A fiscal stimulus in budget has to get balance right
Paper: GS II & GS III
Topic: Government Policies and Interventions and issues arising out of their Design and Implementation.
For Mains: The status of economy, Economic Development, Infrastructure.
Why in News: Finance Minister unveiled an ambitious infrastructure agenda, announcing projects worth Rs 102 lakh crore, to be implemented by 2024-25.
Indian infrastructure sector
- Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure time-bound creation of world-class infrastructure in the country.
- The infrastructure sector includes power, bridges, dams, roads and urban infrastructure development.
- In 2018, India ranked 44th out of 167 countries in the World Bank’s Logistics Performance Index (LPI) 2018.
Market Size of infrastructure sector
- Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built-up infrastructure and construction development projects) from April 2000 to March 2019 stood at US$ 25.05 billion, according to the Department of Industrial Policy and Promotion (DIPP).
- The logistics sector in India is growing at a CAGR of 10.5 % annually and is expected to reach US$ 215 billion in 2020.
Investments in the infrastructure sector
- India has a requirement of investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country.
- India is witnessing significant interest from international investors in the infrastructure space.
- Some key investments in the sector are listed below:
- In 2018, the infrastructure sector in India witnessed private equity and venture capital investments worth US$ 1.97 billion.
- In June 2018, the Asian Infrastructure Investment Bank (AIIB) has announced US$ 200 million investment into the National Investment & Infrastructure Fund (NIIF).
The Government of India is expected to invest highly in the infrastructure sector, mainly highways, renewable energy, and urban transport. The Government of India is taking every possible initiative to boost the infrastructure sector.
- A tall plan
- Recently Finance Minister unveiled an ambitious infrastructure agenda, announcing projects worth Rs 102 lakh crore, to be implemented by 2024-25, attempts to revive the investment cycle are welcome.
- However, considering that infrastructure investment over the past six years adds up to Rs 51.2 lakh crore, doubling this over the next six years is a tall order.
Why it is important to revive infrastructure?
- As infrastructure investments (as a proportion of GDP) have fallen sharply over the twelfth five year plan period (2013-17).
- The financial system remains choked. And a broad-based pick up in growth is unlikely in the near term. These are not normal times. The economy has slowed down considerably.
Issues associated with the a tall plan for infrastructure revival
- Little clarity over how both the public and private sector will finance this massive push: While this does indicate that the investment cycle will continue to be driven by the public sector, there is little clarity over how both the public and private sector will finance this massive push.
- A slowing economy has put government finances under pressure. It is now increasingly likely that both the Centre and the states will miss their fiscal deficit targets this year. A sustained fiscal push, as this plan envisions, therefore, seems unlikely.
- An overleveraged corporate sector: Add to that an overleveraged corporate sector that is in no mood to invest, and achieving these targets looks increasingly difficult.
- Nature of projects: There are also questions over the nature of projects. Roughly a fourth of investments are estimated in the power sector.
- However, as existing plants are operating well below their peak capacity, whether the corporate sector will invest in new plants whose financial viability is unclear is debatable.
- Then, of the total projects, 31 % are still at the conceptual stage, while another 8 % are unclassified, suggesting little clarity over almost 40 % of the pipeline.
- Fiscal spaces:
- Given the state of government (Centre and state) finances, has already created fiscal space and for this kind of investment, it is important to take the necessary step to bridge the gap.
What is needed to revive the infrastructure investment cycle?
- Through road-map: What is needed is a carefully thought through road-map.
- It is envisaged that the central and state governments will account for 39 % each of the projected investment, with the private sector expected to make up the balance.
- Bridge the fiscal spaces: push requires rationalising subsidies such as food and fertiliser, as well as an aggressive push towards asset monetisation.
- It requires selling off assets such as toll-generating highways to long-term investors such as global pension funds.
- Need for long-term financing options: The bank lending slowing down considerably, banks will be wary of such long gestation projects which will expose them to risks of asset-liability mismatches, the need for long-term financing options such as development finance institutions and a well-functioning bond market has never been greater.
