December 18, 2023

Current Affairs

Article 99 of UN Charter Invoked by Secretary General

Context: UN Secretary General formally warns the Security Council to push for Gaza ceasefire by invoking Article 99 of the UN Charter. UN Secretary General has urged Israel to carry out a ceasefire in this conflict.

About Article 99 of UN Charter

Article 99 of UN Charter states that “The Secretary General may bring to the attention of the Security Council any
matter which in his opinion may threaten the maintenance of international peace and security.” Thus, it is a discretionary power of the Secretary General of the UN.
According to the UN, President of the UN Security Council is under the obligation to call a meeting of the UNSC, if the Secretary General brings to the attention of the UNSC any matter under Article 99 of the UN Charter. However, this provision has been rarely invoked in the past. Some instances when it was invoked are:
Article 99 of the UN Charter was invoked earlier in the Republic of Congo in 1960 after Belgium’s colonial rule ended and in 1961, when Tunisia demanded it after attack by its former colonial ruler France.

About Charter of United Nations

It is the founding document of United Nations, which was signed on 26 June 1945, in San Francisco, at the conclusion of United Nations Conference on International Organization.
UN Charter is an instrument of international law, and UN Member States are bound by it.
UN Charter codifies major principles of international relations, from sovereign equality of States to prohibition of use of force in international relations.
International Court of Justice, the principal judicial organ of UN, functions in accordance with the Statute of the International Court of Justice, which is annexed to the UN Charter, and forms an integral part of it.

Tax Inspectors Without Borders

Context: Tax Inspectors without Borders (TIWB) programme was launched in St. Lucia in partnership with India.

About Tax Inspectors Without Borders Initiative (TIWB)

TIWB is a joint initiative of the Organisation for Economic Cooperation and Development (OECD) and United Nations Development Program (UNDP).
It aims to support countries in building tax audit capacity and skills with tax administrations in developing countries through a targeted, real time 'learning by doing' approach.
Under the program, experienced tax auditors work on real tax audit cases and international tax issues alongside local tax officials in assistance-requesting countries under a TIWB program whereby they share their expertise and skills.
The secretariat of TIWB is located in Paris, France.

Benefits to host countries under TIWB

Improved voluntary compliance
Increased professional confidence in conducting audits
More certainty and consistency for business and transparent investment climate
Enhanced state-society relations. Taxation is the founding element of state-society relationship.
Fostering international dialogue on tax matters between tax administrations in developed and developing countries.
Possibility of transferring knowledge, as a future partner Administration, to other tax administrations in the region.

Importance of mobilizing domestic tax resources for development

They are the largest and most important source of financing for development.
They are country owned and are more stable than external sources of finance.
They are the best way to support long-term economic growth and poverty reduction.
They do not create any debt for developing countries.

Need for TIWB program:

Tax revenue mobilised in many developing countries and low-income developing countries:

Lack of capacity in tax administration:
Tax avoidance: According to estimates, cross border tax avoidance impacting developing countries is likely to exceed Overseas Development Aid (ODA) by a considerable margin.

Supply-Demand projections of Agricultural commodities

Context: National Bank for Agriculture and Rural Development (NABARD) and the Indian Council for Research on International Economic Relations (ICRIER) has released a report ‘Prospects of India’s Demand and Supply for Agricultural Commodities towards 2030’.

As per the report,

The per capita consumption of food grains particularly cereals has declined considerably while the demand for high valued commodities like fruits and vegetables, livestock products as well as processed food have increased over time.
The NSSO’s consumption expenditure highlights the changing consumption pattern of Indian households. There has been a decline in the per capita consumption of cereals from 12.68 kg per capita/per month in 1993-94 to 10.62 kg per capita/per month in 2011-12.

Demand-supply gap of Agriculture commodities (in million tonnes)

Factors that determine the demand for crops/cropping patterns:

Changes due to consumption patterns:

Changes in consumption patterns due to evolving dietary patterns for various reasons resulted in crop pattern changes in the following way:

The area under millet cultivation has been significantly reduced over the decades as their consumption substituted by cereals such as rice and wheat due to rise in income, their availability through PDS, penetration of their diversified value-added products, ease of preparation, and short cooking time.
Dietary transition towards more protein and mineral rich foods resulted in increased cultivation of Pulses and Horticultural crops.
Shift in demand for organic products, especially fruit and vegetables in the cities due to increased awareness about organic food in consumers led to increased area of cultivation of organic crops in India. E.g., The share of net area under organic farming in India increased from 0.9% in 2016 to 3.9% in 2022.

