Daily Prelims Notes 5 February 2024

Daily Prelims Notes

5 January 2024

Table Of Contents

1. Three ways to deal with the high govt debt
2. Key Points from Chief Economic Adviser’s Insights on Interim Budget
3. A Sunshine Initiative
4. Panchayats earn only 1% of their revenue through taxes
5. The importance of keeping personally identifiable information safe
6. Union Budget 2024-25: Allocations for health, education fail to meet targets under government policies
7. Vyommitra: ISRO to launch India’s female robot astronaut into space ahead of Gaganyaan mission

1. Three ways to deal with the high govt debt

Subject: Economy

Section: External Sector

Context:

• The Narendra Modi-headed National Democratic Alliance (NDA) government will end its second term with overall public debt in excess of 80% of India’s gross domestic product (GDP) at current market prices.

More on news:

• According to International Monetary Fund (IMF) data, general government debt – the combined domestic and external liabilities of both the Centre and the states – touched 84.4% of GDP in 2003-04.
• That ratio fell to a low of 66.4% in 2010-11. 
• It rose gradually to 7% in 2013-14 and 70.4% in 2018-19.
• The present government’s second innings saw the debt-GDP ratio soar to 75% in 2019-20 and peak at 88.5% in 2020-21, before easing to 83.8% and 81% in the following two fiscal years (April-March).
• The IMF has projected the ratio at 82% in the current fiscal and 4% for 2024-25, which is still close to the high levels of the early 2000s.
• General government debt climbed from 7% of GDP in 2019 to 133.5% in 2020 and 121.4% in 2022 for the US; from 97.4% to 115.1% and 111.7% for France; from 85.5% to 105.6% and 101.4% for the United Kingdom; and from 60.4% to 70.1% and 77.1% for China during these years. 

What public debt entails:

• Government debt is basically the outstanding domestic and foreign loans raised by the Centre and states.
• It includes other liabilities, including against small savings schemes, provident funds and special securities issued to the Food Corporation of India, fertilizer firms and oil marketing companies – on which they have to pay interest and the principal amounts borrowed.
• As per the Fiscal Responsibility and Budget Management (FRBM) law 2003, the general government debt was supposed to be brought down to 60% of GDP by 2024-25. 
• The Centre’s own total outstanding liabilities were not to exceed 40% within that time schedule.
• In absolute terms, the Centre’s total liabilities have more than doubled from Rs 90.84 lakh crore to Rs 183.67 lakh crore between 2018-19 and 2024-25.
• There is a decline in the interest-to-GDP ratio from a high of 4.7% in 2002-03 to 3.1% by 2010-11.
• The ratio more or less stabilized at 3-3.1% till 2019-20, before surging to 3.4% in 2020-21 and 3.6% in the current and ensuing fiscal

Why has debt spiralled?

• The most obvious reason is the Covid-induced disruptions that forced governments to borrow more in order to fund additional public health and social safety net expenditure requirements.
• The combined gross fiscal deficit of the Centre and the states i.e. the gap between their total spending and revenue receipts went up from 8% and 7.2% of GDP in 2018-19 and 2019-20 respectively, to 13.1% and 10.4% in the next two fiscals. 
• The Centre’s fiscal deficit alone increased from 4% of GDP in 2018-19 to 4.6% in 2019-20, 9.2% in 2020-21 and 6.8% in 2021-22.
• The present government, apart from spending more on income and consumption support schemes, also stepped-up public investments in roads, railways and other infrastructure.
• The Centre’s capital expenditure has dropped from 3.9% to 1.5% of GDP between 2003-04 and 2017-18.
• It revived significantly thereafter to reach2% in 2023-24 and 3.4% in the Interim Budget for 2024-25.

How can debt be reined in?

