External Sector is returning to the path of strength and resilience: Economic Survey

As per the Economic Survey, the outlook for the external sector is perhaps the most favorable since the  2008 global financial crisis and especially compared to 2012-13, when elevated oil and gold imports fuelled a surge in the current account deficit. The Global Economy is likely to gain strength if lower global crude petroleum prices drive the demand recovery process in emerging markets. After the global crisis of 2008, the global economy came under a cloud of uncertainty and prolonged weakness in euro area particularly since 2011. This led the IMF to revise the global growth downwards.  The global economic environment appears poised for a change for the better with recent sharp fall in the international prices of crude petroleum which is expected to boost global aggregate demand.  On the Issue of India’s Merchandise Trade, over the last ten years, India’s Merchandise Trade (on custom basis) increased manifold from US$ 195.1 billion in 2004-05 to US$ 764.6 billion in 2013-14 helping in improving India’s share in global exports and imports from 0.8% to 1.0% respectively in 2004 to 1.7% and 2.5% in 2013.   ·         The Economic Survey says the overall trade performance signals an opportune time for withdrawal of restrictions on gold. ·         The financial inflows in excess of the financial requirements has helped shore up foreign exchange reserves (US$ 328.7 billion at the end of January,2015). These have helped the lessen the vulnerability concern that led to serious stress last year.  ·         Reconciling the benefits of the financial inflows with their impact on exports and the current account remains an important challenge going forward.                                                    In 2013-14, India’s trade deficit(on custom basis) declined to US$ 135.8 billion from a high level of 190.3 billion in 2012-13 mainly on account of a decline in the growth of imports even though growth in exports was sluggish at 4.7%. The decline in imports owed to lower growth in oil imports (0.4%) and negative growth in gold and silver imports. Some of the Trade Policy Measures Taken by the Government as per the Economic Survey Ø  To promote domestic manufacturing capabilities different schemes namely FPS, FMS, VKGUY, MLFPS, Served From India Scheme , Agriculture Infrastructure Incentive Scheme(AIIS) for import of goods can be utilized for payment of excise duty for domestic procurement.  This is an important measure for import substitution and will help save foreign exchange as well as create additional employment.  Ø  Similarly scrips issued under the FPS, FMS, Vishesh Krishi and Gram Udyog Yojana(VKGUY) schemes can be utilized for payment of service tax. Ø  To diversify India’s export, seven new markets (Algeria, Aruba, Austria, Cambodia, Myanmar, Netherlands, Antilles and Ukraine) have been added to FMS and 7 new markets(Belize, Chile, El Salvador, Guatemala, Honduras, Morocco and Uruguay) to Special FMS, 46 items to MLFPS and 12 new markets for first time and 100 new products to FPS list. Ø  Indian trade portal (www.indiantradeportal.in) was launched on 8th December, 2014. Even though 2013-14 witnessed a sharp depreciation of the rupee in the initial part of the year with significant reserve drawdown, steps taken by the government and the Reserve Bank of India (RBI) resulted in a rise in the stock of foreign exchange reserves which was placed at US$ 304.2 billion at end-March 2014 as against US$292.0 billion at end-March,2014.  In the first half of 2014-15, India’s foreign exchange reserves increased by US$ 18.1 billion on BoP basis(that is excluding valuation effect). Economic Survey says among the major economies with current account deficit, India is the second largest foreign exchange reserve holder after Brazil.                                                  Post 1991 BoP crisis India’s prudent external debt policy and management with a focus on sustainability, solvency and liquidity have helped contain the increase in size of external debt to moderate level.  India’s total external debt stock at end March 2014 stood at US$ 442.3 billion (8.0 per cent) over the end-March 2013 level.    The rise in the external debt during the period was due to long term debt particularly NRI deposits and commercial borrowings.    At the end of September, 2014, a long term debt accounted for 81.1% of the total external debt vis-a-vis 79.8 per cent at the end of March, 2014 and short term debt accounted for 18.9% of the total external debt vis-à-vis 20.2% at the end of March, 2014. The net external commercial borrowing has also increased from US$ 2.4 billion in 2013-14 to US $3.4 billion in 2014-15.

