India’s long history of contention with World Trade Organization(WTO) saw another twist with a WTO panel recently ruling against India regarding ‘buy-local’ provision of the National Solar Mission(NSM). What does it mean for India, the developing world and climate change, in a global scenario of increasing trade between nations?
What is India’s history with WTO?
India has been a WTO member since 1 January 1995 and  a member of GATT since 8 July 1948. It provides MFN treatment to all Members and other trading partners. It accepted the Fourth and Fifth Protocols of the GATS. India is a strong advocate of the multilateral trading system and has historically been party to few regional trade agreement.
What have been the major issues of India at WTO?
In the recent times India has been at the centre of issues plaguing the developing country. It has been taking a stand at WTO to protect its vast vulnerable population and its industry.
1) Shrimp Turtle Case – The United States had implemented a ban on shrimp from countries whose fishing fleets did not have special “turtle excluder devices,†to prevent endangered sea turtles from being killed in the shrimping process. India, Malaysia, Thailand, and Pakistan claimed that the law was a disguised restriction on free trade and challenged the measure in the WTO’s dispute resolution process.
The dispute resolution panel deciding the case said that the shrimp ban was not justified under the Article XX exceptions because environmental protection measures could not be used to undermine the overall multilateral trading system.
The appellate body said, that the WTO members agreed that sustainable economic development was a goal of the trading system and should be taken into account as “color, texture, and shading†in interpreting the agreement. The appellate body went on to say that the way the United States implemented its shrimp ban, however, was discriminatory, and ordered the United States to end the ban.
2) Poultry Case – On 6 March 2012, the United States requested consultations with India with respect to the prohibitions imposed by India on the importation of various agricultural products from the United States purportedly because of concerns related to Avian Influenza.
The United States complained that India’s AI measures amounted to an import prohibition that was not based on the relevant international standard (the OIE Terrestrial Code) or on a scientific risk assessment.
In its ruling on October 14, 2014, the WTO panel had said that India’s measures “arbitrarily and unjustifiably discriminate between Members where identical or similar conditions prevail and are applied in a manner which constitutes a disguised restriction on international trade.â€
3) Subsidy for public stock keeping – India’s National Food Security Program was under the scanner for violating WTO cap on subsidies. India threatened to not sign the Trade Facilitation Agreement until it could get an agreement on the public stock keeping.
WTO members had agreed not to challenge India and other developing countries for breaching WTO rules on stockpiling until 2017 while talks continued on a permanent solution. Finally, the U.S. clarified that it and others won’t challenge India even beyond 2017 if no solution is reached by then. India ratified the trade facilitation agreement finally.
What is the recent solar ‘buy-local’ case?
India’s National Solar Mission which was launched in 2010 is an ambitious program to promote solar power in India. The mission received fresh impetus in 2015 when the new government raised the target from 20,000 MW to 100,000 MW by 2022.
The total investment in setting up 100 GW will be around Rs. 6,00,000 cr. In the first phase, the Government of India is providing Rs. 15,050 crore as capital subsidy to promote solar capacity addition in the country. This capital subsidy will be provided for Rooftop Solar projects in various cities and towns, for Viability Gap Funding (VGF) based projects to be developed through the Solar Energy Corporation of India (SECI) and for decentralized generation through small solar projects.
The Indian government has agreed to incentivize the production of solar energy within the country. The government under the programme agrees to enter into long-term power purchase agreements with solar power producers, effectively “guaranteeing†the sale of the energy produced and the price that such a solar power producer could obtain. Thereafter, it would sell such energy through distribution utilities to the ultimate consumer. However, a solar power producer, to be eligible to participate under the programme, is required compulsorily to use certain domestically sourced inputs, namely solar cells and modules for certain types of solar projects. In other words, unless a solar power producer satisfies this domestic content requirement, the government will not ‘guarantee’ the purchase of the energy produced.
In 2013, the U.S. brought a complaint before the WTO arguing that the domestic content requirement imposed under India’s national solar programme is in violation of the global trading rules. Specifically, it said, India has violated its “national treatment†obligation by unfavorably discriminating against imported solar cells and modules.
