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1.Examination hazard: Class 12 boards aren’t worth the public health risks. Focus instead on college admissions
The ball is in the Centre’s court with a decision on conducting CBSE Class 12 examinations keenly awaited following deliberations with state governments. Union education ministry must firmly decide against scheduling these exams. In the best of times, the utility of obsessing over Class 12 marks has faced vigorous scrutiny amid college admission cutoffs overshooting all credible limits. Now, when public safety has forced the costly shutting down of workplaces, factories, schools, markets and non-essential services, conducting exams without commensurate benefits is mindless.
Exposing unvaccinated students to the virus in indoor settings over a prolonged period risks setting off too many disease clusters. Over 1.2 crore students are enrolled nationally in Class 12 every year: A scattered congregation of this big number is enough to recall the damage done by political and religious gatherings this summer. States demanding inclusion of 17-year-olds in the vaccination drive lack enough doses even for the 18-plus age group in the foreseeable future. Class 12 students have grappled with the uncertainties since January, by when exam schedules are usually announced. The indecision isn’t helping preparations or in easing their turmoil.
CBSE is also considering prior internal evaluations to grade students. Obviously, this can skew the field if grading yardsticks differ greatly between schools, or if schools pass on inflated marklists to CBSE. Using these results to evaluate higher education prospects of students would be unfair. Public universities like DU must move fast to replicate the rigorous assessments like online admission tests and interviews devised by private universities. Kicking the can down the road on such capacity expansion could lead to a situation akin to the current vaccine impasse where demand is high and supply is riddled with shortages and confusion.
Students have struggled in pre-pandemic times with preferred colleges making late admission decisions forcing them to weigh the inferior options. The situation could be aggravated manifold this year unless admission procedures are streamlined in advance. Alternatively, students unprepared for higher education this year deserve the flexibility to take board exams next year. Centre’s decision will have a ripple effect on the ISC and state boards. All these students deserve a level playing field. Entering the portals of higher education is a testing phase for students. Centre and state governments are on test too: Can they ensure a just, safe, glitch-free promotion of students to college education?
2.GST’s future: Its framework is improving but its Council’s impact will depend on intent
The 43rd meeting of the GST Council took place on Friday, the first one since October. A few big changes on GST levies on Covid-19 products were expected. The decisions however were underwhelming. Existing IGST concessions, the tax levied on inter-state commerce, for some Covid-related products were extended by three months. In a welcome step, Amphotericin B which is used to treat black fungus received an IGST exemption. Of greater significance is the decision to appoint an eight-member group of ministers, headed by Meghalaya’s CM Conrad Sangma, to study GST concessions for vaccines.
Last year’s economic stress exposed fault lines in the existing GST framework. It’s led to questions about whether a big change is needed. That would be akin to throwing the baby out with the bathwater. To improve the GST framework, a couple of smaller changes are needed. The first set of remedies which pertain to initial design flaws in GST are already underway. This is the last year when states will have to be compensated if their revenue doesn’t grow by 14% as it was a temporary measure. It may have been part of a grand bargain but it was always risky – nominal GDP has never grown 14% (2011-12 base).
Another initial flaw was the inadequate technology backbone. It fell noticeably short of what was conceptualised. This is an area where there have been improvements. Therefore, we have positive developments to look forward to. But the efficacy of the GST Council will depend not just on rules or technology. It’s a constitutionally mandated federal body which can set the tone for overall federal engagement. There’s scope for improvement here. The Centre heads the Council and also has a veto on decisions. The ball is in FM Sitharaman’s court, for the GST Council to fulfil its potential.
3.The priority sector lending India needs
The origins of priority sector (PS) lending can be traced back to 1966 when Morarji Desai saw a need for increasing credit to agriculture and small industries. However, the definition for PS was only formalised based on a Reserve Bank of India (RBI) report in the National Credit Council in 1972. After bank nationalisation, the PS formulation also allowed Indira Gandhi to assuage important political lobbies, in a poor country with full adult franchise, through such directed lending.
The PS definition grew over time, and was not just limited to important lobby groups, but extended to cover important neglected sectors of the economy. But despite the tweaks, the classification retains a heavy focus on agriculture and small industries (defined as micro, small and medium enterprises or MSME) till today.
