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04 June 2016 K2_CATEGORY IAS Blog
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Answer

Note: this answer has been written for the purposes of explanation; Hence, it may not adhere to word limit. For examination purposes, phrases instead of full sentences could be used.

INTRODUCTION:

      • The current case involves the study of feasibility of construction of a school at a plot. A visit to the site highlights some issues and possible vested interests in the acquisition of the plot.

The vested interests of the concerned parties in the case are as described below:

    • 1).My predecessor - The following issues in the case exhibit that some vested interests in the form on kickbacks etc exist for this party-
        Land acquired without addressing issues of remoteness from village, damage to a heritage site, high development costs of the school at the plot concerned
        Personal relations with the Sarpanch of the village panchayat
    • 2).Sarpanch of the village:The following issues in the case exhibit that some vested interests in the form on kickbacks etc exist for this party-
        Land being acquired from panchayat at nominal cost
        Damage to heritage monument
        Inconvenience for children if school is built at the plot
    • 3). 2 authorities giving clearance certificate to the plot for construction of school -The following issues in the case exhibit that some vested interests in the form on kickbacks etc exist for this party-
        Land acquired without addressing issues of remoteness from village, damage to a heritage site, high development costs of the school at the plot concerned
    • 4.My senior - It is a possibility that my senior may have vested interests as there are serious issues unaddressed in the aquisition
  • Analysis of the options available alongwith merits and demerits of these actions is as follows:

    1.Option 1- You can wait for the officer and let him take a decision

    Merits Demerits
    Following lines of authority Shows lack of initiative
    Enable consultation with senior; he may have a different viewpoint or more facts on the case Lack of courage; Shedding responsibility
    Involving senior on the case prevents any personal peril that may happen due to parties with vested interests Senior may have vested interests

    2.You can seek his advice in writing or on phone

    Merits Demerits
    Following lines of authority Senior may have vested interests
    Enable consultation with senior; he may have a different viewpoint or more facts on the case; helps bring in institutional memory May lead to the issues being unaddressed
    Involving senior on the case prevents any personal peril that may happen due to parties with vested interests My duty obligations would be unfulfilled if school is built without addressing the issues at hand

    3.You can consult your predecessor, colleagues and then decide what to do.

    Merits Demerits
    Enable consultation with predecessor, colleagues; they may have a different viewpoint or more facts on the case Predecessor, colleagues etc may have vested interests and stall my efforts to get issues addressed
    Will help check if the issues at hand are indeed as relevant as they seem May lead to the issues being unaddressed; duty obligations unaddressed

    4. You can find out if there is an alternate plot to be got in exchange and then send a comprehensive report

    Merits Demerits
    Will help highlight all the issues at hand; fulfil my duty obligations Not just checking irregularities but suggesting an alternative May involve personal peril that may happen due to parties with vested interests Not consultation with senior; bypassing authority to some extent
    Once issues are highlighted in a comprehensive report they can’t be brushed aside without adequate measures May lead to delay in school project

    5.Suggested option: Take advise from senior over phone/written and send a comprehensive report

    Merits Demerits
    Will help highlight all the issues at hand; fulfil my duty obligations Not just checking irregularities but suggesting an alternative Senior may have vested interests
    Once issues are highlighted in a comprehensive report they can’t be brushed aside without adequate measures May lead to the issues being unaddressed
    Following lines of authority May lead to delay in school project
    Enable consultation with senior; he may have a different viewpoint or more facts on the case; helps bring in institutional memory  
    Involving senior on the case prevents any personal peril that may happen due to parties with vested interests  
04 June 2016 K2_CATEGORY IAS Blog

The article argue that the end of the tax treaty with Mauritius will perhaps have the most far­reaching impact on India’s economy as well as society.

  • The 2016 budget session of the Parliament saw the ushering in of a monetary policy committee for deciding interest rates in the country, a bankruptcy code for smooth recovery of debts and end of a tax holiday with Mauritius.
  • The Mauritius treaty change was an executive decision, unlike the other two, which were legislative.
  • India signed a tax treaty with Mauritius in 1983 that gave Mauritius the sole right to tax investment gains made by investing in India.
  • Mauritius’ tax rate on such gains was zero. Hence, a large majority of investments into India chose this attractive route.

