Daily Prelims Notes 4 October 2021
- October 4, 2021
- Posted by: admin1
- Category: DPN
Daily Prelims Notes
4 October 2021
Table Of Contents
- Narcotic Drugs and Psychotropic Substances Act 1985
- Capital Expenditures and Revenue Expenditures
- Tech Repository For Digital Services
- Legal Guarantee of MSP
- Optimum Water in Reservoirs
- Amazon’s Astro ‘robot on wheels’
- Marine heatwaves during winter
- Direct Benefit Transfer (DBT)
- Foreign Portfolio Investment
- Sardine Run
- Eat Right campaign
- Pandora Papers
- Area Frame Establishment Survey (AFES)
- Linking cess with govt borrowing
- Higher the central bank gold reserves lower the sovereign credit risk
- Landslip Warning System
- Brahmaputra Heritage Centre
Subject – Legislations
Context – Sections of NDPS Act invoked against Aryan Khan in drugs bust case.
- Section 8(c) of the Act – The section has wide provisions for producing, manufacturing, possessing, selling, purchasing, transporting, using, consuming, importing, and exporting any narcotic drug or psychotropic substance.
- Section 20 (b) relates to use of cannabis.
- Section 27 relates to consumption of any narcotic drug or psychotropic substance.
- Section 27 which is a charge for consumption has a maximum charge of one year.
- Section 35 which is a presumption of culpable mental state. This means that it is upon the accused to show that he did not have an intention, motive, knowledge to commit the offences he is charged with.
To know about the Act and Narcotics Control Bureau, please click here.
Subject – Economy
Context – Most States increase their capex but fail to rein in revenue expenses.
- With growth being severely impacted by the pandemic and private capital expenditure showing no signs of picking up, the Centre had resolved to increase its capital expenditure substantially for FY22 and had also nudged States to do likewise.
- It has also been incentivising States to increasing their capex spending through enhanced ceilings for borrowings and interest-free loans.
- Capital expenditure, by its nature, has a high multiplier effect with an ability to crowd-in private investments which in turn enhances the production capacity leading to higher economic growth and employment generation.
- It is for this reason that the Centre has been constantly nudging States to boost their capital spending, especially to regain growth in the aftermath of the global pandemic.
- Moreover, the States’ capital expenditure has higher growth multiplier potential than the Centre as it is related closer to the local community.
- In April 2021, the Centre announced that it will provide an additional amount of up to ₹15,000 crore to States as interest free 50-year loan for spending on capital projects including ₹5,000 crore if States undertake asset monetisation and disinvestment of their public sector enterprises.
- The scheme was in continuation to last year’s 50-year ₹12,000-crore interest-free capex loan provided to States to be spent on new or ongoing capital projects under the ‘AtmaNirbhar Bharat package’.
- Speaking at a webinar recently, India’s Chief Economic Advisor, KV Subramanian criticised the State governments for spending taxpayers’ money on revenue expenditure in the form of freebies and populist schemes.
- He asked the them to instead focus on ushering supply side reforms and increase capital expenditure to attract private investment and spur growth.
- Citing a study by the National Institute of Public Finance and Policy (NIPFP), Subramanian highlighted that for every rupee invested in revenue expenditure, the multiplier for the economy is between 92-98 paise while in case of capital expenditure, for every rupee put in, the addition to the economy is ₹2.25 rupees within the same year and ₹4.80 over the course of the entire capital expenditure.
Capex in social sector
- Both revenue and capital expenditures of States are classified under general, social and economic sectors. Not surprisingly, a bulk of the State’s capex spending went into the social sector which includes spending on building healthcare infrastructure and education. Many States have ramped up hospitals and emergency facilities to manage the Covid crisis.
- The economic sector expenses cover infrastructure spending on roads, railways, ports and other growth-fuelling economic activities while the general sector captures all other expenses.
- Revenue expenditures are the expenditures incurred for the basis other than the creation of physical or financial assets of the central government.
- These are associated with the expenses incurred for the normal operations of the government divisions and various services, interest payments on debt sustained by the government, and grants given to state governments and other parties (even though some of the endowments might be meant for the creation of assets).
Subject – Science and Tech
Context – MeitY plans tech repository for digital services using open source software.
- Ministry of Electronics and Information Technology’s (MeitY) is looking to find customer relationship management (CRM) and enterprise resource planning (ERP) solutions based on Free and open-source software (FOSS) that it could deploy on its own platforms and use it in the future to develop other citizen-facing interfaces similar to an Aarogya Setu app or a COWIN platform.