- To encourage private sector participation: These need to be supplemented with measures to address the weaknesses in the current public-private partnership models to encourage private sector participation.
- Reviving the investment cycle: By boosting the private participation and reducing the trust gap in the present economic condition, so the revival of the investment cycle could be fastened.
The need of the hour is reviving the investment cycle for the infrastructure projects more than just ambitious targets. Analyse.
Question Demand: Question demands to write about the role of infrastructure in the development of a country and what are the corrective measures that can be adopted by the finance ministry to boost the slowing Indian economy.
Introduction: Mention the slowing infrastructure project with some facts and figures.
- Explain the importance of proper allocation of resources to the State.
- Issues in improving the financial stability of the Indian economy.
- Improving the fiscal stimulus so that the target to achieve 5 trillion economy could be easier.
- Revival of the investment cycle and increasing the role of private participation.
Conclusion: Suggest the steps that need to be adopted by the government proactively in mitigating the huge gap in fiscal deficit, slowing investment in infrastructure and how to revive the Indian economy.
What are role, powers of CDS?
Paper: GS III
Topic: Various Security forces and agencies and their mandate
For Prelims: Chief of Defence Staff
For Mains: Mandate and structure of the Chief of Defence Staff.
Why in News: With General Bipin Rawat taking over as India’s first Chief of Defence Staff, a look at the structure of the Defence Ministry, and the relationship the CDS will have with the ministry and the armed forces.
About Chief of Defence Staff
It has taken 18 years and the long political trajectory from Atal Bihari Vajpayee to Narendra Modi for the creation of the CDS.
In a landmark decision with tremendous reform in higher defence management in the country, the Union Cabinet chaired by Prime Minister Narendra Modi has approved to create:
- The Chief of Defence Staff (CDS) is a post that will act as the single-point advisor to the Government of India.
- The post of CDS in the rank of a four-star General with salary and perquisites equivalent to a Service Chief.
- The Chief of Defence Staff will also head the Department of Military Affairs (DMA), to be created within the Ministry of Defence and function as its Secretary: while terming the creation of a new department, DMA, with the CDS at the helm and the dual roles as Secretary to Government of India and Permanent Chairman COSC as “very innovative.”
- This follows the announcement made by the Prime Minister on 15th August 2019, in his address to the nation.
- The government has decided to establish the post of Chief of Defence Staff (CDS) for the three services -the Indian Army, the Indian Navy and the Indian Air Force.
- The demand for having a Chief of Defence Staff (CDS) has been raised on multiple occasions by experts and veterans. It was first recommended after the 1999 Kargil War.
- The post is aimed at ensuring better coordination between the three services.
- A high-level committee that was set up to examine the gaps in the country’s security system in the wake of the Kargil War had recommended that the three services should have a Chief of Defence Staff.
- The committee had said, a five-star military officer should be the single-point military adviser to the Defence Minister.
- Besides the high-level committee on Kargil War, a group of ministers that was formed in 2001 to explore necessary reforms required to improve India’s national security had also favoured creating the post of Chief of Defence Staff.
- In 2012, the Naresh Chandra Task Force recommended that post of a permanent chairman of the Chiefs of Staff Committee (CoSC) should be created.
- The CoSC comprises chiefs of the Indian Army, Indian Navy and the Indian Air Force. The senior-most among them would act as the chairman.
It is said that the CDS is a ‘dual-hatted role’. What does that mean?
- The dual-hatted role refers to the two hats the CDS wears
- One of the permanent Chairman of the Chiefs of Staff Committee which has the three service chiefs as members,
- And the other of the head of the newly created Department of Military Affairs (DMA) in the ministry.
- The former is a military role while the latter is a role in the government; it is as the head of DMA that his major responsibilities within the ministry will be discharged.
How many other departments does the Defence Ministry have, and who so far was looking after what will now be the charter of DMA?
- The ministry already had four departments: Department of Defence; Department of Defence Production; Department of Defence Research and Development; and Department of Ex-servicemen Welfare.