• The FRBM Act envisaged limiting the Centre’s gross fiscal deficit to 3% of GDP by 2020-21.
• The present government has opted for a new broad “glide path” of fiscal consolidation.
• As per Union Budget speech 2021-22 which aims to attain a fiscal deficit-to-GDP ratio of “below 4.5%” by 2025-26. 
• While fiscal consolidation can ensure a check on borrowings and not too much being added to the stock of government debt relative to GDP – the IMF has warned against crossing the 100% mark.
• There are two other routes as well for bringing the latter down.
• That would involve what one may call the denominator effect.
• Government debt and fiscal deficits are usually quoted as ratios to GDP at current market prices.
• High nominal GDP growth where the denominator rises faster than the numerator helps in some way in solving the government’s debt problem. 
• GDP growth, in turn, can come from both real output increases and inflation.
• The second and third way to drive down the government debt-to-GDP ratio is to “grow” or “inflate” it away. 
• This actually happened during 2003-04 to 2010-11 when general government debt plunged from 84.4% to 66.4% of GDP. 
• However, this period incidentally, also witnessed an average annual GDP growth of 7.4% in real and 15%-plus in nominal terms after adding inflation.

2. Key Points from Chief Economic Adviser’s Insights on Interim Budget

Subject: Economy

Section: National Economy

Fiscal Policy Adjustment:

• Chief Economic Adviser V. Anantha Nageswaran emphasizes the need for fiscal policy to step back as the economy regains momentum.
• Advocates a countercyclical fiscal policy, urging a gradual withdrawal of fiscal stimulus to rebuild fiscal space for future needs.

Global Stimulus Challenges:

• Cites global inflation surprises in 2022-23, attributing them to prolonged and oversized stimulus worldwide.
• Highlights the adverse effects of excessive stimulus, drawing parallels with India’s experience in 2010-11 and 2011-12.

Focus on Financial Inclusion:

• Points out the government’s commitment to financial inclusion and support for the poor, evident in the extension of the PM Gareeb Kalyan Anna Yojana.

Budget Strategy and GDP Target:

• Attributes the interim budget strategy to the government’s commendable 10-year track record.
• Advocates sticking to the framework of a vote on account, projecting a fiscal deficit target of 5.1% of GDP.

Next-Generation Reforms:

• Identifies priorities for future reforms, including health, learning outcomes, MSME compliances, and mentions next-generation reforms in the budget.
• Emphasizes the importance of consultations and consensus-building with state governments for effective reforms.

State-Level Reforms:

• Highlights that many reform areas, such as health, learning outcomes, skilling, land reforms, and labor codes, fall within the purview of state governments.
• Stresses the need for state-center collaboration in these crucial areas.

Energy Security and Discom Viability:

• Addresses the significance of energy security in the context of the energy transition, emphasizing the viability of distribution companies (discoms).
• Calls for economic viability and transparent recovery of user charges for discoms, suggesting targeted subsidies if required.

GST Rate Rationalization:

• Advocates periodic reviews, including GST rate rationalization by the GST Council.
• Stresses the importance of comprehensive perspectives in reviewing perpetual policies like GST and the Insolvency and Bankruptcy Code.

Regulatory Institutions and Frameworks:

• Supports periodic reviews of regulatory institutions and frameworks, suggesting a sunset clause for policies.

Some Regulatory Reforms and Next-Generation Reforms:

Regulatory Reforms:

• Focus on MSMEs:
  • Need for regulatory reforms, particularly for Micro, Small, and Medium Enterprises (MSMEs).
  • Aim to enhance ease of doing business and reduce regulatory burdens.

Next-Generation Reforms:

• Avoiding Middle-Income Trap:
  • Targeted at preventing the middle-income trap.
  • Emphasis on decentralization and flexibility.
• Sectors for Liberation:
  • May call for freeing up sectors like agriculture and energy with distorted markets; aims to avoid economic stagnation and promote growth.
• Enhancing Transparency:
  • Greater transparency in land markets.
  • Complete digitization of land records for efficient management.
• Application of AI:
  • Establishment of a framework for the application of Artificial Intelligence (AI).
  • Incorporating AI to boost efficiency in various sectors.
• Fine-Tuning GST:
  • Rationalisation of Goods and Services Tax (GST).
• Governance and Administrative Reforms:
  • Potentially advocates administrative reforms, including civil service specialization; Possible emphasis on specialization within civil services for effective governance.

Overall Solutions for a New India

Tax Cuts and Rebates:

• Designed to increase consumer spending.
• Government’s reduction in corporation tax rates to stimulate economic growth.

Deregulation for Economic Stimulus:

• Relaxing rules and regulations on industries and businesses.
• Deregulation in 1991 led to economic development; needs regular implementation.
• Example: Disinvestments of loss-making PSUs.

