Editorial Simplified: Regulator’s Role | GS – III

Relevance :  GS Paper  III

Why has this issue been Raised?

The Supreme Court has told the RBI that it is duty bound to disclose the list of defaulters and also make public its annual inspection reports of banks and financial institutions.

Why RBI Resisted Disclosure?

  • For long, the RBI has resisted disclosure of defaulters on the ground that it would violate banking secrecy laws.
  • It justified holding back information and inspection reports of its supervisory teams on individual banks on fears of a weakening of trust among depositors and the impact on the financial markets and stocks of listed banks.

Justification of RBI­­’s Stand

  • There is some truth to RBI’s argument in a country with low levels of financial literacy.
  • In the past, the country’s finance minister and the RBI were forced to publicly assure depositors and investors of a private bank that their money was safe after a run on the bank, fuelled by rumours.
  • Similarly, realising the potential damage which could arise because of the interpretation of a provision in the Financial Resolution and Deposit Insurance Bill on protection of deposits, the government had to step in last year to assuage concerns.

Way Forward

  • One approach could be to provide the disclosure information after the RBI and the bank or an institution and its board have achieved closure and taken action based on regulatory findings, to limit any damage.
  • This disclosure could be done preferably to Parliament, which could help strengthen prudential supervision.


It is with good reason that after the 2008 financial crisis, governments worldwide are focussed on financial stability. Any hasty step which endangers that mandate may prove costly.

Gist of Editorials: Pathways to an Income Guarantee | GS – III

Relevance : GS Paper III

Recently a minimum income guarantee (MIG), named NYAY, has been promised by the Congress party.

Need of MIG:

  • Presence of widespread multi-dimensional poverty in India.
  • High economic growth and welfare schemes have not helped the poor much.
  • Employment prospects of low-skill jobs appear dismal.
  • Poor forced to borrow from moneylenders at very high rates.

Feasibility of MIG:

  • It will amount to around 2 % of the GDP
  • It is too high to be afforded by the government.

Impacts of MIG:

  • Positive:
    • Reduce income inequalities.
    • Bring households out of poverty.
    • Prevent falling back into poverty trap.
    • Boost economic activities by increasing demand.
    • Reduce indebtedness and role of moneylenders.
    • Supplement income of workforce.
  • Negative:
    • Can increase inflation which will hurt the poor
    • Can lead to withdrawals from labour force.
    • Can lead to withdrawal of basic services by state

Way forward:

  • The scheme should be launched in incremental steps.
  • SECC and agricultural census can help properly identify poor.
  • Preparation of datasets to update the list of needy households.
  • Alignment of PM KISAN Yojana to meet a part of the outlay.
  • Increase of tax collection by taxing super-rich.
  • Sharing of the cost by the States.
  • MIG should supplement the public services.

Editorial Simplified: Lowering the Cost of Capital | GS – III

Relevance: GS Paper III

Why has this Issue Cropped Up?

The BJP manifesto puts the goal of making India a $5 trillion economy by 2025 and a $10 trillion economy by 2032.

The Requirement of Investment

  • India is currently the fastest-growing major economy in the world.
  • The question is whether the current growth rate is enough to create quality jobs for a growing population.
  • The experience of the two previous economic boom is that a shift in trend growth requires an investment boom led by the private sector.
  • One of the requirements for that is competitive cost of capital.

Ways to Reduce Cost of Capital

  • First, the direct tax system has to be overhauled. The indirect tax system has already been transformed with the introduction of GST. The other leg of the tax reforms agenda i.e. Direct tax has not been pursued.
  • Second, the cost of borrowing in India is too high. Sustained low inflation should help bring down the cost of borrowing. Low inflation should also hopefully put the Indian currency on stable ground, and thus reduce the risks to corporate finances from sudden depreciations.
  • Third, investment activity quickens when the relative cost of intermediate goods falls. In other words, machinery has to be competitively accessed.

Gist of Editorials: The Shape of an Urban Employment Guarantee | GS – III

Relevance : GS Paper III

Why has this Issue Cropped Up?

The unemployment rate has reached a 45-year high (6.1%) in 2017-18.

The Job Crisis

  • Unemployment mainly in cities and towns.
  • Low wages and precarity is widespread.
  • Majority of the urban population in informal sector.

