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Current Events 14 March 2016



14 MARCH 2016

India-Bangladesh drill in Sundarbans

In an attempt to bring in more synergy in coordinated border management, border-guarding forces of Bangladesh and India conducted their first-ever joint exercise Sundarbans Maithri’ in the riverine borders of the Sundarbans.

The exercise between the Border Security Force (BSF) and the Border Guard Bangladesh (BGB) commenced with troopers, including dog and bomb squads, from both the forces carrying out joint searches of cargo vessels on the Ichamati river, which also serves as the international border between the two countries.

Deterrent to smugglers:

· The drill “can be a big deterrent to smugglers and criminals who will have to deal with the combined efforts of both the forces”.

· Smuggling of cattle has come down by nearly 60 to 70 per cent in the recent times.

· BSF officials also flagged concerns about smuggling of Fake Indian Currency Notes (FICN).

· Regarding concerns about smuggling of Phensedyl from India to Bangladesh, BSF officials said the recent decision to ban on the cough syrup would help the forces to stop smuggling. Earlier, in order to attract penal provisions under the Narcotic Drugs and Psychotropic Substances (NDPS) Act, more than 10,000 bottles had to seized.

Action plan to tackle forest fires on Tirumala hills

The Tirupati wildlife division has chalked out an action plan to tackle forest fires by deploying over 200 staff at hilltops and base camps in the Sri Venkateswara National Park spread over 353 sq. km, in Chittoor and Kadapa districts.

It is a dual strategy which covers fighting forest fires and tackling red sanders smuggling. The young teams stationed at vulnerable points will not only work as fire-fighters but also extend combing services in flushing out woodcutters from deep inside the national park in addition to preventing them from entering the core belt at the base camps

Forest fires are noticed during summer in Seshachalam hills when pilgrims cook food; shepherds set wild grass ablaze expecting greens shoots; and red sanders smugglers and woodcutters set fire to bushes for easy detection of terrain.

Pedestrian routes for pilgrims at the down-reaches of Tirumala, such as Papanasanam, Tumburu Theertham, and several theerthams (sacred waterfalls) in Seshachalam hills were cleared and bushes cut for 10-ft both sides. 

Goa gears up for Shigmo festival

Goa is gearing up for its traditional spring festival, Shigmo 2016, to be held from March 25 to April 7.

Shigmo is one of the major festivals of the Hindu community celebrated by the Konkani diaspora and Holi is part of it.It is a unique festival filled with colour, music and dance.The life of a Goan is depicted through elaborate folk performances by local men and women who dance tirelessly in processions, along with the float parade, which depicts themes from ancient Hindu scriptures. 

This Budget is not business as usual 

This Budget, which has sought to combine the virtues of macroeconomic stability with growth, is a good example.

Path of fiscal consolidation

First, the preferred path of fiscal consolidation.

Budget achieved the fiscal deficit target of 3.9 per cent for the current year and would stick to a target of 3.5 per cent for the coming year. This is consistent with the path of fiscal consolidation stipulated in the Fiscal Responsibility and Budget Management Act of 2003 (FRBM Act).It has done this notwithstanding expenditure pressures of Rs.1.02 lakh crore from the Pay Commission and Rs.7,500 crore from the One Rank, One Pension scheme. Added to these are global headwinds, rural economy in stress, with two successive years of drought with subdued private investment.

The Budget has also announced “the constitution of a Committee to review the implementation of the FRBM Act and give its recommendations on the way forward”. Historically, high fiscal deficit was a contributor to the balance of payments crisis of 1991. The FRBM Act was enacted in the context of the deteriorating fiscal health in 2000. It was thereafter referred to the Standing Committee. Its report observed that “Numerical ceilings and the timeframes set for attaining the said levels induce excessive rigidity into decision-making, depriving governments of the flexibility needed to respond to the exigencies in an appropriate manner, to serve the national interest best.” They did not favour specified levels of deficits which “might lead to decline of low level of funds already available for developmental purposes and towards providing basic services to vast populations below the poverty line.” Instead, they sought the modification of the words “pre-specified levels” to be substituted with “pre-specified prudent levels”.

The intellectual rationale for a 3 per cent fiscal deficit target remains somewhat opaque. Its most proximate source lies in the Maastricht Treaty, namely the Stability and Growth Pact.

Contemporary literature argues that high debt-to-GDP ratios cause macroeconomic instability, which is not good for growth. It is in this context that the G20 ministerial meeting in March 2009 examined the IMF paper on fiscal multipliers which measures the ratio of a change in output to an exogenous change in fiscal deficit. The size of the fiscal multipliers are country, time and circumstance-specific. These are relevant in the Indian context, since the debt/GDP ratio has significantly come down from 83.3 per cent in 2003-04 to 66.1 per cent at end March-2014. Since fiscal sustainability is the equivalent of public debt sustainability, a declining debt ratio enlarges fiscal space. Accepting a 3.5 per cent fiscal deficit target for next year enhances credibility but cramps demand. A higher outlay both for infrastructure and agriculture could have multiplier gains in spurring private investment. These have sought to be met through extra budgetary resources, as a below-the-line entry from non-tax revenues.