Impact:

  • This was, perhaps, necessary then for India’s foreign reserves­starved economy, but it led to several unintended and unpleasant consequences over the years.
  • The high profile tax disputes are well known but there’s also been a lurking suspicion of round­tripping and other malfeasance.
  • But the biggest distortion of this treaty was the long shadow cast on India’s domestic tax reform agenda. The treaty led to the structural damage on India’s economy and tax structure over three decades.
  • In January 2016, a committee constituted by the Securities Board of India (SEBI) under the chairmanship of Narayana Murthy recommended exemption of long­term (more than a year)capital gains tax on investments made in shares of private (not listed on stock exchanges) companies.
  • The rationale was the need for a “level­playing field” for such private equity investors on par with investors in shares of publicly listed companies.
  • Investments in publicly listed shares were granted exemption from long­term capital gains tax in 2004. The rationale for that decision was to provide a “level­playing field” to domestic investors vis­à­vis Mauritius’ investors.
  • A new tax called the securities transaction tax was imposed on stock market transactions to offset any loss of revenues from the exemption of capital gains. This higher transaction tax on shares triggered a massive shift by investors to investing in risky derivatives vis­à­vis shares.
  • The budget of 2016 increased transaction tax on derivatives to create a “level­playing field” with shares. It all began with the 1983 Mauritius treaty.
  • This treaty has led to a long tail of arbitrages across various asset classes (private vs public shares), types of investors (Mauritius vs non­Mauritius), types of income (capital gains vs dividends) etc.
  • This treaty has hampered India’s ability to garner enough tax resources through progressive direct taxes.
  • While it is true that this treaty provided an opportunity for illegal round tripping of domestic money, the most damaging impact has been the cascading effect on India’s tax structure.
  • Recently released income tax data has thrown some light on taxes foregone due to capital gains.
  • During 2012­13, long­term capital gains income earned was Rs 90,000 crore. If these were subject to tax (say 15 per cent), the government stood to garner nearly Rs 15,000 crore in that year, equivalent to the entire budget for providing drinking water to all Indians.
  • To make up for the shortfall in tax revenues from such sources, all governments in the past have resorted to increasing indirect taxes, which are more insidious, economically inefficient and ultimately unfair.
  • Indirect taxation makes India’s tax system among the most regressive in the world. India’s direct­to­indirect tax ratio including state and central taxes is 35:65. In most other similar economies, it is the exact opposite.
  • The Modi government’s move to amend the Mauritius tax treaty is not meant to merely curb offshore black money or curtail round tripping of domestic money.
  • Judged in the larger context of India’s skewed tax structure and its adverse impact on income inequality, threats of foreign investor pullback from India due to the amendment of this treaty seem trivial. Long­term investment flows chase economic fundamentals, not tax arbitrage.
  • This is a first step in eliminating a tall hurdle to change India’s skewed tax structure.Mauritius is still a great holiday destination, just not to dodge taxes in India.

Question : India signed a tax treaty with Mauritius in 1983 that gave Mauritius the sole right to tax investment gains made by investing in India. How far the scrapping of tax treaty with island nation will boost India’s domestic tax reform agenda. Discuss.

Suggested Approach:

      1. The discrepancies came due to the tax treaty.
      2. The impact of scrapping of tax treaty on domestic economy.
      3. Further suggestions.

Link: http://indianexpress.com/article/opinion/columns/india-mauritius-tax-treaty-2833238/

English: Download

Hindi: Download

04 June 2016 K2_CATEGORY IAS Blog

ISRO’s Reusable Launch Vehicle

What is it?

  • Reusable Launch Vehicle is a launch system that is capable of launching a payload into space more than once.
  • It would launch spacecraft, including satellites, into space and re-enter the earth’s atmosphere withstanding extreme pressure and heat conditions and land in an intended spot
  • Normally, a launch vehicle burns out on re-entering the atmosphere and hence cannot be reused. The challenge is thus, to develop a launch vehicle which can withstand the heat on re-entry into earth’s atmosphere and can be retrieved for reuse.
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Why in News?