The WTO has a history of supporting anti-climate and anti-environment rulings, with Canada recently losing a similar case on renewable energy and incentives for local firms in Ontario.
The Make in India program aims to provide political and popular support to the Indian economy’s transition to clean energy. The aim is to boost domestic manufacturing, especially since the recent Paris Agreement on global climate change action did nothing to expedite transfer of clean technology from developed to developing countries.
In response to the WTO case, India has offered to alter NSM’s “buy-local” provisions by restricting it to solar equipment for its own use, such as railways and defence, and not for reselling the electricity. This offer plays within WTO rules exception wherein the government can favour domestic products in procurement policies if the procurement is “not with a view to commercial resale”.
What it means for India and the developing world?
After the Paris agreement where nothing concrete was decided regarding transfer of technology to developing and least developed world this decision comes as a blow to their cause. Renewable energy is critical for India which has mentioned it in its ‘Intended Nationally Determined Contributions(INDCs). India’s pledges to install 40 per cent of its total electricity capacity from non-fossil fuel-based energy sources.
But to achieve this ambitious target  India needs to develop local manufacturing capabilities to garner domestic support for its program. Local manufacturing will create jobs, provide public spending in the economy and lead to development of Indigenous technology.
On the flip side domestic buying limitation would result in increased prices for solar equipment buyers at least in the short run. This would result in increased prices for end customer.
The US is now creating regional blocs like Trans Pacific Partnership(TPP) and Trans Atlantic Trade and Investment Partnership(TTIP) as miniature bodies to enforce its rule based trading regime. The developing world is increasingly becoming dissatisfied with WTO and its prolonged negotiation rounds. In such a light there is need to  revive WTO as a forum for rule based trading aligned with sustainable development objectives to avoid confusion.
References
1) http://www.huffingtonpost.in/anoop-poonia/antiquated-wto-rules-a-we_b_9345362.html
4) http://www.downtoearth.org.in/coverage/climate-change-package-51338
5) http://pib.nic.in/newsite/PrintRelease.aspx?relid=122566
Here’s your daily dose of current affairs!
PM to launch highway project
PM Modi will launch the Rs. 10,200-crore Setu Bharatam project that aims to make all national highways free of railway crossings by 2019.
The Union Road, Transport and Highways Ministry plans to develop road overbridges and underpasses at unmanned railway crossings.
Under the project, 208 road overbridges and underpasses would be built in the first phase and the tender for 65 bridges was already out.
Analysis
What will be the benefit of the project? – Level crossings are one of the major bottlenecks for congestion, leading to inefficiency in the highway network and fatal accidents.
Source: The Hindu, Economic Times
Pre-enrollment test for lawyers
The Supreme court agreed for a detailed hearing on March 4 on a plea challenging the legality of the All India Bar Examination introduced in 2010.
In a bid to question the utility of the pre-enrollment test the Supreme court asked whether the legal profession could afford “half-baked†lawyers.
The court, however, expressed reservations on the Bar Council’s rule that a person should clear the AIBE within two years of his/her enrolment, saying this affected one’s right to practise a profession.
The question is also the legality of the Bar Council of India holding the All India Bar Examination (AIBE) without statutory backing.
Analysis
The need for standardisation – The Bar council formed under the Advocates Act 1961 is a self regulating organization(SRO). As per suggestions of 2nd ARC Committee every professional body should conduct tests for entry and continuous updation of skills.
The Law Commission, in its 184th Report submitted to the Government in 2002, had recommended that an apprenticeship of six months followed by a test should be made mandatory for registration at the Bar. In this connection, it had quoted the report of the “Ahmedi Commission on Legal Education†submitted in 1999. The National Knowledge Commission recommended that entry into a profession should be based on an examination conducted by the respective Professional Regulatory Body at the national level.
