Repo Rate Hike: Impact Should be Considered Before Making Decisions

The monetary policy committee (MPC) of the RBI decided to raise the benchmark repo rate by 25 basis points at its most recent meeting, which was held just a few days after the release of the Union budget. The MPC stated that measured action was required to end the core inflation’s persistence. When the MPC meets again in the first week of April, this unexpected increase in inflation is likely to make the decisions about what policies to pursue more difficult.

What is the Basis Points that we frequently hear about?

An expression for changes in interest rates, bond yields, and other financial indicators is the basis point.

A basis point, sometimes known as 0.01%, is one tenth of a percentage point.

For instance, a 25 basis point rise in the repo rate by the Reserve Bank of India (RBI) indicates a 0.25 percent increase in interest rates.

What it indicates?

If the Reserve Bank of India (RBI) keeps raising the repo rate by basis points, it is an indication that the central bank is tightening its monetary policy stance to manage inflationary pressures in the economy.

Back to basics: Monetary Policy Committee (MPC)

Committee of RBI to fix the benchmark policy: The Monetary Policy Committee (MPC) is a committee of the RBI, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.

To bring transparency and accountability: The RBI Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC to bring more transparency and accountability in fixing India’s Monetary Policy.

Policy is published after discussion: The policy is published after every meeting with each member explaining his opinions.

Answerable to GOI: The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.

What is Inflation?

Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices.

Typically, prices rise over time, but prices can also fall (a situation called deflation).

The current trends of Inflation

Rise in retail inflation: Retail inflation, as measured by the consumer price index, rose to 6.52 per cent in January, up from 5.72 per cent in December, reversing the declining trend seen in the preceding months.

Much of the surge was driven by food inflation: The consumer food price index rose to 5.94 per cent, up from 4.19 the month before, driven largely by cereals.

Price pressure remain across the economy: Inflation remained elevated in clothing and footwear, household goods and services, personal care effects and education, signalling that price pressures remain fairly broad-based across the economy.

RBI’s Upper tolerance limit for inflation

Highest level of inflation that can be tolerated: The upper tolerance limit for inflation set by the Reserve Bank of India (RBI) is the highest level of inflation that the RBI will tolerate before taking action to bring inflation back within its target range.

RBI’s limit: The target range is defined in terms of the Consumer Price Index (CPI) inflation and the RBI has set an upper tolerance limit of 6% and a lower tolerance limit of 2% with a central target of 4%. This means that the RBI aims to keep CPI inflation within the range of 2-6%, with a target of 4%.

Tools to contain inflation: If inflation exceeds the upper tolerance limit of 6%, the RBI is required to take steps to bring inflation back within the target range. The RBI uses a variety of monetary policy tools to control inflation, including adjusting the policy interest rate, changing reserve requirements for banks, and using open market operations to manage liquidity in the financial system.

Anti-defection Law and The Loopholes

The group of Maharashtra Chief Minister Eknath Shinde was given the name “Shiv Sena” and the organization’s Bow and Arrow insignia on February 17, effectively recognising it as the original party formed by Babasaheb Thackeray. Anti-defection laws need to be strengthened once more.

Background: The unique and traumatic political crisis

Conflict inside the party: The Maharashtra political crisis started last year when 40 of the 55 Sena MLAs withdrew from the Shinde-led Maha Vikas Aghadi (MVA) alliance, causing a split within the party.

Fight of Name and Symbol: Both the Uddhav Thackeray and Shinde sides staked claim to the party name and symbol, each claiming to represent the real Shiv Sena.

The ECI said that it had based its decision on a test of majority: It said the group of MLAs supporting the Shinde faction got nearly 76% of the votes polled for the 55 winning Shiv Sena candidates in the 2019 Maharashtra Assembly elections, while the Uddhav Thackeray faction got 23.5% of votes.

What is Anti-defection Law?

Tenth Schedule: The Anti-Defection Law under the Tenth Schedule of the Constitution punishes MPs/ MLAs for defecting from their party by taking away their membership of the legislature.

Power to the speaker: It gives the Speaker of the legislature the power to decide the outcome of defection proceedings.

52nd Amendment Act, 1985: It was added to the Constitution through the Fifty-Second (Amendment) Act, 1985 when Rajiv Gandhi was PM. The law applies to both Parliament and state assemblies.

What was the need to have this law then?

Vies in favour

Defection was recognized as an evil that needed to be curbed: Defections cause destabilization and lead to governments falling, which can have negative impacts on the country’s political and economic stability.

Law helps to stabilise party system: The law helps to stabilize party systems by consolidating control of the party leadership instead of relying on ideological cohesion or ownership by constituent legislators.

Views against it

Law would curb freedom of opinion of the representatives: Some people thought that the law would curb freedom of speech and affect the free exercise of opinion by the members of the legislature who are elected by the people.

Undermines the representative system of democracy: The law effectively does away with the representative system of democracy in India by framing democracy as a contest between factions rather than a system of representation and accountability.

Limiting the ability of legislators: The law consolidates power in the hands of the party leadership, potentially limiting the ability of individual legislators to represent their constituents’ interests.

How the law is faring today?

Recent events shows that the law needs to be tightened: The kinds of defections which used to take place before the passing of this law are not taking place now. But recent events show that this law needs to be tightened.

Third paragraph of tenth schedule was deleted: A little tightening was done earlier by doing away with a split, that is, paragraph three of the Tenth Schedule of the Constitution. It had said, if there is a split in a particular party, and one-third of the legislators move along with the breakaway group, they will not be disqualified. So, split was a defence against disqualification.

