report has been tabled today and it recommended that the Center transfer 42% of divisible pool to the states, including taxes and grants the 13th Finance commission had suggested it a 39.5% devolution to the states.Download Complete Report PDF.
Here are the recommendations from the report in totality ,as more analysis and suggestions follows the key recommendation and Important articles will be updated.
Update 25th May
For those who can understand Hindi these two videos summaries the 14th Commission to a large extent, non Hindi viewers can also understand the slides, second video very useful for quick revision.
Mrunal 14th Finance commission videos .
Sharing of Union Taxes
1. Considering all factors, in our view, increasing the share of tax devolution to 42 per cent of the divisible pool would serve the twin objectives of increasing the flow of unconditional transfers to the States and yet leave appropriate fiscal space for the Union to carry out specific- purpose transfers to the States.(para 8.13)
2. We have not consented to the submission of States on minimum guaranteed devolution.(para 8.14)
3. Though we are of the view that use of dated population data is unfair, we are bound by our ToR and have assigned a 17.5 per cent weight to the 1971 population. On the basis of the exercises conducted, we concluded that a weight to the 2011 population would capture the demographic changes since 1971, both in terms of migration and age structure. We, therefore, assigned a 10 per cent weight to the 2011 population.(para 8.25)
4. For area we have followed the method adopted by the FC-XII and put the floor limit at 2 per cent for smaller States and assigned 15 per cent weight.(para 8.26)
5. We believe that large forest cover provides huge ecological benefits, but there is also an opportunity cost in terms of area not available for other economic activities and this also serves as an important indicator of fiscal disability. We have assigned 7.5 per cent weight to the forest cover.(para 8.27)
6. We have decided to revert to the method of representing fiscal capacity in terms of income distance and assigned it 50 per cent weight. We have calculated the income distance following the method adopted by FC-XII.(para 8.28 and 8.29)
8. As service tax is not levied in the State of Jammu & Kashmir, proceeds cannot be assigned to this State. We have worked out the share of each of the remaining twenty-eight States in the net proceeds of service taxes and presented this in Table 8.3.(para 8.31)
9. We recommend that the local bodies should be required to spend the grants only on the basic services within the functions assigned to them under relevant legislations.(para 9.56)
10. We recommend that the books of accounts prepared by the local bodies should distinctly capture income on account of own taxes and non-taxes, assigned taxes, devolution and grants from the State, grants from the Finance Commission and grants for any agency functions assigned by the Union and State Governments. In addition to the above, we also recommend that the technical guidance and support arrangements by the C&AG should be continued and the States should take action to facilitate local bodies to compile accounts and have them audited in time.(para 9.61)
11. We recommend distribution of grants to the States using 2011 population data with weight of 90 per cent and area with weight of 10 per cent. The grant to each state will be divided into two, a grant to duly constituted gram panchayats and a grant to duly constituted municipalities, on the basis of urban and rural population of that state using the data of census 2011.(para 9.64)
12. We have worked out the total size of the grant to be Rs.2,87,436 crore for the period 2015-20, constituting an assistance of Rs. 488 per capita per annum at an aggregate level. Of this,the grant recommended to panchayats is Rs.2,00,292.20 crore and that to municipalities is Rs.87,143.80 crore. The grant assessed by us for each state for each year is fixed.(para 9.69)
13. We have recommended grants in two parts – a basic grant and a performance grant for duly constituted gram panchayats and municipalities. In the case of gram panchayats, 90 per cent of the grant will be the basic grant and 10 per cent will be the performance grant. In the case of municipalities, the division between basic and performance grant will be on a 80:20 basis. The shares of the States for these grants are set out in Annex 9.1.(para 9.70)
14. The grants that we recommend should go to gram panchayats, which are directly responsible for the delivery of basic services, without any share for other levels. We expect that the State Governments will take care of the needs of the other levels. The earmarked basic grants for gram panchayats will be distributed among them, using the formula prescribed by the respective SFCs for the distribution of resources. Similarly, the basic grant for urban local bodies will divided into tier-wise shares and distributed across each tier, namely the municipal corporations,municipalities (the tier II urban local bodies) and the nagar panchayats (the tier III local bodies)using the formula given by the respective SFCs. The State Government should apply the distribution formula of the most recent SFC, whose recommendations have been accepted.(para 9.72)
15. In case the SFC formula is not available, then the share of each gram panchayat as specified above should be distributed across the entities using 2011 population with a weight of 90 per cent and area with a weight of 10 percent. In the case of urban local bodies, the share of each of the three tiers will be determined on the basis of population of 2011 with a weight of 90 per cent and area with a weight of 10 per cent and then distributed among the entities in each tier in proportion to the population of 2011 and area in the ratio of 90:10.(para 9.73)
16. We are providing performance grants to address the following issues: (i) making available reliable data on local bodies’ receipt and expenditure through audited accounts; and (ii) improvement in own revenues. In addition, the urban local bodies will have to measure and publish service level benchmarks for basic services. These performance grants will be disbursed from the second year of our award period, that is, 2016-17 onwards so as to enable sufficient time to State Governments and the local bodies to put in place a scheme and mechanism for implementation.(para 9.75)
17. To be eligible for performance grants, the gram panchayats will have to submit audited annual accounts that relate to a year not earlier than two years preceding the year in which the gram panchayat seeks to claim the performance grant. It will also have to show an increase in the own revenues of the local body over the preceding year, as reflected in the audited accounts. To illustrate, the audited accounts required for performance grants in 2016-17 will be for the year 2014-15; for performance grants in 2017-18, the audited accounts will be for the year 2015-16; for performance grants in 2018-19, the audited accounts will be for 2016-17; and for performance grants in 2019-20, the audited accounts will be for 2017-18.(para 9.76)
18. We are of the opinion that it may be better that the detailed procedure for disbursal of the performance grant to gram panchayats based on revenue improvement be designed by the State Government concerned, keeping in view the two conditions given above. The operational criteria,including the quantum of incentive to be given, is left to the discretion of the State Governments.In case some amount of the performance grant remains after disbursement to the eligible gram panchayats, this undisbursed amount should be distributed on an equitable basis among all the eligible gram panchayats. The scheme for disbursement of the performance grant will be notified by the State Governments latest by March 2016, in order to enable the preparation of the eligibility list of local bodies entitled to them. The concerned Ministries of the Union Government will also be informed in order to facilitate release of the instalment of performance grants.(para 9.77)