India’s National Solar Mission Being Scaled up Five-Fold to 100,000 Megawatts

Clean Energy Cess Doubled to Rs.100 per Tonne to Mop up Rs. 17,000 Crores in NCEF India’s Action-Oriented Policies to Bring Rapid Development to People While PurposefullyAddressing Climate Change The Economic Survey 2014-15 presented in the Parliament today says that India has made considerable progress in tackling climate change issues. The year 2015 is going to witness new agreements on climate change and sustainable development. India has been following action-oriented policies to bring rapid development to its people while purposefully addressing climate change. India has been one of the foremost advocates of long-terms global cooperation in combating climate change in accordance with the principles and provisions of the UN Framework Convention on Climate Change (UNFCCC). India launched its National Action Plan on Climate Change way back in 2008 and is currently revisiting National Missions in the light of new scientific information and technological advances. India’s total renewable power installed capacity as 31 December 2014 has reached 33.8 GegaWatts(GW). Wind energy continues to dominate this share accounting for 66 per cent of installed capacity followed by biomass, small hydro power and solar power. India’s #Nationalsolar Mission is being scaled up five-fold to 1,00,000 megawatts by 2022 In the next five years proposals are likely to generate business opportunities of the order of 160 billion US Dollars in the renewable energy sector. It offers very good opportunity for businesses to set and scale up industry, leapfrog technologies and create volumes. Some of India’s major immediate plans on renewable energy include scaling up cumulative installed capacity to 170 gegawatts (GW) and establishing a National University for Renewable Energy. India introduced the clean energy cess on coal in 2010 which very few countries have in the world. This has been doubled to Rs.100 per tonne in 2014. The total collection so far under the National Clean Energy Fund NCEF has crossed Rs. 17,000 crores and till September, 2014, 46 clean energy projects worth Rs.16,511.43 crores have been recommended for funding out of this fund. Efforts are also under way by the government to build India’s institutional capacity for mobilizing climate change finance. India has set a National Adaptation Fund with an initial corpus of Rs.100 crores in 2014 to support adaptation actions to combat the challenges of climate change in sectors like agriculture, water and forestry. The Survey says the global agreement on climate change expected by December, 2015 under the UNFCCC applicable to all countries must be ambitious, comprehensive, equitable and balanced taking into account the huge development needs of developing countries. It should address the genuine requirements of developing countries like India by providing them equitable carbon and development space to achieve sustainable development and eradicate poverty. Simultaneously, the multilateral Green Climate Fund (GCF) under the UNFCCC has made progress and is now ready for business with around US$ 10 billion pledged to it by the contributing Parties. At the country level, institutional mechanism required to access the GCF resources are being set up. Prime Minister Shri Narendra Modi in his address in UN General Assembly in September, 2014 said “We should be honest in shouldering our responsibilities in meeting the challenges. The world community has agreed on a beautiful balance of collective action – common but differentiated responsibilities. This should form the basis of continued action.” India’s stand in the ongoing negotiations has been guided by the principle of Equity and Common but Differentiated Responsibilities (CBDR). India believes that the climate change agreement of 2015 should take into consideration a whole gamut of issues including adaptation, finance, technology development and transfer, capacity building, transparency of action and support in a balanced manner and loss and damage in addition to mitigation. The latest scientific findings has estimated that out of the carbon budget(CO2 emissions) of 2,900 Giga tonnes (Gt), only 1,000 Gt remains to be used between now and 2100 in order to limit the temperature increase to 2°C. Most of the current and cumulative carbon budget has been used by the developed countries. The World Resources Institute estimates that if emissions continue unabated, the remaining budget will last only 30 more years. The key issue therefore for designing emission reduction commitment is how the remaining carbon budget needs to be allocated with a fair burden sharing mechanism. India’s contribution to cumulative global CO2 (1850-2011) was a meagre 3 per cent as against 21 per cent by USA and 18 per cent by the EU. The Economic Survey 2014-15 focusses on sustainable development goals for India saying that the challenges for India are manifold. India is at the threshold of an urban flare-up. With more than a billion population, India has to address the problems associated with increasing urbanization, tackle the problem of eradicating poverty, providing energy access to all and address other developmental priorities. It says that hidden in these challenges are great opportunities. Unlike many countries, India has a young population and therefore can reap the fruits of demographic dividend. With more than half of the India of 2030 yet to be built, we have an opportunity to avoid excessive dependence on fossil fuel based energy systems and carbon lock-ins that many industrialized countries face today. A conscious policy framework which takes into account both developmental needs and environmental considerations could help turn the challenges into opportunities, the Economic Survey suggests. India’s development plans lay a balanced emphasis on economic development and the environment. The country has witnessed the introduction of landmark environmental measures for conservation of rivers, improvement of urban air quality, enhanced forestation, significant increase in installed capacity of renewable energy technologies, shift towards public transport and enhancing rural and urban infrastructure. Recent key initiatives include the Swachh Bharat Mission, Clean Ganga Plan, scaling up of the National Solar Mission fivefold from 20,000 MW to 1,00,000 MW with an additional investment requirement of US $ 100 billion, development of 100 smart cities with integrated policies for sustainable development and preparations for developing a National Air Quality Index and a National Air Quality Scheme.

