The Member of Legislative Assembly Local Area Development Scheme (MLALAD) funds have been increased from ₹4 crore to ₹7 crore, Urban Development Minister Saurabh Bharadwaj said in the Assembly on Friday.

MLALAD funds are allotted to legislators to carry out development projects in their constituencies. The Delhi Assembly has a strength of 70 MLAs.

Responding to a question on the first day of the two-day winter session, Mr. Bharadwaj said MLALAD funds were increased from ₹4 crore to ₹10 crore in 2019-20.

• MPLADS was announced in December 1993, by the late Prime Minister Shri. P.V Narasimha Rao.
• Although its announcement received criticism initially, MPLADS has continued to date, with successive governments supporting the scheme by allocating budgetary funds.
•  Funds Allocation for each MP was ₹ 5 lakhs in 1993-94; it increased to ₹ 2 crores in 1998-99. This was further revised to ₹ 5 Crores in 2011-12.
• MPLADS is administered by the Ministry of Statistics and Programme Implementation (MoSPI). MoSPI publishes an annual report on the MPLADS program operations, which provides information on the extent of work or the number of work completed for each Lok Sabha member (MP). The report helps assess how the MP has utilized their MPLADS funds, and the cumulative work undertaken under the scheme.
•  At the height of the Covid pandemic, the central government suspended MPLADS to help mobilize money for priority sectors like vaccine development and health infrastructure.

4. How does the scheme work?

• MPs and MLAs do not receive any money under these schemes.
• The government transfers it directly to the respective local authorities. The legislators can only recommend works in their constituencies based on a set of guidelines.
• For the MPLAD Scheme, the guidelines focus on the creation of durable community assets like roads, school buildings, etc.
• Recommendations for non-durable assets can be made only under limited circumstances. For example, last month, the government allowed the use of MPLAD funds for the purchase of personal protection equipment, coronavirus testing kits, etc.
• The guidelines for use of MLALAD funds differ across states. For example, Delhi MLAs can recommend the operation of fogging machines (to contain dengue mosquitoes), installation of CCTV cameras, etc.
• After the legislators give the list of developmental works, they are executed by the district authorities as per the government's financial, technical, and administrative rules.

5. How long are the schemes supposed to continue?

• The central scheme has continued uninterrupted for 27 years.
• It is budgeted through the government’s finances and continues as long as the government is agreeable.
• In 2018, the Cabinet Committee on Economic Affairs approved the scheme until the term of the 14th Finance Commission, which is March 31, 2020.
• In the recent past, there has been one example of the discontinuation of a Local Area Development scheme.
• Bihar Chief Minister Nitish Kumar discontinued the state’s scheme in 2010, only to revive it before the 2014 general elections.

6. Impact of the MPLAD Scheme

• In 2018, when a continuation of the scheme was approved, the government noted that “the entire population across the country stands to benefit through the creation of durable assets of locally felt needs, namely drinking water, education, public health, sanitation, and roads, etc, under MPLAD Scheme”.
• Until 2017, nearly 19 lakh projects worth Rs 45,000 crore had been sanctioned under the MPLAD Scheme.
• Third-party evaluators appointed by the government reported that the creation of good-quality assets had a “positive impact on the local economy, social fabric, and feasible environment”.
• Further, 82% of the projects have been in rural areas, and the remaining is in urban/semi-urban areas. 

7. Challenges with MPLADS

• Inadequate citizen participation: MPLADS was envisaged to have the character of decentralized development based on the principle of participatory development. However, citizen participation has remained lukewarm. There is no information on how locally felt needs are given primacy.
• Insufficient monitoring of sanctioned works: Guidelines stipulate that district authorities should monitor the sanctioned works. However, there is no indicator for monitoring. Annual reports do not throw light on monitoring. There is no indication of monitoring of asset condition after the completion of works.
• Tendency to use MPLADS to gain political mileage: Research data indicate that MPs tend to go slow in the 1st half of their term. A majority of the MPLADS funds were spent during the last year of their term, just before elections, to gain political mileage.