19. A detailed procedure for the disbursal of the performance grant to urban local bodies would have to be designed by the State Government concerned, subject to certain eligibility criteria. To be eligible, the urban local body will have to submit audited annual accounts that relate to a year not earlier than two years preceding the year in which it seeks to claim the performance grant. It will also have to show an increase in the own revenues over the preceding year, as reflected in these audited accounts. In addition, it must publish the service level benchmarks relating to basic urban services each year for the period of the award and make it publically available. The service level benchmarks of the Ministry of Urban Development may be used for this purpose. The improvement in revenues will be determined on the basis of these audited accounts and on no other basis. For computing the increase in own revenues in a particular year, the proceeds from octroi and entry tax must be excluded. In case some amount of the performance grant remains after disbursement to the eligible urban local bodies, the undisbursed amount should be distributed on an equitable basis among all the eligible urban local bodies that had fulfilled the conditions for getting the performance grant.(para 9.78)
20. These guidelines for the disbursement of the rural and urban performance grants will remain in force for the period of our award. We recommend that the Union Government accept the detailed procedure prepared by the State which incorporates our broad guidelines without imposing any further conditions.(para 9.79)
21. We recommend that no further conditions or directions other than those indicated by us should be imposed either by the Union or the State Government for the release of funds.(para 9.80)
22. The grants recommended by us shall be released in two instalments each year in June and October. This will enable timely flows to local bodies during the year, enabling them to plan and execute the works better. We recommend that 50 per cent of the basic grant for the year be released to the State as the first instalment of the year. The remaining basic grant and the full performance grant for the year may be released as the second instalment for the year. The States should release the grants to the gram panchayats and municipalities within fifteen days of it being credited to their account by the Union Government. In case of delay, the State Government must release the instalment with interest paid from its own funds.(para 9.81)
23. We recommend that stern action should be ensured if irregularities in the application of funds are noticed or pointed out.(para 9.82)
24. We recommend that the State Governments should strengthen SFCs. This would involve timely constitution, proper administrative support and adequate resources for smooth functioning and timely placement of the SFC report before State legislature, with action taken notes.(para 9.84)
25. We suggest that the existing rules be reviewed and amplified to facilitate the levy of property tax and the granting of exemptions be minimised. The assessment of properties may be done every four or five years and the urban local bodies should introduce the system of self-assessment. We recommend that action be taken by the States to share information regarding property tax among the municipalities, State and Union Governments.(para 9.90)
26. We suggest that the levy of vacant land tax by peri-urban panchayats be considered. In addition, a part of land conversion charges can be shared by State Governments with municipalities and panchayats.(para 9.91)
27. We recommend that the States should review the position and prepare a clear framework of rules for the levy of betterment tax.(para 9.92)
28. We suggest that States may like to consider steps to empower local bodies to impose advertisement tax and improve own revenues from this source.(para 9.93)
29. We recommend that States review the structure of entertainment tax and take action to increase its scope to cover more and newer forms of entertainment.(para 9.94)
30. We recommend raising the ceiling of professions tax from Rs. 2500 per annum to Rs.12,000 per annum. We further recommend that Article 276(2) of the Constitution may be amended to increase the limits on the imposition of professions tax by States. The amendment may also vest the power to impose limits on the Parliament with the caveat that the limits should adhere to the Finance Commission’s recommendations and the Union Government should prescribe a uniform limit for all states.(para 9.97)
31. We recommend that State Governments take action to assign productive local assets to the panchayats, put in place enabling rules for collection and institute systems so that they can obtain the best returns while leasing or renting common resources.(para 9.98)
32. We recommend that the urban local bodies rationalise their service charges in a way that they are able to at least recover the operation and maintenance costs from the beneficiaries.(para 9.99)
33. We are of the view that mining puts a burden on the local environment and infrastructure,and, therefore, it is appropriate that some of the income from royalties be shared with the local body in whose jurisdiction the mining is done. This would help the local body ameliorate the effects of mining on the local population.(para 9.101)
34. We recommend that the Union and State Governments examine in depth the issue of properly compensating local bodies for the civic services provided by them to government properties and take necessary action, including enacting suitable legislation, in this regard. (para 9.102)
35. We recommend that local bodies and States explore the issuance of municipal bonds as a source of finance with suitable support from the Union Government. The States may allow the larger municipal corporations to directly approach the markets while an intermediary could be set up to assist medium and small municipalities who may not have the capacity to access the markets directly.(9.107)
36. We urge the Union Government to consider a larger, sustained and more effective direct intervention for the up-gradation of administration as well as development of the areas covered under the proviso to Article 275(1) and excluded from the consideration of Finance Commissions in the ToR, in order to bring such areas on par with other areas.(para 9.110)
37. The financing of the NDRF has so far been almost wholly through the levy of cess on selected items, but if the cesses are discontinued or when they are subsumed under the GST in future, we recommend that the Union Government consider ensuring an assured source of funding for the NDRF.(para 10.26)
38. While making appropriations into the NDRF, we recommend that past trends of outflows from it should be taken into account by the Union Government to ensure adequacy of the Fund in order to assure timely availability and release of funds to the States. (para 10.27)
39. Recognizing that contributions from the public and institutions could be another source of financing the NDRF, we recommend that a decision on granting tax exemption to private contributions to the NDRF be expedited and that the Union Government consider invoking the use of Schedule VII of the Companies (Corporate Social Responsibility Policy) Rules 2014 as an enabling provision for financing the NDRF.(paras 10.28 and 10.29)