Recommendations made by the Shome Committee/Tax Administration Refroms Commission

The Tax Administration Reforms Commission (TARC) has analysed all aspects of tax administration reform in their four reports. The objective is to get all stakeholders-both tax payers and tax officers to operate in ways that promote overall goals of efficiency and equity in tax-collection by facilitating taxpayers with a customer focus, while at the same time, segmenting taxpayers to reduce tax evasion. TARC recommendations comprise many immediate needed reform measures as well as long term structural reforms. The Shome Committee/TARC has pitched for taxing large farmers with incomes above Rs. 50 lakh a year. The reason for this recommendation as given by TARC is that this will broaden the tax payer base and help mobilize additional revenue without affecting any but a miniscule proportion of the very large farmers whose annual income exceeds the threshold limit of Rs. 50 lakhs. Currently, the recommendations of the TARC are under examination of the Government.

From Carbon Subsidy to Carbon Tax: India’s Green Actions

Economic Survey 2014-15 acknowledges the green actions taken by India, including imposing significantly higher taxation of petroleum products and thereby reenergizing the renewable energy sector. India shifted from a carbon subsidization regime to one of significant carbon taxation regime, from a negative price to an implicit positive price on carbon emissions. India has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation, by putting an effective price on emissions. This has significantly increased petrol and diesel price while serving as price signal to reduce fuel burnt and hence CO2 emissions. Calculating CO2 emission reductions from measures taken for petrol and diesel suggests that there will be a net reduction of 11 million tons of CO2 emissions in less than a year compared to the baseline or 0.6 percent India’s annual emissions. In addition, India has increased the coal cess from Rs. 50 per ton to Rs. 100 per ton, which is equivalent to a carbon tax of about US$ 1 per ton. A higher tax on coal offsets the domestic externalities including health cost of coal for power generation. The Economic Survey points out that any rationalization of coal pricing must take account of the implications for power prices and hence access to energy for the poorest in India which is and must remain a fundamental objective of policy. The Economic Survey observes that there is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies. Broadly, the move to substantial carbon taxation combined with India’s ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change.