Source: ARC Report Social Capital, The Hindu
Budget Cuts for ICDS, Mid Day Meal Schemes
The budget this year does not bode well for schemes like Integrated Child Development Services(ICDS) and Mid-Day Meal Scheme(MDM).
The government has reduced fund available to child health interventions, with a massive cut – from Rs. 15,483.77 crore last year to Rs. 14,000 crore in the latest budget. The Integrated Child Development Scheme (ICDS) has seen a 7 per cent reduction in fund. The percentage share of the Mid-Day Meal (MDM) scheme in the total Union Budget allocation has gone down from 0.74 per cent in 2014-15 (BE) to 0.49 per cent in 2016-17 (BE). The allocation for the MDM scheme for 2016-17 stands at Rs. 9,700 crore (2016-17 BE).
Analysis
What is the ICDS scheme? – Integrated Child Development Services (ICDS) is an Indian government welfare programme which provides food, preschool education, and primary healthcare to children under 6 years of age and their mothers. These services are provided from Anganwadi centres established mainly in rural areas and staffed with frontline workers. In addition to fighting malnutrition and ill health, the programme is also intended to combat gender inequality by providing girls the same resources as boys.
What is the Mid Day Meal Scheme? – The Midday Meal Scheme is a school meal programme of the government of India designed to improve the nutritional status of school-age children nationwide. The programme supplies free lunches on working days for children in primary and upper primary classes in government, government aided, local body, Education Guarantee Scheme, and alternative innovative education centres.
The Midday Meal Scheme is covered by the National Food Security Act, 2013.
Source: The Hindu, Wikipedia
India-USA solar panel dispute
In a major ruling recently the WTO panel found that the domestic content requirement imposed under India’s national solar programme is inconsistent with its treaty obligations under the global trading regime.
India had a buy-local provision for large solar projects which are entitled to subsidy and assured government procurement if the equipment is manufactured locally.
Filed by the US in 2013, the case was brought to remove any disadvantage to imported solar equipment in India. The WTO has a history of supporting anti-climate and anti-environment rulings, with Canada recently losing a similar case on renewable energy and incentives for local firms in Ontario.
The National Solar Mission (NSM) is the flagship component of India’s climate action plan, as well as essential for the country’s future energy security. An ambitious target to scale up solar electricity production from 5GW currently to 100GW by 2022 requires access to affordable equipment. It is widely agreed, including by countries filing anti-climate cases in the WTO, that a domestic clean energy industry would find it difficult to stay afloat unless policy and economic incentives are provided.
Analysis
What is the buy local provision? – To incentivise the production of solar energy within the country, the government under the programme agrees to enter into long-term power purchase agreements with solar power producers, effectively “guaranteeing†the sale of the energy produced and the price that such a solar power producer could obtain. Thereafter, it would sell such energy through distribution utilities to the ultimate consumer. However, a solar power producer, to be eligible to participate under the programme, is required compulsorily to use certain domestically sourced inputs, namely solar cells and modules for certain types of solar projects. In other words, unless a solar power producer satisfies this domestic content requirement, the government will not ‘guarantee’ the purchase of the energy produced.
In response to the WTO case, India has offered to alter National Solar Mission’s “buy-local” provisions by restricting it to solar equipment for its own use, such as railways and defence, and not for reselling the electricity. This offer plays on WTO’s GATT Article III exception wherein the government can favour domestic products in procurement policies if the procurement is “not with a view to commercial resale”.
Close on the heels of the Canada’s case, this alteration is a worrying precedent since many of the world’s public energy utilities procure electricity rather than electricity-generating equipment.
What is the importance of buy local provisions? – “Buy-local” provisions are essential to generate political and popular support for the economic transition as they create jobs, promote health and make the process cost-effective, encouraging trade unions and vote banks to extend their cooperation. These provisions also support urgent action when international climate negotiations have been dragging along for over two decades.
Source: The Hindu, Huffington Post India
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High Court upholds call drop order
In a big move to improve telecom services across the nation, the High court upheld TRAI’s order of compensation of subscribers for the first three call drops everyday. The order is implementable from January 1 with the Delhi High Court giving liberty to the Telecom Regulatory Authority of India (TRAI) to implement its decision in this regard from that date.