40. We recommend a review of the current arrangements for the reimbursement of expenditure incurred by the defence forces on disaster relief, since we are convinced that these could have an adverse impact on their operational efficiency.(para 10.30)
41. Considering the usefulness of a scientifically validated risk vulnerability indicator to measure the type, frequency and intensity of disasters, and also in view of the very wide responsibility cast on governments at different levels by the statute, we recommend that the Union Government should expedite the development and scientific validation of the Hazard Vulnerability Risk Profiles of States. (para 10.34)
42. We adopted the practice of the previous Commissions and used past expenditure on disaster relief for the period 2006-07 to 2012-13 to determine the SDRF corpus for each State. Further, we followed the methodology of the FC-XIII to arrive at an aggregate corpus for all States of Rs.61,219 crore for the award period.( para 10.36)
43. We recommend that all States contribute 10 per cent to SDRF during our award period,with the remaining 90 per cent coming from the Union Government.(para 10.40)
44. We are in agreement with the views of the FC-XIII that the decision of constituting DDRFs is best left to the wisdom of the State Governments, and hence, separate grant for the financing of DDRFs are not recommended. (para 10.42)
45. We note with satisfaction that the norms for expenditure have undergone periodic revisions and that the States are being consulted in the process of reviewing the norms. We urge the Union Government to take account of the genuine concerns of the States in the consultative mechanism already in place.(para 10.46)
46. Considering the need for flexibility in regard to state-specific disasters, we recommend that up to 10 per cent of the funds available under the SDRF can be used by State Governments for natural disasters that they consider to be ‘disasters’ within the local context in the State and which are not included in the notified list of disasters of the Ministry of Home Affairs.(para 10.52)
47. While calculating the requirement for funds from the NDRF during severe calamities,the existing practice of adjusting the contribution made by the Union Government to the SDRF should continue.(para 10.55)
48. A total revenue deficit grant of Rs. 1, 94,821 crore is recommended during the award period for eleven States (Table 11.3).(para 11.37)
49. There is a case for transfers from the Union Government to the States to augment expenditure in specific sectors with high degree of externalities in order to ensure desired minimum level of expenditures in every State. However, past experience shows that achieving this through the mechanism of Finance Commission grants may not be appropriate. Further, we are informed that Finance Commission grants on this account often operate in parallel with other transfers. We, therefore, conclude that all such transfers, in whichever sectors are considered necessary,should be addressed through a different institutional arrangement described in Chapter 12.(para 11.42)
50. We endorse the proposal made by the Department of Justice to strengthen the judicial systems in the States and urge State Governments to use the additional fiscal space provided by us in the tax devolution to meet such requirements.(para 11.44)
51. Our projection of the expenditure needs of the States has taken into account the high base of expenditure for both general administration and police. Therefore, in our view, the States have the appropriate fiscal space to provide for the additional expenditure needs as per their requirements. This should help them address the problems and facilitate them to build capacity and bridge the existing gaps in regard to general administration and police.(para 11.45)
52. We have provided appropriate fiscal space for maintenance expenditures and this should enable the States to meet the additional expenditure needs according to their requirements. We also urge the States to enhance expenditure on maintenance of capital assets to the appropriate levels. (para 11.48)
53. We consider health, education, drinking water and sanitation as public services of national importance, having significant inter-state externalities. However, in our view, the grants to these sectors should be carefully designed and implemented and an effective monitoring mechanism put in place with the involvement of the Union, States and domain expertise. Therefore, we have desisted from recommending specific purpose grants and have suggested that a separate institutional arrangement be introduced for the purpose. (para 11.59)
Towards Cooperative Federalism
54. We conclude that a compelling case has been made for reforming the existing system of fiscal transfers from the Union to the States, in a comprehensive manner. We recommend that the existing system be reviewed and necessary institutional changes be considered. (para 12.23)
55. We believe the existing arrangements for transfers between the Union and the States need to be reviewed with a view to minimizing discretion, improving the design of transfers, avoiding duplication and promoting cooperative federalism, insofar as such transfers are required to be made outside of the recommendations of the Finance Commission. (para 12.27)
56. We recommend for consideration that a new institutional arrangement consistent with the overarching objective of strengthening cooperative federalism be evolved for: (i) identifying the sectors in the States that should be eligible for grants from the Union, (ii) indicating criteria for inter-state distribution, (iii) helping design schemes with appropriate flexibility being given to the States regarding implementation and (iv) identifying and providing area-specific grants. (para 12.28)
57. We urge that the suggested new institutional arrangement also consider taking up issues related to identifying and recommending resources for inter-state infrastructure schemes in the North-eastern States.(para 12.32)
58. We urge that the new institutional arrangement should also become the forum for integrating economic and environmental concerns in decision making. (para 12.35)
59. We suggest that the present role of the Inter-State Council be expanded to include the functions envisaged in paragraphs 12.28, 12.32 and 12.35. (para 12.46)
60. We expect that the Union Government will utilise its available fiscal space to continue to address the needs and expectations of the States and ensure the prevailing level of transfers to States of about 49 per cent of the gross revenue receipts during the award period. (para 12.49)
Goods and Services Tax
61. There are several challenges and many unresolved issues. In the absence of clarity on the design of GST and the final rate structure, we are unable to estimate revenue implications and quantify the amount of compensation in case of revenue loss to the States due to the introduction of GST.(para 13.26)
62. The Union may have to initially bear an additional fiscal burden arising due to the GST compensation. This fiscal burden should be treated as an investment which is certain to yield substantial gains to the nation in the medium and long run. We also believe that GST compensation can be accommodated in the overall fiscal space available with the Union Government. (para 13.27)
