AMIGOS IAS Daily Current Affairs (4^th Sept 2024)

Did Corporate tax cuts lead to higher wages?

GS 3: Economy: Effects of Corporate tax cuts

Why is it in the news?

• In the years leading up to the pandemic, major economies like the U.S. and India implemented significant corporate tax cuts aimed at stimulating economic growth. As the pandemic’s impact has begun to wane, it is now possible to assess the effects of these tax reductions.

Effects of tax cuts in the U.S.

• The Tax Cuts and Jobs Act of December 22, 2017, reduced the U.S. corporate tax rate from 35% to 21%.
• A study titled Lessons from the Biggest Business Tax Cut in U.S. History, published in the Summer 2024 edition of the Journal of Economic Perspectives, found that while investment increased by 8% to 14%, the impact on GDP was only a 0.9% rise, and annual wages increased by less than $1,000 per worker.
• This is lower than the $4,000 to $9,000 wage increase projected by the Council of Economic Advisors. Additionally, the tax cuts led to a 41% reduction in tax revenue, harming U.S. fiscal health in favour of higher corporate profits and modest wage gains.

Effects of tax Cuts in India

• India’s corporate tax rates were reduced in September 2019, from 30% to 22% for existing companies and from 25% to 15% for new companies. This cut resulted in a 1 lakh crore INR revenue loss in 2020-21.
• Despite some recovery in employment and increased labour force participation, particularly among women, the corporate sector has not significantly contributed to this improvement.
• Employment growth has been in insecure jobs, with regular wage employment falling from 22.8% in 2017-18 to 20.9% in 2022-23. Nominal wage growth for regular workers has only slightly exceeded inflation, with real rural wages declining and urban wages stagnating.
• Corporate tax collections have improved since the pandemic, but this has not significantly impacted employment or wages.
• The tax burden has shifted from corporates to individuals, with corporate taxes falling from 32% of gross tax revenues in 2017-18 to 26.5% in 2024-25, while income and GST taxes have risen. This shift has led the Indian government to seek new revenue sources, such as taxing long-term capital gains.

Conclusion

• Tax cuts on profits boost existing capital profits but do not always lead to increased future investment or substantial benefits for wage-earners.
• Hence the better approach might involve high taxes on existing profits combined with incentives for future investment.

Tackling the challenge of rising income inequality

GS 3: Economy: Income inequality

About the news

• Addressing income inequality is a critical global challenge that requires a multifaceted approach to foster a more equitable society.

Here are some key strategies

1) Progressive Taxation

• Implementing progressive tax policies is essential to redistribute wealth from the affluent to the marginalized.
• This isn’t about taking from the rich to give to the poor but using tax revenues to improve health, education, skill development, and job creation.

• Education and Skill Development
• Access to quality education and continuous skill development is crucial for enhancing employability and increasing earning potential.
• Ensuring lifelong learning opportunities can help individuals adapt and thrive in the changing job market.

3) Fair Labour Laws

• Enforcing fair labour laws is vital to protect workers’ rights, including minimum wages, safety, security, and protection against exploitation.
• Measures such as eliminating child labour and supporting collective bargaining are essential for equitable economic growth.

4) Investment in Infrastructure

• Investing in infrastructure can help reduce regional disparities and promote inclusion and sustainability.
• Critical areas include environmental infrastructure, water, sanitation, energy, climate change, housing, and transportation.

5) Contribution of the Super Rich

• Initiatives like the ‘Giving Pledge’ by Bill Gates and Warren Buffet encourage the ultra-wealthy to donate a significant portion of their wealth for public good.
• In advanced countries, high inheritance taxes (e.g., 55% in Japan, 50% in South Korea) on large asset transfers are implemented to address wealth inequality.
• In India, where income inequality has reached high levels, such measures could be considered to address the growing disparity.

6) Focus on Inclusion and Equity

• Addressing income inequality involves more than just adjusting tax policies. It requires identifying resources to lift millions out of poverty and joblessness while encouraging value addition through production, efficiency, quality, and inclusivity.
• India has made progress in reducing poverty, but more ambitious and innovative approaches are needed to achieve greater equity.

7) Strategies for Resilience

• There is no single solution to income inequality. Instead, India needs a policy framework that promotes growth with justice and hope, drawing from global experiences and leveraging the country’s creativity.
• Globalization and market liberalization, while important, require constant adjustment and vigilance.