Since the court had not stayed the TRAI notification since the filing of writ petitions, the telecom regulator is at liberty to enforce its decision.
The court said the impugned regulation had been made in exercise of the power conferred under the Act and keeping in mind the paramount interest of the consumer. The court rejected the contention of petitioners that the notification amounted to penalising them without proving any wrong-doing and held that the regulation was in the interest of consumers. The regulation mandated only compensating the calling consumer and not the receiver.
Analysis
What is call drop? – In telecommunications, the dropped-call rate (DCR) is the fraction of the telephone calls which, due to technical reasons, were cut off before the speaking parties had finished their conversational tone and before one of them had hung up (dropped calls) This fraction is usually measured as a percentage of all calls.
What is the reason for call drop? – Mobile phones work using radio waves in the frequency range of 300 MHz and 3,000 MHz. But the entire range is not available for use. Critically, the lower the number, the better the quality of transmission.
If a company has too little of the better bands, the quality of voice service drops. It also drops if the number of customers rises. India has 961 million mobile phone subscribers, the most in the world after China. Too many companies are slicing up the available bands into smaller parcels.
There are approximately 5,50,000 towers in India, and industry associations reckon another 1,00,000 are needed. The lower radio bands need fewer towers to travel longer distances.
Permission to erect a tower is given by the municipal body. No uniform standards or procedures exist here. The setting up of boosters on buildings remains a contested area, and permission has to be obtained on a case-by-case basis.
What can be done about it? – There is a shortage of spectrum in key bands like 900 MHz and 1,800 MHz. The better management of spectrum could be beneficial for reducing call drops.
There can be more spectrum allocated to telecom companies after freeing up some from defence services. The government can also introduce uniform rules for erecting towers. It can also clear up rooftop of government buildings for the same.
Source: The Indian Express, TheHindu
Raisina Dialogue Begins
India is aiming to solidify its geopolitical significance with the Raisina dialogue that includes participants from 40 countries including leaders of Sri Lanka and Afghanistan.
The March 1-3 event is fashioned on the lines of the famous annual Shangrila Dialogue held in Singapore where world leaders descend to discuss strategic issues concerning the globe but had seen intermittent political leadership participation from India.
A panel of former Sri Lankan President Chandrika Kumaratunga, former Afghan President Hamid Karzai and the Bangladeshi foreign minister Mahmood Ali were amongst those who shared the stage with Foreign Minister Sushma Swaraj at the opening session. The former president of Seychelles, Sir James Mancham, and Mr Ali were the other speakers at the opening session.
Analysis
What is Raisina Dialogue? – The Raisina Dialogue is being organised by the Ministry of External Affairs in association with Indian think tank, ORF focusing on the theme of “India: Regional and Global Connectivityâ€. The dialogue will help in reaching out to a wider international multidisciplinary audience.
Envisioned as India’s flagship conference of geopolitics and geoeconomics, the Raisina Dialogue 2016 is designed to explore prospects and opportunities for Asian integration as well as Asia’s integration with the larger world. It is predicated on India’s vital role in the Indian Ocean Region and how India along with its partners can build a stable regional and world order.
The annual conference is a multistakeholder, cross-sectoral meeting involving policy and decision-makers, including but not limited to Foreign, Defence and Finance Ministers of different countries, high-level government officials and policy practitioners, leading personalities from business and industry, and members of the strategic community, media and academia.
What is the Shangrila Dialogue? – The IISS Asia Security Summit: The Shangri-La Dialogue (SLD) is a “Track One” inter-governmental security forum held annually by an independent think tank, the International Institute for Strategic Studies (IISS) which is attended by defense ministers, permanent heads of ministries and military chiefs of 28 Asia-Pacific states. The forum gets its name from the Shangri-La Hotel in Singapore where it has been held since 2002.