Infrastructure Spending for Growth:

• Investing in roads, bridges, ports, and sewer systems.
• Enhances productivity, creates jobs, and fosters economic growth.

Broader Measures for a “Major Economic Powerhouse”:

• Growth:
  • Increase investment rates to 36% of GDP.
  • Raise tax-GDP ratio to 22%.
  • Improve ease of business, rationalize land &labor regulations.
• Employment and Labor Reforms:
  • Fully codify central labor laws.
  • Increase Female Labor Force Participation to 30%.
  • Enhance employability through health, education, and skilling.
• Doubling Farmers’ Income:
  • Modernize technology, increase productivity.
  • Abolish APMC, create modern rural infrastructure.
  • Link production to processing, set up procurement centers.
• Energy:
  • Include oil, natural gas, electricity, and coal under GST.
  • Promote smart grid and smart meters.
• Logistics:
  • Develop IT-enabled platform for transport integration.
  • Rationalize tariffs and determine efficient prices.

Rationalizing GST:

• Inclusion of petroleum products in GST.
• Addressing the Inverted Duty Structure issue.
• Faster processing of GST refunds for exporters.

Conclusion:

• Crucial internal reforms needed for India’s international leadership.
• Reorganization of the health system with a focus on primary medical centers (PMCs).
• Aiming for slower but inclusive growth to benefit the majority.
• Aspiring for double-digit growth to address employment challenges and become an upper-middle-income economy.

Economic Reforms in India: Key Points

Initiation in 1991:

• Economic reforms in India commenced in 1991.
• Signified a shift from a dominant state role to an increased role for the private sector.

July 23, 1991: Historic Reforms:

• Responded to fiscal and balance-of-payment crises.
• Changes aimed at transforming the economy’s face and nature.

Evolution from 1980s to 1990s:

• Reforms in the 1980s were limited; comprehensive changes started in the early 1990s.
• Criticized for being influenced by the ‘Washington Consensus,’ impacting the economy negatively.

Reform Measures:

• Two categories: Macroeconomic Stabilization Measures and Structural Reform Measures.
• Focus on boosting aggregate demand and enhancing the aggregate supply of goods and services.

Liberalization (LPG):

• Liberalization, Privatization, Globalization (LPG) characterize India’s reform process.
• Liberalization represents a shift towards capitalism, balancing the state-market mix.

Privatization:

• Involves the transfer of state assets to the private sector.
• Various interpretations, including de-nationalization and disinvestment.

Globalization:

• Economic integration among nations.
• WTO’s definition emphasizes unrestricted cross-border movements of goods, services, capital, and labour.

Generations of Reforms:

• First Generation (1991–2000):
  • Promotion to the private sector, public sector reforms, external sector reforms, financial sector reforms, and tax reforms.
  • Shift towards a market-driven economy and increased private sector participation.
• Second Generation (2000–01 onwards):
  • Factor Market Reforms, public sector reforms, reforms in government and public institutions, legal sector reforms, and reforms in critical areas.
  • Emphasizes deeper changes and increased political will.
• Third Generation:
  • Focus on fully functional Panchayati Raj Institutions (PRIs) for inclusive growth.
  • Acknowledgment of the need for grassroots involvement in development.
• Fourth Generation:
  • Unofficially coined term in 2002.
  • Encompasses information technology-enabled reforms, highlighting a two-way connection between economic reforms and IT.

Gradualist Approach:

• India’s reform process characterized as gradualist, with occasional reversals and no major ideological U-turns.
• Reflects the pluralist and participative democratic policy-making process.
• Challenges include the need for more comprehensive reforms and addressing inclusivity.

3. A Sunshine Initiative

Subject: Schemes

Section: Environment

Context:

• PM Modi launches a new rooftop solar power scheme.
• Finance Minister Nirmala Sitharaman’s interim Budget address emphasized Prime Minister Narendra Modi’s ambitious plan to provide solar power to one crore households in India through rooftop solar panels. The initiative aims to bring substantial savings of ₹15,000 annually for households.

Eligibility and Subsidies

• Households consuming less than 300 units of electricity per month are eligible to install a mid-sized solar system (1-2 kilowatt) under this program.
• The government is set to provide a substantial subsidy, increasing from the current 40% to 60% of the system’s cost.
• The remaining expenses will be financed by private developers affiliated with public sector enterprises linked to the Power Ministry, ensuring installation quality and reliability.

