Editorial 1. In NREGA reforms, prioritise the worker and her dues
Context:
The zeal with which Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) reforms are introduced often outpaces the capacity to adapt. Every time the administrative system gets back on its feet after a reform move, it is hit by another. Poorer States struggle more to adapt when compared to those that are better off because of weaker administrative capacity.
The most recent concern of the central government is over the programme’s “regressive” spending pattern, where poorer States spend less NREGA funds than better-off ones. A committee to suggest reforms has been constituted instead of listening to the long-standing demands of workers and their collectives.
About Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Scheme (MGNREGS):
It is a poverty alleviation programme of the Government of India, which provides the legal Right to Work in exchange for money to the citizens of the country. NREGS is a centrally sponsored scheme under the Union Ministry of Rural Development.
It aims to enhance livelihood security in rural areas by providing at least 100 days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.
Features of NREGS:
Legal Right to Work:
Way forward: Address violation of entitlements
NREGA is underperforming because its most basic design principles have been forgotten or wilfully ignored. Following steps are needed to be taken:
1.Address delays in wage payments
This is important to restore the faith of workers in the programme. In 2016, the Supreme Court of India directed the government to ensure that wages were paid on time, calling the act of making workers wait for wages for months as equal to “forced labour”. However, the process of wage payments created by the central government has become even more convoluted.
For instance, seven or more functionaries have to sign off before payment due to a worker can be approved (stage one of the wage payment cycle). This does not even include the series of delays from when the payment is approved till payment is made (stage two of the cycle). In contrast, the processing of loans from private banks is done in fewer steps. Ministry of Rural Development must simplify the payment process and has to be transparent about pending wage payments in stage one and two so that bottlenecks can be corrected.
2. Strengthen implementation capacities where expenditure is low
We must strengthen implementation capacities where expenditure is low instead of curbing expenditure where employment generation is high. States which are spending more are implementing the programme better because they have better capacities (as several studies including the government’s own Economic Survey concluded in 2016).
For a universal, demand-based social security programme such as NREGA, reforms cannot be based on ‘targetting’ better. There has to be a focus on exclusion and not inclusion “errors”. Instead of using expenditure and income poverty as the only markers, exclusion must be identified at the household level.
There is enough evidence to show that NREGA is fairly well targeted, benefiting the poorest, especially Scheduled Caste (SC) and Scheduled Tribe (ST) families. However, there is scope for improvement.
For instance, panchayats, blocks and districts where employment of SCs and ST families is lower than their proportion in the population must be identified. This would indicate pockets where the most marginalised are being nudged out of the programme.
Similarly, panchayats where the average wage being paid is lower than the notified wage rate must be identified as well. This would indicate places where the implementing authorities need to be hauled up for failing to ensure work is completed — which in turn deprives workers of their minimum wage.
The online Management Information System of NREGA can flag areas where entitlements are violated instead of being used as a tool by bureaucrats to centralise and control things.
3. A demand-based scheme
The third is: run the programme like a demand-based law, and not a scheme. Intermittent and unpredictable fund releases by the central government are one of the fundamental reasons why State governments are unable to ensure the full potential of NREGA.
As ofjanuary 2023, ₹18,191 crore in liabilities is due to 24 States. Poor performing States, on account of inadequate funds, typically discourage and often deny demand for work.
4. Participatory discussions:
Make discussions on any proposed reforms participatory. NREGA emerged from the demands of a vibrant peoples’ movement across India and its cornerstones have been its path-breaking provisions for public accountability. Building on the spirit of public participation, which gave NREGA an institutional architecture that was well before its time, is needed.
There has to be a leveraging of consultative processes and forums built into it, such as the State and Central Employment Guarantee Councils. State governments have played a pivotal role in the successes and failures of NREGA, and any proposed reforms must be tabled in State assemblies in addition to Parliament along with bringing civil society organisations, worker unions and representatives of self-help groups into the discussion.
5. ‘Top down’ reforms as a problem
It is time the Government of India makes an earnest attempt to map the impact of each of its “reforms” on access to and the expenditure of NREGA, particularly in poorer States. A slew of “reforms” — the majority have focused on centralisation such as the electronic fund management system, geo-tagging of assets and a national mobile monitoring system (NMMS) — have disrupted implementation.
The committee members must meet the protesting workers when they visit various States. The central government must be held accountable for the denial of entitlements to NREGA workers as a result of top down “reforms” that workers had no say in designing.
Conclusion:
Reforms to NREGA must prioritise the access of workers to entitlements with ease and dignity, rather than focus on administrative and fiscal efficacy alone.
Editorial 2. Revisit the tax treatment of tobacco products
Context:
Adam Smith, in his famous work The Wealth of Nations, argued that commodities such as sugar, rum and tobacco, though not necessary for life, are widely consumed, and thus good candidates for taxation. Research in India and around the world supports the use of taxes to regulate tobacco consumption.