8) Gandhian Model of Development

• The Gandhian model, focusing on decentralization and local resources, offers valuable insights.
• Promoting local employment and prosperity through small and medium-sized enterprises and local innovations is crucial.
• Banks should shift their focus from large corporate loans to supporting SMEs, with digital technology playing a key role.

9) Future Employment Trends

• Future jobs will increasingly come from sectors such as food, education, health services, tourism, and manufacturing. Indian talent is poised to be a significant global workforce.
• Developing a new economic model based on decentralization, digital platforms, and changing consumption patterns is vital for future growth.

Conclusion

• The future lies in adopting a tech-driven economic model that emphasizes inclusion, basic human needs, decentralization, conservation, and non-violence.
• Embracing a lifestyle of “sharing and caring” over “vulgarity of conspicuous consumption” will be crucial in addressing income inequality and promoting a more equitable world.

The Harm Principle: Defining the extent of Liberty

GS 2: Polity and Governance: Understanding liberty

About the news

• John Stuart Mill’s theory of liberty, articulated in his seminal work On Liberty, posits that individual freedoms can only be restricted to prevent harm to others.
• According to Mill, liberties should be protected unless actions cause direct harm. This principle becomes critical when evaluating instances where free speech intersects with harm.

An Analysis

• Recently, controversy arose when Assam Chief Minister made derogatory remarks about the Muslim community in response to a horrific gang-rape incident. Critics argue that the comments, which have been labelled as hate speech, contravene the principles of India’s secular Constitution and exacerbate existing biases.
• While free speech is a fundamental right, it is subject to “reasonable restrictions” under Indian law, though the definition of hate speech remains ambiguous.
• Mill’s harm principle provides a framework for assessing such situations. He argued that the only justification for limiting freedom is to prevent harm to others. For example, physical harm, such as assault, justifies state intervention.
• Mill also differentiated between ‘self-regarding’ actions, which affect only the individual, and ‘other-regarding’ actions, which impact society. The state should only interfere in the latter when legal rights are violated, as supported by the Supreme Court of India in cases like Navtej Singh Johar vs. Union of India.
• However, the concept of harm is complex. Mill suggested that harm could be physical or psychological, and the definition is often debated. For instance, misinformation or derogatory speech might not cause immediate physical harm but could lead to long-term psychological damage or societal unrest.
• Mill believed that unrestricted freedom of expression allows for the correction of errors and the advancement of truth, which can be stifled if dissenting opinions are suppressed.
• Yet, Mill acknowledged that freedom of expression could be limited in specific scenarios. He noted that while provocative opinions may be circulated through the press, their public dissemination could be restricted if it incites violence or creates social unrest.
• This nuanced approach raises questions about how to handle statements that, while not immediately harmful, have the potential to incite violence or discrimination, as seen in historical contexts like the Rwandan genocide, where hate speech contributed to extreme violence.
• Mill’s harm principle, although not universally applied in contemporary contexts, remains influential in discussions about the balance between free speech and societal harm.
• It underscores the need for careful consideration of how liberty is exercised and restricted to ensure that freedoms do not undermine societal welfare and justice.

World Bank hikes India’s economic growth projection to 7%

GS 3: Economy: World Bank’s forecast

About the news

• The World Bank has revised its growth projection for the Indian economy to 7% for the fiscal year 2024-25, up from its earlier estimate of 6.6%.

• The updated forecast was outlined in the report India Development Update: India’s Trade Opportunities in a Changing Global Context.
• This adjustment aligns with similar forecasts from the International Monetary Fund (IMF) and the Asian Development Bank (ADB), both of which have also projected a 7% growth rate for India for the financial year ending in March 2025.
• According to the World Bank, India has maintained strong economic growth despite global challenges. The country’s economy grew at an impressive rate of 8.2% in FY 23/24, driven by increased public infrastructure investment and a rise in household investments in real estate.
• On the supply side, robust performance in the manufacturing sector, which grew by 9.9%, and resilient services activity counterbalanced weaker agricultural performance.
• The report notes improvements in urban unemployment rates since the pandemic, particularly among female workers, with female urban unemployment falling to 8.5% in early FY24/25. However, urban youth unemployment remains high at 17%.
• World Bank Country Director in India, Auguste Tano Kouame, indicated that India’s strong growth prospects and declining inflation rates are expected to help reduce extreme poverty.
• Kouame emphasized that India could further boost its growth by leveraging its global trade potential. While India excels in sectors such as IT, business services, and pharmaceuticals, there is potential to expand exports in textiles, apparel, footwear, electronics, and green technology products.
• The report also underscores the importance of trade in enhancing growth, noting that recent shifts in global value chains and increased protectionism present new opportunities for India.
• To achieve the USD 1 trillion merchandise export target, the IDU recommends a three-pronged approach: reducing trade costs, lowering trade barriers, and deepening trade integration.

