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30 Jan 2020: The Hindu Editorial Analysis

1) Planned injustice: On Donald Trump’s peace plan for Israel and Palestine


  • CONTEXT: Trump’s peace plan will validate Israeli annexation of Palestinian areas without bringing peace.
  • U.S. President Donald Trump’s peace plan for Israel and Palestine is a failure from the start as the Palestinians rejected it even before the proposals were unveiled.

  • PALESTINIANS REJECTION OF THE PLAN: For any peace process to be successful, the first step is to take all conflicting parties into confidence. 
  • By that standard, U.S. President Donald Trump’s peace plan for Israel and Palestine is a failure from the start as the Palestinians rejected it even before the proposals were unveiled. 
  • The Palestinians believe that Mr. Trump, whose administration recognised Jerusalem as Israel’s capital in 2017, is not an impartial negotiator between the two sides. 
  • And the plan Mr. Trump unveiled on Tuesday in the White House seems to be confirming Palestinian concerns. 
  • PLAN IMPLICITY FAVOURS ISRAELIS: Mr. Trump has thrown his weight behind the two-state solution. But to achieve the solution, the plan overly favours the Israeli positions and demands excessive concessions from the Palestinians. 
  • According to the plan, Israel can annex the Jordan Valley as well as the Jewish settlements on the West Bank. It also recognises Jerusalem as the “undivided capital” of Israel, while the Palestinian capital could come up in the eastern outskirts of the city. 
  • It proposes to enlarge Gaza and swap the Arab-populated towns in southeast Israel with Palestine for parts of the West Bank. 
  • In effect, the Palestinians would lose roughly 30% of the West Bank, their claim to Jerusalem and the right to return of refugees. 
  • In return, they will get an independent state in a shrunken West Bank and an enlarged Gaza connected through a tunnel that would practically be encircled by Israel.
  • DWINDLING SUPPORT FOR PALESTINIANS: It is true that the Palestinians’ negotiation powers are at their weakest point. 
  • Their leadership is divided and the support they once enjoyed in Arab nations is also eroding. Representatives of the UAE, Bahrain and Oman were present at the event in Washington in which Mr. Trump unveiled the plan. 
  • Egypt also offered its support, while Saudi Arabia cautiously welcomed talks between Israel and Palestine. 

  • BUT ON WHAT CONDITIONS? It’s hard to overlook the injustice in demanding that the Palestinians accept further annexation of the West Bank. 
  • Issues such as the status of Jerusalem and the right to return of refugees, an internationally accepted right, and the final borders should be resolved through talks, not by dictating terms to one party. 
  • Even to achieve statehood under the proposed conditions, the Palestinian Authority (PA) is required to crack down on Hamas and Islamic Jihad (which is practically impossible as both operate from Gaza and the PA runs only West Bank territories), stop supporting families of those jailed or killed by Israel and stop challenging Israeli actions on international fora. 
  • It is virtually impossible for any Palestinian leader to sell these proposals to a people who have been resisting Israel’s occupation for decades. 
  • Under the current conditions, it looks more like a plan for further annexation of territories by Israel than one that seeks constructive and lasting peace.

 

2) The Budget tightrope


  • CONTEXT: Govt must execute reforms while avoiding fiscal deficit increase
  • EXPECTATIONS FOR RATE CUTS: In October 2019, the government made a large supply-side correction by reducing corporate tax rates. 
  • By setting the rate at 15 per cent for new manufacturing companies, expectations for more reforms have gone up. 
  • The general thrust of these expectations include personal income tax (PIT) rate reduction, removal of dividend distribution tax (DDT), improving the investment climate and measures to boost declining aggregate consumption.
  • BUDGET? The budget is a balancing act — between expenditure and revenues of the government, with an eagle eye on the fiscal deficit. Any rate reduction in PIT or tax expenditure would increase the fiscal deficit burden. 
  • OPTIONS TO REDUCE FISCAL DEFICIT: Presently, PIT rates are 5 per cent, 20 per cent and 30 per cent for different income brackets. 
  • In effect, there is no tax for individuals having income up to Rs 5 lakh per annum, considering the rebate they enjoy. 
  • The gap between 5 per cent and 20 per cent is too large, and affects tax progressivity. In order to address this disparity, it could insert tax rates in between for better progressivity. 
  • Increasing the tax threshold limit will definitely be required, just to pare it with inflation.
  • If the government decides to scrap DDT from the corporate side and bring it on to the personal income tax side, ( to be taxed in the hands of the recipient), there is a good chance that it will be revenue-neutral. 
  • Boosting savings and channelising them for asset creation is good economics, and certainly good politics. 
  • India has seen significant reduction over time in the savings ratio (with respect to GDP). The government may use the occasion to increase the Section 80C exemption limit by some amount.
  • HOUSING: Private investment in housing requires urgent attention. 
  • The government may think of increasing the tax rebate limit on housing loan interest for self-occupied properties. 
  • At present this is Rs 2 lakh. A back-of-the-envelope calculation shows that this gives a loan of Rs 25 lakh only. That is low for metro and tier-2 cities. 
  • People consequently have to mobilise their own savings to buy property. Increasing the rebate to a reasonable level will also boost the credit market. 
  • Undoubtedly, this will entail some revenue foregone but the real estate market recovery will have a positive impact on the economy. 
  • In the US, revenue foregone on this rebate is more than 1.5 per cent of GDP. Ours is much less.
  • INFRASTRUCTURE FINANCING: The government may also bring measures to improve infrastructure financing. Globally, there are many infra funds with an investable surplus. 
  • A change in tax laws could also be on the agenda of the FM. That would bring us at par with some Asia-Pacific countries. 
  • Current capital gains tax laws are complicated and have multiple rates and multiple nuanced provisions — their rationalisation is one clear ask.
  • IMPROVING PRODUCTIVITY: Low productivity growth holds back real wage growth. It also brings concerns about equity, and it is important that improving productivity is given due attention. 
  • In this budget, the government should bring in measures to improve productivity. No doubt, this will require some fiscal incentives. 
  • India’s revenue foregone is at 6 per cent of the GDP. The US, the UK and Canada have far more. 
  • If productivity has to be given attention, the deductions have to be far more targeted and some of the other items that are otherwise occupying the books, need to be weaned out. 
  • In India, a large part of the revenue foregone for corporate tax is for accelerated depreciation, deduction for export units located in SEZs, and undertakings engaged in generation, transmission and distribution of power, and a small part for expenditure on scientific research. 
  • Rationalising and removing some of this would be on the cards.
  • SOLUTIONS: It is also expected that with reduction in the PIT rate, the government will make efforts to widen and deepen the tax base using data analytics.
  • An effective dispute resolution mechanism seems to be the need of the hour-
  • An alternate dispute resolution mechanism can help in de-clogging the choked appellate channels and promote better compliance. This will help companies improve their balance sheets and their bankability.
  • All these reforms or changes would, finally, need fine fiscal balancing.

