The Hindu Editorial Analysis- 11th November 2024 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

States and the Centre’s Fetter of ‘Net Borrowing Ceiling’

Why in News?

The central government, in 2023, imposed a ‘Net Borrowing Ceiling’ (NBC) on the State of Kerala to restrict the maximum possible borrowing that the State can make under the law. This ceiling is 3% of the projected Gross State Domestic Product (GSDP) for FY2023-24. The NBC now encompasses all borrowing avenues, including open market loans, financial institution loans, and liabilities from the public account of the State. Furthermore, to stop States from circumventing the borrowing cap through State-owned enterprises, the ceiling has been extended to cover certain borrowings by these entities as well.

About Net Borrowing Ceiling (NBC)

Net Borrowing Ceiling

• The Net Borrowing Ceiling is a limit set on the borrowings of States from all sources, including open market borrowings. 
• This ceiling is imposed by the Centre using its powers under Article 293(3) of the Constitution.

Deductions by Central Government

• To determine the Net Borrowing Ceiling, the Central Government deducts liabilities arising from the public account of the States. 
• Additionally, borrowings by state-owned enterprises, where the principal and/or interest are serviced out of the Budget or through assignment of taxes, cess, or any other State revenue, are also deducted from the Net Borrowing Ceiling.

Net Borrowing Ceiling: Concerns & Opposition by Kerala

Background of the Issue

• The central government has included the debt of state-owned enterprises in the net borrowing ceiling for states.
• This decision has been contested by the Kerala government, which argues that it hampers their financial capacity to meet essential obligations like pensions and welfare schemes.

Kerala's Argument

Inclusion of KIIFB Debt

• Kerala's infrastructure projects are mainly funded by the Kerala Infrastructure Investment Fund Board (KIIFB) through extra-budgetary borrowings.
• The state argues that including KIIFB's debt in the net borrowing ceiling restricts its financial flexibility.

Constitutional Authority

• Kerala contends that the Parliament does not have the authority to legislate on the 'Public Debt of the State' as it falls under Entry 43 of the State List in the Constitution.
• Activities related to public accounts are within the jurisdiction of the State Legislature, and the Centre cannot include withdrawals from public accounts in the net borrowing ceiling.

Public Accounts and Debt

• The state relies on Article 266(2) of the Constitution, which allows money collected by the Central or State government, not pertaining to the consolidated fund, to be classified under 'public accounts.'
• Public accounts include small savings, security deposits, provident funds, reserve funds, and other treasury deposits.

Fiscal Responsibility

• According to the Kerala Fiscal Responsibility Act, 2003, the state aims to reduce fiscal deficit to 3% of Gross State Domestic Product (GSDP) by 2025-2026.
• The state argues that external supervision by the Centre over its finances is unwarranted when it has its own provisions for budget management and fiscal discipline.

Budget Management Authority

• Article 202 of the Constitution gives the State government the authority to determine its revenue, receipts, and expenditure, and to present the Budget before the Legislative Assembly.

Central Government's Justification

Article 293(3) of the Constitution

• The Central government argues that under this article, the State must obtain consent from the Centre to raise any loan if any part of a previous loan from the Centre is outstanding.

Recommendation of the 15th Finance Commission

• The Union Finance Minister emphasizes the need for strict discipline by avoiding further off-budget transactions and contingent liabilities to achieve fiscal sustainability, as recommended by the 15th Finance Commission.

Transparency

• The Central government believes that higher borrowing limits for Union and State Governments promote transparency and prevent the accumulation of non-transparent liabilities.
• However, the Finance Commission did not recommend including the debt of state-owned enterprises in the net borrowing ceiling.

Articles 292 and 293: Borrowing Power Under the Indian Constitution

Article 292: Borrowing by the Government of India

• This article pertains to the borrowing authority of the Central Government.
• The Central Government has the ability to borrow funds, either from within India or from abroad, against the security of the Consolidated Fund of India or by providing guarantees.
• However, such borrowing is subject to limits set by the Parliament.

