PM IAS EDITORIAL ANALYSIS – DEC 6

Editorial #1 A slow return

India-China Border Dispute: A Need for Intense and Transparent Engagement

India and China share one of the world’s longest unsettled borders, stretching over 3,400 kilometers, marked by differing perceptions of the Line of Actual Control (LAC). The ongoing standoff since 2020, marked by the Galwan clashes, underscores the complexity of this issue and its implications for bilateral ties. The Indian government’s recent decision to offer suo motu statements in Parliament and brief a parliamentary panel on the border situation is a welcome step, though long overdue. 

Context of the Dispute

Since 2020, the India-China border situation has been tense due to transgressions by the People’s Liberation Army (PLA) at multiple points along the LAC. Despite multiple rounds of negotiations, disengagement has been achieved at only six friction points:

1. North and South Pangong Tso
2. Gogra (Patrolling Point 17A)
3. Hot Springs (Patrolling Point 15)

However, critical areas such as Depsang Plains and Demchok remain unresolved, with “patrolling arrangements” still under discussion. The government’s lack of clarity on key aspects, including the casus belli for China’s actions and a timeline for returning to the status quo ante (pre-April 2020 positions), has left the public and policymakers concerned.

Government’s Approach

The government has adopted a multi-pronged strategy for engagement:

1. Continuous Negotiations:
   • 17 rounds of the Working Mechanism for Consultation and Coordination on India-China Border Affairs.
   • 21 rounds of Senior Highest Military Commanders meetings.
   • High-level discussions between Foreign and Defence Ministers and Special Representatives.
2. Step-by-Step Engagement: The process involves disengagement, de-escalation, and troop de-induction.
3. Conditional Normalisation: External Affairs Minister S. Jaishankar emphasized that broader India-China relations depend on resolving LAC tensions.

While these efforts are necessary, their outcomes remain limited, with disengagement achieved only through temporary buffer zones rather than a permanent resolution.

Challenges in Resolving the Dispute

1. Ambiguity over LAC: Differing perceptions of the LAC remain a primary source of conflict. The absence of a commonly accepted boundary exacerbates the situation.
2. Chinese Aggression: Despite nearly 20 Modi-Xi meetings prior to 2020, China’s PLA unilaterally altered the ground situation, undermining trust.
3. Lack of Transparency: The government’s reluctance to share details about the border situation and negotiations has fueled speculation and criticism.

Lessons and Policy Recommendations

1. Demarcating the Boundary: There is an urgent need to expedite efforts to build a common understanding of the LAC and eventually demarcate the border.
2. Balancing Diplomacy and Security: While diplomatic engagement is critical, India must continue to strengthen its border infrastructure and defense preparedness.
3. Engaging the Public and Legislature: In a democracy, transparency on matters of national security is essential. Regular parliamentary briefings and public communication can build trust and consensus.
4. Leveraging Multilateral Platforms: India should utilize forums like BRICS, SCO, and G20 to engage China and highlight the importance of border stability for regional peace.

Implications for India-China Relations

1. Geopolitical Rivalry: The standoff reflects the broader contest between India and China for influence in South Asia and beyond.
2. Impact on Bilateral Ties: Trade and other areas of cooperation remain constrained as long as LAC tensions persist.
3. Regional Stability: The dispute has implications for the Indo-Pacific strategy and India’s partnerships with the U.S., Japan, and Australia under the Quad framework.

Way Forward

1. Clear Demarcation of the LAC: Both nations must prioritize defining the LAC to reduce misunderstandings and prevent future conflicts.
2. Strengthening Diplomatic Engagement: Continuous dialogue at all levels, including WMCC, Special Representatives, and leadership summits, is essential.
3. Enhancing Border Infrastructure: India must focus on building robust border infrastructure to match China’s capabilities.
4. Leveraging Multilateral Platforms: India can use forums like BRICS, SCO, and G20 to advocate for peace and stability in the region.
5. Transparency in Communication: The government should regularly inform the public and Parliament on progress, fostering trust and accountability.

