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28 Jan 2020: The Hindu Editorial Analysis

1) The Stress In State Finances

  • CONTEXT: The unaudited fiscal data of 21 states, which account for around 90 per cent of India’s GDP in 2017-18, for the first eight months (April-November) of the current financial year, reveals some sombre trends.
  • General government spending was one of the major drivers of economic growth in the first half of this fiscal year.
  • And with state governments accounting for a majority of total general government spending, it is critical to analyse the trends in their finances.


  • FALL IN REVENUE RECEIPTS: First, at the aggregate level, revenue receipts of these states have grown by a mere 4.6 per cent, sliding down from 15.3 per cent over the same period last year.
  • Under the broad rubric of revenue receipts, the analysis shows that the states’ share in Central tax devolution has slowed the most, contracting by 2.3 per cent during this period, after having grown by 12.1 per cent over the same period last year.
  • This fall likely reflects an adjustment made for the higher-than-mandated devolution carried out in during the last fiscal year.
  • This was a consequence of the optimistic forecast of the Centre’s gross tax collections in its revised estimates for that year, relative to the subsequently available provisional actuals.


  • FALL IN TAX REVENUES: Moreover, the Centre’s gross tax revenues are expected to fall short of the budgeted target by a considerable Rs 3- 3.5 trillion this fiscal year.
  • Based on the shortfalls in the Centre’s tax collections last year, and the estimated gap this year, the aggregate tax devolution to all states may be as much as Rs 1.7 – 2.2 trillion lower in the current fiscal year than what was budgeted.


  • REVENUE RISK STARING AT THE STATE GOVERNMENTS: In addition, the states’ own non-tax revenues have contracted by 1.5 per cent during the first eight months of this fiscal year, after an expansion of 15.3 per cent over the same period last year.
  • Further, growth of states’ own tax revenues, the largest source of their revenue receipts, eased to a tepid 2.2 per cent during this period, down from a healthy 16 per cent over the same period last year, dampened, in part by the modest rise in collections of the State Goods and Services Tax (SGST).
  • However, grants from the Centre to these states grew by 26.9 per cent during these eight months, up from 18.7 per cent last year, driven likely by a 72.7 per cent expansion in the GST compensation paid to all states.
  • This amounted to Rs 647 billion in April-November 2019, up from Rs 374 billion in these months last year.
  • Subsequently, another tranche of Rs 359 billion was released to states in December 2019, comparable in size to the release in the first eight months of last year.
  • The primary factor boosting the GST compensation seems to be the low growth in states’ GST revenues relative to the mandated 14 per cent annual growth for the five-year transition period.


  • CONCERNS OVER THE DELAYS IN THE COMPENSATION: Some state governments have voiced concerns over the delays in receipt of the compensation amount in recent months, which has complicated their fiscal position and cash flow management.
  • The timing of receipt of the compensation is the second major revenue risk facing state governments.
  • If compensation for one or more months of the current fiscal year gets delayed to the next fiscal year, we may well find some traditionally revenue surplus states staring at a revenue deficit as well as a sharp rise in their fiscal deficit this year.
  • But it seems states will have to start gearing up for life without the GST compensation.
  • The brunt of subdued revenue expansion is clearly faced by capital expenditure, whose growth shrank to 1.4 per cent in the first eight months of this fiscal year, down from a healthy 19.8 per cent over the same period last year.
  • The data indicates a multi-fold increase in the aggregate revenue deficit of these states to Rs 829 billion (April-November 2019), up from Rs 155 billion over the same period last year.
  • Their fiscal deficit has also widened to Rs 2,643 billion over this period (53 per cent of the budgeted amount), up from Rs 2,199 billion last year (48.7 per cent of the budgeted amount).


