03 June, 2021 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu

  • DNS Mains Answer Writing
  • Adverse Changes, Federalism Imperilled (Polity & Governance)
  • Caste categories for NREGS Pay (Polity & Governance)
  • Raise Ethanol Blending in Surplus States (Environment)
  • Exports Surge 67% narrowing trade gap (Economy)
  • Question for the Day

Prelims Quiz


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    UPSC Syllabus: GS Paper II- Indian Polity and Governance

    Sub Theme:  Federalism and related issues | UPSC  

    Context: This Article highlights the impact of growing centralisation which in a way is impeding state’s arena of working and overall leading to disputes between centre and states. Thus, let us understand about federal structure as envisaged in the Indian Constitution and also the points highlighted in the Article impacting federal relations between states and central government. 


    Federalism is a system of government in which the power is divided between a central authority and various constituent units of the country. Usually, a federation has two levels of government. One is the government for the entire country that is usually responsible for a few subjects of common national interest. The others are governments at the level of provinces or states that look after much of the day-to-day administering of their state. Both these levels of governments enjoy their power independent of the other.

    Indian Federalism

    • Article 1 of the Constitution mentions that India that is Bharat shall be a Union of States. It means that states do not have power or right to secede away from the Union of India. Also unlike USA, in India, different states have not formed because of an agreement among the states.
    • Article 3 of the Constitution empowers Parliament to create new States. It allows the federation to evolve, grow and respond to regional aspirations.
    • When a new state is formed, Schedule I and Schedule IV of the Constitution shall be amended.
    • Schedule I - contains list of States and Union Territories
    • Schedule IV - provides for allocation of seats in Rajya Sabha. The allocation of seats in Rajya Sabha is made on the basis of the population of each State. 
    • Constitution of India effectively establishes a system where the Union Government functions at the Centre and respective State governments functions at the provinces.
    • The Constitution has demarcated each level of government by devising an elaborate scheme of distribution of legislative, administrative and financial powers between the Centre and the States.
    • In this respect, Article 246 of the Indian Constitution clearly enumerates the Federal character of the Indian Constitution. It empowers
    • Parliament to make law under Union List
    • States to make law under State List and
    • both the Parliament and States to make law under Concurrent List.
    • Independent judiciary is another essential feature of Indian Constitution.
    • B.R. Ambedkar responded to the question as to why India is a “Union” and not a “Federation of States”: “The Drafting Committee wanted to make it clear that though India was to be a federation, the federation was not the result of an agreement by the States to join in a federation and that the federation not being the result of an agreement no State has the right to secede from it. The Federation is a Union because it is indestructible.” 

    Area of Friction Between Centre & States (Increasing Centralisation)


    One Fundamental aspect of our Governance is the fiscal federalism which provides the autonomy of the states to raise revenue and undertake expenditure according to their priorities and needs. Such a form of fiscal federalism has been formulated keeping in mind the diverse needs and aspirations of the states across India and hence considered critical for balanced and holistic development of the entire country. However, in recent years, the fiscal federalism has become skewed towards the Centre in certain aspects and the same has been opposed by a number of states. In this regard, let us understand  some important issues which have arisen in the Centre State Fiscal Relations.

     Higher Share of Cess and surcharge: Cess and surcharge imposed and collected by the Centre do not form part of the Central Divisible pool of taxes. They are not distributable among the States and hence continue to remain with the centre. Over a period of time, the Centre has been imposing a large number of surcharge and Cess to mobilise revenue. A Case in point is the recent introduction of the Agri Infrastructure Cess in the Union Budget 2021-22.

    The share of Cess and Surcharge as a percentage of Gross Tax Revenue(GTR) of the centre has increased sharply from 2.3% in 1980-81 to 15% in 2019-20. The States see this as an illegitimate way of depriving resources that are rightfully due to them.

    GST compensation: States agreed to give up the power to impose indirect taxes and adopt GST on the basis of a guaranteed 14 per cent growth in GST revenues per annum. The Centre committed to pay the states for the shortfall in their GST revenue through the imposition of GST Compensation Cess for a period of 5 years.

