 "Economic Survey primer")
The Survey had a series of short notes on economic policy issues. A few of them are excerpted below:
ANALYTICAL TAXONOMY OF FINANCIAL CRISES, PAST & FUTURE
ANALYTICAL TAXONOMY OF FINANCIAL CRISES, PAST & FUTURE
- If a crisis occurs in China or another large emerging market, it would be different from the ones which took place in the past 80 years
- It would more likely resemble events of the 1930s when the UK and then the US went off the gold standard, triggering a series of devaluations by other countries, leading to a collapse of global economic activity
- In the Latin American debt crisis, governments went on a spending binge financed by foreign borrowing while pegging their exchange rates, the spending led to a classic sequence: Economic overheating
- Defaults on foreign borrowing - India's external crisis of 1991 belonged to this category- though the country has never defaulted
- A potential tail event in a systemically important emerging market would resemble the events of the early 1930s more
- Resolving the TBS challenge comprehensively would require 4 Rs: Recognition, recapitalisation, resolution and reform
- Banks must value their assets as far as possible close to true value (recognition) as RBI has been emphasising
- Underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as the government has been desiring
- Future incentives for the private sector and corporates must be set right (reform) to avoid a repetition of the problem
- But there is a needed sequence to these: Recognition must come first, but it must be accompanied by an adequate supply of resources; otherwise, banks will be vulnerable
- The case for concessional tax treatment of savings is built on the consideration that a tax concession for savings leads to higher post-tax return for the investor
- The higher returns, in turn, create a positive substitution effect, in favour of savings rather than current consumption
- There is some empirical evidence to suggest the positive and negative effects are neutralised at the economy level
- Tax incentives for savings, as designed in India, do not encourage net savings (contribution plus accumulation minus withdrawals) since withdrawals are also exempt from tax. In addition, national savings comprise of household savings, government savings and corporate savings
- Tax incentives for savings distort the interest structure and choice of savings instruments, and merely help mobilise funds to specified savings instruments
- Widely held perception, within the civil service and outside, that civil servants have in recent times become increasingly reluctant to decide issues quickly and firmly
- Most staff of investigative agencies don't have the tools, skills or training to do a proper probe of modern-day financial crime and corruption
- Desirable for the government to set up a commission to recommend a new prosecutorial policy for the offence of corruption to balance the need for probity with the need for bona fide decisions to be taken without fear of false allegations of corruption
- Commission should also recommend measures to improve capacity of both investigative agencies and public prosecutors
- The government and public sector are dotted with a large number of vigilance officers. But, quantitative evidence and public perception both suggest this has not been accompanied by any reduction in levels of corruption
- Vigilance officer system is felt to be ineffective and in some cases even counter-productive; time to consider whether the costs of this elaborate, but apparently ineffective, system are worthwhile
- The Prevention of Corruption (Amendment) Bill 2013-14 , pending in the Rajya Sabha, seeks to carry out major improvements to the Bill and strengthen the anti-corruption law by bringing it into conformity the UN Convention against Corruption. It proposes to replace the provisions of Section 13(1) with new wording in conformity with international norms that is fairer and would prevent prosecution for mere administrative errors