Gist of The Hindu: November 2016
Lessons from cash transfers
Union Food Minister asked States to initiate a pilot
programme to replace the Public Distribution System (PDS) food ration with cash,
a move already being tested in the Union Territories. Indeed it is fair to say
that there is quite a buzz in policy circles about the potential for cash
transfer schemes to address multiple outcomes while bringing in administrative
efficiency. Yet, the evidence base to support large-scale programme switch-outs
from food to cash is quite limited in the Indian context, given the diversity of
social, economic and implementation contexts. The Centre's push towards
financial inclusion and the use of Direct Benefit Transfer (DBT) means that
these pilot programmes provide the perfect opportunity to add to the learning
around cash transfer schemes.
In India, cash transfers have become increasingly popular in
recent years - from girl child protection schemes, to maternity benefit schemes,
to schemes aimed at improving nutritional outcomes. There are also other
conditional cash transfers (CCT) undergoing evaluation at the moment. The Indira
Gandhi Matritva Sahyog Yojana (IGMSY) and the Mamata scheme in Odisha are
relatively recent maternity benefits schemes, with conditions like birth
registration, pre- and ante-natal care visits, and exclusive breastfeeding. The
Bihar Child Support Grant (BCSP) is a CCT aimed at improving maternal and child
nutrition outcomes. However, none of these programmes replaces food with cash
While the move towards cash transfers as a way to reduce
programme leakage in the ICDS and PDS is appealing, there is not a great deal of
evidence on the impact of cash transfer schemes on nutrition in India. Work by
our colleagues in multiple countries and recent synthesis papers suggest that
the following issues are central to the design of cash transfer programmes:
First, cash transfer amounts need to be sizeable and regular. Second, financial
inclusion is not as easy to achieve as one might hope, with bank regulations and
requirements placing considerable barriers on participation. The situation might
improve, but ensuring financing inclusion and easy access to cash once bank
accounts are opened are absolutely essential preconditions for cash transfers
that are intended to support routine spending on nutritious foods. Third, there
needs to be a mechanism in place to monitor adherence to conditions, if any.
Following on that point, hard conditions (which result in penalties if not
fulfilled) need to be easy to monitor - exclusive breastfeeding for the first
six months is a good example of a condition that is almost impossible to verify.
Fourth, improving the demand for services by using conditions is only one piece
of the story; the other side is in making sure the services exist. Fifth,
targeting is a serious concern in India, as errors of wrongful inclusion and
exclusion continue to plague several programmes.
Programmes either need to be self-targeting, as with the
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), or should have
a more accurate means of identifying the target population. Last, but perhaps
most important, the cash transfer must be accompanied with high-quality
information/education campaigns that encourage good nutritional choices.
With the possibility of a new set of pilot cash transfer
schemes being initiated in the months to come, we cannot overemphasize the need
for first, careful attention to those design elements that will support the
intended outcomes, and second, for careful research on the measurable impacts of
Limits to autonomy
We learn that the differences between the National Democratic
Alliance government and the present RBI Governor are by no means novel. The
United Progressive Alliance government behaved in exactly the same fashion. Both
the Governors manfully stood up to the government and ended up paying a price
for doing so - so we are told. This is a theme that the media loves to play up
from time to time: the Evil Politician pitted against the Wise and the Noble.
Alas, the reality is rather more nuanced. For politicians to leave matters
entirely to technocrats isn't really a sensible solution. We have come round to
this realisation in many cases.
The judiciary commands great respect among ordinary people.
Yet, many people are uncomfortable with the notion that its independence
includes leaving the appointment of judges entirely to the judiciary. In all
these cases, we understand that autonomy has its limits. Is there any reason a
different logic should apply to the RBI? This is the central issue posed by what
promises to be a refreshingly candid account by Mr. Subbarao of his years at the
RBI. Mr. Subbarao writes, "There was constant and decidedly unhelpful friction
between the ministry of finance, under both Pranab Mukherjee and later
Chidambaram, and the Reserve Bank on what the government saw as the Reserve
Bank's unduly hawkish stance on interest rates, totally unmindful of growth
Mr. Subbarao says that Mr. Mukherjee and Mr. Chidambaram did
not stop with merely conveying their views. They made their displeasure known in
other ways. At a G-20 dinner in Mexico, Mr. Chidambaram pointedly ignored Mr.
