The Hindu Today News & Editorials – 18 February 2021

1) An ambiguous levy: On tax on PF incomes.

The proposed tax on PF incomes has its logic, but operational details need a revisit.

GS-2: Government policies and interventions for development in various sectors

GS-3: Government Budgeting: Inclusive growth and issues arising from it.


Context:

  1. Finance Minister has stressed that Budget 2021-22 raises resources to push the economy without increased taxation. The Budget had said that interest on employee contributions to provident fund over Rs 2.5 lakh per annum would be taxed from April 1, 2021.
  2. For this one change to the income tax law proposed in the Finance Bill, 2021, has triggered anxieties for the salaried class: withdrawing tax exemption on interest income accrued into Provident Fund accounts arising out of employee contributions exceeding ?2.5 lakh ‘in a previous year in that fund,’ on or after April 1, 2021.

 

The Employees’ Provident Fund Organization (EPFO):

  1.  The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, under Ministry of Labour & Employment) Is government organization that manages provident fund and pension accounts of member employees.
  2. It is one of the World’s largest Social Security Organizations in terms of accounts of member and the volume of financial transactions undertaken.

 

The Employees Pension Scheme (EPS):

  1. The social security scheme, provided by EPFO from 1995, that’s makes provisions for pensions for the employees in the organized sector after the retirement at the age of 60 years.
  2. Both employer and employee contribute 12% of employee’s monthly salary and Employees who are members of EPF automatically become members of EPS.

 

18 February 2021: The Hindu Editorial Analysis
18 February 2021: The Hindu Editorial Analysis

 

The rationale behind this tax:

  1. The rationale some employees are contributing huge amounts into their PF accounts and getting tax-free incomes.
  2. The Revenue Department has pointed out the tax will only affect a small group of ‘high net-worth individuals’ (HNIs).
  3.  The social security scheme for formal sector workers should become an investment tax haven for the well-heeled corporate top brass.

 

Tax treatment inequity:

  1. This is not the first time this government had tried to tax PF savings, citing its abuse by the rich. In the 2016-17 Budget, it proposed to tax 60% of EPF balances at the time of withdrawal, but backtracked after a backlash.
  2. Now, it has covered even government employee’s contributions into the GPF, but left NPS investments over ?2.5 lakh a year untouched.
  3. Tax treatment inequity between India’s limited retirement savings instruments aside, employees and employers have some serious doubts on the implementation.
  4.  The words ‘in a previous year’, for one, suggest this will be a type of retro-active tax taxing future income even on past years’ contributions of over ?2.5 lakh.
  5. It is also not clear when and how the tax is to be paid at retirement or each year that the PF rate is announced.
  6.  This may not be smart timing for a government looking to lean on huge borrowings to dent large inflows into EPF most of its corpus is captively deployed in government bonds.

 

Aimed at taxing high-value depositors in the EPF:

  1.  Up to ?2.5 lakh has been kept as the deposit limit for which interest is tax exempt, finance minister said.
  2.  At least 12% of an employee’s basic salary and performance wages is compulsorily deducted as provident fund, while the employer contributes another 12%. Anyone who earns more than ?20.83 lakh a year will attract his or her interest on EPF contribution being taxed.
  3. If employee’s contribution to provident fund on or after 1 April 2021 exceeds ?2.5 lakh in any year, interest earned on contribution over ?2.5 lakh shall be taxable.
  4. But at the same time, getting tax exemption and 8% rate of interest for somebody who puts ?1 crore into the account, we thought is may be not correct. And therefore we have put the ceiling,” finance minister said.
  5. The big-ticket money which comes into the fund and gets tax benefit as well as assured about 8% returns that would come under the tax ambit, finance minister said.

