Editorial Analysis 18 June

Economy

Trade trapeze

Source: The Hindu

Context

• India's merchandise exports have shown a recent uptick after a rough year, with significant growth in April and May 2024. Challenges include rising trade deficits and mixed performance across different export sectors.

Details

Key Points

• Export Growth:
  • India's merchandise exports increased by 9.1% in May 2024, following a rise in April, signalling a positive trend after a decline in 2023-24.
• Sector Performance:
  • Employment-intensive sectors such as apparel, man-made yarn, and engineering goods showed recovery, while spice and marine product exports faced significant declines.
• Trade Deficit:
  • The trade deficit widened to $23.8 billion in May 2024, driven by a record $13.2 billion deficit in petroleum products, highlighting India's import dependence on oil.
• Monetary Policy Impact:
  • The European Central Bank's interest rate cuts are expected to boost demand for Indian exports, though cautious optimism is advised due to mixed signals from the U.S. Federal Reserve.
• Economic Strategy:
  • The need for revitalizing government schemes to support goods exports and addressing challenges in foreign direct investment inflows and private investments for import substitution is emphasized.
• Import Substitution:
  • Efforts to substitute imports face challenges due to declining foreign direct investment and sluggish private investments.
• Services Exports:
  • Rising services exports and global investment inflows are expected to help offset the trade deficit.
• Economic Measures:
  • The government is encouraged to increase budgetary outlays and improve schemes to boost exports and address trade imbalances.

Sources:

The Hindu

International Relations

Negotiating for peace

Source: The Hindu

Context

• The "Summit on Peace" in Burgenstock concluded with mixed results, highlighting global efforts to address the Russia-Ukraine conflict but facing challenges in achieving broad consensus, especially from major emerging economies.

Details

Key Points

• Summit Outcomes:
  • The "Summit on Peace" ended with a joint communiqué signed by 82 countries and organizations, emphasizing nuclear safety, food security and the exchange of prisoners of war.
• Participation and Representation:
  • Over 90 countries participated, with 56 represented by their leaders. However, key nations like India and China did not sign the final statement.
• Global South Involvement:
  • The summit aimed to include the Global South to foster broader support for peace efforts but faced resistance from BRICS members and other emerging economies.
• Ukraine Peace Formula:
  • The event was built on the Ukraine Peace Formula and UN resolutions, making it appear one-sided without Russia's involvement.
• India’s Stance:
  • India abstained from endorsing the statement, maintaining its balanced position on the Russia-Ukraine conflict, but demonstrated a willingness to participate in future, more inclusive peace processes.
• International Diplomacy:
  • The summit highlights the complexities of international diplomacy and the challenges in achieving consensus on global conflicts.
• Western Efforts:
  • Switzerland and Western countries made significant efforts to gather global support, including a special attempt to win India's favour.
• China’s Absence:
  • China's decision not to send a delegation was a significant setback, indicating its influential role in mediating the Russia-Ukraine conflict.
• India’s Diplomatic Role:
  • India's diplomatic participation, led by the Secretary (West) in the External Affairs Ministry, underscores its strategic balancing act in global geopolitics.

Sources:

The Hindu

Economy

LESS TAXING

Source: Indian Express

Context

• Finance Minister Nirmala Sitharaman will present the 2024-25 Union Budget, focusing on addressing the current economic challenges of low household consumption and subdued private sector investments through potential tax reforms.

Details

Key Points

• Economic Context:
  • The Union Budget 2024-25 will be presented amidst a slump in household consumption and subdued private sector investments, necessitating policy
• Tax Rationalization:
  • The government is considering rationalizing the tax structure, especially for lower-income segments, to boost consumption and private investment.
• Capital Gains Tax Reform:
  • There is a need to review the capital gains tax regime for alignment across asset classes.
• GST Rationalization:
  • The GST Council is exploring merging some tax slabs and possibly including petroleum products under GST, which requires consensus with state governments.
• Tax Base Expansion:
  • Efforts to increase the tax base have led to a significant rise in direct and indirect taxpayers over the years.
• Corporate Tax Reduction:
  • The corporate tax rate was reduced to 22% in 2019, and a simplified income tax regime was introduced in 2020-21.
• Interim Budget Measures:
  • The interim budget 2024-25 proposed withdrawing certain disputed direct tax demands, benefiting around one crore taxpayers.
• Ongoing Reforms:
  • The new government is expected to continue the path of tax reforms to ease compliance and reduce the tax burden.
• Private Capex:
  • Boosting household consumption is seen as a way to increase private capital expenditure in consumer-focused sectors.
• State Collaboration:
  • Successful GST reforms, such as including petroleum products, depend on effective negotiation and collaboration with state governments.
• Taxpayer Growth:
  • The number of direct taxpayers has significantly increased, indicating broader participation in the tax system.

Sources:

Indian Express

Society & Economy

THE SHADOW OF CASTE

Source: Indian Express

Context

• A recent working paper from the World Inequality Lab highlights India's persistent economic inequality, exacerbated by caste-based disparities despite overall reductions in income inequality between 2017-18 and 2022-23.

Details

Key Points

• Economic Inequality:
  • Despite India's efforts to lift millions out of poverty, economic inequality persists, particularly among different caste groups.
• Caste-Based Inequality:
  • Caste-based inequalities remain a defining feature of India's socioeconomic framework, impacting consumption and income distribution.
• Gini Coefficient:
  • The Gini coefficient decreased from 0.359 in 2017-18 to 0.309 in 2022-23, indicating a reduction in overall income inequality.
• Consumption Disparities:
  • Scheduled Tribes (ST) and Scheduled Castes (SC) have lower consumption shares relative to their population percentages, reflecting persistent economic disparities.
• Policy Interventions:
  • Affirmative action programs, reservation policies, and rural development initiatives have contributed to reducing disparities but significant challenges remain.
• Social Mobility:
  • The General category experienced the most substantial reduction in inequality, suggesting improvements in social mobility and effective policy interventions.
• Top Decile Consumption:
  • Consumption increased for all social groups in the top 20% decile, with the General category seeing a significant rise, indicating potential wealth concentration among high-caste elites.
• Persistent Disparities:
  • Despite progress, disparities in consumption patterns among different social groups persist, necessitating continued monitoring and targeted interventions.
• Income Generation:
  • Efforts should focus on augmenting income generation and consumption abilities among lower deciles, particularly within ST and SC communities.
• Economic Stability:
  • Addressing these disparities is essential for fostering social harmony and economic stability across society.

Sources:

Indian Express