Spurring growth remains our overarching objective. The mandate of the proposed committee on FRBM should be broader than recalibrating fiscal deficit targets. It should evolve an acceptable framework for a Macro Stability Responsibility Act (MSRA), to replace the FRBM. It needs to encompass a wider set of criteria which should also enable contra-cyclical measures depending on time and circumstances.

Implementation of Aadhaar

The government has introduced the far-reaching legislation, The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Service) Bill, 2016, enabling the Aadhaar platform to be effectively used for direct benefit transfers (DBT) for multiple beneficiary programmes. These go beyond LPG to cover fertilizers, health, education and the now rationalised centrally sponsored schemes (CSSs). Concerns have been raised on whether it should have been a Money Bill. Article 110 of the Constitution stipulates that a Bill shall be deemed to be a Money Bill if “it contains only provisions dealing with the matters specified, more importantly, appropriation of moneys out of the Consolidated Fund of India”. This revised Bill ensures this by deleting all non-money aspects. Bill meets the satisfaction of the Speaker since Article 110 (3) stipulates that “if any question arises whether a Money Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final”. Beyond the Bill, it must be recognised that the obstinacy of the Opposition to block legislation earlier sponsored wholly by them places the government in an unenviable position. Governments in office are enjoined to deliver. Betterment of the lives of the people cannot suffer the palpably irrational action of a limited group. Concern about privacy has been overcome by provision of clauses 28 to 47. Issues of security are no doubt paramount and any possible misuse by political parties in office to secure information using the security ruse must be jealously safeguarded.

The implementation of Aadhaar, however, needs three ingredients. First, interoperability between platforms in case other platforms are used to deliver benefits. Second, the tendency to adopt non-verifiable alternative platforms, bypassing the Aadhaar, can lead to abuse. Third, while disbursements through DBT using Aadhaar can be quickly effected, withdrawals would require a significantly faster pace of ensuring reliable connectivity, covering all 2,50,000 Panchayats. The suggestions by the Telecom Regulatory Authority of India of using public-private partnership for a faster implementation now deserve priority.

Third, the Budget seeks to redefine the relationship between the Ministry of Finance and the RBI. The proposed amendment of the RBI Act of 1934 and the constitution of a Monetary Policy Committee will dispel current ambiguities and “will add a lot of value and transparency to monetary policy decisions.” Not only domain knowledge, the balance of decision-making in the Committee with the final word on interest rates resting with the Governor of the RBI, fostering greater public debate on evolution of Monetary Policy. Monetary and fiscal policy need to act in tandem, keeping in view the twin objectives of growth and acceptable inflation band.

This Budget is not a run-of-the-mill act. In conjunction with an innovative Economic Survey, it embeds several innovative ideas. SaaS: A perfect storm brewing for India

SaaS: A perfect storm brewing for India

Software-as-a-service (SaaS) is a software distribution model in which applications are hosted by a service provider or vendor. These applications are made available to customers over a network, typically the Internet.

Freshdesk(SaaS) start-up which now has over 600 employees sells its customer support software to over 50,000 customers globally. Besides small and mid-sized businesses, it has also bagged large clients such as Sony Pictures, German fashion house Hugo Boss and Japanese automaker Honda.

Indian start-ups have an edge, as mobility is also becoming a key requirement by small and medium businesses for software as a service. Indian start-ups are building world class solutions for the mobile-first users.This strength combined with easy access to global customer base online will help India to become a very strong player in the global SaaS industry.

RateGain is selling its software to about 12,000 clients in over 120 countries. It helps businesses including airlines, cruise lines, car rental providers and hotels streamline operations and sales. It does this by offering revenue management and real-time pricing data and analytics.

India's unfair advantage

Experts say that Purpose built global SaaS products will see hyper growth and adoption by small and medium businesses. It will contribute to more than 75 per cent of the public cloud revenues driving the global SaaS industry to $132 billion (Rs.8.8 lakh crore) revenues by 2020, of which small and medium business SaaS is expected to reach $76 billion (Rs.5 lakh crore), according to a joint report released this month by Google and venture capital firm Accel Partners.

The report says the demand from small and medium businesses in U.S. is projected to double. There is also an expected explosion of demand from Europe.

Indian start-ups have the opportunity to grab eight per cent of this revenue by creating purpose built innovative solutions targeted at small and medium businesses globally.

India’s competitive advantages will help Indian SaaS companies create $50 billion (Rs.3.3 lakh crore) in value over the next 10 years, according to the Google and Accel report.The report mentioned that there are over 500 SaaS start-ups in the country.Availability of local talent, favourable unit economics and a vibrant venture capital community in SaaS space is also driving this growth.