 

Conclusion:

  1. While the goal of targeting high net worth individuals (HNIs) using the PF savings to avoid taxation is laudable, the Centre should consider recalibrating the arithmetic and operational details of this tax.
  2. If an employee and an employer are in agreement to allocate share of their total earnings for the provident fund purposes then EPFO should provide full benefit of the same to the employee.
  3. The financial burden of the pension on the government is huge. Investment avenues for the EPFO need to be increased so that government is able to provide pensionary benefits to the people. Formation of a separate organization specifically for the investment purposes can also be considered.

 

2) The poor state of the Indian state.

The pandemic has revealed its chronic inability and systemic weakness to take care of the poorest citizens.

GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

GS-2 : Important aspects of governance, transparency and accountability, e-governance- applications, models, successes, limitations, and potential; citizens charters, transparency & accountability and institutional and other measures.

GS-4: Emotional intelligence-concepts, and their utilities and application in administration and governance.


Context:

  1. Two new books reveal stark weaknesses of the Indian state in serving India’s poorer citizens. The first, Locking Down the Poor and The second, Despite the State Why India Lets Its People Down and How They Cope by M. Rajshekhar,
  2.  The books reveal millions, who lost incomes and shelter, and food and medical care too, in a harsh lockdown to create a sanitized cordon for better-off Indians during the pandemic. And an incisive examination of the systems of the Indian state before the lockdown.
  3. These books explain how the weakness of the Indian state to care for its poorer citizens is not a failure of the present government only, or of the previous government. But the weakness is systemic.

 

The pillars needed:

  1.  According to political and social historians, The Strong states are founded on three pillars.

(a)They are built with support from the people

(b) They have a strong administrative machinery to provide stability and deliver public services

(C) They have the managerial ability to shape and implement change.

  1. The Strong support of the people is essential. Mere election by a majority is not sufficient as History shows,
  2. To builders of strong states have bound people around a shared identity: ethnic, racial, or religious; Aryan, Han Chinese, Japanese, Muslim, Catholic Christian. The peoples’ identity is not formed by legal constitutions.
  3. The Strong leaders who unite people around their shared identity are even given liberty by the people to change constitutional structures because they trust their leaders do it for the sake of citizens. Thus, dictators emerge loved by the people.

 

The builders of the Indian state have difficult Issues:

  1. The builders of the Indian state have a difficult problem; it is hard to unite Indians around a shared ethnic or religious identity.
  2. The diversity among India’s races and religions, there are entrenched caste divisions even within the Hindu religion of the majority.
  3. If Indians must be united to support a strong state, it must be around a modern, inclusive idea of India, as the Constitution imagined.
  4. The present ruling dispensation, while trying to force a majoritarian identity, is dividing Indians and weakening the state.

 

Indian bureaucracy’s role:

  1. The role that professional civil services have played in the formation of strong states, in Han China, the Ottoman Empire, France, and Japan. India inherited the ‘iron frame’ of civil services from Britain.
  2.  It was designed to provide stability and compliance with rules: it was not equipped to shape change, the requirement for bureaucracy’s of a good developmental state.
  3. Therefore, there are demands for its reform. Even the Prime Minister has complained that bureaucrats seem not to care for the country’s progress as much as entrepreneurs do.
  4. Simultaneous management of both change and stability is necessary for the evolution of good states and societies.
  5. The Unmanaged change can cause chaos, while too little change entrenches the established system. This was the essence of the ‘great debate’ in the 18th century.
  6. The great debate, about stability versus change for good governance, evolved into new arguments in the 20th century: capitalism versus socialism; and markets versus governments.
  7.  By the end of the 20th century, capitalism and markets were positioned in the public imagination as the prime movers of economic growth, and socialists and governments as retarders of progress.
  8. The Capitalists took on the mantle of ‘wealth creators’, relegating governments to the role of ‘redistributors’.
  9.  A popular slogan that wealth must be created before it can be redistributed leads to the conclusion that there should be less government when countries are poor, and more freedom for large, private, wealth creators.
  10.  With the logic that governments are stodgy, even public services such as health and education are handed over to private enterprises.