  • MARKET BORROWINGS BY STATES: It is thus not a surprise that market borrowings or State Development Loans (SDLs) have risen substantially this year.
  • According to ICRA’s estimates, net SDL issuance of all states and eligible union territories (UTs) rose by 15.5 per cent to Rs 2,806 billion in the first three quarters of this fiscal year, up from Rs 2,429 billion last year.
  • This trend has been exacerbated by larger redemptions this year. Accordingly, the combined gross SDL issuance have expanded by a significant 34.9 per cent to Rs 3,874 billion this fiscal year (April-December), up from Rs 2,872 billion last year.
  • The calendar for state government market borrowings for the fourth quarter indicates tentative gross SDL issuances of Rs 2,086 billion in the quarter, implying a moderate 9.1 per cent growth. But, this conceals a large dip in redemptions.
  • According to our estimates, there will be a dip in redemptions during the fourth quarter, implying that net SDL issuances will expand by a staggering 55.7 per cent to Rs 1,766 billion in Q4FY20, up from Rs 1,134 billion last year, underlining the stress in state government finances this year.


  • RISING FISACAL DEFICITS: If market borrowings in the fourth quarter are in line with the amounts indicated, total gross borrowing this fiscal year would rise by 24.6 per cent to nearly Rs 6 trillion, up from Rs 4.8 trillion last year.
  • Moreover, net borrowings by states would rise by an even sharper 28.3 per cent to Rs 4.6 trillion this year, becoming nearly as large as the Central government’s net market borrowings of Rs 4.7 trillion that have been announced so far for this year.


2) Warnings From Europe

  • CONTEXT: Six resolutions have been tabled in the European Parliament against the Citizenship Amendment Act and proposed NRC, as well as the detentions and restrictions on communications in Kashmir, show India in poor light.
  • The resolutions, which will be taken up for discussion on January 29, varyingly denounce the CAA as having the potential to create the largest crisis of statelessness in the world.
  • And also having adverse consequences for India’s internal stability, of being discriminatory on the grounds of religion, and of violating the principle of equality.
  • In all, the resolutions involve 626 of the 751 members of the European parliament.
  • Only one of the resolutions, by a centre-right bloc in the EP, was willing to give any quarter to India, coming close in its formulation to India’s position that these are internal matters on which a sovereign power has the right to take its decisions.


  • INDIA-EU PROPOSED FTA: The resolutions have come weeks before Prime Minister Narendra Modi is to go to Brussels for the EU-India summit in March, an important event in Delhi’s diplomatic calendar.
  • The two sides have been trying to tie up a Bilateral Trade and Investment Agreement, a pact that acquires more significance after India’s withdrawal from the Regional Comprehensive Economic Partnership.
  • The EU is India’s largest trading partner and some parliamentarians had earlier said that any trade agreement with India should include a human rights clause.


  • NEW DELHI'S STAND: Delhi has not made an official statement yet, but has put out unofficially that the European Parliament has no business debating the authority and rights of a democratically elected government and its legislature.
  • However, it has to be borne in mind that just three months ago, it was the Indian government that invited two dozen European lawmakers from India-friendly far-right groups and took them on a guided tour of Kashmir as part of its diplomatic outreach to explain the August 5 decisions, hoping their pro-India views would carry the day.
  • As a seasoned international player, the Ministry of External Affairs should know that it cannot take the position that only favourable views on its internal affairs are kosher.


  • INDIA'S CHALLENGES AGAINT GLOBALIZATION: Today’s globalised world is as concerned about the movement of people as it is about the movement of goods.
  • Actions by any country with potential for causing ripples elsewhere worries the international community.
  • India cannot turn its face away from such concerns though no European nation has criticised the government’s moves.
  • The resolutions should also give pause for Delhi to consider how much headway diplomacy can make when the ground situation inspires little confidence.