- The goal is to create an open-source software repository that could be accessed and used across departments, States and countries. At present, the government is working on using FOSS to find solutions in agritech, healthcare, governance and education segments.
- Towards this, MeitY had announced #FOSS4Gov Innovation Challenge for which it has received 1,400 registrations across the country including tier-II and tier-III cities.
- The winning teams will not only work with the government on its various population-scale platforms but also get cash prizes of up to ₹90 lakh to develop their solution.
- Three winners will be selected in CRM and ERP categories separately. The first prize will be ₹20 lakh, the second prize of ₹15 lakh and the third prize will be ₹10 lakh.
- MeitY is partnering with investment firm Omidyar Network India (ONI) to mentor the shortlisted teams for the programme. ONI will also be separately awarding a special prize to the team developing and integrating citizen-centric safeguard in their apps which will protect citizen’s data.
Free and open-source software (FOSS)
- Free and open-source software (FOSS) is software that is both free software and open-source software where anyone is freely licensed to use, copy, study, and change the software in any way, and the source code is openly shared so that people are encouraged to voluntarily improve the design of the software.
- This is in contrast to proprietary software, where the software is under restrictive copyright licensing and the source code is usually hidden from the users.
- While the government is known to work with legacy IT majors to build its various platforms deploying their proprietary software, the trend is slowly shifting.
- Since 2016, the government is using FOSS to develop several digital services including DigiLocker, AarogyaSetu, UPI, Aadhaar to name a few.
- In FOSS, there’s always a community of developers who are willing to engage with you and help you. The overall cost of ownership is also lower for the government. And when it is available for replication, others don’t have to build the solution from scratch.
- In addition to cost and vendor lock-in issues, FOSS enable greater accountability and transparency. Apps like AarogyaSetu and COWIN were built on FOSS, and when the code was shared with the broader community, a number of people came back reporting bugs and other issues, which the government incorporated. It increases engagement with the community.
Subject – Agriculture
Context – central govt can get around MSP demand and end stalemate with farmers
- The major point of contention between farmer leaders and the government’s emissaries seems to be the issue of assurance of MSP for all 23 crops — including seven kinds of cereal, seven oilseeds, five pulses, and four other commercial crops. Sources said that the farmers have told the government that the Commission for Agricultural Costs and Prices (CACP) releases MSP for all Kharif and Rabi crops every year.
- The government should hence assure the implementation of the same legally in practical form also.
- Most of these 23 crops are purchased by private players and there is high fluctuation in the prices. Sometimes these crops are sold much below the MSP and sometimes they fetch a little more than the MSP.
- The farmers, therefore, want a legal guarantee that crops can be sold only at MSP or above it.
- But the government is not ready to give legal guarantees at the moment, except reiterated verbally several times that it will continue its current MSP regime, which mostly covers wheat and Paddy in Punjab, Haryana, MP and parts of UP.
- The farmers, however, have refused to budge.
- Some states, in the meanwhile, have already stepped in and have started compensating farmers for crops that they sell below the MSP rates under their own state-level policies.
Can state-level policies assure that the farmers get MSP for their crops?
- In the past years, some states like Madhya Pradesh (MP), Haryana, Kerala have launched schemes like BhavantarBhugtan Yojna (price difference payment scheme), floor prices, and BhavantarBharpayi Yojna, respectively, under which the state governments pay the difference to the farmers when the sell their crop below MSP in the market.
- While the MP government has covered some cereals, pulses, oilseed and horticulture crops under its scheme, Haryana and Kerala have covered only horticulture crops. Haryana has recently added millet to its scheme.
- Under these schemes, the state price or floor price are fixed by the state governments and if the covered crops are sold below that price then the state government pays the difference to the registered farmers on their respective portals.
- But experts said that state governments cannot sustain such schemes for long and also they cannot cover all the crops. Madhya Pradesh, Haryana and Kerala have not been able to cover most of the agriculture crops under it. Experts also said that there are mixed results of these schemes everywhere.
Solution – Experts have suggested some solutions:
- Along with the current MSP regime, corporations, like Cotton Corporation of India (CCI), should be formed by the centre government for cereals, some of which are not covered under centres’ current MSP regime.