    However, on account of CoVID-19 pandemic, there was a GST shortfall of almost around Rs 3 lakh crores. However, money collected under GST compensation Fund was hardly around Rs 65,000 crores. Hence, there was an obligation on the Centre to pay a compensation amount of almost Rs 2.35 lakh crores. Initially, the Centre asked the States to borrow this amount from the market. Later on, due to strong opposition, the Centre decided to borrow on behalf of the states and compensate them. This recent issue over GST compensation has led to erosion of trust in fiscal federalism.

    Centrally Sponsored Schemes (CSS): The Centrally Sponsored schemes are the schemes which are financed by both Centre and States in a defined proportion (70:30 or 60:40 or 50:50 etc), but implemented by the respective State Governments. Some of these schemes include MGNREGA, Ayushman Bharat, National Education Mission etc.

    The Centre lays down elaborate rules and guidelines with respect to implementation of these schemes. It also lays down purposes for which the funds can be utilised for. The State governments claim that such rules and guidelines do not provide them with enough financial and operational autonomy in executing the schemes.

    These Centrally sponsored schemes have also faced political controversy. For instance, some of the States such as West Bengal, Telangana etc. have decided not to implement Ayushman Bharat Scheme. These states claim that their own health insurance schemes are better than the centre's Ayushman Bharat Scheme.

    Borrowing powers of the States: Under Article 293, the States are allowed to raise loans from the Centre or market. However, a State cannot raise a public loan without the consent of the Centre if there is still outstanding any part of a loan. Since all the State Governments have been and continue to be indebted to the Centre, the Centre effectively controls the amount of public debt raised by State Governments. Presently, the fiscal deficit of a State cannot exceed 3% of GSDP.

    Hence, in recent times, particularly in the aftermath of CoVID-19 pandemic, Frictions have risen over the Centre’s attempt to perpetually control borrowings by the States. The recent 50-year interest free loan announced by the Centre for the states is a case in point. Any State which avails this facility will need to take Centre’s permission for all future borrowing at least for the next 50 years.



    Interference in Central Institutions - The second challenge is in the use of executive and legislative aggression. Central institutions are increasingly weakening the policy levers of State institutions. Institutions such as the Income Tax Department, the Enforcement Directorate and the National Investigation Agency are being used to intimidate opponents. Even appointments to head of important institutions such as CBI, NHRC, ED, CIC, Universities etc. are being interfered by the centre.

    Ignoring Elected State Governments - Centre is increasingly ignoring elected representatives of State governments, holding meetings with State secretaries and district collectors on issues that are primarily under State control. Such transgressions, often with the help of Governors, allow the central government to actively control administrative decisions including faculty recruitments to align with a majoritarian agenda. Governors perform active administrative roles instead of their signatory roles.

    Interferences in Health & Education - Importantly, such moves are also meant to ensure national uniformity in educational institutions. One such example is NEET, or the National Eligibility cum Entrance Test in medical education, which subverts the affirmative action policies developed at the regional level in response to local political demands. This is evident in the domain of health as well. Apart from imposing a national lockdown during the first wave of the novel coronavirus pandemic without consulting State governments, the Centre has now put State governments at a disadvantage in vaccine usage by fixing differential pricing for procuring vaccines for them. This forces State governments to pay more even as they are deprived of their revenue shares.


    The third and crucial challenge lies in the social-cultural foundations of federalism. Beside the legal-constitutional aspects of federalism, it is diversity in cultural foundation of regions that sustains Indian federalism. This is also supported by Article 29 and 30 of the Indian Constitution which preserves cultural and educational rights.

    Article 29 - Protection of interests of minorities

    (1) Any section of the citizens residing in the territory of India or any part thereof having a distinct language, script or culture of its own shall have the right to conserve the same.

    (2) No citizen shall be denied admission into any educational institution maintained by the State or receiving aid out of State funds on grounds only of religion, race, caste, language or any of them.

    Article 30 - Right of minorities to establish and administer educational institutions —

    (1) All minorities, whether based on religion or language, shall have the right to establish and administer educational institutions of their choice.