3) On political candidates with criminal records: Crime and politics

  • The Supreme Court has taken a timely decision by agreeing to hear a plea from the Election Commission of India (ECI) to direct political parties to not field candidates with criminal antecedents. 
  • The immediate provocation is the finding that 46% of Members of Parliament have criminal records. While the number might be inflated as many politicians tend to be charged with relatively minor offences - “unlawful assembly” and “defamation”.
  • The real worry is that the current cohort of Lok Sabha MPs has the highest (29%) proportion of those with serious declared criminal cases compared to its recent predecessors. 
  • Researchers have found that such candidates with serious records seem to do well despite their public image, largely due to their ability to finance their own elections and bring substantive resources to their respective parties. 
  • Some voters tend to view such candidates through a narrow prism: of being able to represent their interests by hook or by crook. Others do not seek to punish these candidates in instances where they are in contest with other candidates with similar records. 
  • Either way, these unhealthy tendencies in the democratic system reflect a poor image of the nature of India’s state institutions and the quality of its elected representatives.
  • The Supreme Court has come up with a series of landmark judgments on addressing this issue. It removed the statutory protection of convicted legislators from immediate disqualification in 2013, and in 2014, directed the completion of trials involving elected representatives within a year. 
  • In 2017, it asked the Centre to frame a scheme to appoint special courts to exclusively try cases against politicians, and for political parties to publicise pending criminal cases faced by their candidates in 2018. 
  • But these have not been a deterrent to legislators with dubious credentials. Perhaps what would do the trick is a rule that disallows candidates against whom charges have been framed in court for serious offences, but this is something for Parliament to consider as an amendment to the Representation of the People Act, 1951. 
  • This denouement, however, is still a pie in the sky given the composition of the Lower House with a number of representatives facing serious cases. Ultimately, this is a consequence of a structural problem in Indian democracy and the nature of the Indian state. 
  • While formally, the institutions of the state are present and subject to the electoral will of the people, substantively, they are still relatively weak and lackadaisical in governance and delivery of public goods, which has allowed cynical voters to elect candidates despite their dubious credentials and for their ability to work on a patronage system. 
  • Successive judgments to bar criminal candidates from contesting have done little. While judicial pronouncements on making it difficult for criminal candidates to contest are necessary, only enhanced awareness and increased democratic participation could create the right conditions for the decriminalisation of politics.


4) On A.P. Cabinet nod to abolish Legislative Council: Abolition Politics


  • The abolition and revival of the second chamber in State legislatures have become matters of political expediency. Andhra Pradesh is the latest State to favour the alteration of the status quo regarding the Upper House, in an Assembly resolution for its Legislative Council’s abolition. 
  • A.P. Chief Minister Y.S. Jagan Mohan Reddy’s drastic step comes after key legislation intended to take forward his three-capital proposal was referred to a select committee by the Council, in which his party does not have a majority. 
  • His grievance: the Council is working with a political agenda to block his proposal. While the need for a bicameral legislature in the States has often been questioned, few would support the idea that the potential difficulty in getting the Council’s approval should be a reason for its abolition. 
  • Chief Ministers ought to bear the possible delay that the Council’s opinion or course of action may cause, and seek to build a legislative consensus instead of pushing their agenda through. 
  • In particular, Mr. Reddy will have to listen to different voices on his proposal to locate the State High Court in Kurnool, its legislature in Amaravati, and the government secretariat in Visakhapatnam.
  • A.P.’s proposal will bear fruit only if Parliament passes a law to that effect, based on the State’s request. Recent experience suggests that States without a Legislative Council favour its revival. Rajasthan, Assam, Odisha and Madhya Pradesh have passed resolutions for a revival, but are yet to get parliamentary approval. 
  • In Tamil Nadu, at least two erstwhile DMK regimes had favoured revival, and even parliamentary approval given in 2010 did not result in the actual re-establishment of the Council, which was dissolved in 1986. In A.P., the N.T. Rama Rao regime sought its abolition in 1983, and it was approved by Parliament in 1985. 
  • Under the Congress’s Y.S. Rajasekhara Reddy, the Legislative Council was revived in 2007. It is quite clear that wherever the Council is sought to be revived or abolished, there is no consensus. 
  • A parliamentary committee that went into the Bills introduced in respect of Assam and Rajasthan suggested that the Centre evolve a national policy on having an Upper House in the States. 
  • The larger question is whether the Councils are serving their intended purpose - to take a considered view on matters without being influenced by electoral considerations. If the Upper Houses are used only for accommodating leaders who have lost general elections, there may not be much meaning in their existence. 
  • There is less justification for having separate representation in Councils for graduates and local bodies when democracy has taken roots and Assemblies are representative of all sections.