Scrapping Tax Benefit for Debt Mutual Funds: Analysis

The contentious choice to eliminate the tax benefit for debt mutual funds is part of the Finance Bill 2023, which was approved by the Lok Sabha with 64 amendments. Although the intention is to eliminate the advantage that debt funds have over bank deposits, this choice will have far-reaching effects that need to be carefully considered.

Mutual Funds

Mutual funds are investment vehicles that pool money from numerous investors to buy a diversified portfolio of stocks, bonds, or other securities. Mutual funds make investment decisions on behalf of the investors. Professional fund managers who specialise in managing mutual funds choose investments on behalf of the fund’s investors.

Diversified portfolio of securities: Investors in a mutual fund own a proportional share of the fund’s underlying assets, and the value of their investment rises or falls in response to changes in the value of the securities held by the fund. Mutual funds can provide investors with access to a diversified portfolio of securities, which can help to mitigate the risk of investing in individual securities.

The Debate Over Scrapping Tax Benefit for Debt Mutual Funds

Removal of the tax benefit for debt mutual funds: The Finance Bill 2023 passed by voice vote in the Lok Sabha last week with 64 amendments, including the removal of the tax benefit for debt mutual funds.

What it means: This change means that investors in debt mutual funds cannot avail the benefit of indexation for the calculation of long-term capital gains. From April 1, such investments will now be taxed at income tax rates applicable to an individual’s tax slab.

Motive: This move aims to remove the advantage that such debt funds have over bank deposits. However, the consequences of this decision need to be carefully examined.

The Impact of Removing Tax Benefit

Impact on flow of funds: The removal of the tax benefit will lead to investors reassessing their allocations to debt mutual funds, which may impact flows into these funds.

Impact on bond market: This, in turn, may impact the growth and development of the bond market in India since debt mutual funds channel funds into the bond market.

For instance: According to a report by Crisil, 70% of the investment in debt funds flows from institutional investors, while individual investors, including high net worth individuals, accounted for 27% as of December 2022.

Impact on corporate debt: This change in rule may trigger a shift in investments away from debt mutual funds to other instruments, which will possibly affect flows to the corporate bond market, and demand for corporate debt is likely to be impacted.

The Need for Rationalization

There is a need to acknowledge the finer points of differentiation between bank deposits and debt funds since bank deposits are insured up to Rs 5 lakh while debt mutual funds carry risk depending on the risk profile of the bonds they hold.

It has been argued that the capital gains architecture in India needs to be reexamined and reconfigured.

Not only are there different rates of taxation for different asset classes, but even the holding period for differentiating between short- and long-term capital gains varies across assets. Thus, rationalisation with regard to the tax rate and/or the holding period is desirable.

Blue Economy: India’s G20 Presidency Offers An Opportunity

The oceans have enormous promise for the blue economy’s sustainable growth, and India’s government’s efforts to realise that potential show that nation’s dedication to securing a bright future for both its marine resources and the entire world. The G20 presidency by India offers a chance to encourage teamwork for the change.

Describe the Blue Economy.

The World Bank defines the term “blue economy” as the sustainable exploitation of ocean resources for job creation, enhanced quality of life, and economic growth.

The Blue Economy idea gained popularity because to Gunter Pauli’s book “The Blue Economy: 10 years, 100 innovations, 100 million employment” (2010).

The UN first introduced “blue economy” at a conference in 2012 and underlined sustainable management, based on the argument that marine ecosystems are more productive when they are healthy. In fact, the UN notes that the Blue Economy is exactly what is needed to implement SDG 14, Life Below Water.

The term ‘blue economy’ includes not only ocean-dependent economic development but also inclusive social development and environmental and ecological security.

The Potential of the Oceans

The oceans offer vast opportunities for the prosperity of our planet, with 45% of the world’s coastlines and over 21% of the exclusive economic zones located in G20 countries.

They are reservoirs of global biodiversity, critical regulators of the global weather and climate, and support the economic well-being of billions of people in coastal areas.

India’s G20 Presidency and the Blue Economy

Key priority: India’s G20 presidency has prioritized the blue economy as a key area under the Environment and Climate Sustainability Working Group.