- CCI enters the market when the price of ‘Kapas’ (unginned raw cotton) goes below the MSP fixed by CACP. The CCI then purchases Kapas at MSP, as witnessed several times in the past in Punjab.
- This in turn forces the private players also to offer prices at par with the MSP or little more than the MSP so as to stop the CCI from purchasing all the cotton from the market.
- In the case of Basmati last year, for example, rates were at an all-time high in the international market but farmers got much less because of their dependence on the private players. That is where a corporation like CCI could step in and play the role of a deterrent to stop farmers from being exploited.
- Just like wheat and paddy MSP, which the government purchases through Food Corporation of India (FCI) by taking cash credit limit (CCL) from RBI, such corporations too can follow the same policy because there is a huge market of oilseeds and pulses in our country and this way both the government and farmers will not be at loss.
- Some farmer leaders suggested that even a state-Centre joint “Bhavantar scheme” can be launched to compensate farmers in case their crop price goes below the fixed rate or government can regulate purchase by private players through some policy to stop farmers’ loot.
Subject – Geography
Context – After one of the driest Augusts ever, a rainy September has left the country’s 130 major reservoirs with more water than what is normal at this time.
- Bountiful rain in September has ensured that the water levels in India’s main reservoirs are back to their optimum levels. As on September 30, the 130 major reservoirs of the country together had water more than what is considered normal at this time of the year.
- Water from these reservoirs is crucial for the needs of irrigation, drinking water and hydro-electricity through the winter months, when most of the country receives very little rainfall.
- Incidentally, the wide fluctuations in the rainfall during this monsoon season had only marginal impact on the reservoir levels.
- According to the latest figures released by the Central Water Commission (CWC), the 130 major reservoirs are currently holding about 138 billion cubic metres of water, which is about 80% of their combined capacity. At this time of the year, these reservoirs are expected to hold about 132 billion cubic metres.
Regional variations –
- The water levels in the reservoirs vary from region to region.
- The reservoirs in the northern and eastern states are at lower than normal, while those in southern and western states have stored higher than normal.
- The central region, which includes Uttar Pradesh, Uttarakhand, Madhya Pradesh and Chhattisgarh, are showing normal levels in their reservoirs.
- The biggest deficiency is being seen in Punjab, where the Thein dam, the only one from the state in the list of 130, is, as of now, storing 40% less than normal.
Subject – Science and Tech
Context – Amazon’s Astro ‘robot on wheels’ has rankled privacy crusaders
- Amazon last week announced many new products including a “home robot” named Astro. The robot has cartoony-eyes on a tablet-like touchscreen and comes equipped with a periscope camera and microphone, and can autonomously navigate your house to keep a tab on security or follow you around while you’re on a video call.
- Astro is the most ambitious product Amazon has made after its Echo smart speaker that helped the company create an ecosystem of household products.
- Amazon is calling the device an engineering breakthrough, but the e-commerce giant’s big bet on turning science-fiction into reality has invited privacy concerns, raising alarm bells over putting a 24×7 surveillance robot at home.
What is Astro?
- Astro weighs about 20 pounds and is two feet tall, essentially a robot dog on wheels. Astro also happens to be the name of the non-robotic dog in The Jetsons.
- The robot is designed to move around the home and keep a check on pets, and detect something unusual in the absence of the owner.
- It comes with a “periscope” camera that pops up from its head and can be used to keep an eye on your home.
- Astro is basically a combination of the Echo Show and sophisticated Ring security camera integrated into one single device.
- The device captures live videos, recognises faces, plays music or videos, and delivers a beer across the home.
- It’s an innovative product that takes advantage of Amazon’s expertise in artificial intelligence and uses cameras and sensors to see and follow you around the home.
Astro is a surveillance machine
- What’s worrying many is the amount of data Amazon gets to fetch with the Astro, giving the company easy access to the household, going one step beyond Alexa which has its ears open all the time.
- Having a security camera stationed at one corner of a room is less problematic than one on wheels. And, this is a robot that can recognise the faces of people and analyse them until it figures out if it’s a family member or an outsider.
- Astro stores face data locally rather than in the cloud, but it is still a
- privacy concern as with any internet-connected device.
Subject – Environment
Context – Marine heatwaves during winter could have dire impacts on New Zealand fisheries and herald more summer storms.
- The ocean around New Zealand is getting warmer, and extreme warming events have become more frequent over the past years.
- These marine heatwaves can have devastating impacts on ocean ecosystems. When they happen in summer, they usually receive a lot of attention. But those happening during winter, when the ocean is cooler, are often ignored.
