INDIAN EXPRESS EDITORIALS AND EXPLAINED 16th January 2020

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HENLEY PASSPORT INDEX

WHY IN NEWS?

Latest edition of the Henley Passport Index, has been released recently.

Japan has the world’s strongest passport; Afghanistan, at rank 107, the weakest. The Indian passport is closer to the bottom, ranked 84th in the world.

According to Henley & Partners, the residence and citizenship planning firm that publishes the ranking, the Index lists the world’s passports “according to the number of destinations their holders can access without a prior visa”. The ranking is based on data from the International Air Transport Association (IATA), a trade association of some 290 airlines, including all major carriers.

The index includes 199 different passports and 227 different travel destinations, the publisher of the rankings said in a press release last week. The data are updated in real time as and when visa policy changes come into effect, the release said.

Japan has been topping the Index for three straight years; according to the 2020 index, its citizens are able to access 191 destinations without having to obtain a visa in advance.

Singapore, in second place (same as in 2019), has a visa-free/visa-on-arrival score of 190. Germany is No. 3 (same position as in 2019), with access to 189 destinations; it shares this position with South Korea, which dropped from the second place it held a year ago, the release said.

The US and the UK have been falling consistently over successive Indices. Both countries are in eighth place in 2020; a significant decline from the No. 1 spot they jointly held in 2015.

“The Index’s historic success story remains the steady ascent of the UAE, which has climbed a remarkable 47 places over the past 10 years and now sits in 18th place, with a visa-free/visa-on-arrival score of 171,” the release said.

Since the index began in 2006, the Indian passport has ranked in a band of 71st to 88th. (The number of passports ranked has, however, varied from year to year.) The Indian passport’s 2020 ranking of 84th translates into visa-free access to 58 destinations, including 33 which give Indians visas on arrival. The Indian passport ranked higher in both 2019 (82, with visa-free access to 59 destinations) and 2018 (81, with visa-free access to 60 destinations).

Twenty of the 58 visa-free access destinations in the 2020 list are in Africa, and 11 each in Asia and the Caribbean. Serbia is the only European country to which Indian passport holders can travel visa-free. There is no major or developed country to which Indian passport holders have visa-free access.

INDIA’S FISCAL DEFICIT 

WHY IN NEWS?

Former Economic Affairs Secretary S C Garg has stated, in his blog dated January 14, that the true fiscal deficit for 2018-19 is 4.7% — more than a full percentage point than the number claimed by Finance Minister Nirmala Sitharam’s Budget in July.

According to Garg, for the current financial year, too, the actual fiscal deficit is likely to range between 4.5 per cent to 5 per cent of GDP.

What is fiscal deficit?

The Union Budget’s “Budget at a Glance” document explains what fiscal deficit is. It states: “Fiscal Deficit is the difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure”.
In other words, fiscal deficit is “reflective of the total borrowing requirements of Government”.

What is the significance of fiscal deficit?

In the economy, there is a limited pool of investible savings. These savings are used by financial institutions like banks to lend to private businesses (both big and small) and the governments (Centre and state).

The significance of fiscal deficit is that if this ratio is too high, it implies that there is a lesser amount of money left in the market for private entrepreneurs and businesses to borrow. Lesser amount of this money, in turn, leads to higher rates of interest charged on such lending.

So, simply put, a higher fiscal deficit means higher borrowing by the government, which, in turn, mean higher interest rates in the economy.

This concern becomes even more significant when, like today, Indian businesses are facing high interest rates. A high fiscal deficit and higher interest rates at a time like this would also mean that the efforts of the Reserve Bank of India to reduce interest rates are undone.

What is the acceptable level of fiscal deficit?

There is no set universal level of fiscal deficit that is considered good. Typically, for a developing economy, where private enterprises may be weak and governments may be in a better state to invest, fiscal deficit could be higher than in a developed economy.

In developing economies, governments also have to invest in both social and physical infrastructure upfront without having adequate avenues for raising revenues.

In India, the Fiscal Responsibility and Budget Management Act requires the central government to reduced its fiscal deficit to 3 per cent of GDP. India has been struggling to achieve this mark.

Why does Garg think true fiscal deficit is higher than stated? What is “off-budget” spending?