Create National Common Market in Agricultural Commodities: Economic Survey

2014-15

The Economic Survey emphasizes on the need for a national common agricultural market and identifies un-integrated and distortion ridden agricultural market as the one of the most striking problems in agriculture growth. The Economic Survey suggests 3 incremental steps as possible solution, building on the Budget 2014 recognition for setting up a national market, farmers’ markets and need for the Central Government and the State Government to work closely to reorient their respective APMC Act. 1. It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities. 2. State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector. 3. In view of the difficulties in attracting domestic capital for the setting-up marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies. As a last resort, the Economic Survey suggests using Constitutional provisions to create a national common market for agricultural commodities. The Concurrent List Entry 33 covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oils, raw cotton, raw jute etc. Entry 42 of Union List, viz., ‘Interstate trade and commerce’ also allows a role for the Union. Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by respective State Government. This Act notifies agricultural commodities produced in the region such as cereal, pulses, edible oilseed and even chicken, goat etc. The first sale in these commodities can be conducted only under the aegis of APMC through the commission agents licensed by the APMC. The typical amenities available in or around the APMC are: auction halls, weigh bridges, godowns, shops for retailers, farmer’s amenity center etc. Various taxes, fees/charges and cess levied on the trades conducted in the Mandis are also notified under the Act. Currently, APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries. In addition, commissioning agents charge commission fees on transactions between buyers and farmers. These statutory levies/mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price. The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services. This provision acts as a major impediment to creating national common market. The APMC operations are hidden from scrutiny as the fee collected is not under State legislature approval. Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value. There is a perception that the positions in market committees and market boards are occupied by the politically influential and leading to the formation of cartels in APMC. Ministry of Agriculture developed a Model APMC Act, 2003 for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries. Many of the States have partially adopted the provisions of model Act and some states such as Karnataka have adopted changes to create greater competition within State. Karnataka Model provides for a single licensing system, offers automated auction and post auction facilities. It also facilitate warehouse-based sale of produce, facilitate commodity funding, prices dissemination by leveraging technology and private sector investment in marketing infrastructure. However, the Model APMC Act does not go far enough to create a national or even state level common market for agriculture commodities. The Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area. Though the Model Act provides for setting up of markets by private sector, this is not adequate to create competition even within the state since the owner will have to collect fees/taxes on behalf of the APMC in addition to their own charges. Economic Survey reemphasize that India needs a national common market for agricultural commodities by making the Agricultural Produce Market Committee just one among many options available for the farmers to sell their produce.