Banks lend nearly 40% of their adjusted net bank credit (ANBC), a not inconsiderable ₹39,50,205 crore, to the priority sector. The important question that arises, as we battle Covid-19 today, is whether the PS definition needs any change? Are valid categories such as health infrastructure well served? Are we using the full possibilities of JAM — full access to Jan Dhan accounts, universal Aadhaar numbers and near-universal mobile penetration — to address the issues that PS lending cannot achieve, but direct benefit transfers (DBT) may be able to solve?
PS includes eight identified sectors. The biggest is agriculture with an 18% target of total ANBC. The other important category is MSMEs. In addition, five sectors are classified as PS — housing, export credit, education, social infrastructure and renewable energy.
Social infrastructure has lending caps and covers loans up to a limit of ₹5 crore per borrower for setting up schools, drinking water facilities and sanitation facilities, including construction/ refurbishment of household toilets, and water improvements at the household level. It also covers loans up to a limit of ₹10 crore per borrower for building health care facilities in Tier II to Tier VI centres. The education category covers loans for study or vocational courses. Further, these targets must include 12% loans to defined weaker sections, 7.5% to micro enterprises, and 10% of the agriculture target is for small and marginal farmers.
We believe this formulation needs a rethink. First, it is shocking that health is only a sub-category of social infrastructure with a ₹10 crore limit for building hospitals. This needs to be a large independent category where we encourage “right size” not “small size” hospitals — big in urban centres but smaller outside.
Second, the need to create institutions for training nurses, health technicians, and health machine operators, and more broadly for training in basic technology and digital applications is dire. Tata chairman N Chandrashekharan has captured this wonderfully in his book Bridgital Nations.
Third, educational infrastructure has a low credit limit of ₹5 crore. Finally, loans for purchase of computers and smart phones for low income categories should also be considered as part of PS lending.
The related question in respect of PS lending is to assess whether it is the right form of intervention for some of its targeted categories. While allowing banks to lend to micro finance institutions, are there not some PS categories that are better served by grants? How productive has lending to weaker sections and small and marginal farmers in agriculture been? They still struggle after 50 years. The banks lending to these categories in agriculture have double digit non-performing assets (NPA) in their loan portfolios, making the sector economically unviable for them.
Granting loans to this borrower segment with the high probability of NPAs creates corruption opportunities for bank managers and create moral hazards for the identified beneficiaries. When there are large defaults in a segment, the farmers repaying the loans are disincentivised, and the overall credit environment gets contaminated by large defaults.
Converting some part of PS lending to a grant paid directly by government can unlock large amounts of efficiency in the system, and dramatically increase the valuation of public sector banks also. These weaker sections will benefit a lot more with grants. The JAM trinity allows us to do this, the beneficiaries will prefer this, and it will be politically popular. In fact, we believe that banks should be happy to pay for part of the overall grant amounts through a specific cess imposed on them for the purpose. It could be calculated as the cost of their NPAs in the segment, so they are no worse off than before.
Covid-19 has forced us to re-examine many things from the past. The importance of health and education infrastructure has been sharply highlighted. It has underlined the importance of digital access as we all settle into new ways of working and learning. PS classification should reflect this, and we should use the potential of our technology stack (and JAM) to target and deliver grants to the weaker sections. This, however, cannot supplant the dramatic increase needed in health and education budgets of state governments to fix our social infrastructure.
All talk of being a superpower should wait till we can offer our people even minimum access to the basic social infrastructure needed for living. That is what we owe all those lost to Covid-19.
4.Storm and strife: On Centre-Bengal tussle
The Centre and the West Bengal government must negotiate their relations in good faith
The conflicting versions of the BJP and West Bengal Chief Minister Mamata Banerjee regarding a meeting called by Prime Minister Narendra Modi on Friday to review the situation after Cyclone Yaas cannot be glossed over as miscommunication. BJP leaders, including Union Ministers, went to great lengths to show Ms. Banerjee in a bad light over the meeting. They said she made the PM wait for 30 minutes at Kalaikunda in Paschim Medinipur district in south Bengal; and once she arrived, she handed over certain papers and left without attending the meeting. Governor Jagdeep Dhankhar accused the CM publicly of being confrontational. In an unprecedented act, the Centre unilaterally placed the West Bengal Chief Secretary under central deputation. Considering the fact that no concurrence of the official in question or the State government was sought, this can be seen only as a vindictive move. Ms. Banerjee has said that she had sought the PM’s permission before going about her schedule to oversee relief operations in other parts of the State. While offering to even touch the PM’s feet if that was required to secure the support of the Centre for the State’s welfare, she has questioned the BJP version and pleaded that the CS be allowed to stay in the post. Ms. Banerjee said she was delayed for the meeting with the PM only because of air traffic regulations for the landing of the PM’s aircraft.
