ISSUE: HOW BUDGET IS PREPARED?
WHY IN NEWS?
On February 1, Finance Minister Nirmala Sitharaman will rise in the Lok Sabha to present the Union Budget for the next financial year (2020-21). The Budget comes at a crucial time because the Indian economy has been steadily losing its growth momentum, and as such, the exercise of making the Budget is not easy.
So how does an FM go about deciding what to do in the Budget? Raise taxes or lower them, raise government expenditure or lower it?
The starting point for a better understanding of what the FM can and should do is to understand how exactly a Budget is made. In other words, what are variables an FM has and what are the constraints she faces as she goes about preparing the Budget.
What is the starting point of a Union Budget?
N R Bhanumurthy, Professor at the National Institute of Public Finance and Policy (NIPFP), explains that the nominal gross domestic product (GDP) is the most fundamental building block of a Budget. [The nominal GDP is nothing but the value of all goods and services produced in the country at current market prices.]
“I always call nominal GDP the Lord Ganesh of the Budget, “ says Bhanumurthy. That’s because without knowing the absolute amount of nominal GDP for the current year, there is no way one can make the Budget for the next year.
The Budget is the financial plan of the Union government for the next financial year. Essentially, it is an exercise in determining how far can the government exceed its expenditure over its revenues, given that the government is required to meet a fiscal deficit target that is provided by the Fiscal Responsibility and Budget Management Act (FRBM) Act
The fiscal deficit is the level of borrowing that a government does in a year. Targets for the fiscal deficit are set in terms of “percentage of nominal GDP”. In other words, if the nominal GDP is higher, the government can borrow more money (in absolute terms) from the market to fund its expenditure.
But without knowing the nominal GDP for the current year, the government cannot project what the nominal GDP is likely to be in the next financial year. Without clarity about the absolute level of nominal GDP, the government can neither estimate the absolute amount of fiscal deficit it must not breach nor can it estimate how much revenues it will get in the coming year. And without knowing the absolute revenues it is likely to get, it cannot promise or decide how much it should spend and on which scheme.
So, what are the key steps of Budget-making?
Step 1: The Finance Ministry has to first ascertain the nominal GDP of the current financial year.
Step 2: Then it has to take this number and “project” the likely nominal GDP for the coming year.
Step 3: Given the nominal GDP, the government can look at the FRBM Act target and figure out the absolute level of fiscal deficit (or borrowings or the difference between the expenditure and revenues) that it can have.
Step 4: After having a sense of how the overall economy will do in the coming year, the next logical step for a government making the Budget is to figure out how much money would it get in terms of revenues.
Step 5: By now, the government knows what its revenues are likely to be and maximum allowable fiscal deficit. Now it is the turn of determining the level of expenditure. The idea is to contain the level of total expenditure in such a matter that fiscal deficit is not breached.
Step 6: Once the government has the fix on the total expenditure, it can go about allocating the absolute amount of money it intends to spend on different schemes.
ISSUE: LEGISLATIVE COUNCILS
WHY IN NEWS?
On Monday (January 27) morning, the Andhra Pradesh Cabinet decided to abolish the state’s Legislative Council. The Council had last week referred the contentious capital decentralisation Bill to a Select Committee for review. The Telugu Desam Party (TDP), which is in majority in the Council, had blocked the Bill from passing.
What is the Legislative Council?
India has a bicameral system i.e., two Houses of Parliament.
At the state level, the equivalent of the Lok Sabha is the Vidhan Sabha or Legislative Assembly; that of the Rajya Sabha is the Vidhan Parishad or Legislative Council.
The second House of the legislature is considered important for two reasons: one, to act as a check on hasty actions by the popularly elected House and, two, to ensure that individuals who might not be cut out for the rough-and-tumble of direct elections too are able to contribute to the legislative process.
The Councils are less powerful than the Rajya Sabha, however. Unlike, the Rajya Sabha, which has substantial powers to shape non-financial legislation, Legislative Councils lack a constitutional mandate to do so; Assemblies can override suggestions/amendments made to a legislation by the Council.
How are Council’s members elected?
Although its membership may vary in each state, the Legislative Council must not have more than a third of the total membership of the Assembly of that state, and in no case fewer than 40 members.
About 1/3rd of members are elected by members of the Assembly (MLAs), another 1/3rd by electorates consisting of members of municipalities, district boards and other local authorities in the state, 1/12th by an electorate consisting of teachers, and 1/12th by registered graduates.
The remaining members are nominated by the Governor from among those who have distinguished themselves in literature, science, art, the cooperative movement, and social service.
The Legislative Councils are permanent Houses, and like Rajya Sabha, one-third of their members retire every two years.
What is the argument against having Legislative Councils?
Opposition to the idea of Legislative Councils is centered on three broad arguments. One, they can be used to park leaders who have not been able to win an election. Two, they can be used to delay progressive legislation. Three, they would strain state finances.
Which states have Legislative Councils?
Apart from Andhra Pradesh (58 members), five other states have Legislative Councils: Bihar (58), Karnataka (75), Maharashtra (78), Telangana (40), Uttar Pradesh (100).
Jammu and Kashmir too had a Council, until the state was bifurcated into the Union Territories of J&K and Ladakh.
Tamil Nadu’s then DMK government had passed a law to set up a Council but the subsequent AIADMK government withdrew it after coming to power in 2010.
Andhra Pradesh’s Legislative Council, set up in 1958, was abolished in 1985, then reconstituted in 2007. The Odisha Assembly has also passed a resolution for a Legislative Council.
Proposals to create Councils in Rajasthan and Assam are pending in the Rajya Sabha.
ISSUE: JAL JEEVAN MISSION
WHY SUCH A MISSION IS NEEDED?
For a country with 16 per cent of the world’s population, and only 4 per cent of the world’s freshwater resources, with the changing weather patterns and frequent droughts, over 250 of the 700 districts of India’s districts are now water stressed. Two hundred and fifty six of our approximately 700 districts have groundwater levels which are “critical” or “over-exploited” as per the latest data from the Central Ground Water Board (2017).
According to a report by the National Commission for Women, on an average, a rural woman in Rajasthan walks over 2.5 km to reach a water source. This is probably an underestimate, but the bottomline is that our women and girls spend a significant proportion of their time on fetching water.
WHAT HAS BEEN THE GOVERNMENT’S APPROACH TO TACKLE THIS PROBLEM?
Jal Jeevan Mission (JJM) was announced by the PM Modi from the Red Fort during his first Independence Day speech of his second term.
The Mission aims at providing Har Ghar Jal or piped water supply to all households by 2024. While 57 per cent of the country is covered with public stand posts for their daily water supply, the JJM will connect individual households to appropriate and adequate water supply. Currently, only 18 per cent of rural households have this amenity.
Another scheme to conserve groundwater in regions with low water tables, the Atal Jal Yojana, was also recently launched by the Prime Minister in New Delhi. Also based on community participation, a key component of this programme is the formation of water use associations, in which at least 50 per cent of members are to be women.