Insights Daily Current Events, 29 July 2016
Topic – Paper -1: Geography of India
Surplus river basins face drop in rainfall: IIT study
A study carried out by a team of researchers from IIT Madras and IIT Bombay
- decrease in spatial variability of mean monsoon rainfall over major river basins in India.
- there is no statistically significant increase in monsoon rainfall over major water deficit river basins.
- Major surplus basins such as Mahanadi, Godavari, Brahmani and West Flow River-I are witnessing significant decrease in rainfall
- The decrease in water yield in recent periods in major surplus basins has been more than 10 per cent in the case of Mahanadi and West Flow River-I.
- In the case of other surplus basins, the decrease has been within 10 per cent.
- Ganga, which is a major water deficit basin, has seen significant increase in rainfall, while Yamuna, Krishna and Cauvery river basins exhibit a decrease.
- There has been an increase in extreme rainfall events in India but this does not play a significant role in water availability as the surplus water gets wasted.
Challenges to interlinking
- study has found that the amount of summer monsoon rainfall over Indian river basins does not support the paradigm “wet gets wetter and dry gets drier”.
- The changes in rainfall pattern over major river basins in India raises concerns regarding the suitability and viability of interlinking major river water basins.
- The water demand in a surplus basin first needs to be assessed and then met under decreasing water availability scenarios before transferring water to deficit basins.
- Planning for inter-basin water transfer [in order to supply water from surplus to deficit river basins] necessitates an immediate reassessment with a systematic approach
Topic – Paper – 3: Resource mobilization; Conservation; Infrastructure
Green bonds can finance the future
What is a Green Bond?
- A green bond is a fixed income instrument for the purpose of raising debt capital through markets.
- certifies that the proceeds will be used exclusively for specific “green” purposes
- can provide a long-term source of debt capital for renewable infrastructure projects
- It is a way by which the government provides subsidies for green projects
- Renewable energy is more capital-intensive than coal
- An ambitious target of generating 100GW of energy from solar energy sources and 60GW from wind energy sources by 2022
- Need for $160 billion of capital – $120 billion as debt and $40billion as equity
- High interest rates of loans from banking sector
- Banks are unlikely to be able to expand their balance sheets to be able to finance the additional requirements of the renewable sector
- can facilitate the flow of capital to low carbon infrastructure investments, the demand for such investment is driven by low-carbon policy mandates
- Green bonds would enable investor diversification, mitigate risks since the repayment is tied to the issuer only
- build a community of green investors and enable refinancing bank loans at a lower cost.
Classifying Green Bond
- Depreciation: capital expenditure is allowed to be depreciated by 80 per cent in the first year and the remaining in the following five years
- Feed-in tariffs: long-term contracts with discoms to purchase power from a renewable project, usually at higher rates.
- Viability gap funding: a capital grant from the government that bridges the gap between project cost under the prevailing electricity rate and the price quoted by the developer
- Generation-based incentive: the government provides Rs. 0.5/kWh (kilowatt hour) supplied to the grid, subject to a cumulative maximum of Rs.10 million/MW
- Renewable Purchase Obligations(RPO): the National Action Plan on Climate Change (NAPCC) has set an ambitious RPO target of 15 per cent by 2020
Developing a green bond market
- Green bonds have been around for a decade but regulation and investment in them is still minuscule.
- lack of green bond standards
- low credit rating of potential issuers
- higher cost of issuance
- the government essentially needs to increase the funds available for investment in green projects, by providing for specific tax incentives
- development of long-term finance markets
- changing Insurance Regulatory and Development Authority norms for size of investment for insurance companies
- creating mandates for provident funds to invest in infrastructure and environmentally sustainable projects
- increasing the priority sector lending limit for bank loans under solar energy from a meagre Rs.15 crore
- standardising the definition of green to be able to target government efforts in the direction
- mobilising retail savings by way of tax exemption on the lines of Section 80CCF
- Three Key steps that can be taken by Indian govt
- standardise “green” bonds as a way to finance environmentally sustainable projects
- provide incentives to investing in projects funded by a carbon tax on polluting sources of energy
- increase funds channelled towards investing in environmentally sustainable projects.
Topic-Paper – 2: Conservation
Green light for Afforestation Fund Bill
The Rajya Sabha unanimously passed the contentious Compensatory and Afforestation Fund (CAF) Bill, 2016 that allows States to access nearly Rs. 42,000 crore and channel into afforestation projects.
- The Bill establishes the National Compensatory Afforestation Fund under the Public Account of India, and a State Compensatory Afforestation Fund under the Public Account of each state.
- These Funds will receive payments for: (i) compensatory afforestation, (ii) net present value of forest (NPV), and (iii) other project specific payments. The National Fund will receive 10% of these funds, and the State Funds will receive the remaining 90%.
- These Funds will be primarily spent on afforestation to compensate for loss of forest cover, regeneration of forest ecosystem, wildlife protection and infrastructure development.
- The Bill also establishes the National and State Compensatory Afforestation Fund Management and Planning Authorities to manage the National and State Funds.
