Daily Prelims Notes 15 July 2024

Daily Prelims Notes

15 July 2024

Table Of Contents

1. Union Government’s Financial Transfers to States
2. 45-Day MSME Payment Rule
3. Illegal coal mine in Gujarat
4. Centre to amend rules on mandatory declaration of product details on bulk retail packets
5. BSI documents wild flowers along the ancient Silk Route in Sikkim and Kalimpong
6. Operation Dhanush II
7. Corporate tax cut

1. Union Government’s Financial Transfers to States

Sub: Eco

Sec: Fiscal Policy

Context:

• Tamil Nadu CM alleged the Union government is withholding funds for vital state projects.
• Concerns arise over tax policies reducing financial transfers to states, potentially weakening cooperative federalism.

Historical Financial Transfers:

• Fourteenth Finance Commission (2015-16):
  • Recommended devolving 42% of Union tax revenues to states.
• Fifteenth Finance Commission:
  • Retained 41% (excluding Jammu & Kashmir and Ladakh).

Decline in States’ Share:

• Gross vs. Net Tax Revenue:
  • Net tax revenue is calculated after deducting collections under cess, surcharge, Union Territories’ revenue, and tax administration expenditure.
• Revenue from Cess and Surcharge:
  • Increased from 5.9% in 2015-16 to 10.8% in 2023-24.
  • These collections are not shared with states and are used for specific Union government schemes.
• Grants-in-Aid to States:
  • Declined from ₹1.95 lakh crore in 2015-16 to ₹1.65 lakh crore in 2023-24.
• Combined Share:
  • Statutory financial transfers declined from 48.2% to 35.32% of the gross tax revenue of the Union government.

Centralisation of Public Expenditure:

• Centrally Sponsored Schemes (CSS):
  • Increased from ₹2.04 lakh crore in 2015-16 to ₹4.76 lakh crore in 2023-24.
  • States must commit matching finances to avail grants, affecting inter-state equity.
• Central Sector Schemes (CSec):
  • Fully funded by the Union government, allocation increased from ₹5.21 lakh crore in 2015-16 to ₹14.68 lakh crore in 2023-24.
  • Only ₹60,942 crore devolved to states in 2023-24.

Impact on Cooperative Federalism:

• Non-Statutory Transfers:
  • CSS and CSec schemes are non-statutory, forming 12.6% of gross tax revenue.
  • Total financial transfers as a proportion of gross tax revenue were 47.9% in 2023-24.
  • Tied grants reduce states’ expenditure freedom.
• Fiscal Power of Union Government:
  • Retains more than 50% of gross tax revenue.
  • Incurs a fiscal deficit of 5.9% of GDP.

Centrally Sponsored Schemes (CSS)

Centrally Sponsored Schemes are schemes funded by the Union government but implemented by state governments.

Key Features:

1. Funding Pattern: The funding is shared between the Union and state governments, with the Union government typically providing a significant portion of the funding while the states contribute the remainder.
2. Implementation: These schemes are implemented by state governments, which means that while the central government designs and funds these schemes, the responsibility for their execution lies with the states.
3. Objective: CSS aims to ensure that national priorities are addressed through state-level implementation, often focusing on sectors like health, education, agriculture, and rural development.
4. Types of CSS: CSS can be broadly categorized into core schemes (national priorities like health and education), core of the core schemes (most crucial schemes like MNREGA), and optional schemes (schemes of lesser priority).

Examples:

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
• Pradhan Mantri Awas Yojana (PMAY)
• Swachh Bharat Mission (SBM)
• National Health Mission (NHM)

Central Sector Schemes

Central Sector Schemes are schemes entirely funded and implemented by the Union government.

Key Features:

1. Funding Pattern: These schemes are fully funded by the Union government, with no financial contribution required from the states.
2. Implementation: The implementation of these schemes is directly managed by central government agencies or departments.
3. Objective: CSec Schemes are designed to address issues that fall within the exclusive jurisdiction of the central government or to achieve objectives that are national in scope.
4. Focus Areas: These schemes often focus on areas such as defense, space technology, infrastructure development, and other strategic sectors.