As Garg explains in his blog: “All government expenditure, revenues and debts are required to be carried out through the Consolidated Fund of India (CFI). If it is done so, the fiscal deficit of the Government should equal to the additional debt incurred during the year, all recorded in the CFI. Unfortunately, all these transactions are not recorded through the CFI all the time. Some debt/liabilities are not assumed outside the CFI — either in the Public Account or totally outside the formal accounting system of the Government i.e. outside CFI and Public Account,” he states. “Such transactions are described popularly as Below the Line, Off Budget etc”.

For instance, he states that “equity infusion in the Public Sector Banks (PSBs), during last few years, has been done by deducting debt received by the Government of India in from the PSBs from the equity investments made. As a result, there is no impact of such expenditure/investment on fiscal deficit but the debt and liabilities stock of the Government goes up”.

Similarly, “for some years now, the Government of India is issuing what is described in the budget papers as Fully Serviced Bonds (FSBs). These bonds are raised outside the CFI and Public Account and used from special purpose vehicles outside budget/ accounts to pay off the government expenditure/ subsidy. Interest and principals of these liabilities are serviced by the Government at the time of payment.

Is this the first time India’s fiscal deficit is being questioned?

No.

According to a July report of the Economic Times: “In a presentation to the 15th Finance Commission (FFC) on July 8, three days after the July 5 budget, CAG has asked whether the extra-budgetary resources accounted for in the budget reflect the correct picture. To make its point, the auditor re-calculated the fiscal deficit of 2017-18 to show that it actually works out to 5.85%. The government had reported a fiscal deficit of 3.46% that year.”

Moreover, in his blog, Garg refers to the Congress-led UPA rule. “During 2004-09, Bonds were issued to Oil Companies and Fertiliser Companies and accounted for in the Public Account (instead of CFI) to pay off oil/fertiliser cost under-recoveries. These transactions also had similar impact…”

 

WHY IS ARMY DAY CELEBRATED?

On January 15, 1949, Field Marshal Kodandera M Cariappa took over from General Sir Francis Butcher to become the Indian Army’s first Commander-in-Chief. The day has been observed as Army Day to recognise this, and to acknowledge the achievements and risks undertaken by Indian army personnel.

Field Marshal Cariappa led the Indian forces on the Western Front during the Indo-Pakistani War of 1947 and is one of the only two Indian officers to hold the five-star rank of field marshal (an honorary rank).

Who was KM Cariappa?

Cariappa, who was fondly known as “Kipper”, was born on January 28, 1900, in Karnataka. During the First World War (1914-18), Cariappa received military training, but did not start serving. In 1919, he received the King’s Commission with the first group of Indian cadets and in 1933, he became the first Indian officer to join staff college in Quetta.

Subsequently, in 1942, Cariappa raised the seventh Rajput Machine Gun Battalion, which is now referred to as the 17th Rajput regiment.

After Independence, when politicians started demanding that Indian officers be absorbed by the British military in India, Cariappa was one of the first group of Indian candidates to be selected and was sent to Indore for training.

ANALYSIS OF UDAY (UJJWAL DISCOM ASSURANCE YOJANA)

Almost five years after the launch of the Ujwal DISCOM Assurance Yojana (UDAY), there are indications that the power sector is once again in trouble.

Not only have losses of state-owned distribution companies (discoms) risen, but their dues for power purchases have also surged.

At the end of November 2019, dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore. Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days. Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

These numbers suggest that, contrary to expectations, the UDAY scheme has failed to engineer a sustainable turnaround in the fortunes of the beleaguered distribution segment — the weakest link in the power chain.

Reportedly, the Centre is contemplating yet another scheme to address the issues that continue to plague the sector. But, as distribution falls under the purview of states, rather than adopting an approach similar to that of the past schemes, the new scheme should focus on altering the incentive structure at the state level so as to ensure the achievement of targets.

The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components: A reduction in the aggregate technical and commercial (AT&C) losses, timely revision of tariffs, and elimination of the gap between average per unit of cost and revenue realised.

While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY. AT&C losses have declined in some states, but not to the extent envisaged. Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.

Similarly, while some states have raised power tariffs, the hikes have not been sufficient as political considerations prevailed over commercial decisions.

As a result, the gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged, forcing discoms to reduce their power purchases and delay payments to power producers. This in turn has impaired the ability of power generating companies to service their debt, causing stress to the banking sector.

The new plan, reportedly, aims to address these issues by reducing electricity losses, eliminating the tariff gap, smart metering, privatising discoms, and having distribution franchisees. These would be welcome measures. But, along with these, the Centre should also look at altering the incentive structures of states in order to ensure compliance. Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.

 

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