Subbarao while greeting everybody else. Well, you could call it churlish
behaviour but bosses express their displeasure in such ways all the time and in
every organisation. Mr. Chidambaram has been gracious enough to write a generous
endorsement for Mr. Subbarao's book. This does indicate that Mr. Chidambaram's
snub was not personal, it was about making a larger point. Mr. Subbarao says
that the RBI paid a price for not toeing the ministers' line in more material
ways. Mr. Mukherjee refused to grant another term as Deputy Governor to Usha
Thorat. Mr. Chidambaram did likewise with Subir Gokarn.
We will soon have a Monetary Policy Committee on which three
out of six members will be government representatives. The other three members
will be experts from outside. The government will define the medium-term
inflation target. The RBI Governor will have to find ways to meet the target and
explain any failure to do so. Thus, in respect of monetary policy, we have a
framework for autonomy with accountability.
We need to put in place broader mechanisms for accountability
for autonomous institutions in general. One way to do so is to subject them to
oversight by Parliament. The Chairman of the U.S. Federal Reserve appears before
the U.S. Congress and fields questions on a range of matters related to the Fed.
It would be helpful to institute a similar mechanism in India for the RBI.
Similarly, the IIM Bill, which seeks to cover the IIMs through an Act of
Parliament, is a step in the right direction. Another way is to subject
autonomous institutions to independent management audit every few years. These
audits may be carried out by committees of eminent persons.
Institutional autonomy cannot mean the freedom to operate independently of the
government. Rather, it is the freedom to deliver on mandates defined by the
government and with due consultation with the government. When technocrats
arrogate to themselves the right to decide on matters that fall within their
ambit all by themselves, it is not autonomy, it is usurpation. Former RBI
Governor Y.V. Reddy is said to have once quipped, "The Reserve Bank is totally
free within the limits set by the government." That could well serve as a motto
for all autonomous institutions.
Game of Thrones in Kathmandu
Nepal has once again been plunged into political uncertainty
with the Maoist party - the Communist Party of Nepal (Maoist-Centre), or CPN
(M-C) - withdrawing support from Prime Minister K.P. Sharma Oli's coalition,
reducing to a minority the government led by the Communist Party of Nepal (UML),
or CPN (UML). Maoist leader Pushpa Kamal Dahal 'Prachanda' announced last week
that Mr. Oli had not fulfilled the commitments made earlier in May leaving him
with no option.
These developments have been expected. On May 4, Mr.
Prachanda had carried out the same threat, expressing unhappiness with the Oli
government's performance on post-earthquake reconstruction and the lack of
progress on the constitutional amendments process. Then too, he had announced
that he would lead a new government which would be supported by the Nepali
Congress (NC) and Madhesi groups and urged the UML to join in so that a national
consensus government could be set up. A patch-up between Mr. Oli and Mr.
Prachanda was put in place, thanks to the efforts of UML leader Bam Dev Gautam.
A nine-point agreement was announced to address Maoist concerns which included
clemency to the Maoist cadres, provision of compensation to the injured,
facilitation of land allotments, giving Maoists a greater say in government
appointments, etc. In addition was an unwritten three-point 'gentlemen's
agreement' that Mr. Oli would step down as Prime Minister within two months
after presenting the budget (Nepal's financial year begins on July 16) and the
UML would support Mr. Prachanda as the next Prime Minister.
As it stands, the numbers are against him. In the 598-member
House, the no-confidence motion needs only 300 positive votes. The NC and the
Maoists together account for 290 seats; the Madhesis can add another 40 votes,
making Mr. Oli's exit a certainty. Mr. Oli has also cited "constitutional
complexities" claiming that since he was appointed Prime Minister following the
promulgation of the new Constitution on September 20 last year, he will have to
continue as Prime Minister (or caretaker PM) till the general election is held
by January 2018, to establish the bicameral legislature envisaged in the
Constitution. Perhaps he hopes that President Bidya Devi Bhandari, his old
comrade in arms from the UML, will back him in this. However, this suggestion
has dubious legality and is likely to be thrown out by the Supreme Court if
matters go that far.
Mr. Oli's nine-month tenure has been a sorry one. He had
enjoyed a good reputation during his tenures as Home Minister and Foreign
Minister during the 1990s, but as Prime Minister he was unable to reach out to
the agitating groups who had felt short-changed by the new Constitution. Even
when he relented and the government carried out constitutional amendments to
partially address the demands of the Madhesis, it was never with a sense of
generosity. His constant refrain of Nepali nationalism led to a downturn in
Nepal's ties with India and like other Left leaders, Mr. Oli too fell prey to
overplaying the China card.
