The Hindu Editorial Summary
Editorial Topic : Bihar’s call for special category status
GS-2,3 Mains Exam : Polity & Economy
Revision Notes
Question : Critically examine the arguments for and against granting Special Category Status to Bihar. How can these arguments inform policy decisions? (250 words)
Context
- Last year, the Bihar Cabinet notably passed a resolution demanding special category status for the State.
Special Category Status:
- Granted by National Development Council based on specific features
- Features: Hilly terrain, low population density, strategic location, economic and infrastructural backwardness, non-viable state finances
- Entails liberal Central assistance and tax breaks
- Currently, 11 States have the status: J&K, Uttarakhand, Himachal Pradesh, Assam, Manipur, Meghalaya, Tripura, Mizoram, Nagaland, Sikkim, Arunachal Pradesh
Special Category Status Benefits:
- Increased Central Funding:
- Claim more funds from the Centre
- Receive 90% of funds for centrally sponsored schemes
- Non-special category states receive only 60-80% of funds
- Tax Concessions:
- Enjoy various tax-related concessions
- Details not provided, but may include exemptions, rebates, etc.
Bihar’s Demand:
- Per capita income in 2021-22: ₹48,064 (lowest among non-special category States)
- Poverty ratio in 2011-12: 33.7% (national average 21.9%)
- Low industrial growth due to bifurcation, lack of resources
- Frequent natural calamities like floods, droughts
- Fiscal deficit of 3.2% of GSDP in 2021-22 (above FRBM target of 3%)
Arguments For:
- Economic backwardness warrants special assistance
- Funds needed for infrastructure, welfare schemes, disaster management
- Can help attract private investment, create jobs
Arguments Against:
- Already getting special assistance through various Central schemes
- Concerns over rising fiscal burden on Centre
- Lack of clearly defined criteria for granting the status
- May lead to demands from other backward States
Way Forward:
- Focus on governance reforms, resource mobilization, fiscal prudence
- Leverage existing Central schemes for development
- Consider alternative models like special development package
The special category status, while beneficial in terms of increased Central assistance, is not a permanent solution. The long-term economic development of Bihar or any other State largely depends on their ability to implement reforms, mobilize resources, and effectively utilize funds for sustainable growth.
Additional Information by (Arora IAS)
The Fiscal Responsibility and Budget Management (FRBM) Act, enacted in 2003, aims to promote fiscal prudence by setting targets for the government’s budget deficit.
Goals:
- Reduce fiscal deficit (the gap between government spending and revenue) over the medium term.
- Contain government debt and ensure long-term financial stability.
Key Features:
- Deficit Targets: The Act mandates progressive reduction in the central government’s fiscal deficit:
- 3% of GDP by 2007-08 (achieved)
- 3% of GDP for states by 2015-16 (not fully achieved)
- Expenditure Management: Focuses on controlling government spending and improving efficiency.
- Fiscal Responsibility Council (FRC): An independent body monitors the government’s adherence to the Act’s targets and recommends corrective measures.
Impact:
- The FRBM Act has led to a significant decline in the fiscal deficit, contributing to macroeconomic stability.
- However, achieving the 3% target has been challenging due to various factors like economic slowdowns and unforeseen circumstances.
Latest India’s Fiscal Deficit: Key Facts and Figures
- Target: Reduce fiscal deficit to below 4.5% of GDP by 2025-26.
- Current Deficit: Projected at 5.9% of GDP for 2023-24.
- Borrowing:
- Net market borrowing from dated securities: Rs. 11.8 lakh crore.
- Gross market borrowings: Rs. 15.4 lakh crore.
- Revenue and Expenditure (2023-24):
- Total receipts (excluding borrowings): Rs. 27.2 lakh crore.
- Total expenditure: Rs. 45 lakh crore.
- Net tax receipts: Rs. 23.3 lakh crore.
- Revised Estimates (2022-23):
- Total receipts (excluding borrowings): Rs. 24.3 lakh crore.
- Net tax receipts: Rs. 20.9 lakh crore.
- Total expenditure: Rs. 41.9 lakh crore (including Rs. 7.3 lakh crore in capital expenditure).
- Fiscal deficit remains at 6.4% of GDP.
The Hindu Editorial Summary
Editorial Topic : India’s Debt Boom
GS-3 Mains Exam : Economy
Revision Notes
Question : Discuss the potential risks associated with policymakers’ over-reliance on digital infrastructure for financial inclusion and growth in India. (250 words)
Context
India’s economy is experiencing a rapid increase in household debt, raising concerns about a potential financial crisis.
The Siren Song of Credit:
- Unchecked credit growth often leads to economic crises, despite initial promises of prosperity.
India’s Overheated Market:
- Policymakers are overly optimistic, touting digital infrastructure as a solution for financial inclusion and growth, while ignoring underlying issues.
- Poor regulation allows easy credit access for both lenders and borrowers, masking deep-rooted job and human capital deficits.
A House of Cards:
- The financial sector appears healthy as long as new loans service existing ones. However, a slowdown in lending triggers defaults and economic hardship.
- The IMF warns that heavily indebted households and businesses will cut spending to repay debt, causing an economic crunch.
- India’s household debt is growing at an alarming rate (25-30% annually).
Easy Money, Risky Behavior:
- Consumers are using loans for essential needs and discretionary spending, viewing them as easy cash.
The Dangers of Debt:
- A household debt boom doesn’t translate to increased productivity. Instead, it inflates domestic prices, hindering competitiveness.
- The higher the debt burden, the worse the financial crash.
- A financial crisis will not only cause economic pain but also harm long-term growth prospects.
- Unable to create job-driven manufacturing growth, policymakers rely on the financial sector to inflate GDP figures. In the past decade, this sector contributed over 25% of GDP growth.
A Chaotic Financial Landscape:
- India’s financial services industry is large and poorly regulated.
- Established players (banks and NBFCs) have a history of misconduct, while smaller players often operate dubiously.
- Too many lenders lack options for financing productive projects.
- Corporate sector investment slowdown puts pressure on financial institutions to find new profit sources.
The Search for Easy Profits:
- Since economic liberalization in 1991, the quest for quick profits has led to financial scams.
- Post-COVID, lenders shifted focus to households seeking loans due to stagnant incomes.
- Fintech companies emerged, offering loans with exorbitant interest rates to desperate borrowers.
- Unsecured loans (without collateral) are a growing concern, with credit card debt being a prime example.
Debt Levels and Comparisons:
- While India’s household debt-to-GDP ratio (40%) might seem low globally, the debt-service-to-income ratio (12%) is very high. This is due to high interest rates and short-term loans.
- This ratio is alarmingly similar to the US and Spain before their 2008 financial crises, highlighting India’s vulnerability.
Proposed Solutions:
- Downsizing the financial sector to better align lending capacity with productive needs.
- Weakening the rupee to boost exports and soften the impact of a potential downturn.
Policy Challenges:
- Policymakers prioritize financial growth over real economic development, neglecting crucial investments in human capital and public goods.
- They also favor a strong rupee as a symbol of national strength.
The Looming Crisis and Social Impact:
- The risk of a financial crisis grows alongside a severe job shortage, forcing many back into agriculture.
Conclusion:
India’s reliance on credit-fueled growth resembles a car speeding towards a cliff without brakes. The elite ignores the warning signs, leaving the most vulnerable to bear the brunt of a crisis that will worsen unemployment and exacerbate existing inequalities.
हिन्दी