Summary

Editorial

Prices of petrol and diesel will come down if states agree on a mechanism to levy GST for oil products

Context: Prices of petrol and diesel will come down if states agree on a mechanism to levy GST for oil products. What is the reason for high oil price the despite low crude price? *The government has subsidized the consumers while OMCs and upstream public sector oil companies have been bearing the losses. *The level of under-recoveries over 2002-2003 to 2012-2013 was Rs 25,000 crore for petrol users and Rs 3, 38,000 crore for diesel users. *Excise rate on diesel is Rs 17.33 per litre and on petrol it is Rs 21.48 per litre. *The center has subsidized consumers too long and there is no justification for doing so now. How the prices can be reduce? *Adjusting the excise duty rates and making them equal for both diesel and petrol would not change the excise duty revenue of the central government. *It will increase the price of diesel by two per cent and reduce the price of petrol by six per cent. What is the benefit? *Reduction in distortion *Reduced demand for diesel *A fall in demand for diesel-driven vehicles *Reduced air pollution *A fall in carcinogenic emissions *A decline in diesel imports. What will happen if diesel price is increased? *A recent study carried out at IRADe has shown the impacts to be miniscule and manageable. *The introduction of GST has reduced trucking costs substantially by eliminating the wait at check posts for levies such as octroi. *A two per cent increase in diesel prices can be easily absorbed and no increase in goods distribution cost may be expected. What is the role of State? *Apart from the central excise duty, the sale prices of diesel and petrol have increased because of the very high VAT rates imposed by the states. *Madhya Pradesh imposes a VAT rate of 40 per cent on petrol and 32 per cent on diesel. *The lowest rates are in Mizoram: 20 per cent on petrol and 12 per cent on diesel. *The states insist on keeping diesel and petrol out of GST as the tax on diesel and petrol constitutes the bulk of the revenues of many states. *The VAT rates are in percentage terms, whenever the cost of diesel or petrol increases, revenues of states goes up. Way Forward *The states have a scope to reduce their VAT rates so that sale price of petrol and diesel can be moderated. *All states should have a uniform GST rate for diesel and petrol. *A mechanism needs to be developed to get the states to agree on the GST for petroleum products. Only then the prices of diesel and petrol will come down dramatically.

Is FDI the new engine of growth?

Context : FDI from private equity funds have mainly financed e-commerce firms. These have drove import-led consumption boom. What are the features of Industrial Policy –2017 *The official discussion paper (DP), Industrial Policy 2017 sets down a list of known constraints, but it ignores serious analyses of poor industrial performance. *Discussing competitiveness, the policy paper makes very little reference to trends in global trade, or inadequate domestic industrial demand, falling capacity utilization or negative credit growth. *Exception: Flagging the boom in foreign direct investment (FDI) inflows, the paper claims it as a badge of success for official policy. India is now ranked amongst top 3 FDI destinations (World Investment Report 2016) and ninth in the FDI Confidence Index in 2016. *The official paper also pins hope on outward FDI to strengthen domestic industrial and services capabilities. What is the Impact of FDI inflow in the economy? *FDI (as against foreign portfolio investment, which flows into the secondary capital market) brings in long-term fixed investments, technology and managerial expertise, together with foreign firms’ managerial control. *FDI in green field investment is for fresh capital formation, and in brown field investment for acquiring existing enterprises with the expectation of improving the firm’s productivity and profits. *Despite rising FDI inflows, domestic capital formation rate, or industrial capacity utilization, have declined. *Drawback: FDI does not come from leading global producers of goods and services, but from shadow banking entities such as private equity (PE) funds. What is Private Equity (PE) funds? *These funds are used to finance retail trade of mostly imported consumer goods to expand their market shares, in order to boost the firm’s market valuations. *Since PE investments are highly leveraged (high debt-equity ratios), rising markets valuations help them reap disproportionate gains when they make their exit. *PE firms do not commit to fresh capital formation or invest in technology, as expected of FDI. How Inflow and outflow routed? *India is being used as a conduit for routing international capital for tax arbitrage. *Inward and outward FDI flows across emerging market economies are highly correlated, responding to the US policy rate. *Inward and outward FDI flows apparently represent channeling of global capital via India to take advantage of tax concessions. *Hence, such short-term foreign capital movements in and out of the country may contribute little to augment domestic capability. What is the contribution of FDI? *If the foregoing arguments and evidence are valid, then recent FDI flows have contributed little by augmenting domestic capabilities, output and employment growth. *Inward FDI, increasingly from PE funds, has largely financed e-commerce firms, driving import-led consumption boom. *Outward FDI, instead of enabling domestic enterprises to access external markets and technology, has instead helped international capital to take advantage of India’s tax treaties to optimize tax burden of global firms. Conclusion: The proposed industrial policy needs to look elsewhere, other than FDI to realize the vision of Make In India.