63. In the case of VAT, compensation was provided to the States for three years, at 100 per cent in the first year, 75 per cent in the second year, and 50 per cent in the third year. In our view, it will be appropriate to keep this precedent as the basis for compensation for GST also. However, given the scale of reform and the apprehensions of revenue uncertainty raised by the States, the revenue compensation, in our view, should be for five years. It is suggested that 100 per cent compensation be paid to the States in the first, second and third years, 75 per cent compensation in the fourth year and 50 per cent compensation in the fifth and final year. (para 13.28)
64. We recommend creation of an autonomous and independent GST Compensation Fund through legislative actions in a manner that it gives reasonable comfort to States, while limiting the period of operation appropriately. (para 13.29)
65. We recommend that the Constitutional legislative and design aspects of the GST enable transition towards universal application of GST over the medium to long term, while making necessary provisions for smooth transition through temporary arrangements. (para 13.30)
Fiscal Environment and Fiscal Consolidation Roadmap
66. Keeping in mind the importance of risks arising from guarantees, off-budget borrowings and accumulated losses of financially weak public sector enterprises when assessing the debt position of States, we recommend that both Union and State Governments adopt a template for collating, analysing and annually reporting the total extended public debt in their respective budgets as a supplement to the budget document. (para 14.24)
67. To curb the scope for perverse allocation of available funds among competing projects and to ensure that the economy benefits from investments in capital works, we recommend that the Union and the State Governments provide a statutory ceiling on the sanction of new capital works to an appropriate multiple of the annual budget provision. (para 14.52)
68. In the light of our approach to fiscal consolidation and the fiscal roadmap as developed through our assessment of Union and State finances, we recommend a set of rules for the Union and the States. (para 14.62)
69. For the Union Government, the ceiling on fiscal deficit will be 3 per cent of GDP from the year 2016-17 onwards up to the end of our award period. We expect that an improvement in the macroeconomic conditions and revival of growth as well as tax reforms (rationalization of the tax structure on the direct taxes side and implementation of goods and services tax (GST) on the indirect taxes side) should enhance the total tax revenues of the Union Government, enabling it to eliminate the revenue deficit completely much earlier than 2019-20.(para 14.63)
70. The fiscal deficit targets and annual borrowing limits for the States during our award period are enunciated as follows:
i. Fiscal deficit of all States will be anchored to an annual limit of 3 per cent of GSDP.The States will be eligible for flexibility of 0.25 per cent over and above this for any given year for which the borrowing limits are to be fixed if their debt-GSDP ratio is less than or equal to 25 per cent in the preceding year.
ii. States will be further eligible for an additional borrowing limit of 0.25 per cent of GSDP in a given year for which the borrowing limits are to be fixed if the interest payments are less than or equal to 10 per cent of the revenue receipts in the preceding year.
iii. The two options under these flexibility provisions can be availed of by a State either separately, if any of the above criteria is fulfilled, or simultaneously if both the above stated criteria are fulfilled. Thus, a State can have a maximum fiscal deficit-GSDP limit of 3.5 per cent in any given year.
iv. The flexibility in availing the additional limit under either of the two options or both will be available to a State only if there is no revenue deficit in the year in which borrowing limits are to be fixed and the immediately preceding year. If a State is not able to fully utilise its sanctioned borrowing limit of 3 per cent of GSDP in any particular year during the first four years of our award period (2015-16 to 2018-19), it will have the option of availing this un-utilised borrowing amount (calculated in rupees) only in the following year but within our award period.(para 14.64)
71. We recommend that for the purpose of assigning State-specific borrowing limits as a percentage of GSDP for a given fiscal year (t), GSDP should be estimated on the basis of the annual average growth rate of the actual GSDP observed during the previous three years or the average growth rate of GSDP observed during the previous three years for which actual GSDP data are available. This growth should be applied on the GSDP of the year t-2. Specifically, GSDP for the year (t-1) and the given fiscal year (t) should be estimated by applying the annual average growth rate of GSDP in t-2, t-3 and t-4 years on the base GSDP (at current prices) of t-2. We recommend that State estimates of GSDP published by the CSO should be used for this purpose.(para 14.66)
72. In the case of the interest payments-revenue receipts ratio required for determining additional borrowing limits, we recommend that figures for both should be based solely on the Finance Accounts data for the year t-2. The same procedure should be followed in estimating the debt-GSDP ratio. The Ministry of Finance should adhere to the above rules and methodology while determining the annual borrowing ceiling for individual States. (para 14.67)
73. We are of the opinion that it would be appropriate to exclude the States from the operations of the NSSF scheme in future, even as they should honour the obligations already entered into insofar as servicing and repayment of outstanding debt is concerned. We recommend that State Governments be excluded from the operations of the NSSF, with effect from 1 April, 2015.As for the fiscal burden incurred in the course of the operations of the NSSF, prior to 1 April, 2015, since the scheme has been administered almost in its entirety by the Union Government , no part of this fiscal burden, incurred till that date, should be passed on to the States. We recommend that the involvement of the States in the NSSF scheme with effect from 1 April 2015, therefore, may be limited solely to discharging the debt obligations already incurred by them until that date. (para 14.81)
74. Keeping in view the experience of the States in this regard, we recommend the Union Government should examine the desirability of setting up of Consolidated Sinking Fund at this stage. (para 14.85)
75. Recognising that the fiscal environment should be conducive to equitable growth, we recommend that the Union and all the States should target improving the quality of fiscal management encompassing receipts and expenditures while adhering to the roadmap we have outlined.(para 14.86)
76. We urge that all stakeholders recognise the predominant role of the Union in fiscal management, while considering our roadmap for the Union and the States that treats a conducive fiscal environment as the joint responsibility of both. (para14.87)
77. To enable wider dissemination of the manner in which this shared responsibility for a conducive fiscal environment is being discharged by the Union and State Governments, we recommend that the Union Government and the RBI bring out a bi-annual report on the public debt of the Union and State Governments on a regular and comparable basis and place it in public domain.(para 14.88)
