The Hindu Editorial Analysis
27 April 2021

1) Another wave spells more nutrition loss

The inability of those already on the brink of subsistence to absorb a second economic shock cannot be overlooked

GS 2: Government Policies & Interventions


Context:

  1. The political and social handling of the COVID-19 pandemic has added to the persisting issues of food insecurity faced by millions in India even prior to the novel corona virus pandemic.
  2. India consistently has ranked poorly in all international rankings on hunger (ranking 102 among 117 countries in the Global Hunger Index 2019).
  3. With the second, more vigorous wave of COVID-19, the inability of those already on the brink of subsistence to absorb a second economic shock cannot be overlooked even as the current health crisis is creating havoc.
  4. Rural distress specifically needs closer examination and urgent policy attention.

Data collection, findings

  1. The Rapid Rural Community Response or RCRC to COVID-19, a collective of over 60 non-governmental organisations has collected three rounds of data since the lockdown.
  2. The third round conducted between December 2020-January 2021 has collected data from 11,766 households across 64 districts, in Assam, Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Telangana and Uttar Pradesh.

Cutting down on food

  1. The most recent data suggest a persistence of cutting down on food even nine months after the first lockdown, during the seeming “revival” period.
  2. While 40% of the sample cut down on food during the first lockdown, an alarming 25% reportedly continued to cut down on food during the most recent survey conducted between December and January 2021.
  3. Households reported cutting down on nutritious food — 80% cut down on milk, vegetables, pulses and oil (around 50% reported cutting down on pulses alone).
  4. Disaggregating the figure, socially marginalised Dalits, and those with lesser access to food security schemes (such as migrants) faced more severe food insecurity.
  5. Comparing similar households, households in Uttar Pradesh and Jharkhand were faring among the worst performing States.
  6. These reductions will undoubtedly further accelerate the impending effects on children’s nutrition, as highlighted in the National Family Health Survey or NFHS-V (2019-20) and the Global Food Policy Report, 2021.
  7. The loss in nutrition may have come as a consequence of people losing their jobs and/or being pushed into lower income brackets over time due to the nature and handling of the pandemic.

Reduction in incomes

  1. Pew Research Center has indicated that the middle class in India has shrunk by over 32 million households in the past year.
  2. Survey suggests an over 70% reported reduction in incomes post the pandemic, with many falling into significant pre-carity.
  3. While 55% of households recalled earning less than ?5,000 per month prior to the pandemic, around 74% reported doing so in December 2020-January 2021.
  4. It is thus unsurprising that around 30% households were also seeking loans, and among them, at least half of them reported needing loans for food, all indicative of the debilitating food and financial insecurities that poor households continue to face.

Migrants on the margins

  1. The second wave of the pandemic comes on the back of an uneven recovery and persistence of crippling food and financial insecurity among the poorest households, especially migrants.
  2. Migrants who have travelled to cities only months ago are again travelling back to their villages.
  3. In one sample, 74% households had migrant members who had returned to the village during or after the lockdown (in mid-2020); 57% among them had gone back to the destination city by December-January, with 59% of those remaining also wanting to go back.
  4. There was limited support for migrants even in existing social protection schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
    1. For example, among the poorest, households with migrants were more likely to seek work than those without (43% versus 32%), but less likely to get work (49% versus 59%) under the scheme.

 

Food security is a must

  1. The Government has promised to restart the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) with 5 kg of rice/wheat per person per month for the next two months.
  2. The government needs to provide similar support for stabler longer periods;
    1. Expand the current offering to include nutritious foods like pulses;
    2. Address issues faced in existing schemes such as MGNREGA (like delays in wages and rationing); and
    3. New schemes such as a potential urban employment scheme should be explored.
  3. Food security schemes such as ration provided to children through anganwadis, Public Distribution System and mid-day meal scheme in primary schools need to be ramped up systematically and urgently.
  4. For migrants stuck in cities without work, community kitchens (such as Amma canteens) are required.
  5. The most vulnerable will need more predictable and stable support than ever before.