Status of pricing of tobacco products in India:
However, in India, tobacco taxes have not increased significantly since the implementation of the Goods and Services Taxation (GST) over five years ago, making these products increasingly affordable, as recent studies show.
In 2017, the economic burden and health-care expenses due to tobacco use and second-hand smoke exposure amounted to ₹2,340 billion, or 1.4% of GDP while India’s average annual tobacco tax revenue stands at only ₹537.5 billion.
Despite the government’s goal of making India a $5 trillion economy, the increasing affordability of tobacco poses a threat to this vision and could harm GDP growth. Tobacco use is also the cause for nearly 3,500 deaths in India every day, which impacts human capital and GDP growth in a negative way.
The issues with the tax system:
1.The current GST system for tobacco taxation in India has features that are hindering efforts in regulating consumption.
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Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In India, 101st Constitutional Amendment Act, 2016 introduced GST. It added Article 246A – States have power to tax goods and services. 3 types of GST were introduced: Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc. Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes. It also introduced Article 279A - GST Council to be formed by the President to administer & govern GST. Its Chairman is Union Finance Minister of India with ministers nominated by the state governments as its members. The council is devised in such a way that the centre will have 1/3rd voting power and the states have 2/3rd. The decisions are taken by 3/4th majority. |
2. Overuse of ad valorem taxes
These are not effective in reducing consumption. Many countries use a specific or mixed tax system for harmful products. The GST system in India relies more on ad valorem taxes than the pre-GST system, which primarily used specific excise taxes. Many countries with a GST or value-added tax (VAT) also apply an excise tax on tobacco products.
A large part of the compensation cess as well as the National Calamity Contingent Duty, or NCCD (it is levied as a duty of excise on certain manufactured goods specified under the Seventh Schedule of the Finance Act, 2001) currently applied on tobacco products is specific. If specific taxes are not revised regularly to adjust for the inflation, they lose their value. Inflation indexing should be made mandatory for any specific tax rates applied on tobacco products.
3. Discrepancies in product taxation
Despite cigarettes accounting for only 15% of tobacco users, they generate 80% or more of tobacco taxes. Bidis and smokeless tobacco have low taxes, encouraging consumption. Taxes should be made more consistent across all tobacco products, as none is more or less harmful than the others. The main principle behind tobacco taxation should be in protecting public health.
Notably, bidis are the only tobacco products without a compensation cess under GST, despite being just as harmful as cigarettes. This lack of a cess on bidis has no public health rationale.
The current six-tiered tax structure for cigarettes is complex and creates opportunities for cigarette companies to avoid taxes legally by manipulating cigarette lengths and filters for similarly named brands. Instead, the tiered system should be eliminated or reduced to two tiers, which can then be phased out over time to have a single tier.
The GST rates on certain smokeless tobacco ingredients such as tobacco leaves, tendu leaves, betel leaves, areca nuts, etc. have either zero or 5%-18% GST. It is important that all products that are exclusively used for tobacco making are brought under the uniform 28% GST slab. This will generate the right public health message — that all tobacco products are bad and their consumption needs to be discouraged.
Smokeless tobacco products in India are taxed ineffectively due to their small retail pack size (often 1/2 gram or less) which keeps the price low. To standardise and increase the retail price, mandatory standardised packing should be implemented for smokeless tobacco pouches (at least 50 g-100 g). This will also make it easier to implement graphic health warnings on the packaging.
4. Exemptions to small businesses:
GST currently exempts small businesses with less than ₹40 lakh annual turnover. Many smokeless tobacco and bidi manufacturers operate in the informal sector, which reduces the tax base on these products.
While these exemptions are intended to protect small businesses, the public health rationale requires that they not be extended to businesses that produce or distribute tobacco products. Therefore, conditions should be imposed on these exemptions so that tobacco businesses do not benefit from them.
5. Revenue generation of states:
Before GST, taxing tobacco was a way for State governments to increase revenue and regulate consumption. For example, Rajasthan had a 65% VAT on tobacco products. After GST, States can no longer raise taxes on tobacco, which hinders their ability to increase revenue and regulate consumption. While a uniform tax across the country is good, not increasing it at the national level at regular intervals harms public health.
Conclusion:
It is cause for concern that while most countries regularly increase taxes on tobacco products to make them less affordable, India has not increased taxes on any tobacco products in over five years. This may undo much of the progress seen in a 17% reduction in tobacco use from 2009-10 to 2016-17.
Both the GST Council and the Union Budget should take the opportunity to significantly increase taxes on all tobacco products, including bidis, cigarettes, and smokeless tobacco, through hikes in excise duties or compensation cess.