Article 293: Borrowing by the State Governments

• This article addresses the borrowing powers of state governments.
• A state government can borrow funds within India (not from abroad) against the security of the Consolidated Fund of the State or by providing guarantees.
• However, this is also subject to limits set by the state legislature.
• The Central Government has the authority to make loans to any state or provide guarantees for loans raised by any state.
• Funds required for such loans are charged to the Consolidated Fund of India.
• If a state has an outstanding loan from the Central Government or a loan guaranteed by the Centre, it cannot raise a new loan without the Centre's consent.

International Practice in Subnational Borrowing Regulation

There are different ways that countries around the world manage borrowing by subnational governments, such as states or provinces. These methods can be grouped into four main categories:

• Market Discipline
• Fiscal Rules
• Centralised Administrative Regulation
• Cooperative Regulation

Let’s explore each of these mechanisms in detail:

1. Market Discipline:

• Market discipline relies on the signals sent by capital markets to regulate subnational borrowing.
• Creditors’ willingness to lend and the conditions under which they are willing to do so indicate to subnational governments when borrowing is becoming unsustainable.
• This mechanism encourages subnational entities to borrow responsibly, as they are held accountable by the market.

2. Fiscal Rules:

• Fiscal rules impose constraints on the fiscal behaviour of subnational governments to ensure predictable and robust fiscal outcomes. 
• These rules can include: 
  • Debt ceilings 
  • Deficit targets 
  • Expenditure rules, both quantitative (e.g., limits on spending) and qualitative (e.g., restrictions on the types of expenditures) 

3. Centralised Administrative Regulation:

• Centralised administrative regulation gives the central government direct control over subnational borrowing.
• This approach is more common in unitary countries than in federal ones.
• In extreme cases, it may require the central government to evaluate and approve each individual credit transaction, leading to micromanagement of state debt.

4. Cooperative Regulation:

• Cooperative regulation involves subnational governments actively in determining borrowing controls through negotiation processes.
• This mechanism aims to set overall fiscal targets for the general government and specific constraints for individual governments.
• By promoting information symmetry and dialogue among all stakeholders, cooperative regulation combines the advantages of the other approaches and fosters collaboration in managing the nation’s resources.

Conclusion

The Kerala Infrastructure Investment Fund Board (KIIFB) was an innovative approach in Kerala aimed at financing infrastructure and development projects through extra-budgetary resources while promoting social justice. However, the Central Government's imposition of a ceiling on such initiatives poses a challenge to the concept of Indian Cooperative Federalism.

It is crucial to maintain a careful balance between federal and state authorities to uphold democratic values and ensure fair development across the diverse regions of India.

Calling Out Exploitative Labour Dynamics on Platforms 

Why in News?

In the midst of the continuous evolution of the concept of “gig workers”, there was a groundbreaking movement in India recently — a nationwide digital strike this Deepavali that was organised by women gig workers. This was a call made by the Gig and Platform Services Workers Union (GIPSWU), India’s first union that is dedicated primarily to women gig workers. The strike sought gig worker and service user solidarity across the country and the world on the issue of exploitative and abusive labour practices.

What is the present status of gig economy and gig workers in India?

• The gig economy in India is witnessing significant growth, with a diverse range of workers involved in various sectors such as ridesharing, food delivery, and parcel delivery. 
• Currently, there are approximately 7-8 million gig workers in India, and this number is expected to soar to 23.5 million by 2029-30, according to NITI Aayog. 
• The gig economy is projected to expand at a Compound Annual Growth Rate (CAGR) of 12%, potentially comprising 4.1% of India’s total workforce by 2030. 
• A report by the Boston Consulting Group (BCG) highlights the potential of the gig economy to create 90 million non-farm jobs and contribute an additional 1.25% to India’s GDP, underscoring its role as a significant economic driver. 

What is Gig Economy?

• The gig economy refers to a labor market characterized by short-term, flexible jobs often mediated by digital platforms. Workers in this economy, known as gig workers, engage in various tasks such as ridesharing, food delivery, and freelance services, usually on a per-task basis. 
• This model allows for greater flexibility and autonomy for workers, as they can choose when and where to work. However, it also raises concerns about job security, benefits, and labor rights. 