Examples:

• Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
• National Highways Development Project (NHDP)
• Digital India
• Make in India

2. 45-Day MSME Payment Rule

Sub: Eco

Sec: Fiscal Policy

Context:

• The SME Chamber of India has urged Finance Minister to continue the 45-day payment rule for MSMEs.
• Section 43B(h) of the Income Tax Act was introduced in the Finance Act 2023 to address delayed payments to MSMEs.

Key Points:

• 45-Day Payment Rule:
  • Larger companies must pay MSMEs within 45 days if there is a written agreement.
  • Failure to pay on time disqualifies the expense from being deducted from taxable income.
• Objective:
  • The rule aims to alleviate the issue of delayed payments, which is a significant challenge for MSMEs.
• Industry Body’s Request:
  • The SME Chamber of India emphasized not changing this rule despite pressure from larger corporates and multinational companies.
  • Timely payments are crucial for the survival and growth of the MSME sector.

Section 43B(h) of the Income Tax Act:

• Mandate:
  • Reinforces timely payments by making it a condition for expense deduction.
• Implications:
  • Ensures that companies are incentivized to pay MSMEs on time to avoid higher tax liabilities.
• Support for MSMEs:
  • Helps MSMEs maintain cash flow and avoid financial stress caused by delayed payments.
• Economic Impact:
  • MSMEs contribute significantly to the economy, and timely payments help sustain their operations and growth.

The 45-Day MSME Payment Rule 

To ensure timely payments to the Micro, Small, and Medium Enterprises (MSME) sector, a new regulation was implemented on April 1, 2024. This regulation mandates companies to settle their dues with MSMEs within 45 days.

Section 43B(h):

• Introduction: The Finance Act 2023 amended the Income Tax Act by adding clause (h) to Section 43B.
• Stipulation: Any payments owed to MSMEs not resolved within 45 days will not qualify for tax deductions until the payment is made.
• Objective: This clause aims to motivate larger entities to prioritize their settlements with MSME counterparts, thereby promoting a more robust economic environment for these smaller businesses.
• Applicability: Section 43B(h) applies to transactions involving the purchase of goods or services from enterprises registered under the MSMED Act, 2006.

Failure to Comply:

• Penalties: Failure to adhere to the 45-day timeframe results in penalties, including compounded interest penalties at three times the bank rate set by the Reserve Bank of India (RBI).
• Tax Implications: Businesses risk losing the ability to deduct payments made to MSEs from their taxable income.

3. Illegal coal mine in Gujarat

Sub: Sci

Sec: Health

Context:

Three dies of asphyxiation at illegal coal mine in Gujarat.

More About News:

• Three labourers died of asphyxiation inside an illegal coal minein Surendranagar district of
• Digging for low-grade coal in illegal mines found in several parts of the district. The coal is used to fuel factories in the State and elsewhere.

What is Illegal coal mining?

Illegal mining is the extraction of precious metals without following the proper procedures to participate in legal mining activity. These procedures include permits and licenses for exploration of the land, mining and transportation.

MMDR Act:

• As per section 23C of the MMDR Act, 1957 the State Governments are empowered to frame rules to prevent illegal mining and the State Governments may, by notification in the Official Gazette, make such rules for preventing illegal mining, transportation and storage of minerals and for purposes connected therewith.

Mines and Minerals (Regulation and Development) Act (1957):

• It is an Act of the Parliament of India enacted to regulate the mining sector.
• It was amended in 2015 and 2016. This act forms the basic framework of mining regulation in India.
• This act is applicable to all mineral except minor minerals and atomic minerals.
• It details the process and conditions for acquiring a mining or prospecting licence in India.
• Mining minor minerals comes under the preview of state governments.
• For mining and prospecting in forest land, prior permission is needed from the Ministry of Environment and Forests.

