News Analysis 05 Aug, 2022

05 Aug, 2022


1.Inflation driving 8% of GST Revenue Rise: SBI Research
2.Waiting for Democracy in J&K.
3.Is the declining rupee a crisis or an opportunity ?
4.Remembering an Expulsion,remaking Opportunity.

1.  Inflation driving 8% of GST Revenue Rise: SBI Research

Tax revenues, and inflation-adjusted GST collections so far this year are 26% higher than pre-COVID levels, according to SBI Research, suggesting this rise could be driven by higher consumption.

Important Points From The Report

  1. Better compliance, Economic recovery and Higher inflation are considered as some of the factors leading to higher GST revenue
  2. SBI sought to estimate inflation adjusted revenues by deflating actual revenues with the Consumer Price Index used to measure retail inflation while excluding fuel. 
  3. Bank’s Economists see CAD widening to 3.7% of GDP, peg trade deficit at 8.5% in 2022-23

Current Account Deficit (CAD) and Trade Deficit

Current Account Deficit (CAD) is the shortfall between the money received by selling products to other countries and the money spent to buy goods and services from other nations. If the value of goods and services we import exceeds the value of those we export, the country is said to be in a deficit, and the difference in the two values is CAD.
The current account includes net income, including interest and dividends, and transfers, like foreign aid.
A TRADE DEFICIT occurs when a country's Imports exceed its exports during a given time period. It is also referred to as a negative balance of trade.

  • A trade deficit occurs when a country's imports exceed its exports during a given period.
  • Balances are calculated for several categories of international transactions
  • Trade deficits can be shorter or longer term.
  • Implications of a trade deficit depend on impacts on production, jobs, national security and how the deficits are financed.

What is GST?
GST (Goods and Services Tax) is one indirect tax for the whole nation. It is the resultant tax after subsuming major Central and State indirect taxes. GST is a destination based tax levied on the consumption of goods and services across the nation, thus rendering the country one unified common market.|
A destination based tax is one which is levied in the state where the goods or services are consumed and not where they are produced. On the other hand, an origin based tax is levied in the state where goods or services are produced (not consumed).

Structure of the GST Council
The structure of the GST Council is determined by Article 279 (1) of the amended Constitution of India. This Article states that the GST Council should be constituted by the President of India within a period of 60 days of the inception of Article 279A. The Article states that the GST Council should be a joint forum of the Central Government as well as the State Governments. It would consist of the following members –
a.The Chairperson of the council would be the Union Finance Minister of the country. 
b.The Union Minister of State would be a member of the GST Council. He/she would be in charge of Revenue of Finance
c.The members of the GST Council would be the minister who is in charge of finance or taxation or any other minister as nominated by the respective State Governments. Each State Government would nominate one minister to act as a member of the GST Council

2. Waiting for Democracy in J&K.


The stabilization of the region is the most awaited step in the region to extend Rights and Benefits of Indian Democracy to the people of the State.

The state of Jammu and Kashmir (J&K) was primarily Hindu until the 14th century and the birthplace of Shaivism – one of the major traditions in Hinduism that reveres Lord Shiva.. The state itself is named for an ancient Hindu sage Kashyap. The tutelary deity of classical Kashmir was Sharada, a manifestation of Saraswati, the Hindu goddess of wisdom, whose prayers refer to her as “Kashmira-pura-vasini” (she who resides in Kashmir). 

J&K is no more a state; it has been divided into two Union Territories.
The Jammu and Kashmir Reorganization Act, 2019 also comes into effect from 31st October 2019.
Here is what has changed in Jammu and Kashmir, and Ladakh:

  • The Constitution of Jammu and Kashmir and the Ranbir Penal Code will cease to exist.
  • The Union Territory of J&K will have a legislature while the UT of Ladakh will have no legislature.
  • Both the Union Territories will have Lieutenant Governors as administrators who will be appointed by the President of India. Their tenure will be determined by the President.
  • Four sitting members of the Council of States representing the existing state of Jammu and Kashmir shall be deemed to have been elected to fill the seats allotted to the Union Territory of Jammu and Kashmir.

Draconian Repercussions
1.PUBLIC SAFETY ACT :The Jammu & Kashmir Public Safety Act, 1978 is a preventive detention law, under which a person is taken into custody to prevent him or her from acting in any manner that is prejudicial to “the security of the state or the maintenance of the public order”. It is very similar to the National Security Act that is used by other state governments for preventive detention.
2.ALIENATION AND INSURGENCY : According to the South Asia Terrorism Portal,437 Kashmiri youth joined Insurgent ranks between 2019 and 2021.The Union Home Ministry’s distrust of local Police- while putting them on the frontline of conflict- has disabled a key source of Intelligence.