India’s Towns Ignored

  • Towns are treated as “engines of growth” rather than job spaces.
  • Govt job schemes such as SJSRY have ignored the unskilled.
  • Smart Cities Mission and AMRUT benefit only a few towns.
  • Urban local bodies lack financial and human capacity.

Way Forward

  • Introduce an employment guarantee programme in urban areas.
  • Madhya Pradesh’s “Yuva Swabhiman Yojana” can be emulated by other States.
  • Urban Local Bodies should receive timely and adequate funds.
  • Urban employment programme and MGNREGA should go hand-in-hand.
  • “Green jobs” can be provided such as creation of green spaces and parks.
  • Child-care, elderly care and the disabled care jobs can be provided.
  • Unemployed with higher education can assist administrative functions.
  • Strong transparency and accountability structures should be employed.


An urban employment guarantee programme has multiplier effects on the economy.

Gist of Editorials: Maximum Gambit | GS – III

Relevance : GS Paper III

Why has this Issue Cropped Up?

The Congress party has promised NYAY scheme to transfer ₹6,000 a month to poor households.

Hurdles in Implementation

  • Fiscal expenditure would be ₹3.6 lakh crore.
  • Problem of authentic identification of the poor.
  • NYAY can fall short as other programmes have

Not an Unsound Idea

  • It will help in addressing health, education and indebtedness needs.
  • Landless workers, marginal farmers, unemployed youth would be benefitted.
  • It can help spur demand and consumption in rural areas in particular.
  • Direct income support in some states have helped reduce agrarian crises.
  • PM-KISAN Yojana is a limited version of income transfer.


Schemes like NYAY can only be one among several prudent welfare policies.

Editorial Simplified: The Shape of an Urban Employment Guarantee| GS – III

Relevance: GS Paper III (Economy)

Theme of the Article

Such a programme will not only improve worker incomes but also have multiplier effects on the economy.

Why has this Issue Cropped Up?

India is in the midst of a massive jobs crisis. The unemployment rate has reached a 45-year high (6.1%) in 2017-18.

The Job Crisis

  • The unemployment problem is especially aggravated in India’s cities and towns.
  • Aside from unemployment, low wages and precarity continue to be widespread.
  • In urban India the majority of the population continues to work in the informal sector.

India’s Towns Ignored

  • India’s small and medium towns are particularly ignored in the State’s urban imagination.
  • Both State and Central governments tend to treat towns as “engines of growth” for the economy rather than spaces where thousands toil to make a living.
  • Programmes such as the Swarna Jayanti Shahari Rozgar Yojana (1997) that included an urban wage employment component have made way for those focussed on skilling and entrepreneurship.
  • National-level urban programmes such as the Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) only benefit only a few towns.
  • Most ULBs ( urban local bodies ) are struggling to carry out basic functions because of a lack of financial and human capacity. Further, with untrammelled urbanisation, they are facing more challenges due to the degradation of urban ecological commons.

Way Forward

  • We need new ways to promote the sustainable development of India’s small and medium towns.
  • It is worthwhile considering to introduce an employment guarantee programme in urban areas. Along with addressing the concerns of underemployment and unemployment, such a programme can bring in much-needed public investment in towns.
  • In Madhya Pradesh, the new State government has launched the “Yuva Swabhiman Yojana” which provides employment for both skilled and unskilled workers among urban youth. Such programmes can be emulated by other States as well.
  • ULB should receive funds from the Centre and the State at the beginning of each financial year so that funds are available locally. Wages would be disbursed in a decentralised manner at the local ULB.
  • Urban employment programme should not come at the expense of MGNREGA but rather the two should go hand-in-hand.
  • Urban informal workers with limited formal education can undertake standard public works such as building and maintenance of roads, footpaths and bridges for a guaranteed 100 days in a year, at ₹500 a day.
  • “Green jobs” can be provided which include the creation, restoration/rejuvenation, and maintenance of urban commons such as green spaces and parks, forested or woody areas, degraded or waste land, and water bodies.
  • Further, a set of jobs that will cater to the “care deficit” in towns by providing child-care as well as care for the elderly and the disabled to the urban working class should be included.
  • Unemployed youth with higher education can assist administrative functions in municipal offices, government schools, or public health centres, and for the monitoring, measurement, or evaluation of environmental parameters.
  • Strong transparency and accountability structures — disclosure of information, periodic social audits, public hearing, timely grievance redressal for workers should be employed.


