4, December 2016

1.Funds tracking system will trim Centre’s costs

Source: The Hindu

  • The Centre is planning to speed up the process of implementation of Public Financial Management System in the country.
  • The new system, when implemented, will save a significant amount on interest costs. The system allows the government to monitor and access the more than Rs.1 lakh crore of idle funds lying with it under various heads.

There are about Rs.1-1.5 lakh crore of idle funds lying with the government. Now, if the government can access these funds through PFMS, it need not borrow that amount. At 7% interest, that works out to a saving in interest costs of at least Rs.7,000 crore.

Public Financial Management System

  • PFMS, administered by the department of expenditure, is an end-to-end solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting. It is a web based application.  
  • The PFMS platform compiles, collates and makes available in real-time, information regarding all government schemes, and, significantly, provides the government real-time information on resource availability and utilisation across schemes.
  • In addition, the platform will allow government expenditure to adopt a Just-in- Time (JIT) approach, with payments made only when they are needed.

2.SC  Centre’s action plan to tackle air pollution in Delhi-NCR

Source: The Hindu

  • The Supreme Court has asked the Centre to put in place a pollution coding mechanism with a graded response system to tackle New Delhi’s growing foul air.
  • The grading system will ensure that certain steps can be automatically introduced. When air quality dips, the odd-even car rationing formula will kick in, along with closure of schools, a four-fold hike in parking fee, ban on entry of trucks, and halt in construction activities.
  • The graded response also fixes responsibility on the agency that has to enforce the measure.
  • The court also asked the CPCB to install real-time and manual pollution monitoring stations in Delhi, Haryana, Uttar Pradesh and Rajasthan to check air quality for the graded response.

 The order came after the top court approved the Central Pollution Control Board’s (CPCB) “graded response action plan” that outlines measures based on air quality — moderate to poor, very poor, severe, and severe-plus or emergency. A separate set of action plan has been suggested for each category.

  1. Govt to consider states’ request for leeway in FRBM obligations

Source: Indian Express

Finance minister agreed to consider the states’ demand for some flexibility in their Fiscal Responsibility and Budget Management Act obligations in the near term, given the concerns over their tax revenues coming under pressure due to the government’s demonetisation move.

The framework regarding fiscal responsibility- Background

  • India’s emergence as a preferred investment destination in recent years has been the strength of its policy and institutional frameworks
  • Decisions such as e-auctioning of natural resources, a rule-based framework for Indian monetary policy, insolvency and bankruptcy code, the goods and services tax, amongst others, have all aimed at enhancing the credibility of policy and institutional frameworks.

Gradual  changes in the conduct of fiscal policy, have been a crucial contributor towards improving India’s growth and investment potential.

 

  • Restraint on unproductive spending amid plugging of subsidy leakage through comprehensive implementation of the DBT (direct benefits transfer) platform, higher devolution of revenue to States and local self-governments, greater autonomy to States for spending on developmental plans have indeed improved the quality and credibility of fiscal policy of late.

 

Accounting for a changed order

Framework  regarding fiscal responsibility and discipline as Fiscal Responsibility and Budget Management (FRBM) Act, developing economy such as India the government needs to spearhead a prominent role in funding growth, an institutional mechanism that imposes rule-based parameters on government’s spending and deficit significantly enhances its credibility.

FRBM Act:

The FRBM Act was first introduced in India in December 2000 to rein in burgeoning government deficits both at the Centre and in the States.

    • Enacted in 2003, the FRBM Act institutionalised fiscal discipline, by seeking to eliminate revenue deficit and to bring down fiscal deficit to a manageable 3 per cent of GDP by FY08 from 5.7 per cent of GDP in FY03.

 

  • However, during the international financial crisis of 2008, as government spending became critical to revive growth amid sharp decline in private investments, the deadline for attainment of the target was pushed forward and later suspended.

 

  • However, in the 2016 Budget speech, in a bid to reinforce the commitment to fiscal consolidation, the Hon’ble Finance Minister instituted a committee to review the contours of the FRBM Act in the light of current domestic and global dynamics.

Following issues:

 

  • what’s the ‘Point’ in ‘Range’? Amid government’s increased role in reviving growth, debate has emanated on whether it would be appropriate to impart flexibility to the government by adopting a range-based target as opposed to a point-based target for fiscal deficit.

 

That  infuses fiscal discipline, limits the room for government manoeuvres and provides an unambiguous signal to the bond markets is superior to a range target.

