Gist of The Hindu: December 2016


Gist of The Hindu: December 2016


Apple’s tax troubles

The hefty 13 billion euros in back taxes the European Commission imposed on Apple should have drawn Europe and the U.S. closer in their common quest to crack down on corporate tax avoidance. But the unprecedented penalty to hit the American tech giant has triggered angry outbursts at home and could well put paid to hopes for transatlantic cooperation, especially on the trade and investment partnership agreement, in the immediate future. The latest ruling by the European Union competition commissioner may not be the last against U.S. multinationals in what is increasingly being viewed as harmful to tax diplomacy. As with the Starbucks decision in 2015 and the ongoing probe into McDonald’s, both concerning two different countries, the Commission alleges that Ireland’s ultra-low, single-digit tax arrangements with Apple were in violation of EU state aid rules. Notably, the Commission has not taken issue with Dublin’s 12.5 per cent rate of corporate taxation. Curiously, the possibility of clawing back billions of euros, estimated to be worth the country’s health-care budget for a year, is not an attractive prospect for Dublin, home to hundreds of multinationals thriving on its decades-old foreign direct investment policies that include low corporate taxation. Instead, Ireland, which risks losing jobs, has resolved to appeal the decision along with Apple, whose Irish subsidiaries account for 90 per cent of the company’s overall profits.

On the other hand, there is no confusion on the other side of the Atlantic on what the move by Brussels implies. U.S. politicians are piqued that a big chunk of the money — that firms such as Apple may eventually have to pay European governments — could instead have filled domestic coffers, but for a domestic stumbling block. This is the regulatory loophole that companies exploit to defer, indefinitely, levies on profits from their overseas subsidiaries until they are repatriated. As matters stand, the 35 per cent tax rate in the U.S., compared to Ireland’s 12.5 per cent, is an incentive for American firms to retain the advantage of the deferral clause. Meanwhile, a 2014 regulation to curb so-called corporate inversion, a manoeuvre whereby American firms relocate their headquarters to benign countries to trim domestic tax bills, is said to have had limited effect in the absence of legislation. Global efforts backed by more than 80 countries to combat cross-border tax avoidance, known as Base Erosion and Profit Shifting, are still at an early stage. EU action targeting individual corporations could well be seen, at this juncture, as an irritant in that larger endeavour.

When the river weeps

Agitations over the distribution of water in the Cauvery river are not new or surprising given the extreme dependence on agricultural and economic activity in the river basin. Karnataka and Tamil Nadu are fighting over water in a drying river, paying little attention to framing long-term solutions. South India has always been highly dependent on the monsoon, which is uncertain and risky. Over the past few decades, the south-west monsoon has become unpredictable and has reduced in intensity. What does this mean for the Cauvery? The amount of water the river receives during the summer rains is becoming increasingly unreliable. In good years, when the river receives enough rainfall, there is no discord between the two States. In bad years, like the one we are facing now, it turns into a gargantuan political crisis. Unfortunately, the number of bad years is only going to worsen.

The Cauvery river’s fertile basin has encouraged the growth of forests, agriculture and industry, all of which coexist in an uneasy manner and are now threatened. We need to pay attention to land use at the regional level. Dense forest cover once helped reduce the likelihood of flash flooding, retaining water on hill slopes to enable slow percolation and recharge of the tributaries. Deforestation across the basin has contributed to reduction in rainfall, soil erosion, and flooding, with hundreds of thousands of trees being decimated to make way for plantations, urban construction, and agriculture. In the place of forests, plantations of water-hungry trees such as eucalyptus and acacia are further reducing the water table. In Coorg, local groups have agitated against the felling of lakhs of trees for the construction of a new railway line from Mysuru, and a high-tension power line. They have received little support from the local and national administration despite warning of the effect on the river. These are not isolated incidents; deforestation is widespread along the length and breadth of the river. Tree clearing is now threatening even previously protected sites on mountain heights and steep slopes, sensitive zones where soil erosion further impacts river recharge.

