The practice of “Fiscal Federalism” in India involves
a) Distribution of financial powers between Centre and States
b) Devolution of central pool to states
c) Setting up of Finance Commission every five years
d) All of the above
2) Parliament can make laws on the subjects enumerated in the state list to give effect to international agreements, treaties and conventions with
a) Consent of the states concerned
b) Consent of majority of the states
c) Consent of all the states
d) Without the consent of any state
3)Consider the following statements about Fundamental Duties
The constitution authorises courts for enforcement of Fundamental Duties.
While some Fundamental duties are applicable to Indian citizens, few are applicable to foreigners.
Which of the above statements is/are incorrect?
a) 1 only
b) 2 only
Prelims Specific News Items
- Deepor Beel breathes easy after eco-sensitive zone notification :- On August 25, the Ministry of Environment, Forest and Climate Change notified the eco-sensitive zone of Deepor Beel Wildlife Sanctuary on the southwestern edge of Guwahati.
Deepor Beel is one of the largest freshwater lakes in Assam and the State’s only Ramsar Site, besides being an Important Bird Area.
2)Odisha Cabinet clears electric vehicle policy :- The Odisha government has proposed to achieve adoption of 20% battery electric vehicles in all vehicle registrations by 2025.
“The objective of the policy is to achieve adoption of 20% battery electric vehicles in all vehicle registrations by 2025 and promote manufacturing of electric vehicles and its components including battery in the State,”
3) Indian astrophysicists spot rare merger of three jumbo black :- A rare merging of three supermassive black holes has been spotted by a team of astrophysicists from the Indian Institute of Astrophysics (IIA), working with Professor Francoise Combes from the Paris Observatory.
This is only the third time such an event has been observed and the findings were published as a letter in the journal Astronomy and Astrophysics in June.
All three merging black holes were part of galaxies in the Toucan constellation. They are quite far away given that the earth’s nearest galactic neighbour — the Andromeda galaxy — is 2.5 million light years away. Yet the paper describes these as nearby galaxies.
“The PI of the project confirmed our suspicions using spectroscopic data from a European telescope called MUSE in Chile.”
In a press release, the team explains that if two galaxies collide, their black holes will also come closer by transferring the kinetic energy to the surrounding gas.
The distance between the black holes decreases with time until the separation is around one parsec (3.26 lightyears).
The two black holes, however, are then unable to lose any further kinetic energy to get even closer and merge. This is known as the final parsec problem. But the presence of a third black hole can solve this problem.
4)India added 557 new species to faunal wealth in 2020, says ZSI :- India has added 557 new species to its fauna, which includes 407 new species and 150 new records, reveals Animal Discoveries 2020, a document published recently by the Zoological Survey of India (ZSI). The number of faunal species in India has climbed to 1,02,718 species with the discovery of the new species.
Some New Species :-
- Trimeresurus salazar, a green pit viper discovered in Arunachal Pradesh;
- Lycodon deccanensis, the Deccan wolf snake discovered in Karnataka; and
- Sphaerotheca Bengaluru, a burrowing frog named after the city of Bengaluru.
- The list also includes Xyrias anjaalai, a deep water species of snake eel from Kerala;
- Glyptothorax giudikyensis, a species of catfish from Manipur; and
- Clyster galateansis, a species of scarab beetle from the Great Nicobar Biosphere.
Editorial of the Day
Asset monetisation — execution is the key
- Following through on the Budget’s plan to monetise public assets in order to fund fresh capital expenditure on infrastructure, the Government has released an exhaustive list of projects and facilities to be offered to private investors.
- The government hopes to earn ₹6 trillion in revenues over a four-year period.
Different from privatisation:
- What distinguishes asset monetisation from the new public sector disinvestment policy is that a change of ownership is not envisaged.
- The Government estimates these assets — airports, coal mines, highway stretches, even urban tracts, stadia and hotels — to fetch around ₹5.96-lakh crore through structured leasing and securitisation transactions.
- By monetising assets it has already built, the government can earn revenues to build more infrastructure.
- This, in turn, could help fund the National Infrastructure Pipeline with new projects worth ₹100-lakh crore.
For under-utilised assets:
- In the asset monetisation program, the focus will be on under-utilised assets and monetisation which happens through public-private partnerships (PPP) and Investment Trusts.