- Each of them is headed by a Secretary, with the Department of Defence being the nerve centre of the ministry, looking after all issues pertaining to the armed forces, defence policy and procurement.
- The charter of duties of the DMA was so far looked after by the Department of Defence, which is headed by the Defence Secretary who is also the secretary in-charge of the Defence Ministry.
- Work exclusively pertaining to military matters will fall within the purview of the DMA while the Department of Defence will deal with larger issues pertaining to defence of the country. To give an illustrative example, this means that while tri-service military training institutions will fall under the DMA, organisations like IDSA and NDC whose remit is broader than military matters will fall under the Department of Defence.
Are the armed forces the Army, the Navy and the Air Force not departments of the ministry?
- No, the service headquarters, and thereby the armed forces, are attached offices in the ministry.
- They used to come under the Department of Defence so far, but will now fall under the ambit of DMA, and will have an appropriate mix of civilian and military officers at every level.
- Attached offices are generally responsible for providing executive direction required in implementation of policies laid down by the department to which they are attached, in this case now the DMA.
- They also serve as a repository of technical information and advise the department on technical aspects of questions they deal with.
- In essence, they are executive agencies carrying our directions of the Defence Ministry whose task is to draft them, obtain approval from the government and communicate them for implementation to the defence services.
But won’t the CDS command the three service chiefs, and be the single-point military adviser to the government?
- No, neither. He will act as the Principal Military Adviser to the Defence Minister only on tri-services matters.
- In fact, the three service chiefs will continue to advise the Defence Minister, as done so far, on matters exclusively concerning their respective services.
- The government has also made it explicitly clear that the CDS will not exercise any military command, including over the three service chiefs.
- But the service chiefs will be members of the Chiefs of Staff Committee, which will be headed by the CDS.
- And the DMA, headed by the CDS, will also have the armed forces under its ambit if promotions, postings and disciplinary matters of three services fall under the DMA, it will give the CDS extensive influence over the three service chiefs.
Have the service chiefs lost any of their major powers or tasks to the CDS?
- Not really. None of the powers of the service chiefs, including advising the government, has been curtailed and transferred to the CDS.
- The only thing is the role of Chairman of the Chiefs of Staff Committee, which used to be headed by the senior-most chief by rotation. That has been shelved with the CDS being the permanent Chairman of the Chiefs of Staff Committee, where he will be supported by the Headquarters Integrated Defence Staff.
- However, the CDS has been given a time-bound task, to be done within three years, to bring about jointness in operations, logistics, transport, training, support services, communications, and repairs and maintenance of the three services, which will eventually lead to shedding of responsibilities by the service headquarters.
- As the head of the DMA, the CDS has to also facilitate restructuring of military commands for optimal utilisation of resources by bringing about jointness in operations, including through establishment of joint/ theatre commands.
- This is again a far-reaching move, which will potentially impinge on the remit of the service chiefs.
- The CDS has the status of a Cabinet Secretary but functionally will head a department headed by a Secretary. Also, he will be under a ministry where the Defence Secretary is in charge of the ministry.
Isn’t this a bit complicated?
- Yes, it is. But that is the nature of government functioning and his dual-hatted role will decide the different kind of powers, access and relationships that will be forged by the CDS.
- Norms of functioning and political guidance, more than hard-coded bureaucratic rules, will determine the functional efficiency and effectiveness of the CDS and it will be upon General Rawat to establish this as the first incumbent of the new office.
Finally, will the CDS be responsible for the defence of the country?
- No, as per the gazette notification issued by the government on December 30, the Department of Defence headed by the Defence Secretary will be responsible for the “defence of India and every part thereof, including defence policy and preparation for defence and all such acts as may be conducive in times of war to its prosecution and after its termination to effective demobilisation”.
- The government’s approval for the creation of the post of Chief of Defence Staff (CDS) is a welcome move to bring in synergy among the three Services at the higher level and optimise resource utilisation.
- After the formation of this post (CDS), all the three forces will get effective leadership at the top level.
- The CDS has to ensure the transition of the Indian military from a military force into a military power.