- Yet, these winter events can affect the spawning and recruitment of fish and other sea animals, and in turn have significant impacts on aquaculture and fisheries.
- Marine heatwaves are defined as periods of five days or more of ocean temperatures in the top 10% of local average values for the time of year.
- During winter 2021, surface waters were on average 0.3℃ (±0.75) warmer than usual, with peaks occasionally reaching +4.2℃.
Changes across the southwest Pacific affect New Zealand
- We know ocean temperatures are warming faster during winter than summer around New Zealand and across the wider subtropical southwest Pacific Ocean. The warming has become particularly evident since 2010 and has manifested in the emergence of the “Southern Blob”.
- This ocean hotspot is centred northeast of New Zealand and has been linked to drought in both South America and New Zealand.
- The current rate of warming in the Southern Blob exceeds natural variability, implying a contribution from human-induced climate change. Along with changes in the regional atmosphere, this large-scale process increases the likelihood of winter marine heatwaves around New Zealand.
- Our research shows the deepest and longest-lasting marine heatwaves in the Tasman Sea are typically driven by ocean currents — in contrast to shallower summer marine heatwaves, which are driven by the atmosphere.
- The warmer-than-normal winter ocean temperatures in the Tasman and coastal seas around New Zealand send warning signals about what the summer may bring. On top of impacts on coastal ecosystems, marine heatwaves also affect extreme weather and make floods and tropical storms over New Zealand more likely during the coming summer.
- The Moana Project is a 5-year $11.5 million MBIE Endeavour ocean research initiative.
- It aims to improve understanding of coastal ocean circulation, connectivity and marine heatwaves to provide information that supports New Zealand’s seafood industry.
- The project includes outstanding research organisations in New Zealand and overseas, and partners with Whakatōhea iwi to support their rohemoana interests in the Bay of Plenty.
Subject – Economy
Context – DBT beneficiaries’ number hits record 71 cr so far in FY22
- The number of beneficiaries receiving food grains under the Public Distribution System (PDS) through Direct Benefit Transfer (DBT) has reached a record high of around 71 crore so far in the current fiscal, according to data available at the DBT portal.
- Under the Targeted Public Distribution System (TPDS), the government allocates food grains (wheat and rice) as per the National Food Security Act, 2013, in case of households covered under the Antyodaya Anna Yojana.
- Food grains are provided at uniform subsidised prices of ₹3/2/1 per kg for rice/wheat/coarse grains, respectively. Since the Covid pandemic broke, additional food grains (5 kg/person) are being provided free of cost.
- The government has identified about 81.3 crore beneficiaries (62.5 crore rural and 18.8 crore urban) under the National Food Security Programme (NFPS).
- Among these beneficiaries, about 70 crore are classified as members of priority households who are entitled to 5 kg food grains per person per month.
- There is also an option of receiving subsidy amount in cash in lieu of food grains.
- The pandemic has not only resulted in a fall in income for urban and rural households but has also resulted in an increase in healthcare expenditure for them.
- DBT scheme has been introduced to overcome the deficiencies of the PDS for those who were not getting benefits because they had to pass through the various intermediaries who caused leakages and delays. In recent years it has recorded very high transfers to the marginalised section which has led to a reduction of poverty and availability of cash during pandemic.
- Low accessibility to banking service and low level of awareness of the scheme are major hindrances.
- As on date, a total of 311 schemes under 54 Ministries are covered under this scheme.
- Of these, seven scheme groups — Subsidy for LPG Cylinder (PAHAL), Mahatma Gandhi National Rural Guarantee Scheme (MGNREGS), National Social Assistance Programme (NSAP), Scholarship Scheme, Pradhan Mantri Awas Yojana – Gramin (PMAYG), Public Distribution System (PDS) and Fertiliers — are the important ones.
- The remaining are clubbed under ‘Others’.
- These include schemes such as Livestock Health and Diseases Control, Swachh Bharat Mission Gramin, Atal Pension Yojana, Varishtha Pension BimaYojana, Pradhan MantriVayaVandanaYojana, DeenDayalUpadhyayGrameenKaushalya Yojna, Khelo India, Project Tiger, and Project Elephant.
Subject – Economy
Context – Record Sept: FPI buys in India top ₹27,756 cr
- September marked the comeback of the foreign portfolio investors (FPIs). Data show that last month, FPIs made the largest purchase of stocks and debt instruments in 2021 so far at ₹27,756 crore.