Delimitation Commission
The Jammu and Kashmir Delimitation Commission’s report, which recommended the creation of six additional Assembly segments for Jammu and only one for Kashmir, threatens to deepen the long-standing fault lines between New Delhi and mainstream political players in the erstwhile Himalayan State.
The Jammu and Kashmir Delimitation Commission  (headed by retired Supreme Court Judge Justice Ranjana Prakash Desai), has made the following recommendations:

  1. Increase six seats for the Jammu division and one for the Kashmir division.
  2. Reserve 16 seats for the Scheduled Caste (SC) and Schedule Tribe (ST) communities

J&K will have a 90-member Legislative Assembly now, up from 87 prior to the Centre’s decision to end J&K’s special constitutional position.

Delimitation exercise in J&K- timeline:

  • The first delimitation exercise, carving out 25 assembly constituencies in the then state, was carried out by a Delimitation Committee in 1951.
  • The first full-fledged Delimitation Commission was formed in 1981 and it submitted its recommendations in 1995 on the basis of the 1981 Census. Since then, there has been no delimitation.
  • In 2020, the Delimitation Commission was constituted to carry out the exercise on the basis of the 2011 Census, with a mandate to add seven more seats to the Union Territory’ and grant reservations to SC and ST communities.
  • Now, the total number of seats in Jammu and Kashmir will be raised to 90 from the previous 83. This is apart from 24 seats which have been reserved for areas of PoK and have to be kept vacant in the Assembly.

 Composition of the Delimitation Commission:

According to the Delimitation Commission Act, 2002, the Delimitation Commission will have three members: a serving or retired judge of the Supreme Court as the chairperson, and the Chief Election Commissioner or the  Election Commissioner nominated by the CEC and the State Election Commissioner as ex-officio members.
Constitutional Provisions:

  • Under Article 82, the Parliament enacts a Delimitation Act after every Census.
  • Under Article 170, States also get divided into territorial constituencies as per Delimitation Act after every Census.

4. Is the declining rupee a crisis or an opportunity ?


The rupee’s steep slide to the 79-to-a-dollar range is bound to impact importers, widen the current account deficit (CAD) and spur the value of India’s external debt.

Currency depreciation is a fall in the value of a currency in a floating exchange rate system.
Rupee depreciation means that the rupee has become less valuable with respect to the dollar.

  • It means that the rupee is now weaker than what it used to be earlier.
  • For example: USD 1 used to equal to Rs. 70, now USD 1 is equal to Rs. 76, implying that the rupee has depreciated relative to the dollar i.e. it takes more rupees to purchase a dollar.

Impact of Depreciation of Indian Rupee
Depreciation in rupee is a double-edged sword for the Reserve Bank of India.

  • Positive: While a weaker currency may support exports amid a nascent economic recovery from the pandemic.
  • Negative: It poses risk of imported inflation, and may make it difficult for the central bank to maintain interest rates at a record low for longer.

Appreciation vs Depreciation of Currency
In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
Currency Appreciation: It is an increase in the value of one currency in relation to another currency.

  • Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
  • Currency appreciation discourages a country's export activity as its products and services become costlier to buy.

Currency Depreciation: It is a fall in the value of a currency in a floating exchange rate system.

  • Economic fundamentals, political instability, or risk aversion can cause currency depreciation.
  • Currency depreciation encourages a country's export activity as its products and services become cheaper to buy.

Reasons for Current Depreciation of Indian Rupee:

  • Record-High Trade Deficit :This growing trade deficit is driven by a rebound in oil prices.
  • Outflow of Dollar
  • Sell-off of the Equity:

A sell-off in the global equity markets which was triggered by the hike in Interest rate by US Federal Reserve , the war in Europe and growth concerns in China due to the Covid 19surge, led to the rupee depreciation.