Governance took a back seat even as Mr. Oli donned his
nationalist mantle. Most tragic was his inept handling of the post-earthquake
relief and reconstruction effort, squandering the goodwill and sympathy of the
international community which had pledged $4.4 billion at the international
conference held in Kathmandu a year ago. To date, not even 10 per cent of the
pledged amount has come to the National Reconstruction Authority where key
appointments were held up on account of political jockeying.
From all accounts, Mr. Prachanda is wiser today than in
2008-9 when his coalition collapsed on account of his decision to sack the then
Army chief, General Rookmangud Katawal. He now publicly acknowledges that it was
a political mistake. He too had blamed India for his debacle but now has his
task cut out to restore bilateral ties. The NC can be helpful in this too. Mr.
Deuba, a wily NC leader, has been prime minister thrice before but will have to
be pragmatic in accommodating the Madhesi and Tharu demands on federalism and
representation in a more generous manner than Mr. Oli did.
Out of the concessional funds amounting to $1.65 billion
pledged by India during the last two years, the utilisation has been a meagre
$150 million. From the grant assistance of $250 million pledged last year, $100
million has been allocated for construction of 50,000 dwelling units for the
quake affected but the PPP model has yet to be worked out. The balance grant
amount remains to be committed. In addition, $750 million was promised for the
Kathmandu-Nijgadh highway but the Oli government sought to review the project
after the contract was awarded to an Indian consultant! Other development
partners have accumulated similar experiences. Getting implementation of long
stalled projects back on track should be the priority for the new government.
The Narendra Modi government too needs to introspect as to
how its much vaunted 'neighbourhood first' policy went wrong. The problem of too
many interlocutors, claiming to act on behalf of the political powers in Delhi
and often conveying conflicting messages, always existed with Nepal but has
become more acute during the last two years. Hopefully, this can now be curbed.
A positive turn in relations with India will work to Nepal's
advantage in reviving the sentiment that was generated when Prime Minister Modi
visited Nepal in August 2014, of a friendly and caring India, sensitive to
Nepal's concerns and generous in seeking mutually beneficial partnerships.
Turmoil in Turkey
Turkey's is a classic case of a coup-prone political system.
The military is a relatively autonomous and popular institution. It has in the
past toppled civilian governments four times. There had always been tension
between the ruling elite and the military establishment. But the relatively
stable rule of the Justice and Development Party since 2002 and the popularity
of its leader Recep Tayyip Erdogan had projected a picture of military coups
having become a thing of the past. The developments that unfolded on Friday and
Saturday bust this myth. Even President Erdogan didn't foresee the attempt. His
success in taking back the reins of government is good for both Turkey and the
larger West Asian region. Turkey is important for regional security at a time
when West Asia is in turmoil. Instability here is in nobody's interest. However,
the failed coup exposes the weakness of Mr. Erdogan's regime. The fact that it
was not a minor revolt by a few soldiers, but an uprising by thousands of
troops, raises serious questions about the coherence of the Turkish state. Mr.
Erdogan has contributed to the weakening of the state in many ways: his
disastrous foreign policy that has worsened the security situation; forced
Islamisation that has sharpened the contradiction between the Islamist and
secular sections; and the push to rewrite the Constitution to award more powers
The coup-plotters may have sensed they would get support from
the anti-Erdogan masses and the secular political class. Sections of the
population have problems with Mr. Erdogan's politics. At Istanbul's Gezi Park,
thousands braved his brutal police force in 2013. Despite the government
crackdown on liberal academia, opposition, media and social networks, Turkey
still has a thriving public sphere where anti-Erdoganism is a common theme for
mobilising people. But they don't want the soldiers to "solve" their problem
through force. That is why thousands thronged the streets to defend the
government they had elected. That is why even Mr. Erdogan's fiercest critics in
the opposition denounced the coup. The question now is how the fissures that
have been exposed will impact Turkey. It depends, in large measure, on the
choices Mr. Erdogan makes. He could see the people's commitment to democracy and
use the crisis as an opportunity to reconsider his dictatorial policies. Or he
could use the military revolt as a pretext to purge more of his enemies and get
what he always wanted, which is a more powerful executive presidency. His choice
will guide the future of Turkey's democracy.
One India, one market
Three major benefits will flow from the GST. First, as the
Prime Minister outlined in an interview, the GST will increase the resources
available for poverty alleviation and development. This will happen indirectly
as the tax base becomes more buoyant and as the overall resources of the Central
and State governments increase. But it will also happen directly because the
resources of the poorest States - for example, Uttar Pradesh, Bihar, and Madhya
Pradesh - who happen to be large consumers will increase substantially.