8. Criticism

• The criticism has been on two broad grounds.
• First, it is inconsistent with the spirit of the Constitution as it co-opts legislators into executive functioning.
• The most vocal critic was a DMK ex-MP and a former Chairman of the Public Accounts Committee, Era Sezhiyan. He said the workload on MPs created by the scheme diverted their attention from holding the government accountable and other legislative work.
• The National Commission to Review the Working of the Constitution (2000) and the Second Administrative Reforms Commission, headed by Veerappa Moily (2007), recommended the discontinuation of the scheme.
• In 2010, the Supreme Court held that the scheme was constitutional.
• The second criticism stems from allegations of corruption associated with the allocation of works. The Comptroller and Auditor General have on many occasions highlighted gaps in implementation. 

Previous year Question

For Prelims & Mains

INDIA-US 2+2 MINISTERIAL DIALOGUE

 

1. Context

India and Australia Monday held 2+2 Ministerial Dialogue to step up defence cooperation and deepen the strategic relationship in sectors such as critical minerals and trade and investment

 

2. What is 2+2 Ministerial dialogue?

• The annual 2+2 Ministerial Dialogue, initiated in 2018, serves as a diplomatic summit aiming to address shared concerns and bolster the relationship between India and the United States.
• This forum facilitates collaboration between key representatives, including India's Minister of External Affairs and Defence Minister, alongside their American counterparts, the Secretary of State and Secretary of Defense, to foster stronger ties between the two nations.
• India engages in 2+2 dialogues with four significant strategic allies: the United States, Australia, Japan, and Russia, all of which are partners in the Quad. The discussions within these dialogues encompass a range of political and defence matters of shared interest.
• For instance, in the fourth annual U.S.-India 2+2 Ministerial Dialogue, the agenda included discussions on arms control and international security, civilian security, democracy, and human rights, as well as topics related to economic growth, energy, environment, food security, clean energy, waste management, and infrastructure

3.Significance of 2+2 Ministerial dialogue

• The annual 2+2 Ministerial Dialogue serves as a diplomatic event convening the foreign and defense ministers of two nations.
• Its primary objective is to address shared concerns and fortify the relationship between the participating countries.
• This platform facilitates high-level discussions on crucial bilateral and global issues, with a particular emphasis on developments in the Indo-Pacific region.
• Through the dialogue, the partners gain a deeper understanding of each other's strategic concerns, considering political factors on both sides.
• Remarkable progress in defense relations has resulted from the dialogue, including the establishment of a new tri-service military exercise, the deployment of liaison officers in regional commands, and the reduction of U.S. export barriers for military technologies.
• Furthermore, the dialogue has contributed to various outcomes, such as ongoing close consultations on the crisis in Ukraine, including humanitarian assistance efforts.
• It has also seen joint support for an independent investigation into the violence against civilians, along with the acknowledgment of significant events like the inaugural virtual Quad Leaders' Summit in March 2021, the in-person Quad Leaders' Summit in September 2021 in Washington, and the Quad Foreign Ministers' meeting in Melbourne in February 2022. The engagement has been strengthened on shared priorities, including food security, clean energy, waste management, and infrastructure

4. History of 2+2 Ministerial dialogue

The 2+2 Ministerial Dialogue has become a significant diplomatic mechanism for several countries, bringing together their foreign and defense ministers to discuss strategic and security-related issues. While specific details may have evolved since then, here is a general overview of the history of the 2+2 Ministerial Dialogue:

India-U.S. 2+2 Ministerial Dialogue (Initiated in 2018):

• • The concept of a 2+2 dialogue involving the foreign and defense ministers of India and the United States was formalized in 2018.
  • The inaugural U.S.-India 2+2 Ministerial Dialogue took place in September 2018 in New Delhi, India.
  • The dialogue aimed to enhance diplomatic and defense cooperation between the two countries, covering a range of issues from regional security to defense trade.

Japan-U.S. 2+2 Ministerial (Ongoing):

• • The Japan-U.S. 2+2 Ministerial Dialogue involves the foreign and defense ministers of Japan and the United States.
  • This format is designed to strengthen the strategic alliance between Japan and the U.S., addressing regional security challenges and fostering defense collaboration.