78. In the light of the experience gained so far and considering the challenge in designing a basic incentive-compatible framework for achieving fiscal correction and adherence to rule-bound fiscal framework for the Union and State Governments to hold each other accountable over agreed fiscal targets, we stress the need for stronger mechanisms for ensuring compliance with fiscal targets and enhancing the quality of fiscal adjustment, particularly for the Union Government.(para 14.91)
79. We recommend that the Union Government should consider making an amendment to the FRBM Act to omit the definition of effective revenue deficit from 1 April 2015. We also recommend that the objective of balancing revenues and expenditure on the revenue account enunciated in the FRBM Acts should be pursued. (para 14.95)
80. We recommend an amendment to the FRBM Act inserting a new section mandating the establishment of an independent fiscal council to undertake ex-ante assessment of the fiscal policy implications of budget proposals and their consistency with fiscal policy and Rules. In addition, we urge that the Union Government take expeditious action to bring into effect Section 7A of the FRBM Act for the purposes of ex-post assessment.(para 14.101)
81. Our approach outlined and recommendations made warrant amendments to the FRBM Acts. To this end, we recommend that the State Governments may amend their FRBM Acts to provide for the statutory flexible limits on fiscal deficit. The Union Government may amend its FRBM Act to reflect the fiscal roadmap, omit the definition of effective revenue deficit and mandate the establishment of an independent fiscal council. Further, the Union and State Governments may also amend their respective FRBM Acts to provide a statutory ceiling on the sanction of new capital works to an appropriate multiple of the annual budget provision.(para 14.102)
82. We urge the Union Government to continue to exercise its powers under Article 293 (3), in an effective but transparent and fair manner, enforcing the fiscal rules consistent with the fiscal consolidation roadmap suggested by us for the award period.(para 14.104)
83. In order to accord greater sanctity and legitimacy to fiscal management legislation, we urge the Union Government to replace the existing FRBM Act with a Debt Ceiling and Fiscal Responsibility Legislation, specifically invoking Article 292 in its preamble. This could be an alternative to amending the existing FRBM Act as proposed by us. We urge the State Governments also to consider similar enactments under Article 293(1). (para 14.106)
Pricing of Public Utilities
84. We recommend that 100 per cent metering be achieved in a time-bound manner for all electricity consumers as already prescribed statutorily.(para 15.30)
85. The Electricity Act, 2003, currently does not have any provision of penalties for delays in the payment of subsidies by State Governments. We, therefore, recommend that the Act be suitably amended to facilitate levy of such penalties.(para 15.32)
86. In order to provide financial autonomy to the SERCs, Section 103 of the Electricity Act, 2003, provides for the establishment of a State Electricity Regulatory Commission Fund by State Governments, to enable the SERCs to perform their responsibilities, as envisaged under the Act.We reiterate the importance of financial independence of the SERCs and urge all States to constitute a SERC Fund, as statutorily provided for. (para 15.34)
87. We endorse the initiative to set up a Rail Tariff Authority (RTA) and urge expeditious replacement of the advisory body with a statutory body, through necessary amendments to the Railways Act, 1989.(para 15.38)
88. We recommend that accounting systems in the State Road Transport Undertakings make explicit the types of subsidies, the basis for determining the extent of subsidies, and also the extent of reimbursement by State Governments.(para 15.40)
89. We recommend the setting up of independent regulators for the passenger road sector,whose key functions should include tariff setting, regulation of service quality, assessment of concessionaire claims, collection and dissemination of sector information, service-level benchmarks and monitoring compliance of concession agreements.(para 15.41)
90. We recommend that all States, irrespective of whether Water Regulatory Authorities (WRAs) are in place or not, consider full volumetric measurement of the use of irrigation water. Any investment that may be required to meet this goal should be borne by the States, as the future cumulative benefits, both in environmental and economic terms, will far exceed the initial costs.(para 15.45)
91. We reiterate the recommendations of the FC-XIII and urge States which have not set up WRAs to consider setting up a statutory WRA, so that the pricing of water for domestic, irrigation and other uses can be determined independently and in a judicious manner. However, this may not be practical for the North-eastern states, due to the small size of their irrigation sectors, with Assam being the exception. Further, we recommend that WRAs already established be made fully functional at the earliest. (para 15.48)
92. We recommend that States (and urban and rural bodies) should progressively move towards 100 per cent metering of individual drinking water connections to households, commercial establishments as well as institutions. All existing individual connections in urban and rural areas should be metered by March 2017 and the cost of this should be borne by the consumers. All new connections should be given only when the functioning meters are installed. While providing protected water supply through community taps is unavoidable for poorer sections of population, metering of water consumed in such cases also would ensure efficient supply. (para 15.50)
Public Sector Enterprises
93. We recommend that the new realities outlined in para 16.14 be recognized in order to shape and develop a comprehensive public sector enterprise policy with adequate focus on the fiscal costs and benefits. We further recommend that the new realities be considered in evaluating the future of each public enterprise in the entire portfolio of Central public sector enterprises. (para 16.15)
94. The evaluation of the fiscal implications of the current level of investments in, and operations of, the existing public enterprises, in terms of opportunity costs, is an essential ingredient of credible fiscal consolidation. Hence, we recommend that the fiscal implications in terms of opportunity costs be factored in while evaluating the desirable level of government ownership for each public enterprise in the entire portfolio of Central public sector enterprises. (para 16.17)
95. We recommend that the basic interests of workers of Central public sector enterprises should be protected at a reasonable fiscal cost, while ensuring a smooth process of disinvestment or relinquishing of individual enterprises. We further recommend that employment objectives should be considered in evaluating the portfolio of public enterprises, not only in the narrow context of the enterprises’ employees, but also in terms of creating new employment opportunities.(para 16.19)
96. We recommend that the enterprises be categorized into ‘high priority’, ‘priority’, ‘low priority’ and ‘non-priority’ in order to: (i) facilitate co-ordinated follow-up action by policy makers and (ii) provide clarity to public enterprises themselves on their future and to the financial markets about the opportunities ahead for them.(para 16.24)
97. We recommend that the route of transparent auctions be adopted for the relinquishment of unlisted sick enterprises in the category of non-priority public sector enterprises. (para 16.27)
