GS – 2
Covid crisis is a good time to enact painful reforms. “Never waste a crisis” is an old adage. Explain 250 words
In the News:
- Reforms like the suspension of labour laws for three years by some states have caught the headlinesand been criticisedas half-baked. No investor will come if the change is limited to three years.
Rational and politically courageous move:
- More rational and politically courageous is the abolition of once-sacred subsidies plus higher taxation of petroleum products.
- The central government raised the excise duty on diesel and petrol in March and May and increased the road cess to Rs 8/litre. State governments have raised their taxes too. Higher taxes could yield up to 1% of GDP, a fiscal godsend since the Covid-induced recession looks like cutting government revenue by 2-3% of GDP.70% of today’s consumer price of petrol and diesel is taxation, representing a prematurely high carbon tax.
- For breathable air we should raise fuel taxes to curb consumption and incentivise a switch to electric two-wheelers, and eventually electric cars.
Subsidies:
- When world prices rise, the Indian consumer price is raised too. But when world prices fall, Indian consumer prices fall only a bit, and most of the windfall is mopped up by higher government taxes.
- The case for zero subsidies and high taxation is that petroleum fuels are mostly imported and emit toxic pollutants and greenhouses gases. Taxes act as incentives to shift energy consumption to domestic, unpolluting energy sources like solar electricity.
- Middle-class subsidies win votes and so proliferated. Subsidies for LPG have been replaced by direct cash transfers, in the process weeding out “ghost” consumers and save thousands of crores of wasted subsidy.
- In the long run, solar electricity should become progressively cheaper and replace natural gas for cooking as a zero-emission fuel.
India must work with other countries to erode China’s influence. Analyse 250 words
In the News:
- The latest border standoff has aggravated anti-China sentiments in India to a record high. The focus is on economically damaging China by boycotting its products and regulating incoming Chinese investments in the economy.
Fundamental concerns:
- Moves to boycott Chinese goods and restrict Chinese capital in India are driven by some fundamental concerns.
- These include safeguarding national security by reducing Chinese financial and functional presence in strategic sectors like telecom; reducing import-driven economic dependence on China, which might limit flexibility in responding to aggressive Chinese behaviour; and finally, the overpowering urge to teach China a lesson.
- India is not among China’s biggest markets. Out of $2.5 trillion overall Chinese exports in 2018, India accounted for around $70 billion, roughly 3% of total exports. This is a rather small share. Targeting such a small share through boycott and tariffs is not going to inflict any damage on China.
China’s presence:
- It is impossible for the Indian industry to stop using Chinese imports at a time when industrial systems across the world are functioning way below normal capacity due to Covid-19.
- This makes the prospects of sourcing same imports from other countries limited. Furthermore, if India imposes tariffs on these imports, they would become more expensive for the domestic industry, increasing their economic hardships when they are struggling to revive sales and reduce operating costs.
- Tariffs can’t also be raised on critical consumer goods imports like hand sanitisers, aprons, protective clothing, and goggles. These are extensively required by hospitals and healthcare staff for fighting Covid-19. China is the leading source for all these imports. These imports can neither be boycotted nor made less affordable. China is also not among the largest sources of inward FDI into India.
- In Asia, Singapore and Japan are the largest recipients of Chinese investments. Ad-hoc economic actions like boycotts won’t affect China. For eroding China’s economic influence, India must work with other countries.
- It has damaged such prospects by quitting trade pacts and pushing economic nationalism.
- India is boycotting Chinese products. It would be difficult for India to mobilise a collective economic offensive against China.