To know about FPIs, please click here.
Subject – Environment
Context – South Africa’s massive ‘sardine run’ leads fish into an ecological trap
- One of the world’s most spectacular marine migrations is the KwaZulu-Natal sardine run. The so-called “greatest shoal on Earth” takes place during the southern hemisphere’s winter.
- It involves the movement of tens to hundreds of millions of sardines from the warm-temperate waters of South Africa’s south coast to the subtropical waters of the east coast, over a thousand kilometres away.
- This annual mass migration, first reported in 1853, is triggered by cold water upwelling on South Africa’s south-east coast. In this process, cold, nutrient-rich water rises up from the deep, creating a highly productive food web.
- The migration attracts vast numbers of predators: the sardine schools are followed northwards by seabirds, sharks, seals, dolphins and even large baleen whales. These devour as many of the helpless sardines as they can, which is made easier by the fact that their prey is sandwiched between dry land and the hot, tropical waters of the southward-flowing Agulhas Current, which exceed the sardines’ physiological tolerances.
- The journey is so strenuous that the sardines which eventually arrive on the east coast are emaciated. This goes against what scientists understand about animal migrations – such large-scale population movements normally provide some “selective advantage” by allowing animals to make optimal use of environmental resources.
- One popular explanation for why the sardine run occurs is that the migration might be a relic of spawning behaviour dating back to the last glacial period, about 10,000 years ago. What is now subtropical Indian Ocean habitat may have been an important nursery area with cooler waters.
- When the ice age ended, the sardines would have physiologically adapted to tolerate the subtropical conditions in this region, and evolved into a distinct east coast population that continues to spawn there to this day.
- These sardines mix with south coast sardines during summer, then separate from them in winter as they migrate up the east coast. The presence of sardine eggs in the plankton confirms that spawning does occur in this region.
Subject – Governance
Context – Raj Kumar Rao Urges People to Practice ‘Aaj Se ThodaKam’ for Good Health
- Actor Rajkumar Rao has teamed up with FSSAI, the Food Safety and Standards Authority of India as its brand ambassador for a campaign, ‘Eat Right Movement’ in partnership with the Health ministry.
- The tagline of this movement is ‘Aaj Se ThodaKam’ which urges people to decrease the quantity of salt, sugar and fats in their diet.
About Eat Right campaign –
- The Food Safety and Standards Authority of India (FSSAI) has initiated this campaign, wherein the key stakeholders like food processing industries and restaurants will volunteer to reduce the percentage of salt, sugar and fat content in food.
- This campaign has kick-started at a crucial time when India is becoming the diabetes capital of the world, cases of anaemia and micronutrient deficiencies are on the rise, and non-communicable diseases (NCDs) accounting for 1 in 5 disease-related deaths.
- As a part of the campaign, edible oil industries took a pledge to reduce trans-fat content by 2 per cent by 2022. Later, food companies also took a pledge to reformulate packaged foods with reduced level of salt, sugar and saturated fat.
- This Eat Right Movement is a collaborative move with stakeholders—on both the demand and supply side—coming together.
- On the demand side, the campaign focuses on empowering citizens to make right food choices.
- On the supply side, it nudges food businesses to reformulate their products, provide better nutritional information to consumers and make investments in healthy food as responsible food businesses.
- This is a voluntary movement from both the sides.
- Apart from this, a tool kit also has been introduced to address the issue at grassroots level. Both theory- and activity-based manuals have been developed to train the ASHA and Anganwadi workers in the villages.
- On the consumer front, FSSAI has come up with a separate portal where they can post queries and experts from the Nutrition Society of India(NSI), Indian Dietetic Association (IDA), Association of Food Scientists and Technologists (India), Indian Medical Association (IMA), Indian Federation of Culinary Associations (IFCA) and individual experts will guide them.
- An AI-powered Chatbot for citizens to answer all questions related to food is also available. The experts have contributed health tips, balanced diets and easy recipes, which are available on the website.
Subject – IR
Context – “Most Expansive Expose Of Financial Secrecy” To Be Published Today
- Pandora Papersare 11.9 million leaked files from 14 global corporate services firms which set up about 29,000 off-the-shelf companies and private trusts in not just obscure tax jurisdictions but also countries such as Singapore, New Zealand, and the United States, for clients across the world.