That there is such acrimony between the State and the Centre at a time when both must be working hand in hand is extremely disheartening for the people of West Bengal. But there can be no equal apportioning of blame in this. By calling Mr. Dhankhar and Leader of Opposition Suvendu Adhikari to the meeting, the Centre had already betrayed its plans to belittle the CM, who has won a resounding third term recently by trouncing the BJP. In Odisha on the same day, and in Gujarat earlier, the PM reviewed the situation with the CMs, and not Opposition leaders. It is apparent that the BJP has not been able to stomach the popular verdict in Bengal. The defeat could have been an occasion for the BJP to introspect and mend its strategy for West Bengal. Far from it, the Centre unleashed the CBI against the newly elected Trinamool Congress Ministers. Mr. Adhikari, the PM’s interlocutor on Friday, remains untouched by the CBI though he is an accused in the same case. Now, by dragging a senior IAS officer who has just been cleared for a three month extension after retirement on May 31, into a nasty political tussle, the Centre has crossed yet another red line. The BJP must wake up to the tradition of Centre and States constantly negotiating their relations in good faith. It must also get used to the reality of losing elections in a democracy.
5.Sweating the small stuff: On 43rd GST Council meeting
The GST Council leaves weightier issues hanging fire; sets stage for more acrimony
The GST Council, which met last Friday, could not live up to the expectations of some meaningful relief from the disastrous second wave of the pandemic. The measures unveiled were insipid, be it for the common man hoping to survive while keeping fingers crossed for a vaccination slot or a hospital bed, or businesses hurting from lockdowns, and States grappling with a cash crunch amid a scramble to purchase vaccines. Finance Minister Nirmala Sitharaman announced an elaborate amnesty scheme for small firms pending GST returns, lowered the interest levied on late payments for recent months, and extended several compliance timelines. But there is little respite for businesses with turnover of over ₹5 crore, and industry is underwhelmed. No discussion occurred on bringing fuels under GST, despite the Centre’s noises to that effect amid runaway petrol prices. Taxes on COVID essentials remain unchanged, despite States and industry pressing for waivers. Ms. Sitharaman said the subject dominated deliberations but ‘varying viewpoints’ compelled her to let a Group of Ministers pore over possibilities of rate cuts. The GoM has to report back by June 8, but the Council, constitutionally empowered to recommend special rates during a disaster, would still have to concur. Thus, no immediate relief can be expected.
Opposition States allege that NDA-ruled States’ representatives in the Council vociferously opposed waiving the GST on COVID vaccines and drugs. Tax mavens have mooted ways to implement such cuts, so it is unfortunate that the Centre, usually so conscious of optics, came to the table with little to offer. GST breaks offered on free COVID-related imports from abroad for donation to State-approved entities, were extended to material imported on a payment basis as well. It is not clear why this had to wait for the Council — BJP-ruled Gujarat and Haryana have already offered GST refunds on such imports. A ₹1.58-lakh crore borrowing plan may quell States’ concerns about immediate compensation dues, but larger schisms are apparent that could fray the Council’s functioning further after recent acrimonious parleys. Sikkim, for instance, has demanded that it be allowed to levy its own cess to cope with falling revenues, a demand that has been backed by others, including Tamil Nadu and Arunachal Pradesh. This could virtually derail the very edifice of GST subsuming all local levies, even as States now want to be recompensed beyond next year. The Centre, facing flak for its handling of the second wave, could do with a more responsive approach. Winning an intellectual or ideological battle over taxes on COVID essentials is meaningless at this precarious time, when each day’s delay in providing relief hurts thousands. Small gestures with limited revenue implications would give the Centre more room to strike common ground with States on the challenges that loom over the GST regime.