Australia-U.S. 2+2 Ministerial (Ongoing):

• • Australia and the United States hold a 2+2 Ministerial Dialogue involving their foreign and defense ministers.
  • The discussions typically encompass a wide range of issues, including defense cooperation, regional security, and shared strategic interests.

India-Japan 2+2 Ministerial (Ongoing):

• • Apart from the India-U.S. dialogue, India also engages in a 2+2 Ministerial Dialogue with Japan, involving their foreign and defense ministers.
  • This platform allows both countries to discuss bilateral and regional security matters, promoting closer diplomatic and defense ties.

India-Australia 2+2 Ministerial (Ongoing):

• • Similar to its engagements with the U.S. and Japan, India also conducts a 2+2 Ministerial Dialogue with Australia.
  • The dialogue aims to strengthen the strategic partnership, addressing common concerns and fostering cooperation in various domains.

5. COMCOSA Pact

COMCASA (Communications Compatibility and Security Agreement) is an agreement between the United States and other countries, primarily aimed at enhancing defense and security cooperation. The agreement focuses on enabling secure and interoperable communication systems between the armed forces of the participating nations. Please note that developments might have occurred since my last update.

Key points about the COMCASA Pact:

Purpose:

• • The primary purpose of COMCASA is to facilitate secure communication and data sharing between the armed forces of the participating countries, particularly in the context of joint military exercises, operations, and interoperability.

Interoperability:

• • COMCASA aims to enhance interoperability by ensuring that the communication systems of the signatory nations can work seamlessly with each other. This is crucial for effective coordination during joint military activities.

Secure Communication:

• • The agreement includes provisions for secure communication systems to protect sensitive information and ensure that the communication channels are not vulnerable to unauthorized access or interference.

Technological Integration:

• • COMCASA involves the integration of specific technologies and communication equipment to meet the agreed-upon standards, allowing for the secure exchange of military information.

India-U.S. COMCASA Agreement:

• • India and the United States signed the COMCASA agreement in September 2018. This agreement marked a significant step in the defense and strategic partnership between the two countries.

Implications for India:

• • For India, the COMCASA agreement with the U.S. has implications for its defense capabilities and interoperability with U.S. military systems. It allows India to access advanced communication technology and equipment, fostering closer collaboration between the two nations' armed forces.

6.Way forward

The 2+2 Ministerial Dialogue is a diplomatic summit that has been held every year since 2018. The dialogue initially involved the Minister of External Affairs or Foreign Minister, and Defence Minister of India with the Secretary of State and Secretary of Defense of the United State

 

Source: Indianexpress

WHO

 

 

1.Context

Road traffic deaths fell by 5% to 1.19 million annually worldwide between 2010 and 2021, with 108 United Nations member countries reporting a drop, the World Health Organization (WHO) said in a report. India, however, registered a 15% increase in fatalities.

 

2. About WHO

• The World Health Organization (WHO) was born three years later, when its constitution came into effect on April 7, 1948
• It states that health is a human right that every human being is entitled to, “without distinction of race, religion, political belief, economic or social condition” and that “the health of all peoples is fundamental to the attainment of peace and security.”
• The organization’s headquarters are based in Geneva, Switzerland, with six regional and 150 country offices across the world
• WHO leads global efforts to expand universal health coverage
• They direct and coordinate the world’s response to health emergencies and promote healthier lives  from pregnancy care through old age
• WHO’s work remains firmly rooted in the basic human right to health and well-being principles, as outlined in their 1948 Constitution. 
• The World Health Assembly is the decision-making body of WHO and is attended by delegations from all Member States
• The Global Health Histories project was established within the WHO headquarters in late 2004 and expanded into the regional offices from 2009 onwards
•  An official WHO activity, its mission is based on the principle that understanding the history of health, especially during the last 60 years, helps the global public health community to respond to the challenges of today and help shape a healthier future for everyone, especially those most in need