- These documents relate to the ultimate ownership of assets ‘settled’ (or placed) in private offshore trusts and the investments including cash, shareholding, and real estate properties, held by the offshore entities.
- There are at least 380 persons of Indian nationality in the Pandora Papers.
- The Pandora Papers reveal how the rich, the famous and the notorious, many of whom were already on the radar of investigative agencies, set up complex multi-layered trust structures for estate planning, in jurisdictions which are loosely regulated for tax purposes, but characterised by air-tight secrecy laws.
- A scrutiny of the papers also shows how the objective of many is two-fold:
- i) to hide their real identities and distance themselves from the offshore entities so that it becomes near impossible for the tax authorities to reach them and,
- ii) to safeguard investments — cash, shareholdings, real estate, art, aircraft, and yachts — from creditors and law enforcers.
How is Pandora different from the Panama Papers and Paradise Papers?
- The Panama and Paradise Papers dealt largely with offshore entities set up by individuals and corporates respectively. The Pandora Papers investigation shows how businesses have created a new normal after countries have been forced to tighten the screws on such offshore entities with rising concerns of money laundering, terrorism funding, and tax evasion.
- The Pandora Papers pierce the corporate veil and reveal how trusts are prolifically used as a vehicle in conjunction with offshore companies set up for the sole purpose of holding investments and other assets by business families and ultra-rich individuals.
- The trusts can be set up in known tax havens such Samoa, Belize, Panama, and the British Virgin Islands, or in Singapore or New Zealand which offer relative tax advantages, or even South Dakota in the US, the biggest economy.
What is a trust?
- A trust can be described as a fiduciary arrangement where a third party, referred to as the trustee, holds assets on behalf of individuals or organisations that are to benefit from it.
- It is generally used for estate planning purposes and succession planning. It helps large business families to consolidate their assets — financial investments, shareholding, and real estate property.
- A trust comprises three key parties: ‘Settlor’ — one who sets up, creates, or authors a trust; ‘trustee’ — one who holds the assets for the benefit of a set of people named by the ‘settlor’; and ‘beneficiaries’ — to whom the benefits of the assets are bequeathed.
- A trust is not a separate legal entity, but its legal nature comes from the ‘trustee’. At times, the ‘settlor’ appoints a ‘protector’, who has the powers to supervise the trustee, and even remove the trustee and appoint a new one.
Is setting up a trust in India, or one offshore/ outside the country, illegal?
- The Indian Trusts Act, 1882, gives legal basis to the concept of trusts. While Indian laws do not see trusts as a legal person/ entity, they do recognise the trust as an obligation of the trustee to manage and use the assets settled in the trust for the benefit of ‘beneficiaries’. India also recognises offshore trusts i.e., trusts set up in other tax jurisdictions.
If it’s legal, what’s the investigation about?
- Trusts are also used by some as secret vehicles to park ill-gotten money, hide incomes to evade taxes, protect wealth from law enforcers, insulate it from creditors to whom huge moneys are due, and at times to use it for criminal activities.
Why are trusts set up?
- Overseas trusts offer remarkable secrecy because of stringent privacy laws in the jurisdiction they operate in.
- From the investigation, some key tacit reasons why people set up trusts are:
- Maintain a degree of separation: Businesspersons set up private offshore trusts to project a degree of separation from their personal assets. A ‘settlor’ (one who sets up/ creates/ authors) of a trust no longer owns the assets he places or ‘settles’ in the trust. This way, he insulates these assets from creditors.
- Hunt for enhanced secrecy: Offshore trusts offer enhanced secrecy to businesspersons, given their complex structures. The Income-Tax Department in India can get to the ultimate beneficial owners only by requesting information with the financial investigation agency or international tax authority in offshore jurisdictions. The exchange of information can take months.
- Avoid tax in the guise of planning: Businesspersons avoid their NRI children being taxed on income from their assets by transferring all the assets to a trust. The ownership of the assets rests with the trust, and the son/ daughter being only a ‘beneficiary’ is not liable to any tax on income from the trust.
- Prepare for estate duty eventuality: There is pervasive fear that estate duty, which was abolished back in 1985 when Rajiv Gandhi was Prime Minister, will likely be re-introduced soon. Setting up trusts in advance, business families have been advised, will protect the next generation from paying the death/ inheritance tax, which was as high as 85 per cent in the more than three decades after its enactment (The Estate Duty Act, 1953). Although India does not have a wealth tax now, most developed countries including the US, UK, France, Canada, and Japan have such an inheritance tax.