#EconomicSurvey 2014-15 Highlights

Economic Outlook, Prospects and Policy Challenges ·         Macroeconomic fundamentals in 2014-15 have dramatically improved.Highlights are: ·         Inflation has declined by over 6 percentage points since late 2013. ·         The current account deficit has declined from a peak of 6.7 percent of GDP (in Q3, 2012-13) to an estimated 1.0 percent in the coming fiscal year. ·         Foreign portfolio flows have stabilized the rupee, exerting downward pressure on long-term interest rates, reflected in yields on 10-year government securities, and contributed to the surge in equity prices. ·         In response to the favourable terms of trade shock (especially with regard to oil), macroeconomic policy has appropriately balanced government savings (two-thirds) and private consumption (one-third). ·         After a nearly 12-quarter phase of deceleration, real GDP has been growing at 7.2 percent on average since 2013-14, based on the new growth estimates of the Central Statistics Office. Notwithstanding the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging, economy. ·         From a cross-country perspective, a Rational Investor Ratings Index (RIRI) which combines indicators of macro-stability with growth, illustrates that India ranks amongst the most attractive investment destinations. It ranks well above the mean for its investment grade category (BBB), and also above the mean for the investment category above it (on the basis of the new growth estimates). ·         Several reforms have been undertaken and more are on the anvil.  The introduction of the GST and expanding direct benefit transfers can be game-changers. ·         Structural shifts in the inflationary process are underway due to lower oil prices, deceleration in agriculture prices and wages, and dramatically improved household inflation expectations. Going forward inflation is likely to remain in the 5-5.5 percent range, creating space for easing of monetary conditions. ·         In the short run, growth will receive a boost from the cumulative impact of reforms, lower oil prices, likely monetary policy easing facilitated by lower inflation and improved inflationary expectations, and forecasts of a normal monsoon in 2015-16.Using the new estimate for 2014-15 as the base, GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5 percent in 2015-16. ·         Medium-term prospects will be conditioned by the “balance sheet syndrome with Indian characteristics” that has the potential to hold back rapid increases in private sector investment. Private investment must be the engine of long-run growth.  However,there is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment. ·         India can balance the short-term imperative of boosting public investment to revitalize growth with the need to maintain fiscal discipline. Expenditure control, and expenditure switchingfrom consumption to investment,will be key. ·         The outlook is favourable for the current account deficit and its financing. A likely surfeit, rather than scarcity, of foreign capital will complicate exchange rate management. Reconciling the benefits of these flows with their impact on exports and the current account remains an important challenge going forward. ·         India faces an export challenge, reflected in the fact that the share of manufacturing and services exports in GDP has stagnated in the last five years. The external trading environment is less benign in two ways: partner country growth and their absorption of Indian exports has slowed, and mega-regional trade agreements being negotiated by the major trading nations in Asia and Europe threaten to exclude India and place its exports at a competitive disadvantage. ·         India is increasingly young, middle-class, and aspirational but remains stubbornly male. Several indicators suggest that gender inequality is persistent and high. In the short run, the renewed emphasis on family planning targets,backed by misaligned incentives, is undermining the health and reproductive autonomy of women. Fiscal Framework ·         India must adhere to the medium-term fiscal deficit target of 3 percent of GDP. This will provide the fiscal space to insure against future shocks and also to move closer to the fiscal performance of its emerging market peers. ·         India must also reverse the trajectory of recent years and move toward the golden ruleof eliminating revenue deficits and ensuring that, over the cycle, borrowing is only for capital formation. ·         Expenditure control combined with recovering growth and the introduction of the GST will ensure that medium term targets are comfortably met. ·         In the short run, the need for accelerated fiscal consolidation is lessened by the dramatically changed macro-circumstances and the less-than-optimal nature of pro-cyclical policy. The ability to do so will be conditioned by the recommendations of the Fourteenth Finance Commission (FFC). ·         Nevertheless, to ensure fiscal credibility and consistency with medium-term goals, the process of expenditure control to reduce the fiscal deficit should be initiated. At the same time, the quality of expenditure needs to be shifted from consumption, by reducing subsidies, towardsinvestment. ·         Finally, implementing the FFC recommendations will lead to states accounting for a large share of total tax revenue.  This has the important implication that, going forward, India’s public finances must be viewed at the consolidated level and not just at the level of the central government. If recent trends in state-level fiscal management continue, the fiscal position at the consolidated level will be on a sustainable path.  Subsidies and the JAM Number Trinity Solution The debate is not about whether but how best to provide support to the poor and vulnerable. The government subsidises a wide variety of goods and services with the aim of making them affordable for the poor, including: rice, wheat, pulses, sugar, railways, kerosene, LPG, naphtha, iron ore, fertiliser, electricity, water. The direct fiscal cost of these select subsidies is roughly Rs. 378,000 crore or 4.2 percent of 2011-12 GDP.  This is roughly how much it would cost to raise the expenditure of every household to the level of a 35th percentile household (well above the 21.9percentTendulkar Committee poverty line). Are these subsidies effectively targeted at the poor? Unfortunately, subsidies can sometimes be regressive and suffer from leakages. For example, electricity subsidies by definition only help electrified households. Even in the case of kerosene, 41 percent of PDS kerosene is lost as leakage and only 46 percent of the remaining 59 percent is consumed by households that are poor. The JAM Number Trinity – Jan Dhan Yojana, Aadhaar, Mobile – can enable the State to transfer financial resources to the poor in a progressive manner without leakages and with minimal distorting effects. The Investment Challenge ·         The stock of stalled projects stands at about 7 percent of GDP, accounted for mostly by the private sector. Manufacturing and infrastructure account for most of the stalled projects.  