  • Omicron Concerns
  • Tightening of Monetary Policy

Effect of Depreciation 

1. Trade deficit will widen because of costlier imports, worsening the current Account deficit.
2. Fuel price will keep petroleum subsidy in check, but fertilizer subsidy will rise. Spending on any kind of foreign exchange denominated spending will increase. Capital inflow will slow or reverse.
3. Spending on discretionary goods will increase.
4. Forex reserves could fall, putting pressure on the rupee.
5. In case of weak demand companies may not be able to pass on higher input costs.
6. The government and the RBI have issued a series of measures in recent days designed to reduce the current account deficit and bolster the rupee, including increases in the import duty on gold, the end of duty exemptions for flat screen televisions brought in by airline passengers and restrictions on outward direct investment by Indian companies and individuals.
7. Exports are unable to leverage the weak rupee fast enough given the speed of its descent. In fact many exporters are caught out because of fixed price contracts in rupees wherein they cannot get the benefits of its rapid fall. The balance of payments is tilting sharply against us.
8. The Indian stock- market will take a hiding as opposed to a beating.
9. Global rating agencies will revise our rating downwards to “junk” status, making international borrowing difficult and even more expensive.
10. If the automated devaluation brought on by the rupee makes some asset classes attractive, there may be slight recovery because of RBI trade opportunities and bottom fishing.

Rethinking Policy Rules
Fiscal Policy targets a specific level of debt to GDP ratio, i.e., It targets Debt Stability and the Job of the Monetary Policy is to target the output gap and thereby control Inflation.Correcting for fiscal Imbalances will also Improve the overall macro atmosphere.

5. Remembering an Expulsion,remaking Opportunity.


On August 4, 1972, Ugandan dictator Idi Amin issued a decree: All non-citizen Asians living in Uganda had 90 days to leave the country.Exactly 50 years ago! 

Historical Background

Uganda gained independence from Britain in 1962, maintaining its Commonwealth membership. The first post-independence election, held in 1962, was won by an alliance between the Uganda People’s Congress (UPC) and Kabaka Yekka (KY).
In 1966, following a power struggle between the Obote-led government and King Mutesa, the UPC-dominated Parliament changed the constitution and removed the ceremonial president and vice president.
In 1967, a new constitution proclaimed Uganda a republic and abolished the traditional kingdoms. Without first calling elections, Obote was declared the executive President.
After a military coup in 1971, Obote was deposed from power and the dictator Idi Amin seized control of the country. Amin ruled Uganda with the military for the next eight years and carried out mass killings within the country to maintain his rule.
Amin’s reign ended after the Uganda-Tanzania War in 1979 in which Tanzanian forces aided by Ugandan exiles invaded Uganda.
Museveni has been in power since 1986. In the mid- to late 1990s, he was lauded by the West as part of a new generation of African leaders. His presidency has included involvement in the civil war in the Democratic Republic of Congo (DRC) and other conflicts in the Great Lakes region, as well as the civil war against the Lord’s Resistance Army, which has been guilty of numerous crimes against humanity including child slavery and mass murder. 

India-Uganda Relation

1.Indians and persons of Indian origin play a key role in the Ugandan economy in the manufacturing, trade and service sectors. Indian businesses employ thousands of Ugandans and are among the largest taxpayers in Uganda.

2.Traditionally, Indians in Uganda were traders of Gujarati Descent. Immigrants from Punjab and healthcare workers from Kerala  have also arrived in Uganda in recent years. Since the 1980s, India has emerged as one of the largest investors and trading partners of Uganda.

3.Indian companies, such as Tata Coffee, Bank of Baroda and Airtel, have a significant presence in Uganda.

4.Following the India- Africa Forum Summits in New Delhi and Addis Ababa, India has decided to establish three key institutions in Uganda – the India-Africa Institute of Foreign Trade, the Food Processing Business Incubation Center and  the Material Testing Laboratory. 

5.Uganda has also benefited from India's Focus Africa Initiative and its New Economic Partnership for Africa's Development which have set aside over $200 million for Africa's economic development.

The African Continental Free Trade Area is a game-changing ambitious trade pact that is being implemented to form the world’s largest free trade area by connecting almost 1.3 billion people across 54 African countries. It aims to be a model of cross-border cooperation in an era of growing isolationism.
Relative political stability needs to be assured to support the private sector and multilateral investment in cross border trade-enabling infrastructure. Leadership from the African Union and regional bodies such as the Economic Community of West African States (ECOWAS) and East African Community (EAC) are essential to ensure that changes in governments are constitutional and can support predictable policy environments for localizing the AfCFTA.
The UK,one of the Largest Economies in the Commonwealth, signed a MoU in 2021,becoming the first non-African country to sign an agreement with the AfCFTA.India and Uganda have a common and a Unique means of Fostering the relationship as they have “Commonwealth Advantage” which must be revived.