Environment Impacts:

• Illegal miners create large mining pits that are not back filled when they are finished, many people and animals die from these pits.
• Due to run off from illegal mining activity contaminates surface water and underground water with mud, Mercuryand Cyanide.
• Deforestation occurs during illegal mining operations so mining operations have room to function.
• Carbon emissions increase drastically due to the clear cutting of forests.
• Illegal mining causes soil erosion and degradation which leads to barren lands.

Human Impacts:

• Asphyxiation is caused due to lack of oxygen (or) when you don’t get enough oxygen to the body.
• Causes include allergic reactions, drowning and foreign objects blocking your airway.

Symptoms:

• Trouble breathing
• Loss of consciousness
• Inability to speak.

4. Centre to amend rules on mandatory declaration of product details on bulk retail packets

Subject: Economy

Sec: Msc

Context:

The Rules mandate declaration of name and address of the manufacturer/ packer/ importer, country of origin, common or generic name of the commodity, etc. on all pre-packaged commodities.

More About News:

• The Department of Consumer Affairs has decided to amend the Legal Metrology (Packaged Commodities) Rules, 2011 to ensure mandatory declaration of all information on pre-packaged commodities used for retail sale.
• Department of Consumer Affairs, administers the Legal Metrology Act 2009. The act provides for application of legal requirements to measurements and measuring instruments.
• The objective of Legal Metrology is to ensure public guarantee from the point of view of security and accuracy of the weighments and measurements.
• The Legal Metrology (Packaged Commodities), Rules 2011 are primarily intended to ensure that the consumers are able to make informed choices by being informed of essential declarations on the pre-packed commodities.

Why amendment?

• The decision comes in the wake of information that the packaged commodities above 25 kg are available in the market for retail sale without mandatory declarations on the packages.
• The rules, however, are not applicable to the packaged commodities meant for industrial consumers or institutional consumers.
• This revised provision will help in establishing uniform standards/ requirements for packaged commodities, promoting consistency and fairness across different brands and products and will help consumers in making informed choices based on complete information.
• The Legal Metrology (Packaged Commodities) Rules, 2011 mandate declaration of information such as name and address of the manufacturer/ packer/ importer, country of origin, common or generic name of the commodity, net quantity, month and year of manufacture, maximum retail price, unit sale price, best before/ use by date, consumer care details etc. on all pre-packaged commodities in the interest of consumers.

Legal Meterology:

Legal Metrology treats units of weighment and measurement, methods of weighment and measurement and weighing and measuring instruments, in relation to the mandatory technical and legal requirements which have the object of ensuring public guarantee from the point of view of security and accuracy of the weighments and measurements.

The Rules are applicable on all pre-packaged commodities except the following:

(a) packages of commodities containing quantity of more than 25 kilogram or 25 litre

(b) cement, fertilizer and agricultural farm produce sold in bags above 50 kilograms

(c) packaged commodities meant for industrial consumers or institutional consumers.

5. BSI documents wild flowers along the ancient Silk Route in Sikkim and Kalimpong

Subject: Environment

Sec: Msc

Context:

More About News:

A recent publication by the Botanical Survey of India (BSI) documents the flora and landscapes of one of the oldest trading routes of south Asia — the Silk Route, meandering through Kalimpong and Sikkim in the eastern Himalayas and going to Lhasa in Tibet.

The book documents 1,137 flowering plants and throws light on the connection between botany and the politics of the region.

The book A Southern Silk Route:

Sikkim and Kalimpong Wild Flowers and Landscapes not only documents 1,137 flowering plants, a host of butterflies, insects, birds and mammals but also the historical significance of the route and the link between botany and politics of the region.