- Flexibility in a capital-controlled economy: India is a capital-controlled economy. Individuals can invest only $250,000 a year under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). To get over this, businesspersons have turned NRIs, and under FEMA, NRIs can remit $1 million a year in addition to their current annual income, outside India. Further, the tax rates in overseas jurisdictions are much lower than the 30% personal I-T rate in India plus surcharges, including those on the super-rich (those with annual income over Rs 1 crore).
- The NRI angle: Offshore trusts, as noted earlier, are recognised under Indian laws, but legally, it is the trustees — not the ‘settlor’ or the ‘beneficiaries’ — who are the owners of the properties and income of the trust. An NRI trustee or offshore trustee taking instructions from another overseas ‘protector’ ensures they are taxed in India only on their total income from India.
Can offshore Trusts be seen as resident Indian for tax purposes?
- After The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, came into existence, resident Indians — if they are ‘settlors’, ‘trustees’, or ‘beneficiaries’ — have to report their foreign financial interests and assets.
- NRIs are not required to do so — even though, as mentioned above, the I-T Department has been sending notices to NRIs in certain cases.
- The I-T Department may consider an offshore trust to be a resident of India for taxation purposes if the trustee is an Indian resident. In cases where the trustee is an offshore entity or an NRI, if the tax department establishes the trustee is taking instructions from a resident Indian, then too the trust may be considered a resident of India for taxation purposes.
- The Companies Act, 2013 has not defined what a ‘shell company’ is and as to what kind of activities would lead to a company being termed a ‘shell’.
- Shell companies are typically corporate entities which do not have any active business operations or significant assets in their possession.
- The government views them with suspicion as some of them could be used for money laundering, tax evasion and other illegal activities.
- In India, there is no specific law relating to “shell companies.”
- However, some laws help, to an extent, in curbing illegal activities such as money laundering and can indirectly be used to target shell companies — Benami Transaction (Prohibition) Amendment Act 2016; The Prevention of Money Laundering Act 2002 and The Companies Act, 2013.
Round Tripping –
To know about Round tripping, please click here.
Tax Havens –
- A tax haven is generally an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment.
- Tax havens also share limited or no financial information with foreign tax authorities.
- Tax havens do not typically require residency or business presence for individuals and businesses to benefit from their tax policies.
Tax Avoidance and Tax Evasion
Subject – Economy
Context – Field work for survey on jobs in informal sector launched
- The government flagged off the field work for the Area Frame Establishment Survey (AFES), a survey aimed at capturing employment in the informal sector and establishments having less than 10 workers.
- It comes after the Labour Ministry had last week unveiled results of the revamped Quarterly Employment Survey (QES) for April-June, which captured the employment situation for organised sector and establishments having more than 10 workers.
- The survey will be carried out by the Labour Bureau alongside the QES and the results are expected to be collated in an annual report.
- As per the QES, organised sector employment in nine key sectors — construction, manufacturing, IT/BPO, trade, transport, education, health, accommodation & restaurant and financial services — increased to 3.08 crore this April-June from 2.37 crore in 2013-14, the base year chosen based on the sixth economic census; translating into a growth of 29 per cent from 2013-14 or roughly an annual growth of 4 per cent per annum.
- Over 2.5 crore unorganised workers have registered on the e-SHRAM portal, which is the national database on unorganised workers including migrant workers, construction workers, gig and platform workers.
To know about the e-Shram portal, please click here.
Subject – Economy
Context – The GST Council’s inaction on petro products and cess continuing till 2026 are likely to make life difficult for consumers
- Currently all taxes levied by both the Centre and States form two-thirds of the final price paid by the consumer.
- The GST Council’s decision to retain compensation cess up to 2026 is also likely to disappoint consumers.
- The Centre levies a fixed excise duty while States impose a VAT on petro products.
- VAT is advalorem tax.
To know about Cess and Surcharge, please click here.
To know about the history of cess in India, please click here.
Subject – Economy
Context – Higher the central bank gold reserves, lower the sovereign credit risk: IIM-A centre’s study
- Gold reserves of Central Banks can reduce the sovereign credit risk of countries, according to a study by the India Gold Policy Centre (IGPC) at the Indian Institute of Management – Ahmedabad (IIM-A).