 

3) School of hard knocks


  • CONTEXT: The Karnataka police have registered a case under sections 124A and 504 against Shaheen School in Bidar and its management, for enacting a play by Class 4 students against the Citizenship (Amendment) Act (CAA). 
  • MISUSE OF SEDITION LAW: Laws are expected to be even-handed in application. But more importantly, they must fit into the democratic system of our nation. 
  • The law of sedition was a colonial instrument designed to shore up imperial power by keeping subjects in check.
  • Probing schoolchildren, their parents and teachers for sedition takes the application of this law to a new low.
  • The bar for sedition is so low in India that even junior school students can attract the attentions of this colonial era law, which should have been struck off the statute books long ago. 
  • The provisions penalise those who excite disaffection against the government and intentionally cause insult in order to provoke a breach of the peace. 
  • The children who took part in the play which excited disaffection and threatened the peace, would be nine years old, on average. These children, their families and their teachers are being probed by the police, who are disrupting their lives.
  • OPPOSITION SHOULDN'T TANTAMOUNT TO ANTI-GOVERNMENT: The video recording suggests that the play only reflected contemporary reality - the protests which have erupted all over the country against the National Register of Citizens (NRC) and the CAA. 
  • Their purpose is not to show the government in a good light, but to oppose its policies, and the opposition has been routinely vocal, employing terms that the ruling party has reason to be sensitive about. 
  • Theatre holds up a mirror to society, and if the picture isn’t pretty, the mirror is not at fault. Of course, the law is even-handed. 
  • Last month, the Shree Rama School, also in Karnataka, and its president, an RSS leader, were booked for staging a play in which the Babri Masjid demolition was re-enacted. This play, too, reflected reality.
  • DOING AWAY WITH SEDITION: The law of sedition was a colonial instrument designed to shore up imperial power by keeping subjects in check. 
  • Laws are expected to be even-handed in application. But more importantly, they must fit into the democratic system of our nation. 
  • It has no relevance in an independent nation where the people are sovereign, and where the right to free speech includes the right to question or lampoon the political leadership, and even to show it in a bad light. 
  • And it is completely irrelevant in the case of children enacting a school play about current affairs, and receiving some political education in the process.

 

4) On rural jobs scheme fund crunch: A mindset problem


  • It needs no reiteration that the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has acted as insurance for landless labourers during crop failures, agrarian crises and periods of a stressed economy. 
  • With the ongoing economic slowdown resulting in depressed rural wages and the lack of adequate opportunity to work, the MGNREGS has provided much needed succour and this explains why demand for it has peaked in the last few months across various parts of the country. 
  • The report that 15 States have already overshot budgets for the scheme’s implementation and many have not been able to pay wage dues should be a cause for concern. Compounding the situation is the fact that the Centre is on the verge of running out of funds. 
  • This problem was not unexpected. While in absolute terms, the allocations for the scheme in the budget presented in July 2019 were higher compared to the previous financial year, the outlay fell in relative terms as a percentage of the overall allocations. 
  • The outlay was also lower than the actual expenditure in the previous year, which indicated the importance of the scheme in arresting rural distress. MGNREGS has been in place for more than a decade. The present Central government’s approach has been to treat it as a secondary scheme that cannot be done away with. 

  • Several studies have pointed to its effect on the lives of the rural poor by providing employment in the agricultural off-season, offering alternative jobs during years of lean agricultural growth and as a safety net during crop failures. 
  • Researchers have also found that a large proportion of those availing the scheme are from the 18-30 age group, which suggests that this has addressed the problem of youth unemployment, which according to official statistics has peaked in recent years. 
  • Besides, other studies have also shown that MGNREGS has improved agricultural productivity where it has been implemented properly. The scheme, by now, should have been an ideal vehicle for rural development and not just a fallback option. 
  • It could also involve rural workers in skilled work and pay them more wages for asset creation beyond just roads, wells and check-dams. A change in mindset is therefore key in not just tiding over problems such as funding and wage-delays, but also in using them as an opportunity to address the slowdown. 
  • Economists have pointed to a slowing of rural consumption, which has also dragged down the economy. By paying wages adequately, and on time, to rural workers, the government could allow for more spending and consumption and stimulate the economy. 
  • The government should use the MGNREGS as a means to spur the rural economy. A more meaningful allocation for the scheme in the budget is therefore a much needed imperative.