Daily Current Affairs And General Studies For UPSC Prelims & Mains (July 1): GST Enters Fourth Year, Over-Reliance On Forex Reserves

GST Enters Fourth Year

GST faces its toughest test as it enters its fourth year. The upcoming challenge to GST, however, does not stem from its design or structure or the way it has been run. It is up against a pandemic that has wreaked havoc on the global economy and India is no exception.

Despite the diversity that GST has had to contend with, it has been a remarkable success as a tax in the first two years. Faced with an unusually high benchmark of 14 per cent CAGR, GST was very productive in the first two years. The base year revenue in 2015-16 stood at around Rs 8 lakh crore and for the nine months of 2017-18 that GST was operational, the benchmark stood at Rs 7,79,760 crore (at 14 per cent CAGR from 2015-16). As against this, the actual GST revenue stood at Rs 7,40,650 crore, which is 95 per cent of a very tall target.

The pandemic struck just as the economy seemed to be looking up, which has led to all reform measures being put on hold. The new return system, rate rationalisations, measures to improve compliance and compliance verifications have all been held back, which has further dented revenue prospects.

  • The biggest challenge is the possibility of a huge deficit in the compensation account.
  • It is time to take measures to prevent the states from slipping into a serious financial crisis.

Source: Indian Express (As GST enters its fourth year, Covid has hit collections. Much depends on measures to compensate states)

Over-Reliance on Forex Reserves

India’s forex reserves have crossed an unprecedented mark — over half trillion USD — placing India only behind China and Japan in Asia. And while it may seem like a ray of hope amidst the economic turmoil in the country, one must scrutinise its utility. The issue is not about a “few extra” reserves but unused “excessive” reserves which may indicate that the Indian government is likely anticipating the need of an enormous economic stimulus and hence is banking on these reserves to support the failing Indian economy.

Why does India keep huge forex reserves despite the government’s claim that the “fundamentals” of the economy are strong?

Sufficiency of forex reserves is sometimes measured on how many months’ worth of imports can a country afford. While six months is considered sufficient, the RBI in December 2019 said it had enough to sustain for 10 months (the forex reserves were then $ 0.4 trillion). Today the cover is 12 months! This is despite having a sufficient credit line from the IMF, should there be a credit shock.

Fundamental use of India’s foreign exchange should be to ensure the rupee stability.

Source: Indian Express (Over-reliance on forex reserves is problematic, not using them a lost opportunity)

India-China Border Disputes

Aksai Chin is claimed by India, but China, de facto, rules; China claims Arunachal Pradesh, but India, constitutionally, rules.

Will it ever be possible to resolve the boundary dispute, which is at the root of the conflict? And if so, how? The dispute cannot be resolved by going to war. No war has permanent winners. No losers can willingly accept defeat. The only way to resolve disputes, in post-nuclear times, is through negotiations, as equal powers, with mutual respect.

Problem: Today, China regards itself as a superpower in the making, which implies that negotiation will not be not be on equal terms.

China refused to recognise the authority of the Permanent Court of Arbitration (PCA), established under the United Nations Convention on the Law of the Sea (UNCLOS). The PCA rejected China’s legal claims. It ruled that China had breached its obligations under the Convention on the International Regulations for Preventing Collisions at Sea and Article 94 of UNCLOS concerning maritime safety, and that China violated international obligations. China has not paid any heed to international opinion that supports unimpeded commerce, freedom of navigation, overflights, and peaceful resolution of disputes in the South China Sea. The same hubris has made China more intolerant of infrastructure built by India, while it continues to build its own along that frontier.

Source: The Hindu (In ending stand-off, magnanimity must prevail)

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