3. Challenges faced by WHO

3.1. Small Pox

• One of the biggest successes in the WHO’s quest to ensure the global population’s well-being came in 1980, when the organization officially announced it had wiped out a common but deadly centuries-old infectious disease
• Smallpox eradication was a perfect example of when the WHO works best
• During the Cold War, there was wide-reaching agreement across the two blocs that the eradication of smallpox was a goal to be tackled. That’s when the WHO has seen its biggest successes: When members agree on which projects are worthy to be undertaken and how

3.2. Ebola Outbreak

• 2014 Ebola outbreak in Guinea, Liberia and Sierra Leoneoffers an example of a WHO job less well done
• The organization was criticized, among other things, for not reacting swiftly enough to address the epidemic
• There were unrealistic expectations for WHO, with many expecting, to go in force to the affected countries to confront the outbreak
• This is not within the WHO’s mandate. Its role is to guide the response, develop guidance, but not to go into a country to help address a specific health threat
• In fact, the WHO has no authority to take action in a member state unless that member state asks for help
• After the Ebola epidemic from 2014 to 2016, the organization made significant changes to its structure
• Example: It now relies to a lesser degree on national governments for crucial health information, thus lowering the chances of missing the start of another serious disease outbreak

3.3. Malaria Eradication attempt

• The organization’s agreement to give up on trying to eradicate malaria in the 1960s represents another example of what some consider a botched job
• The WHO launched the Global Malaria Eradication Programme (GMEP) in 1955.
• It looked promising, with 15 countries and one territory managing to eradicate the disease
• But there was little to no progress in sub-Saharan Africa under the program, and in many places, failure to sustain GMEP actually led to a resurgence of malaria. In 1969, the program was discontinued
• One reason that the eradication didn’t work, is that malaria isn’t solely a human disease, but has reservoirs in nature. This differentiates it from smallpox

3.4. Covid-19

• Some critics, then-US-President Donald Trump among them, complained at the beginning of the COVID-19 pandemic that the WHO was not doing enough to support member states in their fight against the disease
• But experts like El-Sadr and Gradmann say that it wasn’t the WHO’s job to take action and introduce initiatives at the height of the coronavirus pandemic
• During COVID, the WHO provided data and did administrative work, But initiatives to fight The disease had to come from the individual member states. I don’t think the WHO played a large role in the COVID pandemic
• Members’ national governments were in charge of making decisions on how to best contain the pandemic in their country

 

 

 

Source: WHO, indianexpress

 

PRESIDENT IMPEACHMENT 

 

 

1. Context

 

The White House recently greenlit an impeachment inquiry into President Joe Biden and his family, spurred by Republican allegations of impropriety involving his son, Hunter Biden. Despite previous dismissal by the White House, the inquiry gained traction, supported by former President Donald Trump, who himself faced two impeachments during his tenure.

 

2. Impeachment Inquiry

 

• The impeachment inquiry is a formal step to impeach federal officials for treason, bribery, and "other high crimes and misdemeanours," as outlined in the United States Constitution.
• It could lead to penalties for the President if convicted in a Senate trial, potentially resulting in removal from office.
• Republicans cite a US government document suggesting payments to the Bidens from Burisma, a Ukrainian company where Hunter served on the Board of Directors.
• The document alleges, "It cost 5 (million) to pay one Biden, and 5 (million) to another Biden." An associate of Hunter Biden, however, denies knowledge of such payments, and the head of Burisma refutes any contact with Joe Biden during his vice-presidential tenure.
• Hunter Biden, already facing criminal charges in two separate cases, is accused of firearm violations and failure to pay approximately $1.4 million in taxes over three years.

 

 3. Procedure for Impeachment

 

The impeachment process in the United States is a formal procedure outlined in the Constitution for removing a president, vice president, federal judge, or other civil officers from office for treason, bribery, or other high crimes and misdemeanours. 

House of Representatives

• The process begins in the House of Representatives, where a member can introduce a resolution of impeachment accusing the official of wrongdoing.
• If the resolution is referred to a committee, typically the House Judiciary Committee, it will investigate the charges and hold hearings to gather evidence.
• After the investigation and hearings are complete, the committee will vote on whether to recommend that the full House impeach the official.
• If the committee recommends impeachment, the full House will vote on the resolution. A simple majority vote is required to impeach the official.

