Loss and Damage Fund, Vertical Fiscal Imbalance, GST Rationalisation

(General Studies III – Public Distribution System – Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security)

• “There are people in the world so hungry, that God cannot appear to them except in the form of bread.”— Mahatma Gandhi
• The National Food Security Act (NFSA), 2013 was implemented with the goal of ensuring food security through the Public Distribution System (PDS).
• Despite the system’s historical shortcomings, such as 41.7% leakages as reported by the National Sample Survey (NSS) 2011-12, reforms in states like Bihar, Chhattisgarh, and Odisha have demonstrated significant improvements, raising hopes for nationwide progress under the NFSA.

PDS Leakages and Improvement Trends –

• PDS leakages refer to the proportion of rice and wheat released by the Food Corporation of India (FCI) that fails to reach consumers.
• Over time, leakages have decreased significantly:

Table 1 PDS Leakages Reduced since NFSA

• According to the Household Consumption Expenditure Survey (HCES) 2022-23, PDS leakages have further reduced to 22%, signalling improvements across the system.

Impact of NFSA on PDS Coverage –

• NFSA 2013 expanded PDS coverage, which not only reduced exclusion errors but also helped curb leakages. E.g. By 2022-23, 70% of households were purchasing from the PDS, largely due to the NFSA rollout (in 2011-12 it was 40%).
• Despite these advances, the NFSA’s mandate of 66% coverage (50% rural, 75% urban) has not been fully achieved, with only 59% of the population benefiting from the PDS.

PDS Reforms and Technological Interventions –

• States like Chhattisgarh and Odisha implemented several key PDS reforms.
• Aadhaar-based Biometric Authentication (ABBA) has been employed to reduce leakages, but studies, such as in Jharkhand, indicate that leakages were already declining before ABBA’s introduction (less than 20% before ABBA).
• The One Nation One Ration Card (ONORC) initiative allows beneficiaries to access their PDS entitlements from any Fair Price Shop across India, ensuring better portability of benefits.

Challenges in Efficient PDS –

• Corruption: Certain states, like Tamil Nadu, which traditionally had a well-functioning PDS, have seen an increase in leakages, from 12% in 2011-12 to 25% in 2022-23.
• Exclusion: Technological innovations like Adhar-based authentication exclude people of the working class and can be used as instruments of discrimination.
• Beneficiary Identification: Other ongoing issues include the delayed Census, which led to the exclusion of over 100 million people from the PDS.
• Nutrition: There is a demand to include more nutritious items, such as pulses and edible oil, in the PDS.

Way Forward –

• Continuous monitoring of the system and leakages.
• State support in providing adequate resources for PDS functioning.
• Safeguarding the PDS’s role in ensuring food security, especially for vulnerable populations.

While the NFSA has significantly enhanced the efficiency and reach of the PDS, challenges such as incomplete coverage and leakages remain. Food security is not only about preventing hunger but also about promoting sustainable food systems that are inclusive, resilient, and aligned with sustainable development goals, especially SDG 2: Zero Hunger.

• In light of the recent landslides in Kerala’s Wayanad district, discussions have emerged about whether subnational entities can seek compensation through the UNFCCC’s Loss and Damage Fund (LDF).
• The Loss and Damage Fund (LDF) was established at COP27, Sharm al-Sheikh, Egypt in 2022.
• The LDF aims to provide financial support for regions affected by climate change-induced losses, including extreme weather events and slow-onset processes like rising sea levels.
• It is overseen by a Governing Board, with the World Bank as an interim trustee.
• While mechanisms for direct access and rapid disbursement are being developed, concerns persist about delays in accessing funds, especially for local communities.
• The lack of standardized disaster damage assessments, especially for slow-onset events, hinders India’s ability to access LDF assistance effectively.

Dig Deeper: Read about the Adaptation Fund and Copenhagen Promise

• Presbyopia is the gradual loss of the eye’s ability to focus on nearby objects, commonly beginning in the mid-40s and worsening until around age 65.
• It occurs as the lens in the eye becomes less flexible, making close-up vision blurry.
• While reading glasses are the usual solution, a new eye drop developed by ENTOD Pharmaceuticals claims to reduce the need for glasses.
• However, the drop contains pilocarpine, a drug used for glaucoma, which can have side effects such as headaches, blurred vision, and impaired night vision.
• Doctors advise caution, as its effectiveness for all presbyopia patients is uncertain.

Dig Deeper: Read about various parts of the Eye like the Retina, Lens, Cornea, Iris, Pupil, Optical Nerve, Cons and Rods. 

• The financial relationship between the Union and States in India is asymmetrical, with States incurring 61% of revenue expenditure but collecting only 38% of revenue receipts, leading to a Vertical Fiscal Imbalance (VFI).
• States depend heavily on transfers from the Union government, as expenditure decentralization exceeds their revenue-raising abilities.
• VFI occurs when the Union collects most taxes, while States handle expenditures.
• The Finance Commission addresses VFI by recommending the distribution of Union-collected taxes to States
• Beyond this, the Union government allocates funds through centrally sponsored and sector schemes, which often include conditions.
• However, the only unconditional transfer from union to state is through tax devolution from net proceeds.
• To calculate VFI, a ratio is used comparing Own Revenue Receipts (ORR) plus tax devolution against Own Revenue Expenditure (ORE).
• If the ratio is less than 1, it indicates a deficit, reflecting VFI after-tax devolution.
• Analysis suggests a 49% devolution is necessary to eliminate VFI, ensuring States have more untied resources and better respond to local needs.
• This would enhance fiscal federalism and improve the efficiency of expenditures.

Dig Deeper: Read about the Terms of Reference of the 16^th Finance Commission.

• The Assam government has decided to implement 57 of the 67 recommendations by a panel appointed by the Ministry of Home Affairs (MHA) to apply Clause 6 of the Assam Accord by April 15, 2024.
• Clause 6 promises “constitutional, legislative, and administrative safeguards” for the Assamese people.
• 85% of the recommendations that fall under the State’s jurisdiction would be implemented, with the remaining 10 recommendations under the Centre’s purview.
• Approvals from the Bodoland Territorial Region, Dima Hasao Autonomous Council, Karbi Anglong Autonomous Council, and the Barak Valley will also be sought.
• The 57 recommendations will be implemented statewide, excluding Sixth Schedule areas and Barak Valley.
• The State government has stated that it would create a ‘ring of constitutional protection’ for the Assamese people, particularly regarding land rights.

Dig Deeper: Read about Autonomous District Councils and Schedule 6 of the constitution.

• The Union Finance Minister refuted claims of friction between the Centre and States over GST, emphasizing the need for a cooperative federal structure for effective revenue generation.
• GST Council meetings focus on simplifying tax processes, rationalizing GST rates, and addressing tax evasion, with minimal political interference.
• 60% of consumer items attract a GST rate of 5% or less, and less than 3% falls in the highest 28% tax bracket.
• Additionally, 84% of industry respondents have expressed a positive view of GST.
• The current average GST rate has decreased to 12.2%, down from the revenue-neutral rate of 15.3% when GST was first implemented in 2017.
• A Group of Ministers (GoM) has been formed by the GST Council to explore further rate reduction and rationalization.
• The need for cooperation between the Centre and States was reiterated to ensure smooth and effective tax policy implementation.

Dig Deeper: Read about the Reverse Charge Mechanism in the context of GST.