An urban employment guarantee programme not only improves incomes of workers but also has multiplier effects on the economy. Hence, the time is ripe for an employment guarantee programme in urban India.


Editorial Simplified: Maximum Gambit| GS – III

Relevance: GS Paper III (Economy)

Why has this Issue Cropped Up?

The Congress party has promised to transfer ₹6,000 a month to poor households if it comes to power. This  income transfer scheme has been named Nyuntam Aay Yojana (NYAY).

The Hurdles to Implementation of a Proposed Scheme like NYAY

  • The fiscal expenditure, to transfer ₹72,000 every year to the poorest 20% of the approximately 25 crore Indian households, would be ₹3.6 lakh crore.
  • This amount is twice the estimated amount set aside for food subsidy and five times that for fertilizer subsidy in the 2019-20 Union Budget.
  • There is also the additional problem of the identification of the poor — the Socio-Economic and Caste Census of 2011 is the most comprehensive exercise for this, but it has been riven by reliability and authenticity issues and has only been partially released to the public as yet.
  • By having an inbuilt provision of targeting the beneficiaries, NYAY can fall short as other programmes have, such as the targeted public distribution system.

Not an Unsound Idea

  • The idea behind NYAY is not entirely unsound. An unconditional transfer of a specified minimum income support to the poor will go a long way in helping address immediate needs related to health, education and indebtedness.
  • A large section of the targeted poor would include landless workers and marginal farmers in rural areas, and unemployed youth in families engaged in menial labour in urban areas.
  • Besides shoring up income to meet such basic needs and pushing wages upwards, the transfer scheme can help spur demand and consumption in rural areas in particular.
  • A section of the beneficiaries could withdraw themselves from employment but this could be mitigated by the expected overall spur in demand in the economy through consumption, and by the rise in real wages consequent to the shrinking of the labour market.
  • Limited cash transfers in the form of direct farm income support in States such as Telangana and Odisha have helped ameliorate agrarian crises. This was the reason why the central government came up with the PM-KISAN Yojana as a countrywide scheme.


A massive programme such as NYAY requires much more homework for its implementation. A dole is not a magic bullet; it can only be one among a clutch of robust and prudent welfare policies.


Editorial Simplified: Another Look at Fiscal Transfers| GS – III

Relevance: GS Paper III (Economy)

Theme of the Article

The time has come to amend the Constitution to fix the proportion of shareable taxes for the States.


It is well known that the efficiency of a government depends on, among other factors, its structure. In large countries, it has been felt that only a federal structure can efficiently meet the requirements of people from different regions.

Fiscal federalism

  • Fiscal federalism is the economic counterpart to political federalism. Fiscal federalism is concerned with the assignment on the one hand of functions to different levels of government, and with appropriate fiscal instruments for carrying out these functions on the other.
  • It is generally believed that the Central government must provide national public goods that render services to the entire population.
  • An important question in fiscal federalism is the determination of the specific fiscal instruments that would enable the different levels of government to carry out their functions. This is the ‘tax-assignment problem’.

Mobile and Benefit Taxes

  • It is generally argued that the de-centralised levels of government should avoid non-benefit taxes and taxes on mobile units. This implies that the Central government should have the responsibility to levy non-benefit taxes and taxes on mobile units or resources.
  • Building these principles into an actual scheme of assignment of taxes to different levels of government in a Constitution is indeed very difficult. Different Constitutions interpret differently what is mobile and what is purely a benefit tax.
  • For example, in the United States and Canada, both Federal and State governments have concurrent powers to levy income tax. On the contrary, in India, income tax is levied only by the Central government though shared with the States.

Taxation in Indian Constitution

  • The Indian Constitution lays down the functions as well as taxing powers of the Centre and States.
  • The issues relating to the correction of vertical and horizontal imbalances have been addressed by every Finance Commission.
  • However, Central transfers to States are not confined to the recommendations of the Finance Commissions. There are other channels such as those through the Planning Commission until recently as well the discretionary grants of the Central government.

Trends in Distribution of Tax Receipts

  • In 2010-11, in the combined revenue receipts of the Centre and States, the share of the Centre was 64.68%. After transfer, the share came down to 40.20%.
  • In the case of the States, their share before transfers was 35.32%. After the receipts of transfers the share of States went up to 59.80%. Thus the shares got reversed.
  • In 2016-17, the share of the Centre after transfers was 33.37% and that of the States was 66.63%. In the case of total expenditures, the share of the Centre in 2014-15 was 41.14% and that of the States was 58.86%.

