The Hindu Editorial Analysis- 4th January, 2022 | Current Affairs: Daily, Weekly & Monthly - CLAT PDF Download

1. Aiding in Governance: The Synergy of NGOs, Government and Corporates is the Holy Grail of Development

GS 2- Development processes and the development industry - the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders

Context: A collaborative effort of markets and the Government leads to development of a country. Engaging with communities and non-state informal institutions is as important as working with the Government machinery.

Contribution by the Corporates

• CSR Initiatives: Section 135 of the Companies Act mandates corporates who are beyond a certain level of profits and turnover to pay at least 2% of their net profits before tax to the development space.
• Partnership with the NGOs: This law gives corporates the necessary impetus to collaborate with non-state actors like Non-Governmental Organisations (NGOs) and Civil Society Organisations (CSOs). This strengthening of citizenry-private partnerships is a major component of development activities.
• Non-state actors, because of their depth of engagement with communities, bring patient capital to corporate board rooms and help the state, too, by engaging in welfare activities.
• This is a classic case of state-driven governance mechanism promoting collaboration among non-state actors.

Challenges to the Development Initiatives taken through the Government

• Sense of complacency: The Indian bureaucratic elite have little appetite for risk-taking and innovation because of the constant changing goalposts of their politician-bosses or because the quantum of work is more than what they can efficiently handle.
• Career-based civil services coupled with excessive job security: There is also the fear of failure, with its deep-rooted consequence of non-risk-takers smoothly sailing to the top posts.

In Such Contexts, the Importance of Non-State Actors

• Innovation in community engagements: It is the non-state actor who innovates and creates breakthrough models of community engagement.
• Bridging power gap: They also become the vehicle to carry the demands of people to formal institutions. We saw this in the case of the Right to Information (RTI) campaign, which became a law after decades-long efforts by NGOs. The law has brought a dramatic change in the degree of transparency in India, with most Government ministries falling under its ambit.
• Implementation of the schemes: It is common knowledge that the District Collector calls on vetted NGOs/CSOs to implement various schemes during the normal course of the day or to step in at short notice when calamities strike.
• Reducing the government work: NGOs and CSOs sometimes do the heavy lift and ensure that schemes reach the last person even in the face of disaster. When non-state actors take a large load off the state’s shoulder, the state can focus more on governance.
• NGOs have greater penetration in the society: NGOs and CSOs with their penetration are best suited for last-mile delivery of government schemes or implementation of a corporate house’s CSR work, thus nudging one another in the path to a developmental state.

Way Forward

• Better Synergies: Research shows that it is the synergy of NGOs, Government and corporates which is the holy grail of development.
• The tension between the tenets of liberty and equality is balanced by fraternity provided by the empathetic NGOs and CSOs in the journey towards a development state.
• The CSR law has made the corporate world not only clean its own mess but has also created a legal framework for corporates to work with NGOs and CSOs. NGOs and CSOs in India, irrespective of the open hostility of the current dispensation, will play a major role in mobilising citizen action to right various wrongs. They can help contribute to better polity as well as better governance. Most importantly, they have the legitimacy to operate not just as actors who must ride into the sunset after their job is done but to be as integral cogs in the wheel of good governance.

2. Extending the GST Compensation: What is the GST Payment due to States? Why are Several States Demanding a Continuation of the Compensation Beyond June 2022?

GS 3- Economy, GS 2- Centre-state relations

Context: Ahead of the 46th meeting of the GST Council, Finance Ministers of several States at a pre-Budget interaction with the Union Finance Minister demanded that the GST compensation scheme be extended beyond June 2022, when it is set to expire.

• The adoption of GST was made possible by States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed into the GST.
• This was agreed on the condition that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in June 2022.
• With the finances of most States having been severely hit in the wake of the pandemic, States have been hard pressed to find ways to garner the resources to meet the essential and additional spending necessitated by the public health crisis.

Impact of the COVID-19 pandemic on States’ Revenues

• Expenditure on Health: It is majorly done by the states which became huge during the pandemic.
• Lower GST Collection: The GST collection remained poor due to lower consumption. This impacted the states.
• Taxes on Fuel: The taxes were kept high by the centre, leaving less room for the states to increase taxes. Further major stake was taken through cess which is not distributed to states.
• The States including Tamil Nadu, Kerala, West Bengal, Rajasthan and Chhattisgarh stressed that while their revenues had been adversely impacted by the introduction of GST, the hit from the pandemic had pushed back any possible rebound in revenue especially at a time when they had been forced to spend substantially more to address the public health emergency and its socio-economic fallout on their residents.

What is the GST Compensation?

• The Constitution (One Hundred and First Amendment) Act, 2016, was the law which created the mechanism for levying a common nationwide Goods and Services Tax (GST).
• The adoption of GST was made possible by States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed into the GST.
• Compensation: While States would receive the SGST (State GST), and a share of the IGST (integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is currently set to end in June 2022.
• This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods.
• The computation of the shortfall is done annually by projecting a revenue assumption based on 14% compounded growth from the base year’s (2015-2016) revenue and calculating the difference between that figure and the actual GST collections in that year.

Shortfall for the Current Fiscal Year Ending on March 31

• On October 28, the Union government said the Ministry of Finance had released ₹44,000 crore to the States and Union Territories “under the back-to-back loan facility in lieu of GST Compensation”.
• After taking into account earlier releases amounting to ₹1,15,000 crore, the total amount released in the current financial year as back-to-back loan in-lieu of GST compensation was ₹1,59,000 crore, it added at the time.
• The Centre clarified that this sum was in addition to normal GST compensation “being released every 2 months out of actual cess collections” that is estimated to exceed ₹1 lakh crore. “The sum total of ₹2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22,” the Union Ministry of Finance said at the time.
• It also explained that the decision for the Union government to borrow the ₹1.59 lakh crore and release it to the States and UTs, which had been taken in the 43rd GST Council Meeting held on May 25, 2021, was aimed at bridging the resource gap due to the short release of compensation on account of the amount accruing into the Compensation Fund being inadequate.

Can the Deadline be Extended?

• Amendment in the GST law: The deadline for GST compensation was set in the original legislation and so in order to extend it, the GST Council must first recommend it and the Union government must then move an amendment to the GST law allowing for a new date beyond the June 2022 deadline at which the GST compensation scheme will come to a close.
• Interestingly, even now the compensation cess will continue to be levied well beyond the current fiscal year since the borrowings made in lieu of the shortfalls in the compensation fund would need to be met.
• In September, the GST Council decided to extend the compensation cess period till March 2026 “purely to repay the back-to-back loans taken between 2020-21 and 2021-22”.