    Constitutional powers including fiscal relations are inherently biased towards the Centre. Vesting of all residuary powers with the Centre and giving over-ruling powers to the Centre on matters in the Concurrent list are the primary sources of this bias. What is seldom recognised is that the degree of federalism in India has depended largely on two variables: the nature of political coalitions at the Centre and role of States in such coalitions (the period 1996 to 2014 for example), and the cultural diversity of regions. Hence, what is needed is a federal coalition that looks beyond the legal-constitutional aspects of federalism to preserve the idea of a plural India in terms of both culture and politics.



    UPSC Syllabus:  Mains – GS II, III – Indian society and Indian Governance

    Sub Theme:  Employment schemes and social development | UPSC     

    Context: The Centre has asked the States to split wage payments under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme into separate categories for the Scheduled Castes, the Scheduled Tribes and others from this financial year. Workers’ rights advocates said this will complicate the payment system, and expressed fears that it may lead to a reduction in scheme funding. Government of India has decided to provide separate budget heads for SC and ST categories under MGNREGS from the financial year 2021-22 for wage payment. The existing system for wages under the scheme is for only one type that is there is no category wise provision of wage payment.

    About MGNREGA

    • The scheme under MGNREGA or the Mahatma Gandhi National Rural Employment Guarantee Act, promises unskilled manual work to every adult for at least 100 days in rural parts of the country. It was introduced in 2005.
    • The objective of the programme is to create employment opportunities in the rural areas and prevent distress migration. It also seeks to create durable assets to improve livelihood resource base of the rural poor.
    • The Act provides that the Central Government could notify wage rates and till such time as the Central Government notified a wage rate, minimum wages for agricultural labour notified by the State would be paid to NREGA workers. The Central Government started notifying wages under MGNREGA from the financial year 2008-09.
    • The MGNREGA Wages were linked to Consumer Price Index- Agricultural Labour (CPI-AL) and notified at the start of every financial year.

    Central Employment Guarantee Council

    The 22ndMeeting of the Central Employment Guarantee Council, constituted under Section 10 of the Mahatma Gandhi National Rural Employment Guarantee Act (Mahatma Gandhi NREGA), 2005 was held on 23.02.2021 under the Chairmanship of Union Minister of Rural Development. The Central Council shall have the power to undertake evaluation of the various Schemes made under this Act and for that purpose collect or cause to be collected statistics pertaining to the rural economy and the implementation of the Schemes.

    Functions and duties of Central Council

    • establish a central evaluation and monitoring system.
    • advise the Central Government on all matters concerning the implementation of this Act.
    • review the monitoring and redressal mechanism from time to time and recommend improvements required;
    • promote the widest possible dissemination of information about the Schemes made under this Act.
    • monitoring the implementation of this Act.
    • preparation of annual reports to be laid before Parliament by the Central Government on the implementation of this Act.
    • any other duty or function as may be assigned to it by the Central Government.

    Duties & Functions of State Employment Guarantee Council

    • advising the State Government on all matters concerning the Scheme and its implementation in the State;
    • determining the preferred works;
    • reviewing the monitoring and redressal mechanisms from time to time and recommending improvements;
    • promoting the widest possible dissemination of information about this Act and the Schemes under it;
    • monitoring the implementation of this Act and the Schemes in the State and coordinating such implementation with the Central Council
    • preparing the annual report to be laid before the State Legislature by the State Government;
    • any other duty or function as may be assigned to it by the Central Council or the State Government.

    The State Council shall have the power to undertake an evaluation of the Schemes operating in the State and for that purpose to collect or cause to be collected statistics pertaining to the rural economy and the implementation of the Schemes and Programmes in the State.



    UPSC Syllabus: Mains – GS Paper III- Indian economy, environment, and ecology

    Sub Theme:  Biofuels and ethanol blending  | UPSC

    Context: The Indian Sugar Mills’ Association (ISMA) has said that to achieve the target of 8-8.5% ethanol blending, it is important to increase the blending level to at least 12% in surplus States and adjoining ones. The current supply is about 7.56% annually. The current demand is about 346.52 crore litres. In this context we will read about the purpose and importance of ethanol blending.

    What is ethanol?

    • Ethanol (also called ethyl alcohol, grain alcohol, drinking alcohol, or simply alcohol) is an organic chemical compound. It is a volatile, flammable, colourless liquid with a slight characteristic odour. It is a psychoactive substance, recreational drug, and the active ingredient in alcoholic drinks.
    • Ethanol is naturally produced by the fermentation of sugars by yeasts or via petrochemical processes such as ethylene hydration. It has medical applications as an antiseptic and disinfectant. It is used as a chemical solvent and in the synthesis of organic compounds. It is a fuel source.

