14 September, 2021 - Daily Current Affairs Analysis & MCQs - The Daily News Simplified from The Hindu

  • In Manipur, a case for asymmetric federalism Page 07
  • Cong. questions CONCOR divestment Page 10
  • Inflation dips marginally to 5.3% in August Page 01
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    UPSC Current Affairs: In Manipur, a case for asymmetric federalism | Page 07 

    UPSC Syllabus: Mains – GS Paper II – Polity and Governance 

    Sub Theme: Asymmetric Federalism |Manipur | UPSC 

    What is federalism? 

    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. 

    In this sense, federations are contrasted with unitary governments. Under the unitary system, either there is only one level of government or the sub-units are subordinate to the central government. The central government can pass on orders to the provincial or the local government. But in a federal system, the central government cannot order the state government to do something. State government has powers of its own for which it is not answerable to the central government. Both these governments are separately answerable to the people. 

    Some key features of federalism: 

    1. There are two or more levels (or tiers) of government. 

    2. Different tiers of government govern the same citizens, but each tier has its own JURISDICTION in specific matters of legislation, taxation and administration. 

    3. The jurisdictions of the respective levels or tiers of government are specified in the constitution. So the existence and authority of each tier of government is constitutionally guaranteed. 

    4. The fundamental provisions of the constitution cannot be unilaterally changed by one level of government. Such changes require the consent of both the levels of government. 

    5. Courts have the power to interpret the constitution and the powers of different levels of government. The highest court acts as an umpire if disputes arise between different levels of government in the exercise of their respective powers. 

    6. Sources of revenue for each level of government are clearly specified to ensure its financial autonomy. 

    7. The federal system thus has dual objectives: to safeguard and promote unity of the country, while at the same time accommodate regional diversity. Therefore, two aspects are crucial for the institutions and practice  of federalism. Governments at different levels should agree to some rules of power sharing. They should also trust that each would abide by its part of the agreement. An ideal federal system has both aspects : mutual trust and agreement to live together. 

    There are two kinds of routes through which federations have been formed. The first route involves independent States coming together on their own to form a bigger unit, so that by pooling sovereignity and retaining identity they can increase their security. This type of ‘coming together’ federations include the USA,  Switzerland and Australia. In this first category of federations, all the constituent States usually have equal  power and are strong vis-à-vis the federal government. The second route is where a large country decides to  divide its power between the constituent States and the national government. India, Spain and Belgium are  examples of this kind of ‘holding together’ federations. In this second category, the central government tends  to be more powerful vis-à-vis the States. Very often different constituent units of the federation have unequal powers. Some units are granted special powers.

    What makes India a federal country? 

    We have earlier seen how small countries like Belgium and Sri Lanka face so many problems of  managing diversity. What about a vast country like India, with so many languages, religions and  regions? What are the power sharing arrangements in our country? Let us begin with the Constitution.  India had emerged as an independent nation after a painful and bloody partition. Soon after  Independence, several princely states became a part of the country. The Constitution declared India  as a Union of States. Although it did not use the word federation, the Indian Union is based on the  principles of federalism. Let us go back to the seven features of federalism mentioned above. We can  see that all these features apply to the provisions of the Indian Constitution. The Constitution  originally provided for a two-tier system of government, the Union Government or what we call the Central Government, representing the Union of India and the State governments. Later, a third tier of  federalism was added in the form of Panchayats and Municipalities. As in any federation, these  different tiers enjoy separate jurisdiction. The Constitution clearly provided a threefold distribution  of legislative powers between the Union Government and the State Governments. Thus, it contains three lists: 

    Union List includes subjects of national importance such as defence of the country, foreign affairs,  banking,communications and currency. They are included in this list because we need a uniform  policy on these matters throughout the country. The Union Government alone can make laws relating  to the subjects mentioned in the Union List. 

    State List contains subjects of State and local importance such as police, trade, commerce,  agriculture and irrigation. The State Governments alone can make laws relating to the subjects mentioned in the State List. 