Growth of Gig Economy

• The gig economy in India is experiencing rapid growth, with a current workforce of approximately 7-8 million gig workers. This number is projected to increase significantly, with estimates suggesting it could reach 23.5 million by 2029-30. 
• The expansion of the gig economy is expected to occur at a Compound Annual Growth Rate (CAGR) of 12%, indicating a robust and accelerating growth trajectory. By 2030, gig workers could constitute 4.1% of India’s total workforce, highlighting the increasing importance of this sector in the overall labor market. 

Potential Impact

• The gig economy has the potential to be a significant driver of economic growth in India. A report by the Boston Consulting Group (BCG) suggests that this sector could create 90 million non-farm jobs, contributing to a substantial increase in employment opportunities. 
• Additionally, the gig economy could contribute an extra 1.25% to India’s GDP, reflecting its capacity to enhance economic output and productivity. 

What are factors behind rapid growth of gig economy in India?

• The COVID-19 Pandemic: During the lockdowns, many usual jobs were affected, leading people to look for different job options. As companies shifted to remote work and freelancers provided essential services like food delivery, healthcare help, and logistics, the gig economy became a popular choice for many individuals. 
• Digital Revolution: India's fast growth in digital technology has made a big impact. More people now have access to smartphones and affordable internet. The rise of platforms like Zomato, Uber, Swiggy, and Ola has opened up many job opportunities for gig workers. 
• Changing Workforce Preferences: Many workers today, especially younger people, prefer flexible job options over traditional full-time jobs. The gig economy allows them to have more independence, enabling them to set their own schedules and choose tasks or projects that interest them. 
• Additional Income: With the rising cost of living and inflation, many individuals, particularly those with lower incomes, are turning to gig work to earn extra money. 
• Business Demand for Cost-Effective Solutions: Companies, especially startups and small businesses, are using gig workers to save money. Instead of hiring full-time staff, they can hire gig workers for specific projects or tasks as needed. 
• Who are gig workers?
  • According to NITI Aayog, gig workers are people who work outside the usual employer-employee setup. They are divided into two categories: platform and non-platform workers. 
  • Platform workers are those who perform their jobs using online apps or digital platforms. 
  • Non-platform gig workers are typically casual wage workers in traditional sectors, working either part-time or full-time. 
  • The Code on Social Security, 2020 also defines gig workers as those engaged in jobs outside the traditional employer-employee relationship. 

Government initiatives for gig workers in India

Labour falls under the Concurrent List of the Constitution, which means that both the Centre and the states have jurisdiction over this sector. 

Code on Social Security, 2020

• The Code on Social Security, 2020 aims to establish appropriate social security measures for gig and platform workers. This includes provisions for life and disability coverage, accident insurance, health and maternity benefits, and old age protection. 
• The Code also mandates the creation of a Social Security Fund to finance these welfare schemes. 
• Section 113 of the Code provides for the registration of unorganized workers, gig workers, and platform workers. 
• However, the Social Security Code, passed by Parliament in 2020, has not been implemented yet because the necessary rules are still being formulated by the states. 

e-Shram Portal

• The Government of India has launched the e-Shram portal, an online platform for the registration of all informal and gig workers. 

Rajasthan Act

• Rajasthan was the pioneer state in India to introduce legislation for gig workers. On July 24, 2023, it enacted the Platform Based Gig Workers (Registration and Welfare) Act. 
• This law established a welfare board, created unique identification systems for workers, and implemented a monitoring system for payments through the Central Transaction Information and Management System (CTIMS). 

Karnataka Act

• The Karnataka Platform-based Gig Workers (Social Security and Welfare) Bill-2024 includes provisions to protect gig workers from unjust dismissal and establishes a dispute resolution mechanism. 
• The labour department in Karnataka will set up a welfare board and a welfare fund specifically for gig workers. 