 

  • The  objectives of monetary policy, is likely to result in a ratings upgrade for the Indian sovereign, which will eventually percolate down to lower cost of borrowing for the private sector, which is important for new capital and investment formation.
  • Determining  the ‘appropriate fiscal deficit target’. Macro underpinning of sustainable fiscal deficit comes from the supply of funds in the economy.

 

  1. Rules  that serve as a guiding principle. A binding spending rule along with a medium-term debt range that takes into account the specific institutional setting in each country would help to enhance the policy credibility and facilitate effective monitoring that would ensure stability, fairness and efficiency.

Expenditure rules that focus on enhancing the quality of spending and improve accountability are preferred in many countries. In case of India, a preference for capital spending (in both agriculture and manufacturing) should receive budgetary enunciation.

  1. An  independent constitutional body as a watchdog. The revised FRBM framework can consider setting up an independent reviewer, a Fiscal Council, to oversee the adoption of rule-based fiscal policy and also recommend future course of public policy advocacy.

Conclusion

    • The  adoption of version 2.0 of the FRBM framework will enhance the efficacy of India’s fiscal policy and significantly reduce the twin-deficit vulnerability.

 

  • At a juncture where most developed economies are struggling with their government’s balance sheet to support the economy, a rule-based system with room for independent advisory and oversight can transform India’s fiscal architecture and create enablers for germination of green field investment appetite.

 

  1. Bitcoin firm opens blockchain incubator in India

Source: The Hindu

The team behind bitcoin company, GBMiners, said that it has started South Asia’s first Blockchain incubator called Satoshi Studios.

Named after Satoshi Nakamoto, the mysterious creator of bitcoin, the incubator is inviting applications from entrepreneurs working in South East Asia region.

Background:

  • Blockchain is a kind of distributed database that keeps a permanent and tamper-proof ledger of transaction data. It is commonly associated with bitcoin which is a digital currency that is not supported by any country’s government or central bank.
  • Also known as crypto-currency, bitcoin can be traded for services or goods with sellers who accept bitcoins as payment. That  South East Asia and bitcoin adoption will be a very symbiotic relationship.

5.Choosing hospital over home –  Janani Suraksha Yojana

Source: The Hindu

A government programme aimed at increasing institutional deliveries has changed the health-seeking behaviour of Indian women.

Maternal health programme

Janani Suraksha Yojana (JSY) led to a 22 per cent increase in women delivering in government hospitals between 2004 and 2014.

  • The scheme also is attributed for increasing the probability of a woman being hospitalised by 1.3 per cent, resulting in a 2 per cent increase in overall hospitalisation of women in India.
  • The increase, however marginal, is a cause of celebration as women in rural India are known to delay seeking health interventions.

Scheme’s success

Launched in 2005, JSY, the world’s biggest conditional cash-transfer scheme, aimed to promote institutional delivery — instead of delivering babies at home — to improve India’s infant and maternal mortality rates.

  • Under JSY, pregnant women choosing to deliver at the hospital and the health worker who motivated her to take the decision get cash incentives — Rs.1,400 for the woman and Rs.600 for the Accredited Social Health Activist in rural areas and Rs.1,000 and Rs.200 respectively in urban areas.
  • The cash incentive was intended to reduce financial barriers to accessing institutional care for delivery.

This increase is fuelled by an 8 per cent decline in childbirth at private hospitals and a 16 per cent declined in childbirth at home. Our analysis shows that the JSY hypothesis holds true and the programme led to a significant increase of 2 percent in overall public hospitalization of women in India,” states the Brookings India report.

Report studied

The study, titled ‘Health and Morbidity in India: 2004-2014’, is based on analysis of the 60th and 71st round of National Sample Survey Organisation (NSSO) data. Prima facie, childbirth has increased as an ‘ailment’ causing hospitalisation in the NSSO data. Nearly 3,50,000 women — over two rounds of NSSO surveys — were studied.

Concerns

  • The economic significance of a 2 per cent increase is obviously little. One has to understand that JSY was not meant to increase overall hospitalisation. The scheme’s focus was only to reduce maternal and infant mortality.
  • Hypothesis  of the study is that large-scale rollout of health insurance schemes has also contributed to the increase in probability of hospitalisation for both men and women.
  • Having insurance is associated with a 17 per cent increase in probability of being hospitalized in a government facility and an 8 per cent increase in the probability of hospitalization in a private hospital.


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