Centre approves defence proposals valued at ₹1.44 lakh crore

GS 3: Defence: Defence acquisition

About the news

• The Defence Acquisition Council (DAC), chaired by Defence Minister Rajnath Singh, has approved capital acquisition proposals worth ₹1.44 lakh crore.
• This approval marks a crucial step in the procurement process, known as Acceptance of Necessity (AoN), for ten major defense projects.
• Among the approved projects are seven stealth frigates under Project-17B, future-ready combat vehicles (FRCV) to replace existing main battle tanks, advanced air defence fire control radars (FCR), Dornier-228 aircraft, and next-generation patrol vessels.
• The Ministry of Defence noted that 99% of the total cost is allocated to indigenous sources, under the Buy (Indian) and Buy (Indian-Indigenously Designed Developed and Manufactured) categories.
• The FRCV project, aimed at replacing the aging T-72 and T-90 tanks, promises enhanced mobility, all-terrain capability, multi-layered protection, and advanced situational awareness.
• Additionally, the DAC has sanctioned the construction of seven advanced stealth frigates, with Garden Reach Shipbuilders and Engineers (GRSE) and Mazagon Dock Shipbuilders Ltd. (MDL) as potential builders.
• The approved AoN also includes the procurement of air defence FCRs for detecting and tracking aerial targets, and Forward Repair Team (Tracked) vehicles designed for in-situ repairs during mechanized operations.
• Moreover, the Indian Coast Guard (ICG) will see enhancements with the procurement of Dornier-228 aircraft, advanced fast patrol vessels, and next-generation offshore patrol vessels, all geared towards improving surveillance and patrolling capabilities.

New Study validates dockyard at Lothal, Gujarat, in Harappan Civilization

GS 1: Culture and History: Harrapan Civilization

About the news

• A recent study by the Indian Institute of Technology-Gandhinagar (IITGn) provides new evidence confirming the existence of a dockyard at Lothal, Gujarat, during the Harappan Civilization.
• Published in the Journal of Archaeological Science, the study reveals that the Sabarmati River once flowed by Lothal, is now 20 kilometres from its current course.
• The research also identifies an ancient travel route connecting Ahmedabad to Dholavira through Lothal, the Nal Sarovar wetland, and the Little Rann of Kutch, underscoring Lothal’s strategic position in trade.
• The study, titled ‘Sabarmati and its connection with the Harappan port Lothal and the Nal corridor,’ was conducted by the researchers utilizing satellite imagery and digital elevation models, and identified old river channels that align with Lothal’s location during the Harappan period, supporting the dockyard theory.
• According to the study, the traders could have travelled by boat from Lothal to Dholavira within two days, facilitating trade between Gujarat and Mesopotamia (modern-day Iraq). The study also suggests that traders arrived in Gujarat via the Gulf of Khambhat, possibly stopping at Ratanpura for materials.
• Researchers used 19th-century topographic maps, satellite imagery, and 3D digital elevation models to trace ancient river paths and geomorphic changes over the past 150 years. This technology allowed them to efficiently identify and verify potential sites, reducing the need for extensive ground surveys.