Downsides of Non-Recognition of Gig Workers as Traditional Formal Employees

• Current Recognition:Indian labour and employment laws currently recognize three main categories of employees:
  • Government employees,
  • Employees in government-controlled corporate bodies known as Public Sector Undertakings (PSUs),
  • Private sector employees, including managerial staff and workmen.
• Rights and Protections:Formal employees are guaranteed certain working conditions, such as:
  • Minimum wages under the Minimum Wages Act, 1948,
  • A set number of hours of work,
  • Compensation for termination, etc.
• Gig Workers’ Status:Gig workers in India do not have 'employee' status under Indian law, leading to several negative consequences, including:
  • Inability to form unions to represent their interests,
  • Exploitative contracts,
  • Absence of tripartite dialogue between the government, employer organizations, and gig workers' unions.

Lacunas in Present Initiatives of Government

• Lack of Traditional Employee Status: The Karnataka Bill and Rajasthan Act, similar to the Code on Social Security 2020, use the term "aggregator" instead of "employer," which keeps gig workers outside traditional employer-employee relationships. This limits their access to full labor rights and protections.
• Minimum Wages: Gig workers lack institutional protections such as minimum wage safeguards. Occupational safety and health regulations do not extend to them.
• Welfare Boards: Welfare board models have historically been poorly implemented, as evidenced by the Construction Workers Welfare Act of 1996 and the Unorganized Workers Social Security Act, where available funds were underutilized.
• Exclusion from Industrial Relations Code: Gig workers are not included under the Industrial Relations Code 2020 and are excluded from the dispute resolution mechanism.
• Power Imbalance: According to an ILO study, there is an asymmetric power and control relationship between workers and platform companies. This leads to various issues, such as workers lacking legal status and safety nets, and a gradual decline in the incentive structure and income levels that initially attracted them to the platform economy.
• e-Shram Portal: Similar to informal workers, gig workers must register on the e-Shram portal through self-declaration.
• Formal Companies with Informal Workers: Many gig employers operate as formal entities within the formal sector. Therefore, excluding gig workers from the traditional employment framework is not justified.
• Social Security Gap: The Social Security Code 2020 offers gig workers specific social security schemes but not institutional social security. Formal employees receive institutional social security, such as 26 weeks of paid leave and job security during maternity under the Maternity Benefit Act, 1961. In contrast, registered informal workers receive cash benefits for maternity, such as ₹5,000-₹10,000.
• Low Compensation and Platform Issues:Many gig jobs, despite being easy to enter, offer inadequate compensation and lack typical benefits of traditional employment. Platforms also face issues like:
  • Frequent and random changes to the commission structure,
  • Delays in payments,
  • Miscommunication of earnings potential to attract gig workers.
• Gender Disparities: Women in the gig economy encounter challenges such as limited career advancement, lack of bargaining power, and lower pay due to gender-based discrimination.
• Poor Treatment: Non-recognition of gig workers leads to mistreatment, with food delivery workers often facing bad treatment from restaurants, order placement stores, and even security guards in housing societies.

What should be done?

Defining Employment Relations: The article suggests that the foundation of gig workers' rights lies in clearly defining the employment relationship between aggregators and gig workers. This is akin to the U.K. Supreme Court's decision in the Uber case, where Uber drivers were recognized as workers and Uber as their employer. Implementing a similar framework in India could formalize gig work and ensure necessary protections for workers.

NITI Aayog's Recommendations for Gig Workers' Welfare in India:

• Financial Inclusion: Improve access to institutional credit for platform workers through tailored financial products and facilitate opportunities for individuals interested in establishing their own platforms.
• Skill Development: Promote platform-led models for skill development and job creation within the gig and platform sector. This initiative aims to create pathways for both horizontal and vertical mobility, enabling workers to advance in their careers within the gig and platform industry.
• Enhancing Social Inclusion: Implement Gender Sensitization and Accessibility Awareness Programs for workers and their families. Platform businesses can collaborate with Civil Society Organizations (CSOs) to support diverse groups of workers, including women and persons with disabilities (PwDs).