Promote sustainable and equitable development: The aim is to promote the adoption of high-level principles for sustainable and equitable economic development through the ocean and its resources while addressing climate change and other environmental challenges.

A guide for future G20 presidencies: India’s commitment to prioritizing oceans and the blue economy under its presidency would ensure continued discussions on this crucial subject and pave the way for future G20 presidencies.

Communication and collaboration: Effective and efficient ocean and blue economy governance presents a significant challenge, and India’s G20 presidency can build an effective communication with all stakeholders to share best practices, foster collaborations for advancements in science and technology, promote public-private partnerships, and create novel blue finance mechanisms.

Challenges and Responsibility

Ambitious efforts by countries to expand their blue economies are threatened by intensifying extreme weather events, ocean acidification, and sea-level rise.

Marine pollution, over-extraction of resources, and unplanned urbanization also pose significant threats to the ocean, coastal and marine ecosystems, and biodiversity.

The inherent inter-connectedness of oceans implies that activities occurring in one part of the world could have ripple effects across the globe.

Therefore, the responsibility of their protection, conservation, and sustainable utilization lies with all nations.

India’s Support for Marine Protected Areas in Antarctica

In order to conserve marine life and the ecosystem services that it offers, India has vowed its continuous support for the creation of two marine protected areas (MPAs) in Antarctica.

Marine Protected Areas: What are they?

The long-term preservation of marine resources, ecological services, or cultural legacy is the goal of an MPA, which is a designated area that is monitored.

They can be built in both domestic and foreign waterways to protect the marine environment’s biodiversity.

Criteria for determining MPAs

A set of standards for the management and identification of marine protected areas has been developed by the International Union for Conservation of Nature (IUCN) (MPAs). These standards consist of:

Representativeness: MPAs should include a range of habitats, ecosystems, and species that are representative of the region.

Biological diversity: MPAs should conserve a wide range of biodiversity, including species, habitats, and genetic diversity.

Rarity: MPAs should protect rare, unique, or endemic species or habitats.

Productivity: MPAs should conserve areas of high productivity, such as spawning and nursery grounds.

Resilience: MPAs should protect ecosystems that are able to withstand disturbances and recover from damage.

Ecological processes: MPAs should conserve important ecological processes, such as nutrient cycling and migration patterns.

Connectivity: MPAs should be connected to other protected areas to allow for the movement of species and genetic material.

Cultural and social importance: MPAs should consider the cultural and social importance of the area to local communities.

MPA in focus: Southern Ocean

The Southern Ocean, which encircles Antarctica, covers around 10 per cent of the global ocean and is home to nearly 10,000 unique polar species.

The ecosystem is an important source of marine resources, including fish and krill, which support commercial fisheries and provide a food source for larger animals.

Threats to the Southern Ocean and its marine life

Climate change is affecting the Southern Ocean, altering habitats such as sea ice and the sheltered seafloor under ice shelves that are home to a variety of species.

Commercial fishing, particularly for krill (shrimp-like crustacean), is also threatening the ecosystem.

Need for an MPA in Antarctica

The Southern Ocean needs protection to prevent the further impact of climate change and commercial exploitation.

A new MPA would help limit human activities, including fishing, mining, and drilling, and help conserve the region’s marine resources and unique biodiversity.

Existing MPAs in the Southern Ocean

The Southern Ocean currently has two MPAs:

In the southern shelf of the South Orkney Islands and

In the Ross Sea

These MPAs protect only 5 percent of the ocean, with all types of fishing, other than scientific research, prohibited within the southern shelf of the South Orkney Islands MPA.

India’s interest in the commercial exploitation of krill

India has expressed interest in commercial exploitation of krill in the region.

However, increased harvesting of krill threatens animals that feed on them, including fish, whales, seals, penguins, and other seabirds.

Mahila Samman Savings Certificate operationalized

Finance Minister while presenting the Budget 2023 announced a new scheme for women, Mahila Samman Saving Certificate. This scheme has now been operationalized.

Mahila Samman Saving Certificate

It is a one-time new small savings scheme of the government of India announced in the Budget 2023.

It will be made available for a two-year period up to March 2025.

This will offer deposit facility upto Rs 2 lakh in the name of women or girls for a tenure of 2 years.

The deposit facility will offer fixed interest rate of 7.5 per cent with a partial withdrawal option.