Rapid urbanisation has converted fertile agriculture, forests and wetlands into concreted areas that are unable to retain rainwater or channel them into tributary streams that feed the Cauvery. Urbanisation demands concrete; concrete requires sand. In the districts surrounding the Cauvery, rampant sand mining has altered the natural topography of the river, eroding its banks, widening the river, and altering water flow patterns. Despite warnings from environmentalist groups and farmer coalitions, and interventions by the court, this practice continues unchecked. It is no surprise that the wells that replenish farms across the basin are running dry — or that desperate farmers are reduced to abandoning agriculture and renting their farms to sand contractors for sand storage, thus becoming complicit in their own destruction.

The large number of dams across the river contribute to a significant decrease in the river’s capacity for water storage. Siltation in dams and connecting river channels has reached alarming proportions. Industries along the Cauvery and its tributaries send large volumes of polluted water that, far from being of use to farmers, destroy their land beyond redemption. There is no farming activity for kilometres on the side of tributaries such as the Noyyal, polluted by Tiruppur’s textile industry. The toxic sludge from industrial effluents builds up on the river bed, further reducing its capacity for storage. Despite abundant discussion, government funding for de-siltation of the river’s channels remains conspicuous by its absence.

Widespread changes in farming and agricultural patterns exacerbate the problem. Once an area of millet cultivation, the Cauvery basin has transformed into a location for the cultivation of high-yield paddy and sugar cane, both water-intensive crops. There needs to be a redesign of the farming system, keeping in mind in particular the water requirements of the crops planted after the onset of the south-west monsoon.

What are Karnataka and Tamil Nadu planning to do in terms of developing more water-smart agricultural strategies? There is little discussion on this. Though a politically charged topic, it is one that must be addressed through conversations with farmers who seem well aware of these issues. They need better alternatives and greater state assistance in facilitating explorations of alternative cropping strategies, including an examination of a possible return to millet farming (which is more nutritious as well as water-efficient), or to multi-cropping of vegetables, or even to the development of more water-efficient varieties of paddy.

While Karnataka and Tamil Nadu struggle to find workable solutions to the distribution of water in the river during years of drought, the writing on the wall is clear. As climate change makes its impact visible, we are going to face many more seasons of drought and points of conflict. It is important that we think long term and in a coordinated fashion across the basin. We need to find ways to recharge the river, increase inflow of water, clean up hotspots of pollution, and increase the efficiency of water use. For this, we must take up afforestation along the river on a war footing, move to water-efficient cropping, limit industrial pollution of rivers, ban excessive sand mining, and limit the growing consumption of water for cities and towns along the river. This requires conversation and cooperation across the basin, not reactive conflict. Given the politically charged minefield that the Cauvery water-sharing issue has become, can we hope for reasoned, concerted action?

The bane of a bumper crop

No matter how united the farmers are, no matter how hard they fight for a better price, they turn into mute spectators in front of the traders when auction begins. The auction is dictated by the traders with money and considerable political clout. Traders decide the price, farmers accept it without protest. The market complex has a huge parking space for the lorries. Sometimes there are up to 1,000 vehicles at a time. The otherwise deserted place comes alive twice a day. The first auction of the day starts at around 10 a.m. and the second at 3 p.m. Depending on the number of vehicles, the auction can stretch from an hour to three hours.

Once the rate is fixed, the group of traders moves immediately to the next vehicle. The farmer, left with the price decided by the group, starts collecting the onions he has dropped on the ground. An official from the market committee approaches him with a receipt, bearing the auction rate, trader’s name and farmer’s name. With a receipt in hand and onions in the vehicle, the farmer then proceeds to the godown where the weighing process takes place. As per the rules laid down by the market committee, the farmer must get the payment before the end of the day, which is largely followed.