Senate

• If the House impeaches the official, the trial is then held in the Senate. The Chief Justice of the Supreme Court presides over the trial, and senators serve as jurors.
• Both the House managers, who represent the prosecution, and the official's defence team present their cases to the Senate.
•  After both sides have presented their cases, the Senate votes on whether to convict the official. A two-thirds majority vote is required to convict and remove the official from office.

Removal from office: If the official is convicted by the Senate, they are immediately removed from office. The Senate can also vote to disqualify the official from holding future federal office.

 

4. Previous Instances of Impeachment in the United States

 

The United States has a long history of impeachment, dating back to the early days of the Republic. While not a frequent occurrence, the process has been used to hold officials accountable for misconduct and remains a significant constitutional safeguard. 

Presidents

• Andrew Johnson (1868) was Impeached for violating the Tenure of Office Act by removing Secretary of War Edwin Stanton. Acquitted by the Senate.
• Bill Clinton (1998) was Impeached for perjury and obstruction of justice related to a sexual harassment lawsuit. Acquitted by the Senate.
• Donald Trump (2019, 2021) Impeached once for abuse of power and obstruction of Congress related to Ukraine pressure campaign. Acquitted by the Senate. Impeached again for inciting an insurrection at the Capitol. Acquitted by the Senate.

Other Officials

• Samuel Chase (1804) Supreme Court Justice impeached for alleged misconduct in office, but acquitted by the Senate.
• William W. Belknap (1876) Secretary of War impeached for corruption, but resigned before the Senate trial began.
• Richard Nixon (1974) Faced impeachment proceedings for Watergate cover-up but resigned before the House vote.

 

For Prelims: Impeachment Process For Mains:  1. Discuss the role of political partisanship in the impeachment process. Can an impeachment inquiry be conducted fairly and objectively in such a polarized environment? (250 Words)

 

Previous Year Questions   1. The procedure of Impeachment of the President of India is __________. (RPSC RAS Prelims 2016) A. Judicial Procedure B. Quasi - Judicial Procedure C. Legislative Procedure D. Executive Procedure   Answer: B

 

Source: The Indian Express

PRODUCTION LINKED INCENTIVE (PLI) SCHEME

 

 

 

1. Context

 

A new industrial policy, which has been in the works for over two years and a draft of which was circulated for consultation in December last year, has now been pushed to the backburner with the government firmly placing its bets for now on its flagship production-linked incentive (PLI) scheme to drive up manufacturing and catalyse private investments.

 

 

2. About Production-Linked Incentive (PLI) Scheme

 

The Production-Linked Incentive (PLI) scheme is an initiative by the Indian government to boost domestic manufacturing in specific sectors. It incentivizes companies, both domestic and foreign, to set up or expand production facilities in India by offering financial rewards based on incremental sales achieved over a set period.

• The government announces a PLI scheme for a particular sector with specific targets for production and sales.
• Companies apply for the scheme and submit their production plans.
• If selected, companies receive a percentage of their incremental sales (over a base year) as an incentive.
• The incentive amount varies depending on the sector and the level of incremental sales achieved.
• The scheme typically runs for several years, providing companies with long-term financial support.

 

3. Sectors with Current PLI Schemes

 

• Mobile phone manufacturing and specified electronic components have been successful in attracting major players like Apple and Samsung to set up production in India.
• Large-scale electronics manufacturing to boost domestic production of TVs, laptops, and other electronics products.
• High-efficiency solar PV modules to make India a global leader in solar energy production.
• Automobiles and auto components incentivize the production of electric vehicles, hydrogen fuel cell vehicles, and advanced auto components.
• Man-made fibre (MMF) apparel and textiles to boost domestic production of high-quality MMF textiles.
• White goods (air conditioners, refrigerators, etc.) to make India a global hub for white goods manufacturing.