Benefits offered

It is a suitable alternative to fixed deposits (FDs) invested in the name of a woman for the short term.

The returns are higher than bank FDs and partial withdrawal makes liquidity less of a concern.

Other details

The Scheme will be rolled out through banks and post offices across the country.

The taxation structure is yet to be known and the scheme is expected to be available from April 1, 2023.

How is it different from Sukanya Samriddhi Yojana?

SSY is a small deposit scheme of the government of India meant exclusively for a girl child. The scheme is meant to meet the education and marriage expenses of a girl child.

The current rate of interest offered by Sukanya Samriddhi Yojana is 7.6%, which is compounded annually.

Account can be opened in the name of a girl child till she attains the age of 10 years.

The total amount deposited in an account shall not exceed Rs 1,50,000 in a financial year.

Sukanya Samriddhi scheme has tax benefits under Section 80C.

The account matures after 21 years from the date of opening or on marriage of the girl child under whose name the account is opened, whichever is earlier.

Internet Shutdowns in India: A Growing Concern

The Punjab authorities shut down mobile internet and SMS services earlier this month while launching an operation to detain a pro-Khalistani preacher for more than four days. India has the biggest amount of internet shutdowns worldwide, therefore this is not an unusual incidence there.

India has the biggest number of internet outages worldwide, according to statistics.

Throughout the majority of Europe, North and South America, and Oceania, such shutdowns are never or hardly ever performed, but they are common in Africa and Asia.

Examples of Internet Outages by State

Punjab: The Software Freedom Law Center has recorded eight such shutdowns in Punjab alone.

Southern states: Southern states, on the other hand, have only recorded six such shutdowns in the same period, with no instance of internet shutdown in Kerala.

Northern states: Jammu and Kashmir, Rajasthan, and Uttar Pradesh have recorded the highest number of internet shutdowns in India.

Absence of Centralised Data

Absence of data: The Central government does not collate data on internet shutdowns imposed by state governments, which was strongly recommended by the Standing Committee on Communications and Information Technology.

Standing Committee on Communications and Information Technology: The Committee came down heavily on the use of internet shutdowns as a substitute for enforcing law and order and wanted the reasons, duration, decision of the competent authority and of the review committees to be noted for every internet shutdown, and for the information to be made public.

Need for Internet Shutdowns

Civil unrest: Internet serves as a medium for the transmission of information through pictures, videos and text that have the potential to cause civil unrest and exacerbate the law and order.

Fake news: Shutdowns in order to block the flow of information about government actions or to end communication among activists and prevent the spread of rumors and fake news.

Rumors: Shutdown helps prevent the “spreading of rumors and misinformation using social media platforms which can hinder peace and law and order”.

Preventive Response: Cutting off the Internet is both an early and preventive response to block restive groups to organize riots against the Government.

National Interest: The Internet cannot be independent of national sovereignty. Therefore, the necessary regulation of the internet is a reasonable choice of sovereign countries based on national interests.

Costs of Internet Shutdowns

Education: Shutdowns also impact education, as students and teachers are unable to access online learning materials and tools. This can lead to a disruption of education and a negative impact on academic performance.

For instance: A UN report noted that in Kashmir, long-standing restrictions on connectivity undermined the education of students relying on remote education,

Economy: Businesses that rely on the internet to operate may suffer significant financial losses during shutdowns. This is particularly true for online retailers, e-commerce platforms, and other digital service providers.

For instance: A 2018 paper estimated that India lost around $3 billion between 2012 and 2017 due to shutdowns.

Health: The internet plays a critical role in disseminating health information and enabling telemedicine. Shutdowns can make it difficult for people to access vital health information or receive medical care.

Communication: Internet shutdowns severely limit people’s ability to communicate with one another, both within the affected region and with the rest of the world. This can make it difficult to coordinate protests or other forms of social and political activism, as well as to stay in touch with friends and family members.

Human rights: Internet shutdowns violate people’s human rights, including freedom of expression and access to information. They can also hinder the ability of journalists and activists to report on human rights abuses.

Politics: Shutdowns can be used to suppress political opposition and prevent dissent. This is particularly true during elections or times of political unrest, where the government may seek to limit the spread of information that could be used against them.