Op-ED Vol 4 (for RBI/SEBI/IBPS/UPSC)

States need more funds than allowed by the FRBM Act

1. As per the Escape Clause of FRBM (Fiscal Responsibility and Budget Management Act)  states are supposed to manage their fiscal distress with the additional 0.5 per cent leeway (in addition to 3 per cent of GSDP). *GSDP= Gross State Domestic Product

2. But this is not enough to meet the extra demands being made on the government machinery as the states are at the forefront in battling the Covid pandemic.So the Escape Clause needs to be reformed extending it beyond 0.5 per cent.

3. The above provisions are meant for normal situations, not emergencies. Although the ‘Ways and Means’ norms have been relaxed by the RBI but this seems to be not enough. A one-time monetization of the Center’s deficit (the RBI buying g-sec bonds and releasing liquidity) seems to be the best  way forward.

Why GST exemption is a bad idea

1. In this global pandemic situation some sectors are demanding exemption of GST rates. But this is not a good idea as this will distort the value chain.

2. Typically, when an exemption is sought on the end-product, the tax paid at various earlier stages of the manufacturing chain sticks to the product, the possibility of offsetting these taxes having been obviated by the exemption. This adds to the cost of the final product.

3. By asking for zero GST rates on final products without any reduction of input tax credit will have the burden of the unutilised credit on manufacturers. As a result the final cost of the product will not be reduced.

4. Further, in the absence of Integrated -GST (levied on imports at a rate corresponding to the GST rate) imports will also become cheaper which will hurt the domestic manufacturers.

Wage cuts are better than layoffs to combat covid crisis

1. The author suggested that the wages and pensions for all government and quasi government employees for the remaining fiscal year by 30%. The private firms can also do the same rather than laying off.

2. Layoffs signal a clean decision by the firm.When demand initially drops, workers are first benched, not dismissed. If that drop continues, then the layoffs start.

3. Worker resistance to such a big wage cut would be much less if accompanied by a similar reduction in their house rents, household budgets, educational fees etc.

4. While it is not sufficient to reduce the output cost by reducing wages, but it will distribute some of the burden more equitably.

There can be no going back on WFH

1. WFH or Work From Home is becoming more and more popular thanks to global pandemic. It is making us redesign workplaces, work hours, work rules and work socialising.

2. For employers the big advantage is savings on maintaining an office space and the cost of real estate — WFH will be another punch in the gut for the hard-hit Indian sector.

3. But there are some downsides of WFH too. It is not possible to monitor whether an employee is wasting time on social media, online video sites etc. Also, meetings are still required to generate ideas and boost team spirit.

RBI’s special window for MFs is unlikely to have many takers

1. The Reserve Bank of India (RBI) on April 27 announced a special liquidity facility for mutual funds worth ₹50,000 crore as redemptions rose after Franklin Templeton closed six debt mutual funds.

2. Banks are already distressed on the verge of mounting NPAs, which is again likely to be exacerbated by lockdown.

3.The RBI lends to banks through repo auctions, and they are expected in turn to on-lend to mutual fund houses which can either borrow on the basis of the collaterals in the form of bonds or sell the bonds to banks at a discount. But banks see these as suspect papers.And also mutual fund houses are unwilling to sell the papers at a discount to banks.

China’s digital money

1. The People’s Bank of China (PBoC) has recently launched its first ever digital currency – digital Yuan or renminbi. This is the first time a central bank is releasing a digital currency.

2. One major difference between this and other cryptocurrencies is that it doesn’t depend on blockchain technology to verify and transact records as PBoC is centralized.

3. China has launched this in order to provide subsidies and tax refunds quickly and easily hit by the global pandemic. It would reduce the high cost of handling paper currencies and reduce difficulties in transactions.

4. Once it is available for intra-border transactions, it has a potential to gain market share in the forex segment. But all this will depend on network effects and good secure technology.

Why workers need unions

1. Covid-19 and the resultant distress in the job market have once again highlighted the importance of trade unions, especially in ensuring the workers’ welfare as a key agenda for companies as well as policymakers.

2. The absence of a union makes a gig worker a silent observer of the draconian measures taken by their companies. The remaining employees work under extremely stressful conditions without adequate safety measures.

3. In countries and sectors where unions are strong, workers enjoy better wages, benefits and other protective measures. Hence, this calamity must come as a wake-up for workers usually reluctant to join or form unions.