New Developments

  • The Fourteenth Finance Commission has broken new ground in terms of allocation of resources.
  • One of its major recommendations has been to increase the share of tax devolution to 42% of the divisible pool. This is a substantial increase by almost 10 percentage points.
  • The commission has argued that this does not necessarily affect the overall transfers but only enhances the share of unconditional transfers.

The Encroachment by Centre

  • It is true that Centrally sponsored schemes, which have ballooned in recent years, may have ‘encroached’ on the territory of States.
  • Today, the Central government is held responsible for everything that happens, including, for example, agrarian distress. In viewing the responsibilities of the Centre and States we must take a broader view than what is stipulated in the Constitution.

Unconditional Transfers

On the allocation of unconditional transfers, two questions arise.

  • The first is to determine the total transfers that need to be made, while the second is whether all transfers must be done by the Finance Commission alone.
  • The Planning Commission was replaced by the NITI Aayog, which was simply a think-tank with no powers of resource allocation. In this context perhaps what the Fourteenth Finance Commission did was justifiable.

Way Forward

  • Perhaps the time has come for the Constitution to be amended and the proportion of shareable taxes that should go to the States fixed at the desired level.
  • The shareable tax pool must also include cesses and surcharges as these have sharply increased in recent years. Fixing the ratio at 42% of shareable taxes, including cesses and surcharges, seems appropriate.
  • Another possible route is to follow the practice in the U.S. and Canada: of allowing the States to levy tax on personal income, with some limitations. Since one of the concerns is that resources do not match functions, this may be a way out.
  • The levy by the Centre and States together should be reasonable. Also once this power is given to the States, the transfers from the Centre need adjustment. As far as India is concerned, this is an area which needs a fuller study. Adoption of any one of these alternatives will avoid friction between the Centre and the States.
  • The ability of bringing about equalisation across States in India has limitations. The relatively richer States have feel ‘cheated’ because of the overuse of the equity criterion. An appropriate balancing of criteria is needed.

Gist of Editorials: Harmonising NBFCs | GS – III

Relevance : GS Paper III ( Economy)

Why has this issue cropped up?

The RBI recently spoke about harmonisation of the various categories of NBFCs.  

Categories of NBFCs in India

  • Of the more than 10,000 NBFCs operating in India, 95 per cent are non-deposit taking.
  • The others include asset financing, micro-finance, and core investment companies.

Problem with categorisation of NBFCs

Too many categories increase compliance cost for the industry and monitoring cost for the regulator.


  • RBI will  now recognise only two categories, NBFCs and CICs.
  • It will effects future growth and business direction of NBFCs.

The issues that need to be addressed

The key questions that the RBI should address are:

  • Should we have the same set of regulations for all NBFCs ?
  • How can RBI enforce prudential risk measures for each asset class?
  • Should banks and NBFCs operate under equitable regulations?

Way forward

  • Separate regulations for each activity will increase compliance cost.
  • There is a need to differentiate between assets based on inherent risks.
  • A risk weight mechanism based on the expected losses is the need of the hour.
  • Allow the poor to monetize their meagre gold assets better by doing away with the cap.
  • Gold loans by NBFCs do not get the priority sector lending status. This needs to change.
  • While the RBI is the lender of last resort for banks, the NBFCs currently do not have any such institutional mechanism.

Gist of Editorials: Safety Nets | GS – III

Relevance : GS Paper III ( Economy)

President  promulgated the Banning of Unregulated Deposit Schemes Ordinance.

The ordinance bars all deposit schemes in the country that are not officially registered with the government.

How will the ordinance help?

  • Savings of low-income Indian households may get some protection now.
  • Greater legal protection can be offered for those depositors with inadequate financial literacy.

Provisions of the ordinance

  • creation of a central repository of all deposit schemes under operation
  • compensation to be offered to victims

Popular deposit schemes

  • these have helped in saving for people in the unorganised sector.
  • These were not regulated by the govt.
  • These unregulated schemes have been misused by some miscreants

The challenge posed by the ordinance

It dissuades depositors from conducting the necessary due diligence before choosing to deposit their money.

Way forward

  • proper implementation of the ordinance is needed.
  • savings of low-income households should be protected.
  • there must be checks against persons in power misusing the new rules