Note4Students
From UPSC perspective, the following things are important :
Prelims level: BITs
Mains level: Paper 3- Cairn Energy case
Context
The recent move by Cairn to seize India’s sovereign assets in order to enforce its arbitration award has brought into focus the dispute and the related issues.
Utility of Bilateral Investment Treaties (BIT)
- After the World Wars, as more countries gained sovereignty, they tended to look at foreign investments as a form of neo-colonialism.
- Bilateral investment treaties became the primary tool to forge relationships between developed and developing countries.
- The BITs help to adopt standards for prompt, adequate and effective compensation in case of expropriation.
- With the advent of globalisation, BITs became the means for foreign investment in developing countries.
- Although the impact of investment agreements on foreign investments remains highly contextualised and inconclusive, these came to govern international investment relations.
- The BITs retained the old-world construct that allowed international arbitration.
- However, many developing countries view arbitration of tax matters as a breach of their sovereign right to tax.
The Cairn Energy case
- In 2012, explanations were added to the Income Tax Act 1961 — these provisions were deemed as having a retrospective effect.
- This was more in response to the Supreme Court’s decision in the Vodafone case which denied the income tax department’s assertion of tax claims arising from the offshore transfer of interest that substantially derived their value from India.
- The 2012 explanations to the IT Act indeed sought to fix tax avoidance.
- Looking into the details of the Cairn case, one can see the series of reorganisations that tip-toed around tax laws of multiple jurisdictions, resulting in the non-payment of tax.
- Taxing offshore indirect transfers — a structuring device to gain tax advantage from the indirect sale of assets — is not unique to India (336 tax treaties contain such an article).
- It is also possible to see that the underlying assets of the subsidiaries were immovable assets in India.
- The UK-India tax treaty allowed for taxation of capital gains as per Indian law.
- India challenged the admissibility of the case before the arbitration tribunal.
- However, the case rests on a distinction between tax and tax-related investment.
- Surely, all investments have tax implications and the acceptance of such a distinction could create problems even where tax is explicitly carved out from the bilateral investment treaties.
- The option of arbitration upon an unsuccessful Mutual Agreement Procedure (MAP) resolution is not available in India.
- For this reason, over the years, there has been a rising trend in tax disputes involving BITs.
- The Cairn case is one such instance where arbitration was invoked especially since MAP was not an option.
Way forward
- The case raises many questions that administrators must address through reform.
- India’s model BIT introduced in 2016 rectifies the issue of the distinction between tax dispute and investment-related taxation dispute through the specific exclusion of taxation.
- The recognition of a tax-related investment dispute, distinct from a tax dispute, should not undermine such a carve-out.
Conclusion
It is also important to note even if the award is enforced, the matter of tax avoidance stands pending before the High Court. Given the complexity, the only reasonable solution would be a negotiated settlement. Even if there’s a resolution in the Cairns case, questions of law would remain.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FPI and FDI
Mains level: Paper 3- Equity market bubble
Context
Even as the real economy returns to the doldrums after being hit by the second wave of COVID-19 infections, the continuing bull run in India’s equity market in the April-June quarter has baffled many observers.
V-shaped recovery of equity market
- The benchmark BSE Sensex had nosedived to below 28,000 in March-April 2020, following the nationwide lockdown.
- The equity market posted a sharp V-shaped recovery in 2020-21.
- The Sensex surged beyond 50,000 in February 2021 and is currently closing on the 53,000 level.
Factors suggesting bubble in equity market
- There was an 81%-plus growth in the Sensex between April 2020 and March 2021 in the backdrop of real GDP growth plummeting to -7.3% during the same period.
- While output contraction had reversed from the third quarter of 2020-21, the inflation rate also rose and remained way ahead of the real GDP growth rate in the last two quarters (Chart 1).
- It is difficult to find any rationality behind the skyrocketing BSE Sensex in the context of such stagflation in the real economy.
- Just like the fall in the equity prices was driven by the exit of foreign portfolio investors (FPI), the return of massive FPI inflows has driven the Indian equity bubble since then (Chart 2).
- Net FPI inflows clocked an unprecedented ₹2.74 lakh crore in 2020-21, the previous high being ₹1.4 lakh crore in 2012-13.
- The Reserve Bank of India (RBI)’s annual report (2020-21) to state stated that: “This order of asset price inflation in the context of the estimated 8 per cent contraction in GDP in 2020-21 poses the risk of a bubble.”
Global factors
- The global liquidity glut, following the expansionary, easy money policies adopted by the fiscal and monetary authorities of the OECD and G20 countries, has led to equity price inflation in several markets driven by FPIs, especially in Asia.
- Following cues from the U.S. and the U.K., Asian equity markets in Singapore, India, Thailand, Malaysia and Hong Kong are currently witnessing price-earnings (P/E) ratios significantly above their historic means.
- The BSE Sensex’s P/E ratio of 32 in end-June 2021 is way above its historic mean of around 20.
What could burst the bubble?
- Change in monetary policy: With COVID-19 vaccination and economic recovery proceeding apace in the U.S., the U.K. and Europe, fiscal and monetary policy stances will change soon.
- Exit of FPIs: Once the U.S. Federal Reserve and other central banks start raising interest rates, the direction of FPI flows will invariably change bringing about corrections in equity markets across Asia.
- India remains particularly vulnerable to a major correction in the equity market because of two reasons.
- Low pace of vaccination: The pace of COVID-19 vaccination in India, given the vast population, lags behind most large countries.