98. We recommend that the level of disinvestment should be derived from the level of investment that the government decides to hold over the medium to long term in each enterprise, based on principles of prioritization advised by us, while the process of disinvestment should take into account the market conditions and budgetary requirements, on a year to year basis. (para 16.31)
99. We recommend that the government devise a policy relating to the new areas of public sector investments. We also recommend the purchase of shares where the existing portfolio holding in the ‘high priority’ and ‘priority’ public sector enterprises is less than the desired level of government ownership.(para 16.33)
100. We reiterate the recommendations made by the FC-XIII to maintain all disinvestment receipts in the Consolidated Fund for utilisation on capital expenditure. The National Investment Fund in the Public Account should, therefore, be wound up in consultation with the Controller General of Accounts (CGA) and Comptroller & Auditor General (C&AG). (para 16.34)
101. There is considerable merit in the Union Government dispensing a small share of proceeds of disinvestment to the States. In the case of Central public sector enterprises with multiple units located in different states, the distribution of this share could be uniform across all the States where units are located. In cases where only vertical unit-wise disinvestment is done, the share could go to the State/States where the units being disinvested are located. (para 16.36)
102. We recognize the importance of making Central public sector enterprises effective and competitive, but suggest that the monitoring and evaluation of these enterprises take into account the institutional constraints within which their managements operate. (para 16.38)
103. If the Central public sector enterprises are burdened with implementing social objectives of the government, it should compensate them in a timely manner and adequately through a transparent budgetary subvention. Similarly, losses on account of administered price mechanisms should also be calculated and fully compensated for.(para 16.39)
104. We recommend that governance arrangements be reviewed, especially in regard to separation of regulatory functions from ownership, role of the nominee as well as independent Directors, and, above all, the framework of governance conducive to efficiency. (para 16.40)
105. We recommend that as part of the comprehensive review of the public sector enterprises proposed by us, policies and procedures relating to borrowing by the enterprises, payment of dividends and transfer of excess reserves be enunciated and enforced.(para 16.43)
106. We recommend that, in view of the significant fiscal implications, a clear-cut and effective policy on investments of Central public sector enterprises in their subsidiaries be adopted. (para 16.44)
107. We recommend that a Financial Sector Public Enterprises Committee be appointed to examine and recommend parameters for appropriate future fiscal support to financial sector public enterprises, recognizing the regulatory needs, the multiplicity of units in each activity and the performance and functioning of the DFIs.(para 16.49)
108. We recommend that, in addition to acting upon the recommendations of the FC-XIII on state-level enterprises, the logic of our recommendations on public sector enterprises in general be adopted, to the extent appropriate, by State Governments. (para 16.54)
Public Expenditure Management
109. We endorse the view that the transition to accrual-based accounting by both the Union and State Governments is desirable. We also recognise that this transition can only be made in stages, as it requires considerable preparatory work and capacity-building of accounting personnel. We reiterate the recommendation of the FC-XII that the building blocks for making a transition to the accrual-based accounting system in terms of various statements, including those listed by the Commission, should be appended in the finance accounts by the Union and State governments.We also reiterate its recommendation that action should be taken to build capacity among accounting professionals in accrual-based accounting systems.(para 17.14)
110. We reiterate the importance of prompt and effective follow-up on the observations of the C&AG while preparing accounts,and adherence to the timeline prescribed for the laying of accounts before the Parliament and State Legislatures. (para 17.15)
111. We recommend that a view be taken expeditiously on all the recommendations of the LMMHA Committee made in 2012. (para 17.16)
112. At the Object Head level, we believe it is sufficient to have a few uniform Object Heads, such as salary, maintenance, subsidies and grants-in aid, across both the Union and States.Regarding the other Object Heads, we recommend that States retain their existing flexibility to open new Object Heads according to their functional requirements. (para 17.17)
113. We reiterate the importance of linking outlays with outcomes. However, we emphasise that it is essential to spell out key indicators for outputs and to monitor these within an already defined accountability framework. (para 17.18).
114. We recommend the formulation of appropriate indicators for the measurement of outputs, specification of standards and costs and establishing a suitable accountability framework.(para 17.19)
115. We suggest serious consideration of the issue of assigning primary responsibility for preparing outcome budgets at the level of actual spending and its consolidation at the relevant level of government.(para 17.20)
116. We recommend synergising the efforts of the Union Government and State Governments towards building a technological platform, in which their systems can interface and information can be shared, leading to end-to-end linkages, particularly in respect of sector-specific grants from the Union Government to the States.(para 17.21)
117. We recommend that the Union and State Governments consider the recommendations of the Second Administrative Reforms Commission (submitted in 2009) on internal audit and internal control systems, and take a decision on each recommendation expeditiously. (para 17.22)
118. We reiterate the views of the FC-XI for a consultative mechanism between the Union and States, through a forum such as the Inter-State Council, to evolve a national policy for salaries and emoluments.(para 17.28)
119. We recommend the linking of pay with productivity, with a simultaneous focus on technology, skill and incentives. We recommend that Pay Commissions be designated as ‘Pay and Productivity Commissions’, with a clear mandate to recommend measures to improve ‘productivity of an employee’, in conjunction with pay revisions. We urge that, in future, additional remuneration be linked to increase in productivity.(para 17.29)
120. We urge States which have not adopted the New Pension Scheme so far to immediately consider doing so for their new recruits in order to reduce their future burden. (para 17.30)
121. We recommend that both the Union and State Governments improve their forecasts, by adopting a more scientific approach for this process. Similarly, the fiscal responsibility legislations and estimates in the MTFPs should be backed by well-calibrated reasoning to justify the forecasts. When forecasts are out of line with past trends, it is important to make a detailed statement on the intended reforms necessary to enhance revenue productivity and rationalise expenditures. We also recommend that the Union and State Governments undertake measures to improve their cash management practices. (para 17.34)
In order to expedite financial inclusion, finance minister Arun Jaitley in his budget speech said “RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.”