- The study reveals that while growth-oriented macro-economic policies can reduce sovereign risks, gold holdings of a country’s Central Bank have a strong impact during turmoil in global financial markets.
- In 2020, Moody’s downgraded India’s sovereign rating to Baa3, highlighting its weak fiscal position as the primary cause of credit restriction.
- The findings of this cross-country study suggest that higher Central Bank gold reserves can help in stemming a deterioration and provide support to the credit ratings of countries such as India.
- The researchers considered five-year sovereign credit default swap (CDS) spreads for 48 advanced and emerging countries over a 20-year period, from 2000 to 2020, for measuring the economy’s default risk.
- The researchers noted that the likelihood of a credit rating downgrade decreases with larger gold holdings of Central Banks by reducing future uncertainty and reassuring confidence in investors and policy makers.
- It investigates the variation in the negative relationship between Central Bank gold reserves and sovereign CDS spreads, specifically, during periods of high volatility in global financial markets and country-specific crisis. This variation is found to be even stronger during periods of high global volatility, as well as country specific debt and inflation crisis. There has been a general increase in the RBI’s stock of gold reserves since 2018.
- Central Bank gold reserves have been known to aid in diversification of overall international reserves and may boost returns during extremely low or negative international interest rates.
- Central Bank gold reserves can also have a positive impact on sovereign creditworthiness, particularly during times of financial market volatility and crisis episodes.
Subject – Disaster Management
Context – NGRI proposes landslip warning system
- The Council Of Scientific And Industrial Research -National Geophysical Research Institute (CSIR-NGRI) has launched an ‘Environmental Seismology’ group to develop a ‘Landslide and Flood Early Warning System’ for the Himalayan region based on real-time monitoring with dense seismological networks, coupled with satellite data, numerical modelling and geomorphic analysis.
- This would enable a crucial warning several hours prior, which will save human lives and property.
- The need for such an early warning system was necessitated following February’s rockslide flood disaster in Chamoli (Uttarakhand), where a steep glacier on the Nandadevi peak in Garhwal Himalaya got detached, causing a major avalanche and inducing flash floods in the Rishi Ganga and Alaknanda rivers. It killed several persons downstream and caused severe damage to two power plants.
- Scientists at the NGRI in collaboration with German scientists at GFZ, Potsdam, used Spectrogram analysis techniques to identify and separate out various phases, including that of the rockslides, debris flow and flooding of the event.
- The broadband seismic network enabled a complete spatiotemporal tracking of the entire disaster sequence using polarisation and back-tracing approaches.
Subject – IR
Context – Nord Stream 2 (NS2) running from Russia to Germany across the Baltic Sea has been complete.
- The NS2 pipeline runs along the already completed Nord Stream 1 system, and the two together will supply an aggregate of 110 billion cubic metres of gas to Germany per year.
- NS2’s manufacture began in 2016 and construction in 2018.
- The 1,224 km, $11-billion underwater link is the shortest, most economical and environment-friendly route to double Russia’s gas export to Germany.
- The pipeline falls in German and Danish territory.
- This would take the Russian gas to Europe via Germany, under the Baltic Sea.
- The pipeline offers stability to the strategically important energy trade because Russia’s dependence on the European Union and vice-versa are increased and this should promote realism.
Subject – Art and Culture
Context – British-era bungalow is home to Brahmaputra heritage centre
- A British-era bungalow on a hillock that used to be the 17th century military office of the Ahom rulers has been converted into a heritage centre depicting life along the Brahmaputra.
- Vice-President M. Venkaiah Naidu on Sunday inaugurated the Mahabahu Brahmaputra River Heritage Centre on Guwahati’s BarphukanarTila, meaning Barphukan’s Hillock. A Scottishtype wooden bungalow standing since 1850 was renovated and converted into the heritage centre.
- Barpukhan was a post equivalent to Governor General created by Ahom king PratapSimha or Susengpha (1603¬1641). The hillock by the Brahmaputra, mentioned in ancient scriptures as Mandrachal, was from where Ahom General LachitBarpukhan launched the Battle of Saraighat in March 1671 to inflict the most crushing defeat on the Mughals.
- Saraighat is regarded as the “greatest naval battle ever fought in a river.
- Captain Archibald Bogle, posted as the Assistant Commissioner and Collector of Kamrup district in the 1850s, had the bungalow built. Post-Independence, it continued to be the Deputy Commissioner’s Bungalow until 2011.
To know about the Brahmaputra river, please click here.