6 August 2024 : The Hindu Editorial Analysis
1. The social benefits of stock market speculation
(Source – The Hindu, International Edition – Page No. – 8)
| Topic: GS2 – Governance, GS3 – Indian Economy |
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Introduction: Increased Taxation on Capital Gains
- The Indian government, in its recent Budget, increased taxes on both short-term and long-term capital gains from the stock market and raised the securities transaction tax on derivatives transactions.
- The rationale behind this move is that stock market gains are akin to gambling, and in a developing country like India, limited savings should not be wasted on speculation.
- Finance Secretary T.V. Somanathan noted that capital gains are the fastest-growing income class and could be taxed at higher rates.
- There is a common belief that capital gains do not add value to society and contribute to inequality, making them a target for higher taxation.
Understanding Capital Gains
- Capital gains occur when an investor buys an asset at a lower price and sells it at a higher price due to changes in the asset’s perceived value.
- In a perfect world with complete foresight, capital gains would not exist because investors would never buy an asset for less than its fair value.
- In reality, the future is uncertain, leading to mispricing of assets. Investors who identify undervalued assets can earn capital gains when prices correct to reflect true value.
- Efficient allocation of capital is crucial for economic prosperity. Misallocation leads to resource wastage, as seen in hypothetical scenarios where investments are directed to sectors with low demand.
Social Implications of Capital Allocation
- Efficient capital allocation ensures resources are directed toward sectors that satisfy societal needs, such as healthcare during a pandemic.
- A uniform capital gains tax across all businesses can prevent resource misallocation, but higher taxes may discourage investment and reduce economic growth.
The Role of Speculation and Market Liquidity
- Critics argue that most stock market transactions do not contribute to business growth, as money often changes hands among investors rather than being invested directly into businesses.
- However, an active stock market provides liquidity, allowing early investors to exit and encouraging initial investments in businesses.
- The government aims to promote long-term investment by raising short-term capital gains taxes, but this could overlook the importance of traders who maintain market liquidity.
Benefits of Liquidity and Efficient Pricing
- High liquidity in stock markets ensures that shares are priced accurately, reflecting the true prospects of companies.
- Efficient pricing helps companies with strong growth potential to raise capital more easily, facilitating better resource allocation.
Misconceptions About Derivatives Trading
- Derivatives trading, involving contracts like futures and options, often faces criticism for being purely speculative.
- Derivatives allow risk transfer among investors, enabling those unwilling to bear price fluctuation risks, like investors, to hedge against uncertainties.
- Speculative trading in derivatives provides market liquidity, just as in the cash market, and aids fundamental investors in managing risks.
The Social Benefits of Speculation
- Speculative trading, often likened to gambling, is essential for market efficiency by providing liquidity and aiding price discovery.
- Purely speculative traders in derivatives markets enhance the availability of these instruments, supporting investors who wish to hedge risks.
- Understanding these benefits can lead to more informed public policy decisions regarding taxation and regulation of stock market transactions.
Conclusion
- A nuanced understanding of the stock market and its mechanisms, including speculation, is essential for crafting effective policies that balance taxation with the need to foster investment and economic growth.
- Recognizing the social benefits of capital gains and derivatives trading can lead to better policies that support efficient resource allocation and economic development.
| Practice Question: Discuss the implications of increased taxation on capital gains and securities transactions in India’s stock market. How might these measures impact economic growth and resource allocation? Evaluate the potential benefits and drawbacks of such a policy. (250 Words /15 marks) |
2. The issue of institutional violence, addressing it
(Source – The Hindu, International Edition – Page No. – 8)
| Topic: GS1 – Indian Society – Social Empowerment. |
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Introduction: A Stark Dichotomy
- India boasts the world’s largest democratic process, with 642 million voters participating in elections, more than half of whom are women.
- Despite the high participation of women, issues like women’s safety and gender-based violence are largely absent from electoral agendas.
- Approximately 90 rapes are reported daily, and nearly 50% of women face domestic violence, yet these issues remain under-addressed by political candidates and overlooked by voters.
The Reality of Gender-Based Violence
- Gender-based violence is often wrongly viewed as a singular act of violence by an intimate partner, which politicians are perceived as unable to address.
- Institutional violence against survivors, such as biased treatment by police and prolonged judicial processes, exacerbates the trauma and is often more damaging than the initial act of violence.
- According to a 2019 J-PAL report, 39% of officers in India believe gender-based violence complaints are baseless, perpetuating a cycle of mistrust and violence.
Barriers to Justice
- Many women only seek justice when their situation becomes unbearable, but India’s divorce rate is among the world’s lowest at 1%, reflecting societal pressure and lack of options.
- Silence is common, with 77% of women not disclosing their experiences of violence to even close family members.
- Institutional challenges, like those faced by Samarthya, a women-led organisation, highlight the barriers survivors encounter, such as police dismissing complaints or declaring jurisdictional issues to avoid action.
Additional Challenges in Rural India
- In rural areas, male and upper-caste dominated panchayats further impede women’s access to justice.
- Survivors from marginalised communities, including Dalits, face additional systemic barriers related to caste, literacy, and geography.