Source: Tribune India, The Hindu
No civilian access to Anjadip Island
issue of allowing the celebration of the feast of ‘St. Francis de Assisi’ and ‘Nossa Senhora de Brotas’ on the Anjadiv Island that was handed over to the Navy by the Goa government remains unresolved.
The State government handed over the island off the Goa coast to the Ministry of Defence in 1989 with the condition that the Navy should allow on the territory the celebration of the customary feast subject to security considerations.
With reference to the Special Mention raised by MPs of the state to granting permission for the celebration, the then Defence Minister A.K. Antony on March 7, 2007 replied that project Sea Bird at Karwar was strategically located in the area and that considering its sensitive nature, free access to civilians, irrespective of caste and religion, could not be granted.
The Minister had said apart from law and order apprehensions, allowing free access involved serious security implications.
Analysis
What is the Official Secrets Act? – The Official Secrets Act 1923 is India’s anti espionage act held over from British colonisation. It states clearly that any action which involves helping an enemy state against India is punishable by law. It also states that one cannot approach, inspect, or even pass over a prohibited government site or area. According to this Act, helping the enemy state can be in the form of communicating a sketch, plan, model of an official secret, or of official codes or passwords, to the enemy.
The disclosure of any information that is likely to affect the sovereignty and integrity of India, the security of the State, or friendly relations with foreign States, is punishable by this act. Certain information cannot be accessed under RTI due to being classified under Official Secrets Act.
Source: TheHindu, Wikipedia
Amendment to EPF tax proposal
Union Finance Minister Arun Jaitley will move an amendment to the budget proposal on the taxation of withdrawal of investments from the Employees’ Provident Fund. The criticism of the proposal forced a reconsideration.
The amended proposal will make only the interest accrued on 60 per cent of the contributions made after April 1, 2016 taxable.
The Bill proposes amendments to the Income Tax law that will make 60 per cent of the employee contributions part, of the accumulated balance, tax free. The new proposal under consideration is that interest accrued on 60 per cent of contributions made after April 1, 2016 will not attract any tax on withdrawal unless invested in an annuity plan.
Analysis
What is the difference between EPF and NPS? – EPF is a mandatory retirement saving scheme and NPS is a voluntary one.
Only a salaried individual can contribute towards EPF. But there is no such compulsion for NPS. Investment in EPF is free of cost. The NPS charges fund management fees of 0.0102% for the government employees and there’s a ceiling of 0.25% for the private sector.
EPF invests in government securities or bonds issued by government-owned companies. These are safer products. NPS is allowed to invest up to 50% of its corpus in equities. The advantage is that investment of long-term money in equities can earn better returns.
Till now EPF followed the Exempt-Exempt-Exempt(EEE) tax policy during investment-interest-withdrawal while NPS followed a Exempt-Exempt-Taxable (EET) policy.
Source: TheHindu, Business Standard
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The much awaited financial document of the year, Union Budget 2016, has been tabled in the parliament. This year’s budget is nothing short of a grand challenge for the government with the Prime Minister calling it his “exam” in one of his radio talks with students. This year, the budget date coincides with Oscars, but the jury in Mr.Modi’s case is much bigger:1 billion+ people of India!
Why is it a test for the government?
1) Global Economy Slowdown – About a year ago, Chief Economic Adviser (CEA) Arvind Subramaniam projected a GDP growth rate of 8.1-8.5%. The real expected growth rate is somewhere around 7.6%. With the spiraling down of oil prices, devaluation of Yuan and deflationary pressures in Europe and Japan, the global economic picture is anything but rosy.
There have been demands from industry to loosen the fiscal deficit targets to boost public spending.
2) One Rank One Pension – Annual expenditure addition for OROP is estimated to be around Rs.7,500 crore.
3) 7th Pay Commission – The Pay Commission has recommended a 23.55 percent hike in salary, allowances and pension, involving an additional burden of Rs 1.02 lakh crore.
4) Bank Recapitalization – Public Sector Banks are struggling with Non-Performing Assets on their balance sheets. As per estimates, PSBs would need additional capital of up to Rs 240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 US financial crisis.
