Editorials/Opinions Analyses For UPSC 19 November 2021

Contents

1. Agreeing to disagree: On U.S.-China ties
2. A stimulating alliance: On addressing fiscal worries of States

Agreeing to disagree: On U.S.-China ties

Context:

The virtual summit meeting between Presidents Joe Biden and Xi Jinping appeared to underscore in their minds the need for them to find common ground on contentious issues including trade and tensions surrounding Taiwan and the South China Sea.

Relevance:

GS-II: International Relations (India’s Neighbours, Foreign policies affecting India’s Interests)

Dimensions of the Article:

1. Major points of issues in U.S. – China relations
2. Concerns
3. Impact on India
4. Way forward

Major points of issues in U.S. – China relations

Trade

• At the top causing bilateral friction between U.S. and China is trade. The roots for the strained relations lie in China becoming one of the largest world economies and the high trade deficit between the two nations in favor of China.
• The U.S. blames China for practicing unethical business practices like theft of U.S technology and intellectual property and restricting investment in the U.S.
• The U.S. labeled China as a currency manipulator after the Chinese central bank let the Yuan weaken significantly.
• The US-China trade war, which began in 2018 under former US President Donald Trump, has resulted in both nations paying higher taxes to bring in goods from the opposing country.
• The U.S. also banned the use of Huawei equipment by U.S. federal agencies.
• Escalating import tariffs have caused supply chain disruptions that are affecting businesses and individuals worldwide.

South China Sea

• The South China Sea is a major point of contention between the two nations. China claims virtually the entire South China Sea which is opposed by several countries in that region.
• The established rule-based system is being challenged by China’s territorial claims in the South China Sea and its various endeavors to advance into the Indian Ocean region.
• The U.S. considers it to be a violation of the established rule-based system as China is increasing its maritime activities in the South China Sea and the East China Sea. The U.S. opposes any further militarization of the region.

Taiwan

• Another point of contention is the U.S. stance on Taiwan. China considers U.S. relations with Taiwan as a threat to its One China Policy. Similarly, the U.S. stance on Hong Kong and its condemnation of the way the Chinese administration is dealing with the protesters is a point of contention between the two countries.
• The US recognises and has formal ties with China. But it has also pledged to help Taiwan defend itself in the event of an attack.
• The Chinese side indicated that the USA is playing with fire. Such comments signal that China will respond robustly to any western moves seen as strengthening Taiwanese independence, for example through direct arms sales to Taipei.

Human rights abuses against Uighur Muslims in Xinjiang

• The U.S. has always criticized China’s dealing with Uighurs and the U.S. imposed sanctions on Chinese officials, companies, and institutions on the grounds of human rights violations of the minority community in the country’s western Xinjiang region.
• China accused the US of meddling in its domestic affairs.

Concerns

• Over the last two decades, summits between both countries resulted in the issuance of joint statements. The virtual meeting had no such statement release.
• Nor did the meeting end with any agreement to have groups of officials from both sides hold further talks on strategic nuclear issues and conflicts in cyberspace.
• Instead, countries issued their own statements, which looked like catalogues of mutual grievances that offered little room for compromise.

Impact on India

• The China-U.S. tensions are a golden opportunity for India in the economic domain if India is properly positioned. The Indian manufacturing sector is expected to benefit from the tensions between these two countries. The United Nations had said in a report that India is among few economies that stand to benefit from the trade tensions between the world’s top two economies. However, if the tensions continue for too long, this may slow down the economy too.
• Many companies are shifting their manufacturing bases from China to other countries. This is an opportunity for India. If the companies choose to operate their manufacturing centers in India, this may generate employment opportunities for Indians and can help the Indian economy in one way or another.
• Similarly, the tensions may be a good opportunity for Indian exporters as Chinese goods are charged at higher rates in the U.S. However, this also depends on how the Indian currency is placed.
• In the political dimension, the tensions have deep underpinnings for India. Given Indo-U.S. close relations, there is a perception that India is in the American camp which is not good for the Indo-China relationship. India’s membership in the QUAD (Quadrilateral Security Dialogue) is another issue that may invite adverse reactions from China.
• The given situation may check India’s capability to balance its relations with the West and the East. India has to work hard to maintain its autonomy in various domains.

Way forward

The China-U.S. tensions tend to be one of the major threats the world is facing which have far-reaching ramifications for geopolitics. The rivalry between the two countries will not only divide the world into two camps but will create differences among nations leading to an anarchical situation. The tension may lead to an arms race and other adverse developments for the whole world. Hence, it is time that the global community takes measures to reduce the differences between two major powers and pave the way for peaceful coexistence.