Second, the GST will facilitate 'Make in India' by making one
India. The current tax structure unmakes India, by fragmenting Indian markets
along State lines. These distortions are caused by three features of the current
system: the Central Sales Tax (CST) on inter-State sales of goods; numerous
intra-State taxes; and the extensive nature of countervailing duty exemptions
that favours imports over domestic production. In one fell swoop, the GST would
rectify all these distortions: the CST would be eliminated; most of the other
taxes would be subsumed into the GST; and because the GST would be applied on
imports, the negative protection favouring imports and disfavouring domestic
manufacturing would be eliminated.
Third, the GST would improve - even substantially - tax
governance in two ways. The first relates to the self-policing incentive
inherent to a valued-added tax. To claim input tax credit, each dealer has an
incentive to request documentation from the dealer behind him in the
value-added/tax chain. Provided the chain is not broken through wide-ranging
exemptions, especially on intermediate goods, this self-policing feature can
work very powerfully in the GST. The second relates to the dual monitoring
structure of the GST - one by the States and one by the Centre. Critics and
taxpayers have viewed the dual structure with some anxiety, fearing two sources
of interface with the tax department and hence two potential sources of
harassment. But dual monitoring should also be viewed as creating desirable tax
competition and cooperation between State and Central authorities. Even if one
set of tax authorities overlooks and/or fails to detect evasion, there is the
possibility that the other overseeing authority may not.
Other benefits such as the boost to investment have been
documented in the Report on the Revenue Neutral Rate that was submitted in
December last year. Of course, these benefits will only flow through a
well-designed GST. The GST should aim at tax rates that protect revenue,
simplify administration, encourage compliance, avoid adding to inflationary
pressures, and keep India in the range of countries with reasonable levels of
The report also urged that the GST be comprehensive in its
coverage, that exemptions from the GST be limited to a few commodities that
catered to clear social benefits, and that most commodities be taxed at the
standard rate. There is no free lunch here. There is no escaping the fact that
the more the exemptions/exclusions, the higher will be the standard rate which
could affect poorer consumers.
That said, we must also be realistic about the time frame for
assessing the GST. The GST is fiendishly, mind-bogglingly complex to administer.
Such complexity and lags in GST implementation require that any evaluation of
the GST - and any consequential decisions - should not be undertaken over short
horizons (say months) but over longer periods, say one-two years.
In understanding GST systems around the world, we have been
struck by how ambitious and how under-flawed the Indian GST is. GST-type taxes
in large federal systems are either overly centralised, depriving the
sub-federal levels of fiscal autonomy (Australia, Germany, and Austria); or
where there is a dual structure, they are either administered independently -
creating too many differences in tax bases and rates that weaken compliance and
make inter-State transactions difficult to tax (Brazil, Russia and Argentina) -
or administered with a modicum of coordination which minimises these
disadvantages (Canada and India today) but does not do away with them.
The Indian GST will be a leap forward in creating a much
cleaner dual VAT which would minimise the disadvantages of completely
independent and completely centralised systems. A common base and common rates
(across goods and services) and very similar rates (across States and between
Centre and States) will facilitate administration and improve compliance while
also rendering manageable the collection of taxes on inter-State sales. At the
same time, the exceptions - in the form of permissible additional excise taxes
on special goods (petroleum and tobacco for the Centre, petroleum and alcohol
for the States) - will provide the requisite fiscal autonomy to the States.
Indeed, even if they are brought within the scope of the GST, the States will
retain autonomy in being able to levy top-up taxes on these goods.
To have achieved this, in a large and complex federal system
of multiparty democracy, with a Centre, 29 States and 2 Union Territories of
widely divergent interests via a constitutional amendment requiring broad
political consensus, affecting potentially 7.5 million tax entities, and
marshalling the latest technology to use and improve tax implementation
capability, is perhaps breathtakingly unprecedented in modern global tax
Sometimes, we are insufficiently appreciative of how much the country has
achieved in coming to this point with the GST. As the Prime Minister suggested,
credit should go to all stakeholders at the Centre and the States for having
worked towards the GST. The time is ripe to collectively seize this historic
opportunity; not just because the GST will decisively alter the Indian economy
for the better but also because the GST symbolises Indian politics and democracy
at its cooperative, consensual best.
Courtesy: The Hindu