Species Found Along this Route:

• The key flowering plants documented in the publication and found along the silk route are Windamere palm(Trachycarpus latisectus) a wild palm species facing the threat of extinction with only a few trees left in Kalimpong region.
• State tree of Sikkim — Rhododendron niveum, endemic to the eastern Himalayas and found in Kyongnosla Alpine Sanctuary along the Silk Route.
• The Impatiens sikkimensis, a threatened balsam species, and Daphne ludlowii, which was used to make paper for Buddhist manuscripts, are also among the important flora found along the route.
• Scientists involved in the publication have documented several such species along the 210-km route from Siliguri in Darjeeling to Kalimpong, Nathu La and Gangtok.
• The road which was used in ancient times as the Silk Route. The trade between medieval Bengal and Lhasa was carried out along multiple routes. The shortest of all these routes from India to Lhasa was the one through Sikkim and Kalimpong.

Historical highlights:

The publication also throws light on the history of botany in the country by highlighting the contributions of British botanist J.D. Hooker. He studied the flora of Sikkim as early as in 1848 and his major contributions include the discovery of 32 species of rhododendrons in the State.

The publication, running over 600 pages, contains many photographs of the plants, birds, butterflies and mammals in the region, including Sikkim’s State bird and animal — the threatened red panda and the blood pheasant, respectively. Historical photographs of people and places also find a place in the book.

Protected Areas:

There are five protected areas along the Silk Route:

• Mahananda Wildlife Sanctuary
• Neora Valley National Park
• Pangolakha Wildlife Sanctuary
• Kyongnosla Alpine Sanctuary
• Fambong Lho Wildlife Sanctuary

 Four big cats — tiger, leopard, snow leopard and clouded leopard — inhabit the areas along the route.

Tourism opportunities:

• The promotion of the Silk Route will lead to new adventures in tourism, particularly adventure tourism, in the State.
• The touch of history of the Silk Route will boost the potential for people taking up adventure tourism.
• Tourism is one of the primary economic activities of Sikkim and the State has been taking steps to promote adventure tourism, particularly trekking, mountaineering and biking.

Historical Background:

• The Silk Route that connected Lhasa (Tibet) to Kalimpong was in use even a few decades ago until the Chinese invasion of Tibet.
• It was commonly used by traders travelling to Tibet through Jelep-la (‘la’ stands for mountain pass) as an overnight base.
• The route started from Kalimpong and passed through Pedong, Aritar, Dzuluk and Jelepla to Chumbi valley in Tibet.
• Trade between the Old Silk Route at Nathu La reopened in July 2006 after relations between China and India improved. However, the trade that involved about 200 people on both sides of the border has not resumed after the pandemic.

6. Operation Dhanush II

Sub : Sci

Sec: Defence

Why in news?

The Army has kicked off an anti-militancy drive in Kupwara named ‘Operation Dhanush’ to counter infiltration bids from across the LoC to Kashmir valley.

The operation was launched in the wake of increased militant attacks on security forces in the Jammu region.

Line of Control (LoC)

LoC refers to the ceasefire line negotiated by UN after first Indo-Pak war (1947-48)

It was designated as LoC after the signing of Shimla agreement in 1972.

Northernmost point of LoC is called NJ9842.

LAC vs LoC

7. Corporate tax cut

Sub: Eco

Sec: Fiscal Policy

Context:

Opposition party alleged that the corporate tax cut has put over Rs 2 lakh crore in the pockets of billionaires, while the middle class continues to bear the weight of heavy taxation in light of CBDT data.

Data released by Central Board of Direct Taxes (CBDT)

As of July, 2024:

India’s net direct tax collection recorded a significant growth of 19.54 % in FY25 to 5.7 Lakh crore.

Recent Data shows that Individuals are paying more tax than companies

Corporate tax cut

• Corporate tax rates were slashed in September 2019 from 30% to 22% in the hope that it would trigger a private investment boom.
• However, private investment is said to have collapsed from 35% of GDP in 2014 to below 29% in 2024.

Corporate Tax (Corporation tax)

• Direct tax paid by public and private companies registered under Companies Act 1956, on net income or profit.
• Levied on both domestic and international companies.