-Source: The Hindu

A stimulating alliance: On addressing fiscal worries of States

Context:

The Centre will release over ₹95,000 crore in one stroke to States this month, Finance Minister Nirmala Sitharaman announced after meeting with Chief Ministers and State Finance Ministers to discuss the state of the economy and to sustain the recovery from the COVID-19 pandemic.

Relevance:

GS-II: Polity and Constitution (Constitutional Provisions, Basic structure of the Constitution, Federal Structure), GS-III: Indian Economy

Dimensions of the Article:

1. Implication of the announcement to release over ₹95,000 crores to states

1. What is fiscal federalism?
2. Recent development related to fiscal federalism?
3. Challenges to fiscal federalism in India

Implication of the announcement to release over ₹95,000 crores to states

• The Government set aside the spate of recent confrontations with States over
  • Revenue
  • GST compensation concerns
  • Fear by States about ‘encroachment’ on their powers,
• The measure shows that government has taken steps to initiate an economy-focused dialogue independent of Budget consultations and GST Council machinations.
• Its ready acceptance of States’ request to expedite the sharing of taxable revenues is a token of faith to reinforce federalism.
• While most States have positive cash balances, access now to double the funds than usual will help them ramp up capital expenditure.
• The cash flow could also help several States catch up on their capex targets, on which hinges an additional borrowing limit of 0.5% of their Gross State Domestic Product.
• The Finance Ministry’s clarification that the excise duty cuts on petrol and diesel shall not dent the tax pool shared with States has also soothed frayed nerves.
• The meeting with CMs yielded several ideas and policy proposals, including a simple demand that the Centre share leads about prospective investors and come out with a clear policy on green clearances.

What is fiscal federalism?

Fiscal federalism is financial relationship between centre and states, it deals with the division of governmental functions and financial relations among levels of government.

Structure of fiscal federalism in India:

The Seventh Schedule to the constitution of India  defines and specifies allocation of powers and functions between Union & States. It contains three lists; i.e. 1) Union List, 2) State List and 3) Concurrent List.

• Union list: The Union Government or Parliament of India has exclusive power to legislate on matters relating to these items.
• State list: The respective state governments have exclusive power to legislate on matters relating to these items.
• Concurrent list: This includes items which are under joint domain of the Union as well as the respective States
• Article 268 to 293 in Part XII deal with the financial relations.

Recent development related to fiscal federalism?

Three landmark changes in union-state fiscal relations since 2015-16 have been:

1. The abolition of the Planning Commission in January 2015 and the subsequent creation of the NITI Aayog.
2. Fundamental changes in the system of revenue transfers from the centre to the states by providing higher tax devolution to the states from the fiscal year 2015-16 onwards based on the recommendations of the Fourteenth Finance Commission (14th FC).
3. The Constitutional amendment to introduce the Goods and Services Tax (GST) and the establishment of the GST Council for the central and state governments to deliberate and jointly take decisions.

Finance commission of India: The Finance Commission is a Constitutionally mandated body that is at the centre of fiscal federalism. Set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States.

Goods and Services Tax: GST is a single tax that has subsumed several indirect taxes that were previously levied on the sale of goods and services. It is applicable to the manufacture, sale, and consumption of all goods and services in India.

Challenges to fiscal federalism in India

1. Horizontal imbalances: The horizontal imbalances arise because of differing levels of attainment by the states due to differential growth rates and their developmental status in terms of the state of social or infrastructure capital. However Replacing the Planning Commission  with NITI Aayog has reduced the policy outreach of government by relying only on single instrument of fiscal federalism i.e Finance commission. This approach if not reviewed can lead to a serious problem of increasing regional and sub regional inequalities.
2. Vertical imbalance arises due to the fiscal asymmetry in powers of taxation vested with the different levels of government in relation to their expenditure responsibilities prescribed by the constitution.
   • Central Government collects around 60% of the total taxes, while its expenditure responsibility (for carrying out its constitutionally mandated responsibility such as defence, etc.) is only 40% of the total public expenditure.
   • Such vertical imbalances are even sharper in the case of the third tier consisting of elected local bodies and panchayats.
   • Vertical imbalances can adversely affect India’s urbanization, the quality of local public goods and thus further aggravating the negative externalities for the environment and climate change.
3. Restructuring the fiscal federalism: India’s Fiscal Federalism needs to be restructured around the four pillars namely Finance Commission, NITI Aayog, GST and decentralization in order to eliminate the inadequacies of vertical and horizontal imbalances.
   • Finance commission: it should be relieved from the dual task of dealing with provision of basic public goods and services and capital deficits. It should be confined to focussing on removal of basic public goods imbalance
   • NITI Aayog: it should deal with infrastructure and capital deficit.
   • Decentralisation can serve as the third pillars of the new fiscal federalism by strengthening local finances and state finance commission.
   • GST should be simplified in its structure and can serve as the fourth pillar of our fiscal federalism, by ensuring.

-Source: The Hindu