The private sector’s role in healthcare however a simple PPP model isn’t the solution

Context :The NITI Aayog has proposed a solution to the issues plaguing India’s health sector. The solution is to incentivize the private sector via public private partnerships (PPPs), wherein the government provides land, infrastructure, capital for viability gap funding, and patients via referrals from public screening programmes. In return, the government fixes the price of basic services to ensure a reasonable rate of return. The delivery, quality and governance of the PPPs is monitored by the project steering committee, contracts management cell and project coordination committee, etc. What is Problems faced in the healthcare sector in India? *Corruption in MCI *Shortage of medical doctors due to the emigration of physicians and the fact that the current MCI rules and guidelines prohibit qualified MBBS doctors without a PG degree from performing procedures such as ultrasound and interpreting chest X-rays *The challenges in Availability and maintenance of equipment and supply of drugs in the  local public health infrastructure *The capacity of district level public health institutions *A weak primary health care sector with a Lack of intensive care units and issues like sanitation and drainage. Is Unevenly distributed skilled human resources? *There aren’t enough skilled healthcare professionals in India despite recent increases in MBBS programmes and nursing courses. *Shortage is compounded by inequitable distribution of these resources. *India does not have an overarching national policy for human resources for health. Is Largely unregulated  private sector in India? *The National Sample Survey Office (NSSO) numbers show a decrease in the use of public hospitals over the past two decades *significant portion of these private practitioners may not be qualified or are under-qualified *many new institutions set up in the past decade encouraged by commercial incentives, have often fuelled corrupt practices and failed to offer quality education Low public spending on health *Economically weaker states are particularly susceptible to low public health investments. *Many state governments also fail to use allocated funds Fragmented health information systems *getting quality, clean, up-to-date data is difficult in the health sector *Data is incomplete (in many cases it excludes the private sector) and many a time, it’s duplicated Irrational use and spiralling cost of drugs *Costs of medical treatment have increased so much that they are one of the primary reasons driving people into poverty *Jan Aushadhi campaign to provide generic drugs at affordable prices, but their implementation has been patchy and varied in different states *Corruption also increases irrational use of drugs and technology. *kickbacks from referrals to other doctors or from pharmaceutical companies lead to unnecessary procedures such as CT scans, stent insertions and caesarean sectionsWeak governance and accountability *many of the new laws have not been widely implemented *missing trust and engagement between various healthcare sectors *poor coordination between state and central governments as the main constraints why universal healthcare is not assured in India *unwillingness on the part of the state to prioritize health as a fundamental public good, central to India’s developmental aspirations, on par with education *India continues to lag several health indicators such as mortality rates and malnutrition What is the Niti Aayog’s Proposed  Model? *Niti Aayog and the Union ministry for health and family welfare have proposed a model contract to increase the role of private hospitals in treating non-communicable diseases in urban India. *The agreement, which has been been shared with states for their comments, allows private hospitals to bid for 30-year leases over parts of district hospital buildings and land to set up 50- or 100-bed hospitals in towns other than India’s eight largest metropolises. *According to the model contact, the district hospitals will need to share their back-end services such as blood banks and ambulance services with the private players. The state government could also provide part of the funds needed by these private players to set up the new hospitals. The district health administration will ensure referrals for treatment from primary health centres, community health centres, disease screening centres and other government health programmes and ventures are made to these private hospitals *Under the model contract, these private hospitals will provide secondary and tertiary medical treatment for cancer, heart diseases and respiratory tract ailments at prices that are not higher than those prescribed under government health insurance schemes. For non-communicable diseases needing these three kinds of specialised treatments, the hospitals will need to have out-patient departments, in-patient beds, beds for intensive care, operation theatres, centre for angioplasty and angiography, laboratories and radiology services. *The district government hospital will be expected to share its ambulance services, blood blank, physiotherapy services, bio-medical waste disposal system, mortuary services, parking facilities, electricity load, in-patient payment counters and hospital security with the private enterprise running out of its campus, the contract says. *Beneficiaries of the government insurance schemes will be able to get treatment at these hospitals but there will be no reserved beds or quota of beds for free services. General patients will also be allowed to seek treatment. Patients not covered by the state insurance and health schemes would be required to pay the full cost. *The private hospitals operating from these public hospital campuses will be able to refer complicated cases either to other government hospitals or other empanelled private hospitals. However, sending patients further to other private hospitals would require the permission of the medical superintendent of the district hospital..What is NMC? *Experts at NITI Aayog have proposed replacing the compromised MCI with a new National Medical Commission (NMC), outlined in a draft Bill known as the National Medical Commission Bill of 2016. Structural differences between the proposed NMC and MCI are enormous. The NMC would split the selection, advising, and actual accreditation process into three separate boards. By dividing power, the hope is to create a system of checks and balances.

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