While onion is one of the major crops in this belt, farmers also cultivate grapes, soya bean, sugarcane, and ginger. Speaking out against the cartel of traders is not easy when the farmer is dependent largely on the onion crop, as it may result in traders ganging against him (or her) by dropping rates for his produce. Growing onions costs between Rs.50,000 and Rs.80,000 per acre, and a cultivated acre yields not more than 100 ql. With this year’s average selling price at Rs.728/ql., an acre’s worth of onions would get the farmer around Rs.72,800. This sees some farmers barely break even; many lose money.

Simplistically put, there was a shortage last year, and this year has seen record onion cultivation. Abundant supply has brought the prices down. The farmers, though, are used to this kind of fluctuation. They don’t blame the bumper crop and supply-demand equation; they say it’s the traders who are conspiring against them and the government has done little — or the wrong things — to help.

India has three onion crops a year. Early kharif (the crop sowed in the monsoon) onions come to market between October and December. Onions from the rangda, or late kharif, crop arrive from January to March. The winter or rabi crop is up for sale from April to May. Usually, some parts of the rabi crop are stored for a few months to fill the gap from May to October. Traditionally, prices rise from July to October; official data show that wholesale rates rise by as much as Rs.1,000/ql., even Rs. 1,500, later reflected in the retail market with an increase of Rs.5-Rs.10/kg for consumers.

In 2014-15, the onions took a hit following a hailstorm in North Maharashtra which, in turn, affected their storage value. With many rotting, the onions that did make it to market commanded high prices. India is the world’s second-largest onion producer (after China) with 26.79 per cent of the planet’s land under onion cultivation and 19.90 per cent of its production. Maharashtra is India’s largest producer, with a 32.45 per cent share of total onion production, and in turn, Nashik district in north Maharashtra accounts for with 41 per cent of the State’s onion harvest. According to the Directorate General of Commercial Intelligence and Statistics (DGCIS), India produced 203.33 lakh metric tonnes (MT, 1,000 kg) of onions in 2015-16, up from 189.28 lakh MT in 2014-15. Lasalgaon, Asia’s biggest onion market, received around 32,680 MT in the previous fiscal year. Five months into this year, it has received 10,874 MT. To make matters worse for Maharashtra’s farmers, other States — notably Gujarat, Rajasthan, Madhya Pradesh and Karnataka — have reported higher onion yields.

Aside from the production glut, another important factor was a 40-day strike by traders in July and August, opposing the State government’s decision to free agricultural market committees from government regulations. With no outlet for their rabi onions, farmers had no option but to store them and wait for the strike to end. In addition, thanks to the low prices, some farmers are choosing to not bring their onions to the markets, and instead are storing them away hoping an artificial scarcity later in the year will pay off for them.

Three years ago, when the farmers were getting Rs.4,500-Rs.5,000/ql., retail onion prices reached Rs.90/kg., which resulted in protests from the then-opposition parties, as well as consumer organisations, in Delhi, Mumbai and other major cities, accusing the United Progressive Alliance government of failing to protect consumers. The government’s first step was to increase the Minimum Export Price (MEP) to $1,150/MT. This made it difficult for Indian exporters to compete in international markets; whatever stock was available was diverted to the domestic market, which brought prices down. By March 2014, when the late kharif crop got to market, prices had dropped to less than Rs.1,000/ql. in the wholesale market, and consumers got theirs at Rs.20-Rs.25/kg.

The National Horticulture Research & Development Foundation (NHRDF) keeps track of potential harvests by collecting information on each district. This year, despite being aware of the possibility of a bumper crop, the government appears to have failed to take any measures to protect farmers. The NHRDF’s estimates say the rabi onions should be selling at around Rs.818/ql., which is significantly higher than what farmers are managing to get. If the government chose to use its Price Stabilisation Fund, it could subsidise the crop, paying, say, Rs.500/ql. What the State government has announced this week by way of relief — Rs.100 per quintal, up to a maximum of 200 quintals, or a maximum of Rs.20,000 — has, to put it mildly, failed to enthuse farmers.

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Courtesy: The Hindu

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