Within a week of the budget, RBI issued draft guidelines for setting up small banks and payment banks. RBI in its guidelines said that both payment banks and small banks are ‘niche’ or differentiated banks, with the common objective of furthering financial inclusion.
Following are some of the conditions which are common to both the banks as collated by Motilal Oswal.
The minimum capital requirement would be Rs 100 crore
Promoter contribution would be at least 40 per cent for the first five years. Excess shareholding should be brought down to 40 per cent by the end of fifth year, to 30 per cent by the end of 10th year and to 26 per cent in 12 years from the date of commencement of business
Foreign shareholding in these banks will be as per current FDI policy
Voting rights to be line with the existing guideline for private banks
Entities other than promoters will not be permitted to have shareholding in excess of 10 per cent.
The bank should comply with the corporate governance guidelines, including ‘fit and proper’ criteria for Directors as issued by RBI
Operations of the bank should be fully networked and technology driven from the beginning
The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation.
The objective for these Small Banks is to increase financial inclusion by provision of savings vehicles to under-served and unserved sections of the population, supply of credit to small farmers, micro and small industries, and other unorganised sector entities through high technology-low cost operations.
Resident individuals with 10 years of experience in banking and finance, companies and Societies will be eligible as promoters to set up small banks. NFBCs, micro finance institutions (MFIs), and Local Area Banks (LABs) can convert their operations into those of a small bank. Local focus and ability to serve smaller customers will be a key criterion in licensing such banks.
Branch expansion: For the initial three years, prior approval will be required.
The area of operations would normally be restricted to contiguous districts in a homogenous cluster of states of union territories so that the Small Bank has a ‘local feel’ and culture. However, if necessary, it would be allowed to expand its area of operations beyond contiguous districts in one or more states with reasonable geographical proximity.
The bank shall primarily undertake basic banking activities of accepting deposits and lending to small farmers, small businesses, micro and small industries, and unorganised sector entities. It cannot set up subsidiaries to undertake non-banking financial services activities. After the initial stabilisation period of five years, and after a review, the RBI may liberalise the scope of activities for Small Banks.
The promoters’ other financial and non-financial services activities, if any, should be distinctly ring-fenced and not co-mingled with banking business.
A robust risk management framework is required and the banks would be subject to all prudential norms and RBI regulations that apply to existing commercial banks, including maintenance of CRR and SLR.
In view of concentration of area of operations, the Small Bank would need a diversified portfolio of loans, spread over it area of operations.
The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 per cent of capital funds.
Loans and advances of up to Rs 25 lakhs, primarily to micro enterprises, should constitute at least 50 per cent of the loan portfolio.
For the first three years, 25 per cent of branches should be in unbanked rural areas.
Objective of payments banks is to increase financial inclusion by providing small savings accounts, payment/remittance services to migrant labour, low income households, small businesses, other unorganised sector entities and other users by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment.
Those who can promote a payments banks can be a non-bank PPIs, NBFCs, corporate’s, mobile telephone companies, super market chains, real sector cooperatives companies and public sector entities. Even banks can take equity in Payments Banks.
Payments Banks can accept demand deposits (only current account and savings accounts). They would initially be restricted to holding a maximum balance of Rs 100,000 per customer. Based on performance, the RBI could enhance this limit.
The banks can offer payments and remittance services, issuance of prepaid payment instruments, internet banking, functioning as business correspondent for other banks.
Payments Banks cannot set up subsidiaries to undertake NBFC business.
As in the case of Small Banks, other financial and non-financial services activities of the promoters should be ring-fenced.
The Payments Banks would be required to use the word ‘Payments’ in its name to differentiate it from other banks.
No credit lending is allowed for Payments Banks.
The float funds can be parked only in less than one year G-Secs
what is FDI and what is FII, following the international practice and lay down a broad principle that, where an investor has a stake of 10 per cent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 per cent, it will be treated as FDI.’’
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time.
The issue of big loan defaults and non-performing assets of public sector banks came to the fore when United Bank of India declared high profile liquor baron Vijay Mallya’s promoted Kingfisher Airlines, its directors: Subhas R Gupte, Anil Kumar Ganguly, Ayani Kurassi and Ravindranat H Nedungadi, as the wilful defaulters.
As per RBI guidelines, a wilful defaulter has the capacity to repay the debt but does not service it or uses the loan for purposes other than the sanctioned ones. The next day India’s apex court dismissed Kingfisher Airlines’ plea against the United Bank of India’s decision to declare the company a wilful defaulter.
The issue also rose to prominence when CBI, India’s anti-corruption agency, arrested Syndicate Bank CMD S K Jain, some middlemen and Neeraj Singal, Managing Director of Bhushan Steels for enhancing the company’s credit limit in violation of laid down procedure. As per the latest data given in the Parliament, NPAs of public sector banks nearly doubled from Rs. 1.17 lac crore in 2012 to Rs. 2.27 lac crore in 2014.
Mrunal has done it again and this time he has uploaded economic survey videos and he promised to update the articles too.The lectures are in Hindi but they are very much understandable,Please read the economic survey and for analysis watch his videos.
The following are the Mrunal Economic Survey 2014 Lectures . Will keep updated.
Economy to grow in the range of 5.4 – 5.9 per cent in 2014-15 overcoming sub-5 percent growth.
Growth slowdown was broad based, affecting in particular the industry sector.
Aided by favourable monsoons, agricultural and allied sector registered a growth of 4.7 per cent in 2013-14.
Industry and Service sectors also witnessed slowdown.
Chapter 2: Issues and Priorities
Reforms needed for long term-growth prospects on 3 fronts- low and stable inflation regime, tax and expenditure reform and regulatory framework.