 

2) An idea on taxation that is worth a try

The proposal for a minimum global corporate income tax could be a game changer

GS 3: Government Resources – Tax & Non-Tax


Context:

  1. United States Secretary of the Treasury Janet L. Yellen’s proposal for global coordination of corporate taxation has huge implications and proposed a global minimum tax rate.
  2. If the major world economies agree and the U.S. Congress approves the increased tax rates, it would constitute a reversal of the trend in tax policies since the collapse of the Soviet Bloc 30 years back.
  3. Presently, governments need resources to help people through transfer of incomes, provision of more public services and also prevent business failures.
  4. But their resources have been adversely impacted by the economic downturn. Consequently, fiscal deficits have reached record high levels.
  5. The result is a massive increase in inequality between those who have gained in the stock markets and those who have lost employment and incomes.

Massive deficits in the budget

  1. The Joe Biden administration is proposing a massive $3 trillion package to boost the economy.
    1. This will be in addition to the $1.9 trillion package of relief already approved soon after the Biden administration took office.
    2. This package came after former President Donald Trump signed on the $900 billion stimulus package in end December 2020 and more than $2 trillion in mid-2020.
  2. Thus, in addition to the pre-existing deficits in the budget an additional 15% of GDP is being added in both 2020 and 2021. These are unprecedented levels.
  3. However, some rich Americans like Jeff Bezos have supported the idea of taxing the rich more.
  4. Such proposals have been around since 2011 when many of the rich in the U.S. and Europe had supported higher taxation on the rich.
  5. Warren Buffet had floated this proposal to strengthen capitalist economies after the global financial crisis of 2007-09.
  6. But, instead of raising the tax rate on corporations, the Trump administration cut the highest marginal tax rate from 35% to 21% with effect from January 1, 2018.
  7. When the Soviet Bloc collapsed in 1990, nations in east Europe were badly hit and needed capital infusion to overcome their economic woes.
    1. To attract global capital, they cut their tax rates sharply. This resulted in a ‘race to the bottom’.
    2. Nations in Europe were forced to cut their tax rates one after the other to not only attract capital but also to prevent capital from leaving their shores. This had global implications.
    3. Nations became short of resources and cut back expenditures on public services and encouraged privatisation.
    4. Governments lacked resources for education, health and civic amenities.
    5. The developing countries followed suit even though private markets do not cater to the poor. Thus, disparities increased within nations.

Base Erosion Profit Shifting (BEPS) and loss of revenue

  1. Namely, companies shifted their profits to low tax jurisdictions, especially, the tax havens.
    1. For instance, many of the most profitable companies like Google and Facebook are accused of shifting their profits to Ireland and other tax havens and paying little tax.
  2. EU has levied fines on Google and Apple for such practices.
  3. Former U.S. President Barack Obama in 2009 had said that the U.S. was losing $100 billion in taxes due to such practices.
  4. Since all the OECD countries have suffered due to cuts in tax rates and BEPS, initiatives have been taken to check these practices.
  5. Any country facing economic adversity can cut its tax rates to attract capital and force others to follow suit.
  6. India has also cut its tax rates since the 1990s. Most recently in 2019 the corporation tax rate was cut drastically to match those prevailing in Southeast Asia.
  7. Such cuts have implications for both inequality as well as for funding the schemes for the poor and the quality of public services.

The regressive tax structure

  1. Another implication of the reductions in direct tax rates has been that governments have increasingly depended on the regressive indirect taxes for revenue generation.
  2. Value-Added Tax and Goods and Services Tax have been increasingly used to get more revenues.
  3. This impacts the less well-off proportionately more and is inflationary.
  4. Direct taxes tend to lower the post-tax income inequality.
  5. Global financial capital which is highly mobile has effectively used tax havens and shell companies to shift profits and capital across the globe.

Conclusion

  1. The U.S. is crucial to this coordination — without its cooperation and agreeing, other countries cannot raise the rates.
  2. Now that the U.S. is taking the lead, perhaps this will happen even though it will not be easy given the clout of global capital in the corridors of power in all countries.
  3. There will also have to be cooperation among countries to tackle the lure of the tax havens by enacting suitable global policies.
  4. The impact of all this will be far-reaching impacting inequalities, provision of public services and reduction of flight of capital from developing countries such as India and that will impact poverty.
  5. So, a global minimum tax rate is worth a try in spite of the objection raised by the World Bank President.