    What is ethanol blending?

    • It means blending of ethanol with other relevant fuels to make them more energy efficient. Ethanol can be mixed with gasoline to form different blends. As the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions and thereby reducing the occurrence of environmental pollution. Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered as renewable fuel.
    • Ethanol Blended Petrol (EBP) programme was launched in January, 2003. The programme sought to promote the use of alternative and environment friendly fuels and to reduce import dependency for energy requirements.

    Purpose and Importance of blending

    1. To provide green and clean alternative fuel source.
    2. To reduce burden of high fuel imports.
    3. To reduce emission of greenhouse gases.
    4. To provide alternative market for crops.
    5. Promote organised sale of reduce crops.
    6. To benefits farmers with income security and high returns.
    7. To promote behavioural change in fuel consumption.
    8. To raise spending on research and development.
    9. Better utilisation of urban solid waste.
    10. Possible employment generation.


    • Categorization: The Policy categorises biofuels as “Basic Biofuels” viz. First Generation (1G) bioethanol & biodiesel and “Advanced Biofuels” – Second Generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, Third Generation (3G) biofuels, bio-CNG etc. to enable extension of appropriate financial and fiscal incentives under each category.
    • Scope of raw materials:The Policy expands the scope of raw material for ethanol production by allowing use of Sugarcane Juice, Sugar containing materials like Sugar Beet, Sweet Sorghum, Starch containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.
    • Protection to farmers: Farmers are at a risk of not getting appropriate price for their produce during the surplus production phase. Taking this into account, the Policy allows use of surplus food grains for production of ethanol for blending with petrol with the approval of National Biofuel Coordination Committee.
    • Viability gap funding:With a thrust on Advanced Biofuels, the Policy indicates a viability gap funding scheme for 2G ethanol Bio refineries of Rs.5000 crore in 6 years in addition to additional tax incentives, higher purchase price as compared to 1G biofuels.
    • Boost to biodiesel production:The Policy encourages setting up of supply chain mechanisms for biodiesel production from non-edible oilseeds, Used Cooking Oil, short gestation crops.



    UPSC Syllabus: Mains – GS Paper III- Indian economy

    Sub Theme:  Export trends and composition  | UPSC

    Context: India exported merchandise worth $32.21 billion in May 2021, 67% higher on a year-on-year basis and almost 8% more than May 2019’s pre-pandemic shipments. The country’s merchandise trade deficit shrank to an eight-month low. Imports grew 68.6% to $38.53 billion, compared with May 2020, but were 17.5% lower than the same month in 2019

    Recently, the Ministry of Commerce and Industry has published the preliminary foreign trade data for the month of May 2021.

    (UPSC does not asks questions related to monthly foreign trade data. But UPSC is likely to ask questions on the foreign trade data for the entire financial year. In this regard, let us have a look at the India’s foreign trade data from the economic survey 2020-21.)

    Details about India’s Foreign Trade

    Merchandise Trade: In the year 2020-21, there was decline in both exports and imports. However, as seen above, the decline in imports was higher than decline in exports. Due to this reason, the trade deficit (Exports-Imports) in 2020-21 was lower in comparison to previous financial years.

    Current Account Balance: The lower trade deficit was accompanied by increase in the export of software services increased from India. On account of these reasons, Current Account was set to register surplus for the first time in the last 17 years.

    Top 3 Export commodities: Petroleum Products, Drug Formulations, Pearls and Precious Stones.

    Top 3 Export Destinations for India: USA, China, UAE.

    Top 3 Import Commodities: Crude Oil, Petroleum products and Gold

    Top 3 Import sources: China, USA, UAE

    India's top trading partners

    India’s merchandise trade balance for major countries for the period of 2020-21 (April-November) as compared to 2019-20 (April-November) shows that India had the most favourable trade balance with USA followed by Bangladesh and Nepal. The highest trade deficit is with China followed by Iraq and Saudi Arabia during April-November, 2020-21 and April-November, 2019-20.