Survey suggests removal of restriction on farmers to buy, sell and store their produce to customers across the country and the world.
Rationalisation of subsidies on inputs such as fertilizer and food is essential.
Government needs to eventually move towards income support for farmers and poor households.
Chapter 3: Public Finance
The fiscal policy for 2013-14 was calibrated with two-fold objectives; first, to aid growth revival; and second, to reach the FD level targeted for 2013-14.
The Budget for 2013-14 followed the policy of revenue augmentation and expenditure rationalization to contain government spending within sustainable limits.
The fiscal outcome of the central government in 2013-14 was achieved despite the macroeconomic challenges of growth slowdown, elevated levels of global crude oil prices, and slow growth of investment.
Chapter 4: Prices and Monetary Management
High inflation, particularly food inflation, was the result of structural as well as seasonal factors.
IMF projects most global commodity prices are expected to remain flat during 2014-15.
The RBI with a view to restoring stability to the foreign exchange market, hiked short term interest rate in July and compressed domestic money market liquidity.
CHAPTER 5: FINANCIAL INTERMEDIATION
RBI has indentified five sectors — infrastructure, iron and steel, textiles, aviation and mining as the stressed sectors.
Public sector banks (PSBs) have high exposures to the ‘industry’ sector in general and to such ‘stressed’ sectors in particular.
The New Pension System (NPS), now National Pension System, introduced for the new recruits who join government service on or after January 2004, represents a major reform of Indian pension arrangements.
The next wave of infrastructure financing will require a capable bond market.
Chapter 6: Balance of Payments
The India’s balance-of-payments position improved dramatically in 2013-14 with current account deficit at US $ 32.4 billion as against US$ 88.2 billion in 2012-13.
India’s foreign exchange reserves increased from US$ 292.0 billion at end March 2013 to US$ 304.2 billion at end march 2014.
India’s external debt has remained within manageable limits due to the external debt management policy with prudential restrictions on debt varieties of capital inflows.
Chapter 7: International Trade
World trade volume which decelerated to 2.8 per cent in 2012 has shown signs of recovery in 2013, albeit slow with a 3.0 per cent growth.
The sharp fall in imports and moderate export growth in 2013-14 resulted in a sharp fall in India`s trade deficit by 27.8 per cent.
In April-May 2014, trade deficit declined by 42.4 per cent.
Chapter 8: Agriculture and Food Management
Record food grains and oilseeds production of 264.4 million tonnes (mt) and 32.4 mt is estimated in 2013-14.
Horticulture production estimated at 265 mt in 2012-13 has exceeded the production of foodgrains and oilseeds for the first time.
Due to higher procurement, stocks of foodgrains in the Central Pool have increased to 69.84 million tonnes as on June 1, 2014.
The net availability of foodgrains increased to 229.1 million tonnes and that of edible oils to 12.7 kg per year in 2013.
Chapter 9: Industrial Performance
The latest gross domestic product (GDP) estimates show that industry grew by just 1.0 per cent in 2012-13 and slowed further in 2013-14, posting a modest increase of 0.4 per cent.
Chapter 10: Services Sector
India ranked 12th in terms of services GDP in 2012 among the world’s top 15 countries in terms of GDP (at current prices).
India has the second fastest growing services sector with its CAGR at 9.0 per cent, just below China’s 10.9 per cent, during 2001 to 2012.
In 2013-14, FDI inflows to the services sector (top five sectors including construction) declined sharply by 37.6 per cent to US$ 6.4 billion compared to an overall growth in FDI inflows at 6.1 per cent resulting in the share of the top five services in total FDI falling to nearly one-sixth.
Chapter 11: Energy, Infrastructure and Communications
Major sector-wise performance of core industries and infrastructure services during 2013-14 shows a mixed trend. While the growth in production of power and fertilizers was comparatively higher than in 2012-13, coal, steel, cement, and refinery production posted comparatively lower growth. Crude oil and natural gas production declined during 2013-14.
The performance of the coal sector in the first two years of the Twelfth Plan has been subdued with domestic production at 556 MT in 2012-13 and 566 MT in 2013-14.
A total length of 21,787 km of national highways has been completed till March 2014 under various phases of the NHDP. In spite of several constraints due to the economic downturn, the NHAI constructed 2844 km length in 2012-13, its highest ever annual achievement. During 2013-14 a total of 1901 km of road construction was completed.
From the infrastructure development perspective, while important issues like delays in regulatory approvals, problems in land acquisition & rehabilitation, environmental clearances, etc. need immediate attention, time overruns in the implementation of projects continue to be one of the main reasons for underachievement in many of the infrastructure sectors.
Chapter 12: Sustainable Development & Climate Change
Human- induced Greenhouse gas (GHG) emissions are growing and are chiefly responsible for climate change.
The world is not on track for limiting increase in global average temperature to below 2◦C, above pre-industrial levels. GHG emissions grew on average 2.2 per cent per year between 2000 and 2010, compared to 1.3 per cent per year between 1970 and 2000.
There is immense pressure on governments to act through two new agreements on climate change and sustainable development, both of which will be global frameworks for action to be finalized next year.
The cumulative costs of India’s low carbon strategies have been estimated at around USD 834 billion at 2011 prices, between 2010 and 2030.
Chapter 13: Human Development
India’s Human Development Rank and performance
According to HDR 2013, India has slipped down in HDI with its overall global ranking at 136 (out of the 186 countries) as against 134 (out of 187 countries) as per HDR 2012. It is still in the medium human development category.
The poverty ratio (based on the MPCE of ` 816 for rural areas and `1000 for urban areas in 2011-12 at all India level), has declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12.
In absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in 2011-12 with an average annual decline of 2.2 percentage points during 2004-05 to 2011-12.
During 2004-05 to 2011-12, employment growth [CAGR] was only 0.5 per cent, compared to 2.8 per cent during 1999-2000 to 2004-05 as per usual status.