- India’s backlog of 40 million court cases particularly affects survivors of gender-based violence, complicating their pursuit of justice.
Need for Survivor-Centric Reforms
- Social impact organisations have begun training police and judicial members to adopt a trauma-informed perspective, emphasising survivor-centric processes.
- Organisations like Vanangna in Bundelkhand offer models for training officials in women-centric and survivor-focused methods, highlighting the need for national adoption of these practices.
- Survivors from marginalised communities should be involved in designing and validating systems to ensure they are just and effective.
Strong Laws, Weak Implementation
- While India has robust domestic violence laws, their implementation has been inadequate due to officials’ biases and outdated processes.
- Officials often reflect societal norms that condone violence, underscoring the need for comprehensive reform of justice institutions to be trauma-informed and focused on healing.
Importance of Data and Public Discourse
- A lack of data has amplified institutional violence, making it difficult to gauge the true extent of women’s denial of justice.
- Recent updates to criminal law procedures aim to enhance timeliness and access through digital means, but gender-sensitive training and evaluation are essential to ensure a trauma-informed approach.
Call to Action for Voters and Politicians
- Voters and politicians can influence change by prioritising gender-based violence and women’s safety in their agendas.
- The successful government campaign for girls’ education shows that national shifts are possible when issues are spotlighted.
- To transform institutions and remove the fear of accessing justice, voters must demand rights and push for changes that ensure safety and dignity for women.
Conclusion
- Women’s safety and dignity are fundamental rights that must be fought for.
- A collaborative effort involving voters, politicians, and institutions is necessary to address the systemic issues of gender-based violence and institutional violence in India.
| PYQ: Male membership needs to be encouraged in order to make women’s organisation free from gender bias. Comment. (200 words/10m) (UPSC CSE (M) GS-1 2013) |
| Practice Question: Discuss the systemic challenges faced by survivors of gender-based violence in India and suggest policy measures to ensure effective implementation of existing laws and promote justice. (250 Words /15 marks) |
3. Powering India’s future
(Source – The Hindu, International Edition – Page No. – 9)
| Topic: GS3 – Indian Economy – Infrastructure – Energy |
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Introduction: Commitment to Clean Energy
- In her seventh consecutive Budget speech, the Finance Minister outlined India’s dedication to a clean energy transition, including policies on pumped hydro storage, nuclear energy, and energy efficiency.
- The recent record-breaking heat waves have highlighted both the growing economy and the challenges of a warming climate, emphasising the need for a robust energy strategy to meet future demands.
Achievements in the Power Sector
- Electrification: The Saubhagya scheme has nearly achieved universal electrification, with around 97% of households electrified by 2020, according to the Council on Energy, Environment, and Water (CEEW).
- Renewable Energy Capacity: India’s installed renewable energy (RE) capacity has increased five-fold over the past decade, positioning the country as the fourth-largest globally in RE capacity.
- Power Distribution Losses: Aggregate losses of power distribution companies (discoms) dropped by 40%, reaching an all-time low of about 15% in 2022-23.
Challenges in Decarbonisation
- Growing Demand: India’s electricity demand has been increasing by 7-9% annually since the COVID-19 pandemic, with peak demand rising even faster.
- Climate Change: Weather extremes exacerbated by climate change contribute to power demand surges, straining discoms and leading to power outages.
Measures to Address Challenges
- Raise Renewable Energy Targets: The government should set higher targets for renewable energy and storage systems beyond 500 GW by 2030. Despite efforts to increase renewable capacity, its share in power generation is just below expectation.
- Diversify and Accelerate Clean Energy Deployment: The need for faster deployment of diverse clean energy resources is urgent. Comparatively, China and the EU have added significant solar and wind capacity, while India’s cumulative renewable capacity stood at 144 GW with another 128 GW in progress.
- Improve Energy Availability: Enhance the power exchange mechanism to increase liquidity and reduce price volatility. Innovative bid designs and long-term contracts are needed to attract RE developers and integrate renewables more effectively.
- Maintain and Utilise Coal Fleet: While renewables are added, coal remains crucial. In FY24, over 210 GW of coal capacity generated about 80% of power during non-solar hours. However, more than 40 GW of this capacity was often unavailable due to maintenance or faults. State regulators should revise norms to ensure timely upkeep and flexibility of coal plants.
- Accelerate Digitalisation: Expanding smart metering is critical for accurate demand forecasting, better network planning, and effective integration of renewables. With over 11 million smart metres installed, but far from the 250 million target, discoms must enhance their digitalisation efforts while addressing privacy and cybersecurity concerns.
Conclusion: A Call to Action
- The Indian government faces a critical decade to deliver on energy commitments.
- Investing in a cleaner, more flexible, and resilient power grid is essential for sustainable economic growth and job creation in the clean energy sector.
| PYQ: India has immense potential for solar energy though there are regional variations in its development. Elaborate. (250 words/15m) (UPSC CSE (M) GS-1 2020) |
| Practice Question: Evaluate the current challenges and strategies in India’s clean energy transition. How can the country improve its renewable energy deployment, energy availability, and digital infrastructure to ensure a sustainable and resilient power sector? (250 Words /15 marks) |