 

4. Sectors Likely to See PLI Schemes in the Future

 

• The pharmaceuticals and medical devices sector is crucial for national health security and has the potential for significant growth.
• Green hydrogen and ammonia fuels are essential for achieving climate goals and could benefit from PLI support.
• Advanced manufacturing technologies include robotics, 3D printing, and artificial intelligence, which are crucial for future industries.
• The food processing sector has vast potential for value creation and job creation, and PLI could help address inefficiencies.

 

5. Benefits of the PLI Scheme

 

• PLI attracts investment and encourages companies to manufacture in India, reducing dependence on imports.
• New manufacturing units and increased production lead to job creation in various sectors.
• PLI attracts global companies with advanced technology, leading to knowledge transfer and skill development in India.
• Increased domestic production can lead to higher exports and strengthen the Indian economy.

 

6. Challenges in the PLI Scheme

 

• Companies need significant upfront investment to set up new production facilities, which can be a deterrent for some.
• The application and approval process for PLI schemes can be lengthy and complex, discouraging some companies.
• The government needs to ensure the long-term sustainability of PLI schemes to avoid dependence on subsidies.

 

7. The Way Forward

 

The PLI scheme is a promising initiative with the potential to transform India's manufacturing landscape. By addressing the challenges and continuously improving its design, the government can further incentivize domestic production and boost India's economic growth.

 

For Prelims: Production Linked Incentive scheme,  industrial policy For Mains:  1. Discuss the role of the government in promoting domestic manufacturing. Should the focus be on incentives like the Production Linked Incentive scheme or on creating a conducive business environment? (250 Words)

 

 

 

Previous Year Questions   1. Consider, the following statements : (UPSC 2023) Statement-I : India accounts for 3.2% of global export of goods. Statement-II : Many local companies and some foreign companies operating in India have taken advantage of India's ‘Production-linked Incentive’ scheme. Which one of the following is correct in respect of the above statements? (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I (c) Statement-I is correct but Statement-II is incorrect (d) Statement-I is incorrect but Statement-II is correct Answer: D

 

Source: The Indian Express

OFF BUDGET BORROWINGS

 

 

 

 

1. Context 

 

 

The Kerala government has approached the Supreme Court against the Centre imposing a ceiling on the amount it can borrow, saying this had “brought the operation of” its “budget… to a grave crisis” and was violative of the principles of fiscal federalism. 

 

 

2.  About Off-Budget Borrowings

 

Off-budget borrowings refer to loans taken by government entities, such as public sector undertakings (PSUs) or special purpose vehicles (SPVs), on behalf of the government, but are not reflected in the official budget documents. This means the debt incurred through these borrowings doesn't directly impact the fiscal deficit or debt-to-GDP ratio reported by the government.

Reasons for using them

• Governments sometimes use off-budget borrowings to avoid exceeding their pre-set fiscal deficit or debt-to-GDP targets. This can be seen as a way to mask true public debt levels.
• Off-budget entities can raise funds for specific projects without competing with other government priorities for budget allocations.
• Some argue that off-budget borrowings allow the government to bypass public scrutiny and parliamentary oversight.

 

Limit of Off-Budget Borrowing

There is no specific legal limit on the amount of off-budget borrowing in India. However, the central government has laid out guidelines and mechanisms to monitor and manage these borrowings. These include:

• Off-budget entities are required to disclose their borrowings to the Ministry of Finance and the central bank periodically.
• The Finance Commission, which reviews the fiscal health of the central and state governments, periodically analyses off-budget borrowings and provides recommendations for improving transparency and accountability.
• The Fiscal Responsibility and Budget Management (FRBM) Act sets broad targets for fiscal deficit and debt-to-GDP ratio but does not specifically address off-budget borrowings. However, the overall fiscal position of the government, including off-budget borrowings, is considered when assessing compliance with the FRBM Act.