- greater powers in the forest bureaucracy than to resident tribals
- Official records show that 19.4 million hectares has been afforested by the forest department over the last decade but forest cover has barely increased,
- the possible violation of tribal rights under Forest Rights Act (FRA) 2006
- gram panchayats not having the final say in deciding what kind of forests could be grown
- Even though both the Kanchan Chopra Committee and the IIFM Committee on Forest NPV (value of loss of forest ecosystem) clearly mention that communities must be compensated for the loss of forests, the CAF bill is totally silent about their rights and compensation.
- doubts on whether it would lead to an ecologically-sustainable replenishing of forests
- A 2013 CAG report noted that state forest departments lack the planning and implementation capacity to carry out compensatory afforestation and forest conservation. With the share of funds transferred to states increasing from 10% to 90%, effective utilisation of these funds will depend on the capacity of state forest departments.
- The Compensatory Afforestation, Management and Planning Authority (CAMPA) has over the years accumulated a staggering Rs 41,000 crore as recompense for forest land having been diverted for non-forestry purposes.
- The amount is calculated on the Net Present Value (NPV) of the diverted forest and the cost of afforestation; it ranges between Rs 5-11 lakh per hectare depending on the type and condition of a forest.
- The fund of Rs.42,000 crore has been collected in lieu of forest land diverted under the Forest (Conservation) Act, 1980, for non-forest purposes such as industrial projects like mining.
- Of the Rs.42,000 crore, Odisha (Rs.6,000 crore), Chhattisgarh (Rs.3,861 crore) Madhya Pradesh (Rs.3,460 crore), Jharkhand (Rs.3,099 crore), Maharashtra (Rs.2,433 crore), Andhra Pradesh (Rs.2,223) and Uttarakhand (Rs.2,210 crore) are expected to be the biggest beneficiaries.
- The Bill was first passed in the Lok Sabha during the UPA government’s tenure but was in cold storage after opposition in the Rajya Sabha. It was again cleared by the Lok Sabha this year after incorporating amendments.
Sources: The Hindu.
Topic- Paper – 3: Resource mobilization
GST – An Overview
- Multiplicity of taxes – Central and State level
- Cascading effect on cost of products and services
- Differential tax treatment for goods & services
- Double taxation on the same tax event
- Complexity in tax laws leading to tax avoidance and excessive litigation
- Tax inefficiency
- Fragmented market
- Destination based consumption tax
- Apply to all stages of the value chain – primary, secondary & tertiary including retail
- Apply to all supplies of goods or services (as against manufacture, sale or provision of service) except
- Exempted goods or services
- Goods or services outside the purview of GST
- Transactions below threshold limits
- Dual GST having two concurrent components
- CGST levied & collected by the Centre
- SGST levied & collected by the States
- CGST & SGST on intra-State supplies of goods or services in India
- IGST (broadly equal to CGST + SGST) on inter-State supplies of goods or services in India – levied & collected by the Centre
- IGST applicable to imported goods
- Export of goods or services – Zero rated
- All goods or services likely to be covered under GST except
- Alcohol for human consumption – State Excise plus VAT
- Electricity – Electricity Duty
- Real Estate – Stamp Duty plus Property Taxes
- Petroleum Products – deferred for possible inclusion in future
- Tobacco products – under GST plus Central Excise
- Central Taxes likely to be subsumed in GST
- Central Excise Duty
- Additional Duties of Excise
- Excise Duty under Medicinal & Toiletries Preparation Act
- Additional Duties of Customs
- Service Tax
- Surcharges & Cesses
- State Taxes likely to be subsumed in GST
- State VAT / Sales Tax / CST
- Purchase Tax
- Entertainment Tax
- Luxury Tax
- Entry Tax (not levied by local bodies)
- Taxes on Lottery, Betting & Gambling
- Surcharges & Cesses
- On Government revenues
- Widening of tax base
- Growth in revenues leading to higher tax-GDP ratio
- Comprehensive taxation on goods and services up to the retail
- On competitiveness and growth for Industry
- Eliminating cascading impact of taxes on production and distribution cost of goods and services
- Removal of tax barriers – facilitate economy of scale in manufacturing and reduction in supply chain cost
- Improve the competitiveness of indigenous goods and services leading to accelerated GDP growth
- Tax neutrality in export of goods and services
- On consumers & demand for goods
- Reduction in prices leading to increase in demand
- On Investment and economic efficiency
- Removal of tax induced distortions
- Simpler tax system will lead to sustainable higher growth based on competitive strength
- Tax efficiency will ultimately lead to reduction in the tax rates attracting more productive investment for growth
122nd Constitutional Amendment Bill
- Concurrent jurisdiction for levy of GST by Centre & States – Article 246A
- Authority for Centre to levy & collect IGST on supplies in the course of inter-State trade or commerce including imports – Article 269A
- GST defined as any tax on supply of goods or services or both other than on alcohol for human consumption – Article 366(12A)
- Constitution of GST Council – its functions, responsibilities & manner of functioning – Article 279A
- To be constituted within 60 days from the coming into force of the Constitutional Amendment
- Consists of Union FM & Union MOS (Rev) & all State Ministers of Finance
- Quorum is 50% of total members, decisions by majority of 75% of weighted votes of members present & voting (1/3rd weighted votes for Centre & 2/3rd for all States together)
- Changes in definitions, entries in List –I & II
- Authority for Centre to levy non-vatable Additional Tax – retained by origin State
- Compensation for loss of revenue to States for five years