Keeping in mind these factors, the Union Budget lays more stress on firefighting rather than path breaking reforms!
Union Budget 2016 – What have been the major policy highlights?
1) FY17 Fiscal deficit target at 3.5 per cent. No change in fiscal roadmap. Finance Minister has proposed the setting up of a committee to review the entire road map mandated by the Fiscal Responsibility and Budget Management Act of 2003 to study the possibility of having a target range instead of fixed numbers that would give the government the needed policy space to align a fiscal expansion or contraction with credit availability.
2) RBI Act to be amended to give statutory basis for monetary policy framework.
3) Enactment of law for statutory platform to Aadhaar platform.
4) Amendment to the Companies Act to ensure speedy registration and boost start-ups.
Union Budget 2016 – What is in for the common man?
1) Income tax slabs remain unchanged for individuals.
2) Proposed tax rebate under section 87A increased from Rs. 2,000 to Rs. 5,000. Salaried people upto Rs. 5 lakh to get Rs. 3,000 relief per year. Two crore tax payers to be benefited.
3) HRA exemption from Rs. 24000 per year to Rs. 60000 per year.
4) Proposed withdrawal upto 40 per cent of corpus under National Pension scheme to be tax free. Annuity also to be tax free.
5) Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.
6) Instead of 12 per cent, 15 per cent surcharge on income tax for those with incomes exceeding Rs. 1 crore per annum
7) Collection at source of tax 1% – Luxury cars exceeding INR 10 Lakhs.
8) Infrastructure cess of 1 per cent on small petrol, LPG and CNG cars; 2.5 per cent on diesel cars of certain specifications; 4 per cent on higher-end models
9) Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016.
Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers.
10) Excise duty raised from 10 to 15 per cent on tobacco products other than beedis
Union Budget 2016 – What does the poor farmer get?
1) A dedicated irrigation fund worth Rs 20,000 crore to be set up under NABARD.
2) 5 lakh acres to be brought under organic farming over a three year period.
3) Total allocation for agriculture and farmers’ welfare is Rs. 35,984 crores.
4) Government will reorient its intervention in the farm and non-farm sector to double the income of farmers by 2022.
5) Nominal premium and highest ever compensation in case of crop loss under the PM Fasal Bima Yojna.
6) Unified e-platform for farmers to be inaugurated on Dr. Ambedkar’s birthday.
7) 28.5 lakh hectares of land will be brought under irrigation.
8) Rs 60,000 crore for recharging of ground water as there is an urgent need to focus on drought hit areas cluster development for water conservation.
Union Budget 2016 – What is there for the industry?
1) Start Ups: Exemption for 3 out of 5 years. MAT (Minimum Alternate Tax) applies. Capital Gains not taxed where investment made in notified funds or in start ups where they hold majority.
2) Companies Act to be amended to facilitate ease of doing business, Start-ups to be able register in one day.
3) Lower corporate for next financial year for companies upto Rs. 5 crore turnover to 29 per cent for 2015
4) Allocation of Rs. 55000 crore for roads and highways. Total investment in Road Sector would be Rs 97,000 crore. Rs 19,000 crore to be allocated for Pradhan Mantri Gram Sadak Yojana. Total outlay for infrastructure in Budget 2016 now stands at Rs 2,21,246 Cr.
5) Rs 25,000 crore for re-capitalisation of PSU banks
6) Customs Act to be amended to provide for deferred payment of custom duty for importers & exporters within proven track record.
7) 100% FDI through FAPB route in marketing of food products produced and manufactured in India.
Union Budget 2016 – How does health and education fair?
1) Rs. 1000 cr set aside for higher education financing.
2) Govt. to set up 1500 multi-skill development institute, Rs 1,700 crores allocated.
3) New health care scheme with Rs. 1 lakh cover for each family to be initiated. Senior citizens will get additional healthcare cover of Rs. 30,000 under the new scheme.
4) A national careers service was launched in July 2015. Proposal to make 100 model career centres operational by the end of 2016.
