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Aadhaar Magic Dodges Food & Fert Subsidies
- Published on 23 December 2018
(Image Courtesy: dbtbharat.gov.in
Aadhaar-based direct benefit transfer (DBT) has hit avalanche of challenges posed by food and fertilizers subsidies. These dole-outs account for the lion’s share of explicit subsidies given by the Union Government.
Though Cash Transfer of Food Subsidy (CTFS) Rules were notified in August 2015, not one State has discontinued physical delivery of subsidized grain through ration shops. Jharkhand aborted its pilot CTFS in Nagri Block of Ranchi district six months after its launch in October 2017. Cash transfer was strongly opposed by majority of the beneficiaries. A few lakh beneficiaries, however, continue to be served through CTFS in three Union Territories.
CFTS can work only when the delivery of food grains across the country is smooth and timely. The Government also has to ensure that open market prices are fair and competitive, a herculean task in an economy of continental dimensions.
Any price volatility in different regions due to supply glitches or market manipulations would make beneficiaries realize the gross inadequacy of cash transferred. Hence the poor masses continue to prefer subsidy in kind as that ensures access to fixed price of coarse grain, wheat and rice.
They have patience to stand in long queues for grain, which is not always of specified quality.
No one knows whether and when CTFS would be rolled out across the country. Prime Minister Narendra Modi, who loves to speak about Aadhaar-based DBT, remains silent on this issue.
Mr. Modi also maintains stony silence on turning pseudo-DBT for fertilizers into real DBT under which subsidy goes straight in beneficiaries’ bank accounts. His silence on long-delayed inclusion of urea under nutrient-based subsidy (NBS) scheme for fertilizers is equally deafening.
Mr. Modi Creates Policy Paralysis that he once Detested
- Published on 02 December 2018
(Image courtesy: taxindiaonline.com)
“Reduce politics to end policy paralysis: Narendra Modi.” This headline dated 8th April 2013 is the best Governance-cum-Vikas mantra mooted by Mr. Modi. At that time, he was widely perceived as most convincing Prime Ministerial prospect who focused more on development and less on politics.
Unfortunately, Mr. Modi, as PM, has not followed this mantra, thereby leaving his glass overflowing with policy paralysis (PP). He has also not treated PP with his fabled love for speed in decision-making process. He has instead played more politics than any of his predecessors, thereby catalyzing PP.
PP is a deadly cocktail. It includes backlog of legislative and executive proposals that he inherited from UPA and earlier regimes. The cocktail also includes initiatives that Mr. Modi proposed as Chief Minister but shunned them as PM.
PP, in this column, does not include bucketful of promises that he made at the political rallies. The potion, however, includes initiatives listed by BJP in its 2014 and earlier manifestos for Lok Sabha polls.
Before citing specific instances of PP, we need to recall what Mr. Modi stated at the first ‘Think India Dialogue’ organized by Network 18 in April 2013.
He observed: “All decisions are taken keeping an eye on the next election. Political parties are under pressure to avoid or delay decisions dues to elections”.
Why no Governance Framework for Credit Guarantee Funds?
- Published on 23 November 2018
“Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs. Both MUDRA loans as well as the Kisan Credit Card, while popular, have to be examined more closely for potential credit risk. The Credit Guarantee Scheme for MSME (CGTMSE) run by SIDBI is a growing contingent liability and needs to be examined with urgency”.
This is one of the steps proposed by former RBI Governor Raghuram Rajan in hisresponse to a query on how to prevent recurrence of NPA crisis. The querist is Parliament’s Estimates Committee.
Mr. Rajan’s timely alert, that hit headlines during last two months, should have prodded the Government to examine the entire business of populism-driven lending. It largely comes in 3 formats: 1) as interest subsidy on loans, 2) as loan write-offs or rescheduling & 3) as guarantees for repayment of loans on behalf of beneficiaries. Guarantees for such collateral-free loans are different from guarantees that Government gives to companies for borrowings from the capital markets.
Where there is a Government Guarantee Policy for latter guarantees that was laid in 2010, no policy exists for credit guarantee funds (CGFs).
An enlightened Government must provide guarantees for repayment of loans given to sectors that are prone to high risks of failure. Such sectors are also the backbone of economy and can’t thus be left starved of the capital.
Erosion’ Risks can Transform BEPS into a Lame Duck
- Published on 23 November 2018
(River Erosion.Edited Image Courtesy: Central Water Commission)
Base Erosion and Profit Shifting (BEPS) project is facing massive erosion threat on multiple fronts. The four main risks to the Project are: 1) absence of inclusivity; 2) complex challenges in plugging revenue leakages under existing tax treaties; 3) avoidance and evasion in booming digital economy due to problems in engineering customized taxation and 4) Divisive impact of different model tax conventions. All of them are supposed to achieve BEPS objectives.
Take first the inclusivity. Only 15 countries have so far ratified Multilateral Convention to Implement Tax Treaty Related Measures to prevent BEPS / Multilateral Instruments (MLI). As many as 76 countries/jurisdictions had signed or formally expressed their intention to sign on 7th June 2017.
So far only 84 out of over 202 tax jurisdiction have joined BEPS Convention. The United States & Brazil continue to shun MLI. The 84 signatories cover over 1,400 bilateral tax treaties, which is 41.17% of total 3400 treaties signed by all tax jurisdictions.
The bilateral treaties specified in ratification instruments would be subjected to match-making, fast-track amendments through MLI toolkit. All 1400 treaties would actually come under MLI cover only when 69 out of 84 signatories submit their ratification/approval to Organisation for Economic Co-operation and Development (OECD).
This may take years as certain countries would have to take approval from their respective Parliament. Each signatory submits its instrument of ratification with many reservations about different articles of 49-page MLIs convention.
Reservations from all signatories can be perceived as thousands of pinpricks in BEPS umbrella. The word ‘Reservation’ appears 105 times in the text of the Convention.