 

The logic of economics is not the same as the logic of society:

  1.  It’s say that privatisation of government fits with ‘efforts of economists to extend their model of rational, utility-maximizing behavior into the political realm and to see politics as nothing more than an extension of economics’.
  2.  The ideology of private is good and public is bad requires that public servants should think like private sector managers committed to growing the pie and not think like socialists concerned about the condition of the people who are waiting for wealth to trickle down to them.
  3. To assist public servants, consultants from the private sector are brought inside government to help the state run more like a business corporation.

 

Where the focus should be:

  1. Private corporations are not states designed for citizens. CEOs are not elected by employees, and they have the authority to hire and fire workers.
  2. The state must perform primarily for its poorest citizens for economic growth to be equitable and sustainable, and not for investors in corporations.
  3. The Leaders of states must ensure that all citizens have opportunities to work and earn. They must also ensure that all citizens, even those who cannot afford it, have good health and education.

 

The ideology of private rather than public has Ethical, moral consequences:

  1. The purposes of a private enterprise to making money and the state are different purposes like political, social economic justice.
  2.  Private sector managers move from one competitor to another, like professional mercenaries, serving the interests of owners of corporations wherever in the world they may be.
  3. Whereas public servants, whose mission is to build their nations and states, are expected to devote their lives to the care of citizens in their own countries.

 

GDP cannot be the scorecard:

  1. The pandemic has revealed the chronic inability of the Indian state to take care of its poorest citizens. The scorecard for the nation cannot be its GDP.
  2. The Economic justice, environmental sustainability, and improvement of the dignity of all citizens must be measured too, and these must improve much faster.
  3. The present ‘top up the top’ model of India’s economic growth, with hopes of trickle down, is not delivering these.

 

Way forward:

  1. The doctrine of Separation of Power refers to the model of governance where the executive, legislative and judicial powers are not concentrated in one body for “a good nation with strong state” all organ work with accountability and responsibility.
  2. India must build a strong and good state. This requires: political leaders who can unite all Indians into one India, whatever their religion, race, or caste; cadres of good public managers to build and run services for all citizens equitably;
  3. Also requires, the business leaders who are not just wealth creators for themselves (distributing some of it in philanthropy), but creators of opportunities, very soon, for millions of Indians to earn and create wealth for themselves too.
  4. The Political leaders, administrators, and business leaders must work together, with a shared vision, to build an Indian state that is good for all citizens, especially the poorest. Time is running out.

 

3) Hitting the right notes with the health budget.

The Union Budget has laid a strong foundation to increase the resilience of the health sector in the post-COVID-19 era.

GS-2: Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.

GS- 3: Government Budgeting: Inclusive growth and issues arising from it.


Context:

  1. Health care and health budget has taken centre stage due to an unfortunate novel corona virus pandemic that has devastated lives and livelihoods across the globe.
  2. Although India has performed relatively better in its COVID-19 management, even compared to countries with highly developed health systems, the impact of the outbreak on society and the economy is undeniable.
  3. The Union Budget 2021–22 was an eagerly awaited one and the announcements for the health sector, in particular, have been widely discussed.

 

Context of packages:

  1. The various Aatmanirbhar Bharat Abhiyaan packages announced by the Government of India, which also include several short-term and longer-term measures to strengthen the health sector.
  2. The Production-Linked Incentive schemes have been announced to boost domestic manufacture of pharmaceuticals and medical devices.
  3.  The Mission COVID Suraksha has also been launched to promote the development and testing of indigenous vaccine candidates.
  4. At least 92 countries have approached India for a COVID-19 vaccine, thus bolstering the country’s credentials as the vaccine hub of the world.
  5. To ensure food and nutrition security for the poor and the vulnerable during the COVID-19 crisis, the Government of India launched the Pradhan Mantri Garib Kalyan Package for providing free foodgrains to 800 million beneficiaries.
  6.  To facilitate access to subsidised grains across the country, the ‘One Nation One Ration Card’ scheme has been enabled in 32 States/Union Territories covering 690 million beneficiaries.