    Concurrent List includes subjects of common interest to both the Union Government as well as the  State Governments, such as education, forest, trade unions, marriage, adoption and succession. Both  the Union as well as the State Governments can make laws on the subjects mentioned in this li st. If  their laws conflictwith each other, the law made by the Union Government will prevail. What about  subjects that do not fall in any of the three lists? Or subjects like computer software that came up after  the constitution was made? According to our constitution, the Union Government has the power to legislate on these ‘residuary’ subjects. We noted above that most federations that are formed by  ‘holding together’ do not give equal power to its constituent units. Thus, all States in the Indian Union  do not have identical powers. Some States enjoy a special status. Jammu and Kashmir has its own  Constitution. Many provisions of the Indian Constitution are not applicable to this State without the  approval of the State Assembly. Indians who are not permanent residents of this State cannot buy land or house here. Similar special provisions exist  for some other States of India as well. 

    There are some units of the Indian Union which enjoy very little power. These are areas which are  too small to become an independent State but which could not be merged with any of the existing  States. These areas, like Chandigarh, or Lakshadweep or the capital city of Delhi, are called Union  Territories. These territories do not have the powers of a State. The Central Government has special  powers in running these areas. This sharing of power between the Union Government and the State  governments is basic to the structure of the Constitution. It is not easy to make changes to this power  sharing arrangement. The Parliament cannot on its own change this arrangement. Any change to it  has to be first passed by both the Houses of Parliament with at least two-thirds majority. Then it has  to be ratified by the legislatures of at least half of the total States. The judiciary plays an important  role in overseeing the implementation of constitutional provisions and procedures. In case of any  dispute about the division of powers, the High Courts and the Supreme Court make a decision. The  Union and State governments have the power to raise resources by levying taxes in order to carry on the government and the responsibilities assigned to each of them.

     

    UPSC Current Affairs: Cong. questions CONCOR divestment | Page 10 

    UPSC Syllabus: Mains – GS Paper III – Economy  

    Sub Theme: Disinvestment Policy | Privatization |UPSC

    Disinvestment Policy in India- Privatisation and Wealth Creation 

    Evolution of Disinvestment Policy: 

    The liberalization reforms undertaken in 1991 ushered in an increased demand for  privatization/ disinvestment of PSUs. 

    • First Phase: Sale of minority stake in bundles through auction.
    • Second Phase: Separate Sale of each PSU
    • Third Phase:

    o Strategic Disinvestment- Sale of substantial portion of Government shareholding in  identified Central PSEs (CPSEs) up to 50 per cent or more, along with transfer of  management control. 

    o Launch of exchange traded funds (ETFs) - an equity instrument that tracks a particular  index. 

    o Monetization of select assets of CPSEs. 

    Strategic Disinvestment as a tool of Privatisation 

    NITI Aayog has been mandated to identify PSUs for strategic disinvestment. For this purpose, NITI Aayog has  classified PSUs into “high priority” and “low priority”, based on (a) National Security (b) Sovereign functions at  arm’s length, and (c) Market Imperfections and Public Purpose. The PSUs falling under “low priority” are covered  for strategic disinvestment. To facilitate quick decision making, powers to have been delegated to an Alternative  Mechanism in all the cases of Strategic Disinvestment of CPSEs where Cabinet Committee on Economic Affairs  (CCEA) has given ‘in principle’ approval for strategic disinvestment. 

    BENEFITS OF PRIVATISATION 

    • Strong positive effect of labour productivity and overall efficiency of PSU's in India: Post privatization, the performance of the privatized entity improves significantly in terms of net worth, net profit, return on assets(ROA), return on equity (ROE), gross revenue
    • Improved capital allocation and economic efficiency
    • Cost reductions
    • Privatisation has multiplier effect on other sectors of the economy.
    • Enhanced Competitiveness
    • Professionalism in management of CPSEs

    Case studies: Increased customer satisfaction in form of reduction in tariffs, increased data usage etc in the  telecommunication sector and reduced air fares comparable to high end consumers in the railways. Recent  approval of strategic disinvestment of BPCL led to an increase in value of shareholders' equity of BPCL by  Rs33,000 crore when compared to HPCL. 

    Way Forward 

    Aggressive disinvestment should be undertaken to bring in higher profitability, promote efficiency, increase  competitiveness and to promote professionalism in management in the selected CPSEs.  Strategic disinvestment needs to focus on exit from non- strategic business. This would unlock capital for use  elsewhere, especially in public infrastructure like roads, power transmission lines, sewage systems, irrigation  systems, railways and urban infrastructure. This will lead to creation of fiscal space and improve the efficient  allocation of public resources. 