  • India has successfully launched the first technology demonstrator of indigenously made Reusable Launch Vehicle (RLV). It was called Reusable Launch Vehicle- Technology Demonstrator (RLV-TD)
  • The experiment is also known as hypersonic flight experimentas it will also test the ability of the vehicle to withstand re-entry at speeds higher than that of sound.
  • This was the first time that ISRO flew a winged body from the space port at Sriharikota and brought it back to land on a make-shift runway in the Bay of Bengal
  • Three objectives for the RLV-TD launch:
      To test the characterisation of the aero-thermo dynamics of hypersonic flights
      To test the autonomous mission management of hypersonic vehicles
      To test the necessary re-entry technology for the vehicle
  • The 6.5 meter long Re-usable Launch Vehicle – Technology Demonstrator (RLV-TD) weighs about 1.7 tons.
  • Built over five years by a team of 600 scientists, the project cost around Rs 95 crore.
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Technological Details

  • The first stage or special booster is powered using a solid fuel. The booster rocket, carrying a winged-body aerospace vehicle (RLV-TD) took off from the spaceport. It climbed for about 90 seconds before its burnout. Coasting to an altitude of 56 km, where it was separated from the booster, RLV-TD inclined further to 65 km.
  • From an altitude of 65 km, the vehicle made a re-entry into the earth’s atmosphere at Mach 5 (five times the speed of sound)
  • During the descent phase, small thrusters will help the vehicle navigate itself to the landing area
  • Steered by its navigation, guidance and control system for safe descent, the vehicle glided down to the defined landing spot in the Bay of Bengal, 450 km from Sriharikota.
  • ISRO will also use cutting-edge technology to shield the launch vehicle from intense heat to reduce, if not completely eliminate, refurbishment expenses. Getting this right would enable the vehicle to be reused within a very short span of time

Benefits of Reusable Launch Vehicle

  • Currently, a major part of satellite launch cost is comprised of building the launch vehicle. These vehicles can’t be reused as they are burnt on re-entry into the atmosphere. Hence, RLVs are being seen as the unanimous solution towards achieving low cost, reliable and on-demandspace access.
      Scientists at ISRO believe that they could reduce the cost by as much as 10 times if reusable technology succeeds, bringing it down to $2,000 per kg.
  • If ISRO’s plans work out, it should be able to break even after 25 to 50 launches, bringing down the cost of further launches on the same vehicle.
  • ISRO will be able to earn tremendous amounts of foreign exchange by offering the cheap launch services of RLV
  • India can use the RLV to launch the satellites of smaller neighbours and hence, earn geostrategic clout in the process.
  • Being dubbed a complete ‘Made-in-India’ effort, the Reusable Launch-Vehicle – Technology Demonstrator (RLV-TD) is the first time that ISRO launches an indigenous space craft with delta wings.

Other Reusable Launch Vehicles worldover and comparison with Indian Version

  • No completely reusable orbital launch system is currently in use
  • However, several at least partially reusable systems are currently under development, such as the Falcon 9 full thrust (first stage).
  • SpaceX, a player inprivate launch market succeeded in converting its Falcon 9expendable launch vehicle into a partially reusable vehicle by returning the first stage for reuse.
  • The test launch is considered a significant step in India’s space endeavour. It’s especially important because in 2011, the U.S.’s Nasa abandoned its reusable space shuttle project.
  • Learning from the mistakes of NASA, ISRO will not use the same reusable vehicle to launch satellites and carry astronauts as it drastically reduces the payload capacity and thereby increases the cost per kg.
  • Avatar-RLV- ("Aerobic Vehicle for Transatmospheric Hypersonic Aerospace TrAnspoRtation") is a study concept for unmanned single-stage re-usable seaplane capable of horizontal takeoff and landing.
      It is under development by Defence Research and Development Organisation.
      It is for low cost military and commercial satellite launches
      It has no connection with the RLV-TD; it is a separate project.

Way forward

  • ISRO plans to evaluate various technologies via RLV-TD, namely, hypersonic flight, autonomous landing, powered cruise flight and hypersonic flight using air-breathing propulsion.
  • These technologies will be developed in phases through a series of experimental flights.
  • The first in the series of experimental flights is the hypersonic flight experiment (HEX) followed by the landing experiment (LEX), return flight experiment (REX) and scramjet propulsion experiment (SPEX).
  • The final version of the Reusable Launch Vehicle will take about 10-15 years to be ready

SOURCES