Changed market conditions and impeded regulatory clearances are the prominent reasons for stalling in private and public sectors, respectively. ·         This has weakened the balance sheets of the corporate sector and public sector banks, which in turn is constraining future private investment, completing a vicious circle. ·         Despite high rates of stalling, and weak balance sheets, the stock market valuations of companies with stalled projects are quite robust,which is a puzzle. ·         Combining the situation of Indian public sector banks and corporate balance sheets suggests that the expectation that the private sector will drive investment needs to be moderated. In this light, public investment may need to step in to ramp up capital formation and recreate an environment to crowd-inthe private sector. The Banking Challenge ·         The Indian banking balance sheet is suffering from ‘double financial repression’.  On the liabilities side, high inflation lowered real rates of return on deposits.  On the assets side, statutory liquidity ratio (SLR) and priority sector lending (PSL) requirements have depressed returns to bank assets. As inflation moderates and the banking sector exits liability-side repression, it is a good time to consider addressing the asset-side counterpart. ·         In a cross-country comparison, controlling for the level of development, the size of the Indian banking system, measured by credit indicators, does not seem too high either in absolute terms or relative to other sources of financing. However, going forward, capital markets and bond-financing need to be given a boost. ·         Private sector banks did not partake in the biggest private-sector-fuelled growth episode in Indian historyduring 2005-2012.  This is reflected in the near-constant share of private sector banks in deposits and advances in those years. ·         There is substantial variation in the performance of the public sector banks, so that they should not be perceived as a homogenous block while formulating policy. Putting Public Investment on Track – the Rail Route to Higher Growth. ·         The Indian Railways over the years have beenon a ‘route to nowhere’characterized byunderinvestment resulting in lack of capacity addition and network congestion; neglect of commercial objectives; poor service provision; and consequent financial weakness.  These have cumulated to below-potential contribution to economic growth. ·         Very modest hikes in passenger tariffs and cross-subsidisation of passenger services from freight operations over the years have meant that Indian (PPP-adjusted) freight rates remain among the highest in the world, with the railways ceding significant share in freight traffic to roads (that is typically more costly and energy inefficient). ·         As a result, the competitivenessof Indian industry has been undermined. Calculations reveal that China carries about thrice as much coal freight per hour vis-à-vis India. Coal is transported in India at more than twice the cost vis-à-vis China, and it takes 1.3 times longer to do so. ·         Econometric evidence suggests that the railways public investment multiplier (the effect of a Rs. 1 increase in public investment in the railwayson overall output) is around 5. ·         However, in the long run, the railways must be commercially viable and public support must be linked to railwayreforms: adoption of commercial practices; tariff rationalization; and technology overhaul. Skill India to Complement Make in India What should we ‘Make in India’?  Sectors that are capable of facilitating structural transformation in an emerging economy must: Have a high level of productivity. Show convergence to the technological frontier over time. Draw in resources from the rest of the economy to spread the fruits of growth. Bealigned with the economy’s comparative advantage; and Betradeable. Registered manufacturing, construction and several service sectors -- particularly business services -- perform well on these various characteristics.  A key concern with these sectors however is that they are rather skill-intensive and do not match the skill profile of the Indian labour force.  India could bolster the Make in India’’initiative, which requires improving infrastructure and reforming labor and land laws by complementing it with the‘’Skilling India initiative.  This would enable a larger section of the population to benefit from the structural transformation that such sectors will facilitate. A National Market for Agricultural Commodities •      Markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by State Governments. India has not one, not 29, but thousands of agricultural markets. •      APMCs levy multiple fees of substantial magnitude, that are non-transparent, and hence a source of political power. •      The Model APMC Act, 2003 could benefit from drawing upon the ‘Karnataka Model’ that has successfully introduced an integrated single licensing system. The key here is to remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector. Climate Change ·         India has cut subsidies and increased taxes on fossil fuels (petrol and diesel along with a coal cess) turning a carbon subsidy regime into one of carbon taxation. The implicit carbon tax is US$ 140 for petrol and US$64 for diesel. ·         In light of the recent falling global coal prices and the large health costs associated with coal, there may be room for further rationalization of coal pricing. The impact of any such changes on affordable energy for the poor must be taken into account. ·         On the whole, the move to substantial carbon taxation combined with India’s ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change. The Fourteenth Finance Commission ·         The FFC marks a watershed in the history of Indian federalism. Unprecedented increases in tax devolution will confer more fiscal autonomy on the states. This will be enhanced by the FFC-induced imperative of having to reduce the scale of other central transfers to the states. In other words, states will now have greater autonomy both on the revenue and expenditure fronts. ·         All states stand to gain from extra resources although there will be some variation between the states. ·         FFC transfers are highly progressive; that is, states with lower per capita NSDP receive on average much larger transfers per capita. In contrast, plan transfers were much less progressive. ·         The concern that more transfers will undermine fiscal discipline is not warranted because states as a whole have been more prudent than the centre in recent years.