Conclusion

The India-China border dispute remains one of the most pressing challenges for Indian foreign policy. While diplomatic engagement has made some progress, the absence of a clear resolution underscores the need for intense, transparent, and sustained efforts at all levels. Balancing national security imperatives with the broader goal of stable bilateral ties is crucial for maintaining peace and stability in the region.

Editorial #2 States and the challenge before the Finance Commission

Introduction

The Sixteenth Finance Commission, chaired by Arvind Panagariya, is poised to address critical fiscal challenges that shape India’s federal structure. This Commission’s tenure coincides with significant global economic shifts, such as friendshoring and reshoring, which offer opportunities for India to enhance its trade and investment dynamics. States like Tamil Nadu, with their progressive policies and economic potential, are positioned to leverage these trends. However, systemic fiscal imbalances between the Union and States present challenges to achieving equitable and sustainable growth.

Historical Context and Challenges of Fiscal Federalism

Since the formation of the first Finance Commission in 1951, successive commissions have aimed to:

1. Ensure equitable vertical devolution: Redistribution of resources between the Union and the States.
2. Promote horizontal devolution: Address disparities among States by channeling funds to less-developed regions.

Despite these efforts, the gap between declared objectives and actual outcomes persists. Key issues include:

• Decline in Effective Devolution: While the Fifteenth Finance Commission recommended 41% of the divisible pool for States, actual devolution amounted to only 33.16% of gross tax revenue, largely due to the Union’s extensive use of cess and surcharges, which are not shareable with States.
• Increased Burden on States: Rising counterpart funding for centrally sponsored schemes has strained States’ finances, limiting their fiscal autonomy.

The Case for Increasing States’ Share

To address these challenges, progressive reforms in resource distribution are essential:

1. Increase Vertical Devolution:
   
   • States bear the primary responsibility for developmental expenditures and require greater fiscal space.
   • Advocating a 50% devolution of gross central taxes will empower States to implement locally relevant policies effectively.
2. Adopt a Balanced Horizontal Devolution Framework:
   
   • The redistribution policy of prioritizing less-developed States has shown limited impact on driving real growth over the decades.
   • A balanced approach can ensure a larger national economic pie, providing reasonable shares to less-developed States while enabling progressive States to fulfill their potential as growth engines.

Unique Challenges of Progressive States

1. Demographic Transition:

• States like Tamil Nadu have a median age higher than the national average, which impacts their capacity to generate consumption-based tax revenue.
• Supporting an aging population while avoiding the “middle-income trap” is critical.
• This requires targeted resource allocation to sustain growth and prevent stagnation.

2. Urbanization Pressures:

• Tamil Nadu leads the country in urbanization, with a projected 57.30% urban population by 2031, compared to the national average of 37.90%.
• Addressing infrastructure needs, improving public services, and ensuring sustainable urban development are vital.

3. Climate Resilience:

• Progressive States must prioritize climate-resilient growth strategies, particularly in sectors like agriculture and urban infrastructure.

The Way Forward for the Finance Commission

A New Fiscal Paradigm:

1. Reform Fiscal Federalism:
   
   • Ensure a fairer and transparent system of resource allocation that aligns with India’s federal principles.
   • Recognize the unique needs of high-performing States while ensuring inclusivity for underperforming States.
2. Incentivize Growth-Oriented Policies:
   
   • Introduce performance-linked incentives to reward States excelling in education, health, industrial growth, and fiscal discipline.
3. Strengthen State Autonomy:
   
   • Expand States’ financial independence to reduce over-reliance on centrally sponsored schemes.
4. Enhance Urban Infrastructure Funding:
   
   • Allocate resources for urban development to meet the demands of rapid urbanization in States like Tamil Nadu.
5. Climate-Sensitive Allocation:
   
   • Encourage sustainable and climate-resilient policies by linking fiscal transfers to environmental performance indicators.

Conclusion

The Sixteenth Finance Commission has the potential to redefine India’s fiscal framework, ensuring a balance between equity and efficiency in resource allocation. By addressing systemic fiscal imbalances and incentivizing high-performing States, the Commission can empower all States to contribute effectively to India’s growth story. Its recommendations must align with India’s long-term development goals, fostering economic resilience and cooperative federalism.