Net-Metering Mechanism

• The program incorporates a ‘net metering’ mechanism, allowing surplus electricity generated by households to be sold back to the grid to offset the loan. The implementation of this mechanism may have complexities.
• Although 300 units of monthly consumption may be modest for households with appliances like air conditioners and heaters, it represents a significant average consumption metric by national standards.
• Approximately 80% to 85% of India’s 25 crore to 30 crore households consume between 100 and 120 units of electricity per month, making the plan’s eligibility criteria attainable.

Shift from State Discoms to Centre

• Notably, the Center, rather than State power distribution companies (discoms), will lead the solarization efforts. Many discoms, often incurring losses, have shown little inclination to promote decentralized solutions like rooftop solar.
• Given the discoms’ detailed knowledge of household-level power supply, bypassing them would not be a viable strategy.

Current Status and Industry Impact 

• Out of the targeted 40 GW of rooftop solar panels, only 12 GW have been installed to date, with household rooftops accounting for just 2.7 GW, the rest being commercial or building units.
• This initiative can stimulate the domestic solar panel industry, with subsidies available exclusively for domestically produced panels.

4. Panchayats earn only 1% of their revenue through taxes

Subject: Polity

Section: Local govt

Context:

• Only 1% of the revenue of panchayats was earned by them, with the rest being raised as grants from the State and the Centre. Specifically, 80% of the revenue was from Central government grants; only 15% was from State government grants.

About Panchayati Raj

• Self-Government: The term Panchayati Raj in India signifies the system of rural local self-government.
• Grass Root Level Democracy: It has been established in all the states of India by the Acts of the state legislatures to build democracy at the grass root level.
  • Panchayati Raj Mahatma Gandhi advocated Gram Swaraj or village self-governance as a decentralised form of governance in which villages would be responsible for their own affairs, serving as cornerstones of India’s political system.
• 73rd Constitutional Amendment Act (CAA): It was constitutionalised through the 73rd CAA of 1992. The act has given a practical shape to Article 40 of the Constitution.
  • This act has added a new Part-IX to the Constitution of India entitled as ‘The Panchayats’ and consists of provisions from Articles 243 to 243 O. 
  • The act has also added a new Eleventh Schedule to the Constitution. This schedule contains 29 functional items of the panchayats.

Assessment of Panchayati Raj Finance

• Central Finance Commissions (CFCs): Successive CFC have recommended a consistent increase in grants to PRIs, from 4,381 crore by the Tenth CFC to 2.37 lakh crore by the Fifteenth CFC.
• State Finance Commission (SFC):Article 243-I of the Constitution stipulates the establishment of a SFC every five years to assess the financial status of Panchayats and propose a framework for sharing taxes between the State and Panchayats.
• Revenue Collection:Article 243-H of the Constitution empowers Panchayats to impose, collect, and allocate taxes, duties, tolls, and fees.
  • Panchayati Raj The decisions regarding taxes to be decentralised to local governments are, however, mainly at the discretion of State legislatures. 
• Other Funding Sources: In addition to these revenue sources, Panchayats also receive grants from international organisations and funds for executing Centrally Sponsored Schemes (CSSs) like the Rashtriya Gram Swaraj Abhiyan, the SVAMITVA, the National Horticulture Mission, etc.

5. The importance of keeping personally identifiable information safe

Subject: Science and tech

Section: Awareness in IT & Computers

Context:

• Recently, the Ministry of Corporate Affairs fixed a critical vulnerability in its online portal months after a cybersecurity researcher reported it to the Computer Emergency Response Team of India (CERT­In).
• The vulnerability reportedly exposed personal details like Aadhaar, PAN, voter identity, passport, date of birth, contact number and address of more than 98 lakh directors of Indian companies.

About Personally Identifiable Information

• Personally Identifiable Information (PII) is any data or information maintained by an organisation or agency that can potentially be used to identify a specific individual.
• This could include information such as Aadhaar, PAN, voter identity, passport, date of birth, contact number, communication address, and biometric information.

Difference between sensitive and non­-sensitive PII

• Sensitive PII, when exposed, can be used to identify individuals and potentially cause harm. Some of the most important components that constitute sensitive PII are stored by employers, government organisations, banks, and other digital accounts used by individuals.
• Non-Sensitive PII is publicly available information and can be stored and transmitted unencrypted. This includes information such as zip code, race, gender, and religion.