 

 Reasons for Off-Budget Borrowing Limit

While there is no codified limit, the above mechanisms serve as indirect controls and aim to discourage excessive use of off-budget borrowings. The rationale for controlling these borrowings includes:

• Lack of clear limits or monitoring can lead to hidden debt and reduced transparency in public finances.
• Unchecked off-budget borrowing can increase the overall government debt burden and pose risks to fiscal sustainability.
• Excessive off-budget debt can burden future generations with the repayment obligations.
• Uncoordinated borrowing by off-budget entities can conflict with overall fiscal and monetary policy objectives.

 

 

3. What Article 293 (3) of the Indian Constitution says?

 

Article 293 (3) of the Indian Constitution deals with the borrowing powers of states and imposes a specific restriction on their ability to raise loans under certain conditions. Here's a breakdown:

The Key Provisions

States cannot raise any loan without the consent of the Government of India if: 

1. There is still any outstanding part of a loan made to the state by the Government of India or its predecessors.
2. The Government of India has given a guarantee for a loan to the state or its predecessors.

 

 

4. How Indian States Borrow Money

Indian states, like any other government entity, require funds for various purposes like infrastructure development, social welfare programs, and administrative costs. To bridge the gap between their income and expenditure, they resort to borrowing money. 

• Market borrowings are the most common way for states to raise funds. They issue State Development Loans (SDLs), which are essentially bonds that investors can purchase. The bonds have different maturities, ranging from a few months to several years. Investors are attracted to SDLs because they offer a relatively safe and secure way to invest, backed by the state government's guarantee. The interest rate on SDLs varies depending on the creditworthiness of the state and the maturity of the bond. States with strong finances and good track records can borrow at lower interest rates than those with weaker finances.
• Ways and Means Advances (WMA) are short-term loans that states take from the Reserve Bank of India (RBI) to meet temporary cash flow mismatches.WMAs are typically repaid within a few months, and the interest rate is lower than what states pay on SDLs. However, states are discouraged from relying heavily on WMAs, as excessive use can lead to fiscal indiscipline.
• In some cases, the central government may provide loans to states to meet specific needs, such as funding for natural disasters or infrastructure projects. These loans are typically provided at concessional interest rates compared to market borrowings. 
• Some states also raise funds through other means, such as issuing tax-free bonds or selling off assets. However, these are relatively less common methods compared to market borrowings and WMAs.
• States can also leverage Public-private partnerships (PPPs) to attract private investment in infrastructure projects, which can reduce their reliance on debt financing.
   

Factors influencing borrowing

 

• The difference between a state's income and expenditure is called the fiscal deficit. A higher fiscal deficit means the state needs to borrow more money.
• A state's credit rating reflects its financial health and ability to repay debt. A higher credit rating allows the state to borrow at lower interest rates.
• The overall interest rates in the market also affect the cost of borrowing for states. When interest rates are high, it becomes more expensive for states to borrow.

 

Challenges of state borrowing

 

• Some Indian states have accumulated high levels of debt, which can be a burden on their finances and make it difficult to borrow more in the future.
• If states borrow excessively without taking steps to improve their finances, it can lead to fiscal instability.
• Some states are heavily reliant on loans from the central government, which can limit their autonomy and flexibility in managing their finances.

 

 

5. What is the net borrowing ceiling for states?

 

The net borrowing ceiling for states in India is 3.5% of their Gross State Domestic Product (GSDP), as per the recommendations of the Fifteenth Finance Commission. This means that states cannot borrow more than 3.5% of the value of all goods and services produced within their borders in a given year.

However, there are some additional borrowing avenues available to states under specific conditions:

• States can borrow an additional 0.5% of their GSDP if they undertake and achieve specific reforms in the power sector.
• States can borrow an amount equivalent to their contributions to the National Pension System (NPS) for government employees.
• In exceptional circumstances, the central government may provide special assistance to states in the form of additional borrowing space.

 

6. What is Article 131 of the constitution is all about?

 

Article 131 of the Indian Constitution deals with the original jurisdiction of the Supreme Court, meaning the cases it can hear directly without going through lower courts. This article establishes the Supreme Court as the ultimate arbiter of disputes between different units of the Indian federation.