No authoritative interpretation of the law: there is a very disturbing trend, which is to interpret paragraph four (decision on questions as to disqualification on ground of defection) in a particular way, because there is no authoritative declaration of law from the Supreme Court on the exact application of it.

No timeline fixed for the Speaker: In the 10th Schedule currently, there is no timeline fixed for the Speaker to determine the issue and the purpose of this anti-defection law is defeated.

60% of India’s voters linked Aadhaar to voter ID: RTI

Almost 60% of Indian voters have connected their Aadhaar cards to their voter ID cards, according to an RTI request.

Advantages of voter uniqueness and Aadhaar connection Voter ID cards and Aadhaar were linked in an effort to combat electoral fraud and ensure that each voter had a distinct identity.

Stop fake votes: It is anticipated that it will aid in preventing issues like multiple voting, impersonation, and fraudulent voting that have arisen in the past.

Promote migrant voting: Some migrant workers may have been included on the electoral rolls more than once in various seats or for individuals listed more than once in the same constituency.

Is the linking of Aadhaar with one’s Voter ID mandatory?

In December 2021, Parliament passed the Election Laws (Amendment) Act, 2021 .

It states that the electoral registration officer may require voters to furnish their Aadhaar numbers to verify Authencity of voters list.

This was to amend the Representation of the People Act, 1950 and Section 23(4) was inserted in the RP Act.

Why was such linking proposed?

The preference to use Aadhaar for verification and authentication, both by the state and private sector, stems from few reasons:

Increase in UID-holders: First, at the end of 2021, 99.7% of the adult Indian population had an Aadhaar card.

Most versatile document: This coverage exceeds that of any other officially valid document such as driver’s licence, ration cards, PAN cards etc. that are mostly applied for specific purposes.

Reliable source of authentication: Since Aadhaar allows for biometric authentication, Aadhaar based authentication and verification is considered more reliable, quicker and cost efficient when compared to other IDs.

Issues with mandatory linking: Puttaswamy judgment highlights

Puttaswamy judgment: The above reasons do not suffice the mandating of Aadhaar except in limited circumstances as per the Puttaswamy judgment.

The indispensability of the purpose: It needs to be considered whether such mandatory linkage of Aadhaar with Voter ID would pass the test of being “necessary and proportionate” to the purpose of de-duplication which is sought to be achieved.

Constitutional ambiguity: In Puttaswamy, one of the questions that the Supreme Court explored was whether the mandatory linking of Aadhaar with bank accounts was constitutional or not.

Against informational autonomy: It is the right to privacy which would allow a person to decide which official document they want to use for verification and authentication.

Other judicial observations: Lal Babu Hussein (1995) Case

The Supreme Court had held that the Right to vote cannot be disallowed by insisting only on four proofs of identity.

The voters are entitled to rely on any other proof of identity and obtain the right to vote.

What are the operational difficulties?

Aadhaar is not a citizenship proof: The preference to Aadhaar for the purposes of determining voters is puzzling as Aadhaar is only a proof of residence and not a proof of citizenship.

Excluding non-citizens is not easy: Verifying voter identity against this will only help in tackling duplication but will not remove voters who are not citizens of India from the electoral rolls.

Estimate of error rates in biometric based authentication: This certainly differs. As per the UIDAI in 2018, Aadhaar based biometric authentication had a 12% error rate.

Disenfranchisement of existing voters: Errors have led to the disenfranchisement of around 30 lakh voters in AP and Telangana before the Supreme Court stalled the process of linkage.

Key concern: Right to Privacy

Some civil societies has highlighted that linking of the two databases of electoral rolls and Aadhaar could lead to the linkage of Aadhaar’s “demographic” information with voter ID information.

This could lead to violation of the right to privacy and surveillance measures by the state.

This would leave the EC with the option of verifying its information only through door-to-door checks.

There is a lack of enforceable data protection principles that regulate how authentication data will be used.

Way Forward

Address privacy and security concerns: There should be strict measures in place to ensure the safety of personal information and prevent data breaches.

Provide alternative authentication: The government should provide alternative methods of identity verification. This will help ensure that no citizen is disenfranchised due to the lack of an Aadhaar card.

Regular monitoring and evaluation: The government should regularly monitor and evaluate the effectiveness of the linking of Aadhaar and voter ID cards in preventing electoral fraud.

GST revenues hit a record ₹1.59 lakh CR in January

According to updated data from the Finance Ministry, India’s Goods and Services Tax (GST) receipts increased 12.7% in January to reach about 1.59 lakh crore ($17.9 billion), the second-highest monthly collections on record.

What caused the GST income collection to increase?

Describes how India’s continuous economic recovery has increased spending and consumption, which has resulted in increasing GST collections.

Strike against tax evasion: The introduction of e-invoicing and the use of technology to monitor compliance are only two of the steps the administration took to simplify the GST system and lower tax evasion.

Take action against false claims: The rise in GST collections is partly a result of the government’s efforts to combat false input tax credit claims.

Increase in imports: The higher value of imported goods due to rising commodity prices is another reason behind the increase in GST collections from imports.

What is GST?

GST is an indirect tax that has replaced many indirect taxes in India such as excise duty, VAT, services tax, etc.

The Goods and Service Tax Act was passed in Parliament on 29th March 2017 and came into effect on 1st July 2017.

It is a single domestic indirect tax law for the entire country.

It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated GST.