Changes due to market conditions:

Government intervention in marketing:
- MSP support and Procurement policies changed the cropping pattern in favour of cereal crops like Rice and Wheat.
- Government subsidy support to sugar mills for procuring cane from the farmers at FRP resulted in excessive sugar production in India. The area under cultivation and production of sugarcane in India almost doubled from 1990-91 to 2020-21.
Export demand: Commercial crops cultivation increased in India due to favourable export potential after LPG reforms. Area under food grains in gross cropped area (GCA) declined by 11% and replaced by crops like oilseeds, fruits & vegetables, and non-food crops in the last three decades.
Contract farming: new marketing arrangements like contract farming between corporates/traders and farmers resulted in crop diversification and introduction of new crops in many regions of India. E.g., Chicory farming in Punjab; Gherkins in Andhra Pradesh; Potato in Gujarat.

As per the report, the country will continue importing large quantities of Pulses and Oilseeds by 2030-31 because of a substantial gap between demand and supply of these commodities.

Edible Oil:

The diverse Agro-climatic conditions of India are favourable for growing wide variety of edible oil seeds, which include groundnut, Mustard, sunflower, soyabean and Niger. Despite having this climatic advantage India has now become one of the largest importers of edible oil in the world.

India’s edible oil imports have increased from 11.6 mt (valued at Rs 60,750 crore) in 2013-14 to 16.5 mt (Rs 138,424 crore) in 2022-23.

Reasons:

Green revolution: success of green revolution encouraged cereal crops like rice and wheat in traditionally oil producing regions.
Ex: Rice-wheat cycle replaced Rice-mustard and mixed-cropped farms on which oilseeds were cultivated in Punjab region
Rainfed farming: 72% of oil crops confined to rainfed confined to Rainfed areas.
Low seed replacement and Marginal landholdings decreased the productivity of oil crops.
Govt policy and Business interests favoured cheaper palm oil imports at the cost of domestic production of traditional oil crops.
Change in consumption pattern increased the demand for edible oil which couldn’t be met by domestic production.

Need for self-sufficiency:

To reduce import bill and unfavourable trade balance.
Palm oil accounted for the lion’s share of the total imports (62%) of edible oil but consumption of palm oil is unhealthy. Replacing it with indigenous oil is necessary to save healthcare expenditure.
Domestic production of edible oil gives by products like oil cake, which is the raw material for dairy and poultry industry. Importing of edible oil deprive the supply of these raw materials.

Way forward:

Increasing production through adoption of high yielding varieties of seeds; soil and moisture conservation techniques in rainfed areas; balanced Utilisation of fertilisers; Intercropping of Oilseeds with other crops; Contract farming etc.
Encourage Cooperatives and FPOs and link them to oil processing Industries.
Reduce per capita consumption of edible oil and minimize import. Campaign for healthy oil consumption.
Promotion of Secondary Sources (rice bran, coconut, cotton seed, oil palm and TBOs).
Enhancing capacity utilization of domestic processing industries.
Promoting consumption of coconut as edible oil.

Challenges in Indian Pulses Industry:

High Yield Gap: pulses yield gap (yield Achieved in Experimental Lab Conditions to the actual Farmer’s field in India) in Pigeon Pea is 50%, Green Gram 45%
Inputs related challenges: non-availability of recommended HYVs quality certified seeds at all levelsin-flow of spurious and sub-standard seedsLack of demonstration of implements like light seed drills, zero-till machine.Inability of farmers to access institutional credit discourage them to purchase quality inputs and adopt improved technology.
Production Related challenges: Prone to numerous biotic & abiotic stresses (like mid-season cold waves and terminal heat during Rabi, micronutrient deficiency etc), soil alkalinity, salinity, waterlogging etc. Crop failure occur due to reasons like erratic monsoon behaviour and moisture stress.
Cultivation on marginalised lands: Green revolution pushed pulses cultivation in marginal and sub-marginal lands - declining productivity.
- 84% area under pulses is rain-fed with soils relatively of low fertility.
- Drought and heat stress influence 50% reduction in seed yields particularly in arid and semi-arid regions.
Ineffectiveness of MSP: Though MSPs are announced for 23 commodities, substantial benefits accrue to wheat & rice growers in selected States leaving pulse-growers often receiving prices much below MSP. Lack of assured market make pulse production less attractive for farmers compared to other crops.
Price Volatility: inflation in pulses follows a cyclical pattern, with prices shooting up every 2-3 years. Pulses follow cobweb phenomenon wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices. This phenomenon can be attributed to a number of factors, including pricing policies, import policies, production decisions, and the weather.