What are the risks of PII exposure?

• Threat actors can gain access to exposed PII and misuse it to launch targeted attacks on individuals.
• These attacks could range from phishing attacks with messages curated with PII information, to fraudulently opening bank accounts, and siphoning funds from accounts allotted to beneficiaries of government welfare programmes.
• Attackers may also use such information to obtain cellular connections, credit cards, and compromise the security of an individual’s digital accounts.

How can one protect PII?

• Looking for HTTPS in URLs when visiting unknown websites. The “S” stands for secure and is used by legitimate websites to secure collected information from unsecured connections.
• Some browsers may also use a lock symbol in the URL bar to signify that a website is secure.
• Using a VPN when accessing sensitive information using public networks. A VPN helps protect PII and other vital data by securing your online connection from prying eyes on public networks.
• Keeping a tab on PII like Aadhaar, passport, PAN, Voter ID, and other important proofs of identity.
• By avoiding sharing or accessing images or details of identity documents through unknown devices.
• By avoiding sharing personal information on social media platforms.
• Keeping a tab on bank account transactions, credit cards, and credit score; a hit in the score could mean your PII has been misused to procure credit cards in your name.

6. Union Budget 2024-25: Allocations for health, education fail to meet targets under government policies

Subject: Schemes

Section: Health

• The health sector received little traction this year too.
• For years, experts have suggested that the health budget should be at least 3 per cent of gross domestic product (GDP) and even the National Health Policy, 2017 put the target for increasing the budget to at least 2.5 per cent of GDP by 2025.
• The FM allocated only Rs 90,171 crore to the health sector for the crucial election year 2024-2025. The health allocation at 5 per cent should have been Rs 8,19,000 crore, given the projected GDP for 2024-25 of Rs 3,27,71,808 crore. At 40 per cent, the Union government’s contribution should have been Rs 3,27,718 crore.
• Similar to health, experts have long advocated for 6 per cent of GDP to be allocated to education. National Education Policy 2020 also advocates that 6 per cent of the GDP should be spent on the sector. This comes to Rs 19,66,309 crore, but in the current budget, education was allocated Rs 1,24,638 crore.
• In the brief budget speech, the finance minister did make a few announcements on health, but none on education. One of the health-related announcements did pertain to education—there are plans to set up more medical colleges using the existing infrastructure in the country and a committee is likely to be set-up to make relevant recommendations.
• Experts have warned for decades that these two sectors require additional funding, but government after government has refused to provide it.
• The COVID-19 pandemic should have prompted a push for increased funding, at least in the health sector. The fact that school infrastructure played an important role in the fight against the virus suggests that this ministry, too, deserves more support than it has received thus far. At village level, on-the-ground networks such as primary health centres and primary schools play a large role in the lives of people.

7.  Vyommitra: ISRO to launch India’s female robot astronaut into space ahead of Gaganyaan mission

Subject: Science and tech

Section: Space tech

Context: India’s female robot astronaut Vyommitra will fly into space ahead of Indian Space Research Organisation’s (ISRO) ambitious Gaganyaan mission – the country’s manned space flight carrying Indian astronauts into space – said the union minister of science and technology, on Sunday (Feb 4).

About Vyom Mitra:

• The humanoid has been developed by the ISRO Inertial Systems Unit, Thiruvananthapuram.
• Vyom Mitra is a half-humanoid and her body stops at the torso and has no legs.
• The humanoid will simulate the human functions required for space before real astronauts take off.
• She has been designed to resemble a human with facial expressions and speech and sight
• Vyommitra is also set to get a digital twin. The ‘twin’ will undergo computer simulations where the control systems are tested for microgravity conditions.

Capabilities:

• The humanoid can detect and give out warnings if the environment changes within the cabin.
• She is capable of switching panel operations, performing Environment Control and Life Support Systems (ECLSS) functions, having conversations with the astronauts, recognizing them, and solving their queries.
• The AI-enabled robot can withstand vibrations and shock during the flight.

Role of Vyom Mitra:

• Vyommitra will fly aboard the first unmanned test flight ahead of the crewed Gaganyaan flight expected in 2024.
• It will simulate the exact human functions in space.
• It will check whether the systems are working right.