Reverse innovation

Software-as-a-service (SaaS)  observing an increasing demand for their products from businesses based in domestic market and developing nations.

Capillary Technologies founded by IIT-Kharagpur graduates Aneesh Reddy, Krishna Mehra and Ajay Modani, launched the firm in India to solve the key pain points of the local retailers. Capillary's innovation which helps retailers understand customer purchase behaviour through artificial intelligence later found market in other countries.The company has also become a case study of 'reverse innovation' for Harvard Business Review.

Twists and turns in Fiscal Responsibility Act

The idea of a Fiscal Responsibility Act was first introduced by then Finance Minister Yashwant Sinha  in his Budget speech of 2000-01.For medium-term management of the fiscal deficit we also need the support of a strong institutional mechanism embodied in a Fiscal Responsibility Act. Finance Minister Yashwant Sinha had set up a committee to examine the issue & rerrrrrecommend

recommend how to best move forward.This Committee, under the chairpersonship of the then Secretary of Economic Affairs E.A.S Sarma, referred to fiscal rules of around 20 countries including those of the US, Canada, Japan, Brazil, South Africa and the European Union. After its deliberations, it came up with a draft Bill which mandated reducing the revenue deficit to nil within five financial year starting April 1, 2001 and also bringing down the fiscal deficit to two per cent of the GDP in the same period.

Major concern

Major concern surrounding the draft Bill at the time is Bill’s provision for a Fiscal Management Review Committee. This committee was to be chaired by the Prime Minister and had the Finance Minister, Speaker, Chairman of the Lok Sabha, the Leaders of the Opposition in both houses of Parliament, the Comptroller and Auditor General (CAG) of India and the Governor of the Reserve Bank of India as its members.

The CAG disagreed with the creation of such a committee and placed its dissent on record in the E.A.S Sarma Committee Report. “The proposed committee will be an encroachment on the prerogative of the finance minister, who has to present reports/policy statements of the government to the Parliament for its consideration and debate. In fact, such a body shall create unanticipated legal and procedural problems,” the CAG’s dissenting note said.

“[The] setting up of a Fiscal Management Committee through statute is not consistent with the existing Constitutional arrangements and it goes against the basic structure of the Constitution,” the note added.


In other words,Such oversight would hamstring the finance minister and would lay unnecessary pressure on his ability to meet the FRBM targets.

The Fiscal Responsibility and Budget Management Bill, 2000 was examined by a Standing Committee on Finance, chaired by Shivraj Patil.The overall view of the Committee was Planned deficit financing is a good idea as long as it creates productive assets, according to the report. “However, the numerical ceilings and the time frame set for attaining the said levels induce excessive rigidity into the decision making depriving the Governments of the flexibility needed to respond to the exigencies in an appropriate manner, to serve the national interest best.”

Political will

The objective of this Bill is to impose some self-discipline on the government on fiscal matters. But this is no more than an eyewash. If the government has the required political will to control deficit, then it does not need any legislation.

The FRBM bill was passed by parliament in 2003 and put into place in 2004.The targets set by the Act for the government was to bring the revenue deficit down to zero and the fiscal deficit to below three per cent of GDP by 2008-09, among other procedural rules. A committee was formed under Vijay Kelkar to put forth a roadmap for the implementation of the Act.


The 13 Finance Commission reviewed the Act in 2009 and reiterated the view of Shivraj Patil Standing Committee report that the numerical ceilings needed greater flexibility and that there was a need to keep in the mind the effect global economic events could have on these targets.

First, we recommend that the MTFP (Medium Term Financial Plan) make explicit the values of the parameters underlying expenditure and revenue projections and the band within which these parameters can vary while remaining consistent with FRBMA targets. This will enable the government to make an evidence-based case for relaxation of these targets, should such circumstances arise,” according to the 13 Finance Commission’s report’s chapter named ‘Revised Roadmap for Fiscal Consolidation’.

“Second, we recommend that the FRBMA specify the nature of shocks that would require a relaxation of FRBM targets. These would include agro-climatic events of a national (rather than regional or state-specific) dimension, global recessions impacting the country’s exports and shocks caused by domestic or external events like asset price bubbles or systemic crises in important sectors like the financial markets,” it added.

Following these recommendations, the Act was amended via the Finance Act 2012. One of the amendments was that, along with the Medium-Term Fiscal Policy Statement, Fiscal Policy Strategy Statement and the Macroeconomic Framework Statement, the Central Government would also have to lay a Medium Term Expenditure Framework Statement before Parliament.

Big change

Another big change made in the amendment was that ,instead of targeting the revenue deficit, the FRBM Act would target a new concept, the ‘effective revenue deficit’—the difference between revenue deficit and grants for creation of capital assets. In essence, this placed capital expenditure out of the purview of the revenue deficit.



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