5) Objective to skill 1 crore youth in the next 3 years under the PM Kaushal Vikas Yojna.
6) Digital literacy scheme to be launched to cover 6 crore additional rural households
7) 62 new Navodaya Vidyalayas to provide quality education
8) 10 public and 10 private educational institutions to be made world-class.
9) Scheme to get Rs.500 cr for promoting entrepreneurship among SC/ST
10) PM Jan Aushadhi Yojana to be strengthened, 300 generic drug store to be opened
Union Budget 2016 – What are the outlays on various schemes?
1) An increased allocation of Rs. 1,80,000 Crores under PM MUDRA Yojana.
2) Rs. 9,000 crores allocated to Swachh Bharat Abhiyaan.
3) MNREGA to get Rs. 38,500 crore
4) Allocation to PM Fasal Bima Yojana for 2016/17 is Rs.5500 crores.
5) Mission to provide an LPG connection in the name of women members of poor households.
Major themes in the Budget 2016
Tax Benefits for low income earners. Greater taxation for Super Rich
Focus on Infrastructure spending
Promotion of start-ups, Ease of Doing Business
Skilling and Job Creation
Fiscal Discipline
Agriculture Boost
Stay tuned for further in-depth sector wise analysis of the Union Budget 2016 here!
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Tax Law for Unearthing Black Money
In the Union budget 2016 the government has come up with a scheme to open a one-time, four-month compliance window for domestic black money – holders. This gesture is intended to help them come clean by paying tax and penalty of 45 per cent.
It can be seen as a scheme for non compliant black money holder to become compliant. The limited-period compliance window will enable one to declare undisclosed income or income represented in the form of any asset, and clear up past tax transgressions by paying tax at 30 per cent, a surcharge of 7.5 per cent and a penalty of 7.5 per cent. This will add up to 45 per cent of the undisclosed income. The surcharge at 7.5 per cent will be called Krishi Kalyan surcharge, and the money thus raised will be used for agriculture and rural economy.
There will be no scrutiny or enquiry of money declared, either under the Income-Tax Act or the Wealth Tax Act. And the declarants will have immunity from prosecution. They will also get immunity from the Benami Transaction (Prohibition) Act, 1988, subject to certain terms. The compliance window, named Income Disclosure Scheme, will open on June 1. It will be open till September 20.
Analysis
What is black money? – Black money is tax-evaded income. It can be earned both through legal and illegal means. Its legitimate source is that the income-earners do not reveal their whole income for tax purposes. For example, government doctors earning money by private practice even when they get non-practising allowance; teachers earning money through tuitions, examinations and book royalty and not including it in income-tax returns; advocates charging much higher fee than shown in their account books, and so forth.
Its illegitimate source is bribe, smuggling, black-marketing, selling commodities at prices higher than the controlled prices, taking pugree for house, shop, etc., selling house at a high premium price but showing it at much lower price in the account books, and so on.
What are instances of such schemes in the past? – Voluntary Disclosure of Income Scheme (VDIS) was an unconventional scheme launched by Central Board of Direct Taxes 18 June 1997.
It would give an opportunity to the income tax/ wealth tax defaulters to disclose their undisclosed income at the prevailing tax rates. This scheme would also ensure that the laws relating to economic offences will not be applicable for those defaulters. Over 350,000 people had disclosed their income and assets under this scheme, which bought revenue of more than Rs. 7000 crores to the exchequer.
Source: TheHindu, YourArticleLibrary
Some Important Legislative Initiatives from the Budget
1) The government stuck with its financial consolidation roadmap with fiscal deficit target of 3.5% of gross domestic product (GDP) for 2016-17, after achieving the 3.9% of GDP target in 2015-16.
Finance Minister has proposed the setting up of a committee to review the entire road map mandated by the Fiscal Responsibility and Budget Management Act of 2003 to study the possibility of having a target range instead of fixed numbers that would give the government the needed policy space to align a fiscal expansion or contraction with credit availability.