Road Ahead:

Enhancing production: Between 1991 and 2010 average increase in yield of two major pulse crops viz. chickpea and pigeon pea were as high as 81% to 100% in AP recording a substantially higher increase in yield than the national average yield increase. This has been attributed to:
- On-time availability of HY, short-duration and wilt resistant varieties
- Adoption of improved varieties and easy access to production technologies
- Commercial cultivation by mechanising field ops and efficient management
- Availability of grain storage facilities to farmers at the local level at an affordable cost
Maintaining Buffer stocks: Building a need-based buffer stock with accountability for proper management incurring no wastage
Accessibility to pulses: Better system of easy availability of pulses in the open market throughout the year through distribution through PDS if necessary.
Provisions of imports: Keeping a close watch on the crop growth in 30 pulse-exporting countries through services of the FAO and our embassies that can help negotiate favourable terms for timely import as and when imminent.

RoDTEP scheme

Context: Recently US imposed CVD on Indian file folders, rejecting arguments from the Indian government regarding the WTO compliance of RODTEP. Several months earlier, the EU similarly concluded that certain graphite electrode systems from India were subsidized through RODTEP, leading to the imposition of countervailing duties.

Key features of RoDTEP scheme:

The scheme provides refund of duties and taxes which are levied at central, state and local level and are not refunded under any other mechanism. They include:
- Central and State Excise Duty on fuel for transportation of export goods (petrol, diesel, CNG, PNG, etc.)
- Coal cess or duty levied by States on electricity consumed for manufacturing of export goods
- Mandi tax levied by APMCs
- Toll tax and stamp duties on import-export documentation
- Value added tax (VAT) wherever applicable
Refunds under the scheme would be issued in the form of transferrable e-scrips which could be used for paying Basic Customs Duty on import of goods or may be transferred electronically to other party. The benefit will not be in the form of direct credit to the bank account.

When the RoDTEP scheme was introduced, sectors like pharmaceuticals, chemicals and iron & steel were excluded from the scheme due to fiscal constraints as well as on the grounds that their exports were doing well even without such benefits.

However, with India’s exports momentum hit by waning global demand, government decided to extend the scheme to these sectors as well.

Countervailing Duty(CVD): Countervailing duties or CVDs are tariffs on imported goods that are imposed to offset subsidies given by the exporting country's government. WTO’s agreement on subsidies and countervailing measures(SCM) allows the importing countries to impose CVD against such subsidies which injures the domestic industry of importing country.

Fiscal Federal issues

Context: Recently Kerala has filed a suit in the Supreme Court accusing the Centre of violating the federal structure of governance and causing “severe damage to the economy of a small State with meagre resources” by interfering with its finances. This has again raised debate over fiscal federal issues that are existing in India.

Fiscal federal issues:

Shrinking devolution: Though the Finance Commission enhanced states’ share in the divisible pool of taxes, it didn’t result in concomitant increase in the actual devolution. This is because, over the few years, central government has reduced the tax rates and increased the cess and surcharges which are not mandated to be shared with the states. Cess and surcharges are part of central taxes but not part of the divisible tax pool and do not have to be shared with States.

In fact, cess and surcharge has grown at a faster pace than gross tax revenues.

Ceiling on the states’ borrowing: The Union Budget has kept 3.5% of GSDP as their borrowing limit for FY24 and it restricted borrowing power of the states.

(As per article 293, states cannot raise loans without the consent of the union if there is any outstanding loan made by the state government with a guarantee given by the centre.)

Loss of taxation rights under GST mechanism: with the advent of GST, The states lost their rights to increase tax revenues by changing the tax rates on sale of many goods and services. (GST rates and slabs are decided by GST council with 3/4^th majority vote).
Restrictions on off-budget borrowings: The Centra had noticed in FY22 that such off-budget borrowings would be considered as borrowings made by the state. This reduced the capacity of states to increase their borrowings without violating fiscal deficit targets.

However, Union budget 2023-24 has proposed to continue with the 50-year interest-free loan to state governments that aid infrastructure investment.