Scope of Disputes

• Between the Government of India and one or more States includes disputes about the interpretation of the Constitution, sharing of resources, or any other issue arising from the relationship between the central government and state governments.
• Between two or more States covers disputes between states regarding their boundaries, water sharing, or other inter-state issues.
• Disputes involving the Union of India and any State or States on one side and one or more other States encompass situations where a state or group of states disagrees with the central government and another state or group of states on a particular issue.

Exceptions

• Disputes arising from pre-Constitution treaties or agreements are not covered under Article 131 unless the treaty specifically allows it.
• If another agreement between states or the Centre and states excludes Supreme Court jurisdiction for a specific type of dispute, Article 131 won't apply.

Significance of Article 131

• By providing a final platform for resolving disputes between the Centre and states, Article 131 helps maintain a balance of power and prevents conflicts from escalating.
• States can directly approach the Supreme Court to defend their interests and rights against the Centre's actions.
• The Supreme Court's rulings on inter-state disputes set precedents and ensure consistent interpretation of the Constitution across the country.

 

 

For Prelims: Off Budget Borrowings, Article 131, Article 293 (3), fiscal Deficit, Fiscal Responsibility and Budget Management (FRBM) Act, Gross State Domestic Product, Market borrowings, State Development Loans, National Pension System, Reserve Bank of India,  For Mains:  Off-budget borrowings have become a controversial issue in Indian public finances. Discuss the pros and cons of this practice. What measures can be taken to ensure responsible use of off-budget borrowings? (250 words)

 

 

Previous Year Questions   1. Which of the following are included in the original jurisdiction of the Supreme Court? (UPSC 2012) 1. A dispute between the Government of India and one or more States 2. A dispute regarding elections to either House of the Parliament or that of Legislature of a State 3. A dispute between the Government of India and a Union Territory 4. A dispute between two or more States Select the correct answer using the codes given below:  A. 1 and 2        B.  2 and 3         C.  1 and 4         D.  3 and 4     2. Which of the following articles of the Constitution of India was invoked by the Kerala government to file a petition against the Citizenship (Amendment) Act (CAA) in the Supreme Court on 14 January 2020? (SSC CHSL 2020)  A. Article 131         B. Article 368        C. Article 23         D. Article 17     3. Which Article of the Indian Constitution deals with borrowing by the Government of India? (DSSSB TGT Computer Science 2021) A. 326        B.  218          C. 246          D. 292     4. Consider the following statements: (UPSC 2018) 1. The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments. 2. The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments. 3. As per the Constitution of India, it is mandatory for a State to take the Central Government's consent for raising any loan if the former owes any outstanding liabilities to the latter. Which of the statements given above is/are correct?  A. 1 only       B. 2 and 3 only          C. 1 and 3 only         D. 1, 2 and 3   5. Fiscal Deficit is (WBCS Prelims 2018) A. Revenue Receipts + Capital Receipts (only recoveries of loans and other receipts) - Total expenditure B. Budget Deficit + Government's market borrowings and liabilities. C. Primary Deficit + Interest Payments D. All of the above     6. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? (UPSC 2016) 1. Reducing revenue expenditure 2. Introducing new welfare schemes 3. Rationalizing subsidies 4. Reducing import duty Select the correct answer using the code given below. A. 1 only         B.  2 and 3 only           C. 1 and 3 only        D.  1, 2, 3 and 4   7. With reference to Indian economy, consider the following statements: (UPSC 2015) The rate of growth of Real Gross Domestic Product has steadily increased in the last decade. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade. Which of the statements given above is/are correct? (a) 1 only        (b) 2 only         (c) Both 1 and 2           (d) Neither 1 nor 2   8. With reference to the Indian economy, consider the following statements: (UPSC 2022) 1. A share of the household financial savings goes towards government borrowings. 2. Dated securities issued at market-related rates in auctions form a large component of internal debt. Which of the above statements is/are correct ?  A. 1 only        B.  2 only             C.  Both 1 and 2        D. Neither 1 nor 2   Answers: 1-C, 2-A, 3-D, 4-C, 5-D, 6-C, 7-B, 8-C   Mains   1. Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (2019)

Source: The Indian Express