    Privatisation or disinvestment program should aim at maximisation of Government's equity stake value. The  learning from the experience of Temasek Holdings Company in Singapore may be useful in this context. The  Government can transfer its stake in the listed CPSEs to a separate corporate Entity. This entity would be  managed by an independent board and would be mandated to divest the Government stake in these CPSEs over  a period of time. This will lend professionalism and autonomy to the disinvestment program.

     

    UPSC Current Affairs: Inflation dips marginally to 5.3% in August | Page 01 

    UPSC Syllabus: Mains – GS Paper III – Economy  

    Sub Theme: CPI | WPI | Inflation | UPSC 

    Measurement of Inflation in India

    Criteria 

    WPI 

    CPI

    Level 

    Measures Inflation at Wholesale level 

    Measures Inflation at Retail Level

    Who Calculates? 

    Office of Economic Advisor, Ministry of  Commerce and Industry

    National Statistical Office, Ministry of Statistics and  programme Implementation

    Base year 

    2011-12 

    2012

    Categories 

    Primary Articles 

    Manufactured products 

    Fuel and Power

    Food and beverages 

    Pan, Tobacco and Intoxicants 

    Clothing and Footwear 

    Housing 

    Fuel and Light

       

    Miscellaneous- Education, Healthcare,  Transportation etc.

    Highest  

    Weightage

    Manufactured products 

    Food and Beverages

    Impact of increase  in Food items

    Less impact on WPI as compared to CPI since  WPI provides higher weightage to  manufactured products and lower weightage  to Food items.

    Larger impact on CPI as compared to WPI since it  gives more weightage to food products.

    Services included 

    N

    Yes

    Indirect Taxes  Included?

    N

    Yes

    Targeted by RBI? 

    N

    Yes. The RBI is required to maintain CPI rate of  inflation of 4% with a deviation of 2%.

    Headline and Core Inflation 

    The headline inflation simply refers to the inflation in the CPI (or WPI) covering all the categories of goods and services. On the other hand, the core inflation excludes the volatile categories such as food and fuel in order to measure the increase  in the prices of goods and services. Hence, a drastic fall in the food and fuel prices can bring down the headline inflation by  a to a large extent. However, the core inflation may remain unaffected. 

    Note: Presently, the RBI is targeting the CPI headline rate of inflation (and not Core Inflation) 

    Base Effect: To calculate the rate of Inflation, the prices of Goods and services in the current month are compared with the  prices in the corresponding month of the previous year. 

    The rate of inflation in the current month is calculated as  

    (Prices of Goods in Current Month- Prices of Goods in Corresponding month of Previous year)/ Prices of Goods in  Corresponding month of Previous year * 100 

    As can be seen in the above formula, the denominator (base) is the prices of Goods in the corresponding month of previous  year.  

    So, the if the denominator (base) value is lower, the rate of inflation in the current year would be higher. Similarly, if the  denominator (base) value is higher, the rate of inflation in the current year would be lower. This can be understood as seen  below: 

    Reasons for the rising Inflation in India 

    • Imported Inflation: Increase in global commodity prices such as Crude oil, Edible oil etc.  Increase in certain food items such as Egg , Edible oils, Fruits, Pulses. 
    • Increase in services such as Health, Transport and Communication etc. 
    • Low Base effect as the prices of some of the Goods had declined last year due to the pandemic.

    What to Target: Headline or Core Inflation? 

    Presently, the RBI targets CPI headline rate of inflation and not the Core Inflation. In this regard, the Economic Survey 2020- 21 has highlighted that sole focus on CPI headline rate of Inflation may not be appropriate on account of number of reasons.  Accordingly, it has recommended that a greater focus on core inflation is warranted. 

    Reasons: 

    Firstly, Headline inflation may take place due to volatility in prices of Crude oil and Food commodities, over which RBI has  no control. For example, failure of monsoons, lack of cold chain infrastructure, supply side bottlenecks etc. usually lead to increase in Food prices.  

    Secondly, most of the time inflation in Food commodities is transitory and may not require any policy action by the RBI Thirdly, if the RBI tries to control inflation due to volatility in prices of food commodities, it can prove to be counter  productive. For example, to control inflation, rate of interest would increase--> Decline in Investment and Consumption  Expenditure--> Economic Slowdown. 

    Fourthly, to measure inflation correctly, weightage must be assigned to different categories of commodities depending upon  their share in the household expenditure. Higher the share, higher should be weightage. The share of food commodities in  the household expenditure has declined since 2011-12, yet the CPI gives a weightage of almost 45% to the food commodities.

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