Less paper, please The real way to have security in ministries

The investigation into corporate espionage continues to expand, with two more individuals arrested in New Delhi on Thursday. According to the police, the two men were the assistant of a member of the Union Public Service Commissionand a private secretary to a high-ranking bureaucrat in the environment ministry. This follows the original operation, which made arrests of some individuals attempting to steal papers from the petroleum ministry. Others were subsequently arrested, including a former journalist who operates a website on oil industry facts and executives of well-known companies - Reliance Industries, Reliance ADAG, Essar, Cairn India and Jubilant Energy. The companies themselves have not been named in the First Information Reports, and the police have not revealed any evidence of direct involvement of any corporate higher-ups in the wrongdoing for which the five executives have been arrested.

While it is welcome that the government is taking steps to check low-level espionage, and hopefully there will be enough evidence for successful prosecutions that will act as some sort of a deterrent, it is important to note certain caveats. First of all, such leaks of documents are neither new nor are they limited to particular ministries. Documents have been passed around wholesale since the 1980s at least. Governments have always found it difficult to check this process. While clearing up individual espionage rings is a valuable effort, it should not be seen as anything more than window-dressing unless substantive administrative reform accompanies it. The government is considering, for example, access-control mechanisms in departments and updated electronic surveillance. However, the fate of the closed-circuit television cameras in the petroleum ministry should serve as a warning. Those were introduced as the way to control petty theft of secrets; but in the attempt that was foiled, the cameras had been disabled. India simply does not run a high-security government - not because of a lack of hardware, but because it has the wrong processes in place. There is simply too much paper flying around with commercially valuable secrets, and too many people have access to it. There is no technological quick fix for this fact. However, there are other ways to address the problem.

For example, the first Administrative Reforms Commission (ARC) in the mid-1960s had made a pertinent recommendation. Change from an "office"-based approach to decision-making, argued the ARC, to an "officer"-based approach. Files would be the property and responsibility of individual officers - the aim was to eliminate the "noting" system completely. The primary purpose of this was not to increase security, but to reduce paperwork and delays, and increase efficiency. However, security would be an important by-product. Those enclaves within the government where such a system works demonstrate this. Of course, there is the additional point that those ministries and departments that handle an excessive amount of commercially sensitive information will continue to be targeted for that reason. Naturally, the decrease of discretion in such matters will mean that there is less information that private companies will be willing to pay for - which will be good news all around, and put less pressure on the system. Overall, this investigation is good news; but the government, if it is really serious about security, should fix its processes.