Analysis – There were some demands to loosen the fiscal deficit targets to provide a boost through public spending in a deflationary global environment. But the Finance Minister has stuck with rational spending.
2) The government proposed to amend the RBI Act for setting up of a Monetary Policy Committee (MPC) which will fix the benchmark interest rate of the central bank and set inflation targets.
Analysis – RBI has taken the role of inflation targeting. The target for 2016 is 6% which the RBI is all set to meet. But providing a statutory backing to the role with fix greater accountability on the part of RBI.
3) Government to give statutory status to Aadhar to provide legal backing to the ambitious project of direct cash transfer of the government.
Analysis – The statutory status will provide a legal foundation to Aadhaar for expanding its use for a range of developmental purposes. It has been suggested that all benefits, subsidies or services funded from the consolidated fund of India should be through Aadhaar platform.
Till date over 98 crore Aadhaar numbers have been generated. There is already a National Identification Authority of India Bill, 2010, pending in the Rajya Sabha.
4) Proposal for Amendment of Companies Act to register startups in one day. Would provide greater ease of doing business
Analysis – Start-ups have been known to create jobs and promote innovation in an economy, both of which are critical if India has to take a high growth trajectory.
Some Important new Cess from the Budget
Krishi Kalyan Cess – 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds would be exclusively used for financing initiatives for improvement of agriculture and welfare of farmers.
Infrastructure cess – 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles.
However, three wheelers, electrically-operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology would be exempt from the infrastructure levy.
Clean Energy Cess – levied on coal, lignite and peat renamed to ‘Clean Environment Cess’ and rate increased from 200 per tonne to 400 per tonne.
Oil Industries Development Cess – will be levied at the rate of 20 percent, instead of specific rate of Rs 4,500 per metric tonne. The amendment in the Oil Industry (Development) Act, 1974, will be effective from the date of assent to the Finance Bill, 2016.
In order to reduce multiplicity of taxes, associated cascading and to reduce cost of collection, abolishment of 13 cesses, levied by various ministries in which revenue collection is less than Rs 50 crore in a year.
Analysis
While the Krishi Kalyan cess would make services more expensive, infrastructure cess would make cars costlier. Power producers, cement and metal manufacturers will bear the brunt of higher input costs as clean energy cess on coal stands doubled.
SLP for Setting up of National Court of Appeal
The Supreme court has admitted a Special Leave Petition that seeks to set up ‘National Court of Appeal’ to hear routine appeals in civil and criminal matters from the High Courts. There has been a long standing debate on whether the apex court should be burdened with the responsibility of examining the correctness of every case decided by the High Courts, and whether it should not be allowed to devote its time entirely to settling questions of constitutional importance.
Analysis
What is the resource problem Supreme court is facing? – Supreme court has been facing accumulation of backlog cases. Figuring out cases which require a substantial question of law is another issue. Another concern relates the oft-cited difficulties of litigants from different parts of the country for whom New Delhi may be too far.
The solutions put forward include dividing the Supreme Court into a ‘Constitutional Division’ and a ‘Legal Division’; having the principal Constitution Bench in Delhi and creating four regional Benches to hear appeals on High Court orders; and, third, creating a National Court of Appeal that will have four ‘Cassation Benches’ for the adjudication of non-constitutional matters.
But successive Chief Justices of India have been against the establishment of Benches outside Delhi. Courts of Cassation are courts of last resort to reverse decisions of lower courts.
Sharing its SLP power – A key issue to be settled is whether it will be advisable for the highest court to share with a possibly inferior court of appeal its power under Article 136 to grant special leave to appeal on High Court orders.
Also, in recent times the Supreme Court has been conscious of its role as the interpreter of the Constitution, and holds a sitting of a Constitution Bench virtually every day. Even within the present structure, regional Benches may help address the problem of access to justice but not that of accumulation of cases. The idea of a National Court of Appeal requires consideration, but in a manner that would not undermine the undoubted authority of the Supreme Court of India.
Source: TheHindu
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