 

With respect to the “pandemic” of the health Budget:

  1.  The health Budget, with allocations for water, sanitation, nutrition and clean air, it is important to appreciate that the presentation of a combined ‘health and well-being’ budget, is a welcome step.
  2. The National Health Policy (NHP), 2017, highlights the close links between health, water and sanitation.
  3. This year’s Economic Survey too recognises that improvements in access to bare necessities such as water, sanitation and housing are strongly correlated with progress in health indicators.

 

18 February 2021: The Hindu Editorial Analysis

Good water, vaccine coverage:

  1. The substantive allocation for the newly launched Jal Jeevan Mission (Urban) is especially commendable as access to adequate, good quality water supply has major positive externalities for the health sector.
  2. Suboptimal access to clean water and sanitation is directly linked to diseases such as diarrhoea, polio and malaria. Moreover, water contaminated with heavy metals such as arsenic increases the risk of developing heart ailments and cancer.
  3. Another announcement in Budget 2021 was to expand the coverage of the pneumococcal vaccine across the country. Pneumococcal pneumonia is a major killer of children under the age of five years.

 

The Budget Strengthen “PMANSBY” and “PM-JAY” Yojana:

  1. The priority accorded to capital expenditure through the launch of the Pradhan Mantri  Atmanirbhar Swasth Bharat Yojana (PMANSBY), is also a much-need step.
  2. Further, PMANSBY lays emphasis on the health system being strengthened at all levels, including establishing integrated public health laboratories and institutes of virology.
  3. This is crucial as experts have repeatedly highlighted the need for enhancing disease surveillance and diagnostic capabilities to be better prepared for disease outbreaks.
  4.  The emphasis on expansion of health and wellness centres under PMANSBY, together with a ?13,192 crore Finance Commission grant for strengthening the primary health system through local government bodies, is also noteworthy.
  5. The health Budget is the stagnant allocation for the Pradhan Mantri Jan Arogya Yojana (PM-JAY), a flagship scheme launched by the government in late 2018 as part of the Ayushman Bharat initiative.
  6.  The Economic Survey estimates a 20% decline in the infant mortality rate between 2015–16 and 2019–20 in States that adopted PM-JAY, compared to a 12% decline in States that did not.
  7.  It is important, therefore, to persist with this highly ambitious scheme and accelerate its roll-out as the absorptive and governance capacity of States improves.

 

The Promoting ayurveda:

  1. The health Budget is the nearly 40% hike for the Ministry of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH).
  2. The pandemic has catalysed a behavioural shift in favour of preventive care, holistic health and wellness.
  3. There is considerable potential for promoting ayurveda and yoga as well as integrative health-care approaches in the post-COVID-19 scenario, especially for stress reduction and the management of chronic diseases.

 

The States must act too:

  1. We also have to ensure adequate funds for critical and closely-linked sectors such as nutrition, water and sanitation. The onus of increasing health spending, however, does not lie with the Centre alone but also with the States also.
  2.  As elucidated in the National Health Accounts 2017, 66% of spending on health care in India is done by States.
  3. The States increase expenditure on health to at least 8% of their budget by 2022 as recommended by the National Health Policy (NHP), 2017 and the Fifteenth Finance Commission.

 

Conclusion:

  1. The High-Level Expert Group on Universal Health Coverage had estimated that by 2020, India needs a 114 per cent increase in sub-centres and primary health centres, 179 per cent increase in community health centres and a 230 per cent increase in sub-district and district hospitals.
  2. The health sector has found a prominent place in the government’s agenda over the last few years, with the implementation of a series of well-thought-out and carefully sequenced reforms.
  3. While much remains to be done, the Union Budget 2021–22 has laid a strong foundation to increase the resilience of the sector in the post-COVID-19 era and achieving Universal Health Coverage by 2030 as part of the Sustainable Development Goals agenda.