Leveraging Biotechnology for Economic Growth

GS 3: Science and Technology: Applications of Biotechnology

About the news

• The Centre introduced its BioE3 (Biotechnology for Economy, Environment, and Employment) policy, aninitiative that goes beyond simply stimulating the biotech sector by aiming to transform industrial and manufacturing processes to be more sustainable and efficient through biotechnology.
• Government officials view this as the first step toward the industrialisation of biology, which could significantly impact the economy.
• Biotechnology, which manipulates biological organisms and processes to create desired products, spans fields like genomics, genetic engineering, synthetic biology, and bioinformatics.
• Traditionally applied in medical science and agriculture, biotechnology is now expanding with advancements in gene editing, protein synthesis, and Artificial intelligence (AI), offering eco-friendly alternatives to products such as synthetic clothes, plastics, and food.
• For example, animal-free milk and biodegradable bioplastics are emerging as sustainable replacements, while microorganisms can capture and convert CO2 more effectively than chemical methods. Additionally, synthetic biology enables the development of novel organisms and lab-grown organs.
• The BioE3 policy aims to prepare India for future technological advancements by fostering research, education, and talent development.
• Although immediate economic benefits are not expected, the policy aligns with other government initiatives like the Artificial Intelligence Mission, the Quantum Mission, and the Green Hydrogen Mission, targeting future technologies crucial for global challenges.
• The policy plans to establish biomanufacturing hubs across India, where industry and start-ups can produce specialized chemicals, smart proteins, enzymes, and other bio-products.
• These hubs will focus on areas including bio-based chemicals, functional foods, precision biotherapeutics, climate-resilient agriculture, carbon capture, and marine and space research.
• Successful implementation will require collaboration among at least 15 government departments, highlighting the policy’s broad and transformative scope.

OpenAI’s Project Strawberry

GS 3: Science and Technology:  Artificial Intelligence

About the news

• OpenAI, a leader in artificial intelligence research, is poised to release its most powerful AI model this fall, potentially integrating it into ChatGPT-5, the latest version of their chatbot launched in late 2022.
• Formerly known as Project Q* (Q-star), the project is now codenamed Project Strawberry.
• This model is expected to feature autonomous Internet research and significantly enhance AI reasoning, moving towards the goal of Artificial General Intelligence, which mimics human cognitive abilities.
• It is reported that Project Strawberry will surpass existing chatbots in math and programming, addressing previous limitations of ChatGPT. Demonstrations have shown its advanced problem-solving skills, including solving complex puzzles like The New York Times’ ‘Connections’.
• Project Strawberry is also focused on raising funds for the next model, codenamed Orion. A key application of Project Strawberry is generating high-quality training data for Orion, addressing the current shortage of accessible, non-paywalled information. This data, combined with synthetic data, is expected to reduce errors and improve the model’s accuracy.
• Project Strawberry’s advancements in reasoning and research could enable the AI to autonomously conduct experiments, analyze data, and develop new hypotheses, potentially leading to scientific breakthroughs and personalized educational tools.

NITI Aayog report on edible oils 

GS 3: Economy: Accelerating growth in Edible oils

About the news

• The report titled “Pathways and Strategies for Accelerating Growth in Edible Oils Towards the Goal of Atmanirbharta,” released by NITI Aayog, outlines critical insights into Ind ia’s edible vegetable oil sector.

Key takeaways from the report

• India holds a prominent position globally, ranking fourth in this sector behind the USA, China, and Brazil.
• The country’s oilseed production is concentrated in seven major states: Rajasthan, Maharashtra, Madhya Pradesh, Uttar Pradesh, Haryana, Andhra Pradesh, and Karnataka.
• Over recent decades, per capita consumption of edible oil in India has risen significantly, reaching 19.7 kg per year. This increase in demand has outpaced domestic production, leading to a heavy reliance on imports to meet both domestic and industrial needs.
• In the fiscal year 2022-23, India imported 16.5 million tonnes of edible oils, with domestic production covering only 40-45% of the total requirement. This dependency on imports poses a considerable challenge to achieving self-sufficiency in the sector.
• According to the report’s Business-As-Usual (BAU) projections, national edible oil supply is expected to reach 16 million tonnes by 2030 and 26.7 million tonnes by 2047.

To move towards self-sufficiency, the report suggests several strategic interventions structured around three key pillars:

• The first pillar, Crop Retention and Diversification, focuses on maintaining and diversifying oilseed crops.
• The second pillar, Horizontal Expansion, aims to increase the area allocated for cultivating edible oil crops, utilizing rice fallow lands and suitable wastelands.
• The third pillar, Vertical Expansion, emphasizes enhancing the yield of existing oilseed cultivation through improved farming practices, better-quality seeds, and advanced production technologies.

Government initiatives

• The National Mission for Edible Oils – Oil Palm (NMEO-OP) aims to boost oil palm cultivation and increase crude palm oil production to 1.12 million tonnes by 2025-26.
• Additionally, the National Food Security Mission-Oilseeds (NFSM-OS), launched in 2018-19, seeks to enhance the availability of edible oils by improving the production and productivity of oilseeds and expanding the cultivation area for oil palm and tree-borne oilseeds.
• The government has also raised the Minimum Support Price (MSP) for oilseeds to support these efforts.