- For example: Suppose a port or airport or stadium or even an empty piece of land is not being used adequately because it has not been properly developed or marketed well enough.
- A private party may judge that it can put the assets to better use.
- It will pay the government a price equal to the present value of cash flows at the current level of utilisation.
A win-win situation:
- By making the necessary investment in under utilised assets, the private player can reap the benefits of a higher level of cash flows.
- The difference in cash flows under government and those under private management is a measure of the improvement in efficiency of the assets.
- This is a win-win situation for the government and the private player as the government gets a ‘fair’ value for its assets and the private player gets its return on investment.
- The economy benefits from an increase in efficiency thus, monetising under-utilised assets has much to commend it.
For well utilised assets:
- Matters could be very different in monetisation of an asset that is being properly utilised, say, a highway that has good traffic.
- In this case, the private player has little incentive to invest and improve efficiency and it simply needs to operate the assets as they are.
- The private player may value the cash flows assuming a normal rate of growth of traffic.
- It will pay the government a price that is the present value of cash flows minus its own return.
- The government earns badly needed revenues but these could be less than what it might earn if it continued to operate the assets itself.
Offsetting the benefit:
- Suppose the private player does plan to improve efficiency in a well-utilised asset by making the necessary investment and reducing operating costs.
- The reduction in operating costs need not translate into a higher price for the asset than under government ownership.
- The cost of capital for a private player is higher than for a public authority.
- A public authority needs less equity capital and can access debt more cheaply than a private player.
- The higher cost of capital for the private player could offset the benefit of any reduction in operating costs.
Preference of private investment:
- The benefits to the economy are likely to be greater where under-utilised assets are monetised.
- However, private players will prefer well-utilised assets to assets that are under-utilised.
- That is because, in the former, cash flows and returns are more certain.
- Private incentives in asset monetisation may not accord with the public interest.
Valuation and issues:
- It is very difficult to get the valuation right over a long-term horizon, say, 30 years.
- For a road or highway, growth in traffic would also depend on factors other than the growth of the economy, such as the level of economic activity in the area, the prices of fuel and vehicles, alternative modes of transport and their relative prices, etc.
- If the rate of growth of traffic turns out to be higher than assessed by the government in valuing the asset, the private operator will reap windfall gains.
Steep price rise:
- If the winning bidder pays what turns out to be a steep price for the asset, it will raise the toll price steeply and the consumer ends up bearing the cost.
- There is also the possibility that roads whose usage is currently free are put up for monetisation.
- It could be argued that a competitive auction process will address these issues and fetch the government the right price while yielding efficiency gains.
- But that assumes, among other things, that there will be a large number of bidders for the many assets that will be monetised.
The life of the asset:
- There is no incentive for the private player to invest in the asset towards the end of the tenure of monetisation.
- The life of the asset, when it is returned to the government, may not be long.
- In that event, asset monetisation virtually amounts to sale.
- Monetisation through the PPP route is thus fraught with problems.
Another way of going about it:
- The other form of monetisation the government has indicated is creating Infrastructure Investment Trusts (InvIT) to which monetisable assets will be transferred.
- InvITs are mutual fund-like vehicles in which investors can subscribe to units that give dividends.
- The sponsor of the Trust is required to hold a minimum prescribed proportion of the total units issued.
- InvITs offer a portfolio of assets, so investors get the benefit of diversification.
The InvIT route to monetisation:
- Assets can be transferred at the construction stage or after they have started earning revenues.
- In the InvIT route to monetisation, the public authority continues to own the rights to a significant portion of the cash flows and to operate the assets.
- So, the issues that arise with transfer of assets to a private party — such as incorrect valuation or an increase in price to the consumer — are less of a problem.
- First, a public authority has inherent advantages on the funding side.
- In general, the economy is best served when public authorities develop infrastructure and monetise these.
- Second, monetisation through InvITs is likely to prove less of a problem than the PPP route.
- Third, we are better off monetising under-utilised assets than assets that are well utilised.
- Fourth, to ensure proper execution, there is a case for independent monitoring of the process.
- The government may set up an Asset Monetisation Monitoring Authority staffed by competent professionals.
- The authority must put all aspects of monetisation under the scanner — valuation, the impact on price charged to the consumer, monetisation of under-utilised versus well-utilised assets, the experience across different sectors, etc. — and document the lessons learnt.