- In the absence of a substantial increase in the vaccination budget and procurement, large segments of the Indian population will remain vulnerable to a potential third wave of COVID-19, with its attendant deleterious impact on the real economy.
- Weak fiscal stimulus: India’s economic recovery from the recession will remain constrained by the weak fiscal stimulus that has been delivered by the Central government.
- Data from the IMF clearly show that while the total global stimulus consisted of additional public spending or revenue foregone measures amounting to 7.4% of global GDP, India’s fiscal measures amounted to 3.3% of GDP only.
Consider the question “What are the factors driving equity market boom globally? What are the factors that could threaten such boom with a major correction?”
Conclusion
With all agencies, including the RBI, downsizing India’s growth projections for 2021-22, it remains to be seen how long India’s equity bubble lasts.
Back2Basics: P/E ratio
- The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).
- The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
- To determine the P/E value, one simply must divide the current stock price by the earnings per share (EPS).
P/E Ratio=Earnings per share / Market value per share
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Doctrine of Severability
Mains level: Management of Cooperatives
In a major boost for federalism, the Supreme Court has struck down parts of the 97th Constitution amendment which shrank the exclusive authority of States over their cooperative societies.
Background
- The Gujarat High Court in 2013 had held that the amendment, to the extent it introduced conditions for state laws on co-operative societies, was liable to be struck down.
- This amendment was passed without the ratification of one-half of the state legislatures as mandated by Article 368(2) of the Constitution.
- As per Article 368(2), ratification of one-half of state legislatures is required for an amendment that makes changes to an entry in the state list.
- Since co-operative societies were a state subject as per Entry 32 in List II of the Seventh Schedule, the amendment introducing Part IX B required ratification as per Article 368(2), the High Court ruled.
What was 97th Amendment about?
- The 97th constitutional amendment dealt with issues related to the effective management of cooperative societies in the country.
- It was passed by Parliament in December 2011 and had come into effect from February 15, 2012.
- Part IXB, introduced in the Constitution through the 97th Amendment of 2012, dictated the terms for running cooperative societies.
- The provisions in the amendment went to the extent of determining the number of directors a society should have or their length of tenure and even the necessary expertise.
What is the recent Judgement?
- In a majority judgment, the supreme court has held that cooperative societies come under the “exclusive legislative power” of State legislatures.
- The judgment may be significant in the background of fears voiced by the States whether the new Central Ministry of Cooperation would disempower them.
- The change in the Constitution has amended Article 19(1)(c) to give protection to the cooperatives and inserted Article 43 B and Part IX B, relating to them.
- The Centre has contended that the provision does not denude the States of its power to enact laws with regard to cooperatives.
Exceptions to the amendment
- The Supreme court did not strike down the portions of Part IXB of the Amendment concerning “Multi-State Cooperative Societies” due to the lack of ratification.
- When it comes to Multi-State Co-operative Societies (MSCS) with objects not confined to one State, the legislative power would be that of the Union of India.
What was the dissenting opinion?
- In his dissent, Justice K.M. Joseph said the doctrine of severability would not operate to distinguish between single-State cooperatives and MSCS.
- The judge said the entire Part IXB should be struck down on the ground of absence of ratification.
Back2Basics: Doctrine of Severability
- Article 13 deals with laws inconsistent with or in derogation of fundamental rights.
- It also deals with all laws enforced in India, before the commencement of the Constitution.
- The doctrine of Severability in Article 13 can be understood in two dimensions
- Article 13(1) validates all Pre-Constitutional Law and thereby declares that all pre-Constitutional laws in force before the commencement of the Indian Constitution shall be void if they are inconsistent with the fundamental rights.
- Article 13(2) mandates the State that it shall not make any law that takes away or abridges the fundamental rights conferred in Part III of the Indian Constitution and any law contraventions this clause shall be void.
- This doctrine widens the scope for Judicial Review on unconstitutional parts of any law.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Solar Rooftop
Mains level: Renewable Energy in India
The Union government’s target of producing 40 gigawatts of rooftop solar power by 2022 is unrealistic: The country could produce only 4.4 GW rooftop solar energy till March 31, 2021, according to the Union Ministry of New and Renewable Energy.
What is Solar Rooftop?
- A solar photovoltaic (PV) system mounted on a rooftop of a building is a mini-power requirement or feed into the grid.
- The size of the installation varies significantly depending on the availability of space, amount of electricity consumed by the property and the ability or willingness of the owner to invest the capital required.
Why rooftop?
- Rooftop solar with a storage system is a benefit for both, end consumers as well as discoms (power distribution companies).
- A one-kilowatt (kW) rooftop system can produce three to five units of electricity a day.
- The combination increasingly becomes cost-effective for electricity generation compared to the traditional grid supply and diesel generators.
- In 2021, solar and storage will be cheaper than grid supply for most commercial and industrial (C&I) customers.
- The increase in penetration of rooftop solar in the distribution grid will have a significant impact on the stability of the grid.
A viable alternative
- Most housing societies in urban India rely on diesel generators for power backup. However, as power availability improves in the country, diesel generators will become redundant.
- The operational cost of diesel generators is quite high— R16-18 per unit against Rs 5-6 a unit for solar rooftop systems. So rooftop solar power makes financial sense.Solar rooftop is also a perfect solution for commercial and institutional buildings that operate mostly during the day.
- Their rooftops can be utilized to generate electricity, and they can, partially or completely, replace diesel generators. This would also help them reduce their electricity bills.
Question of energy storage
- In order to integrate rooftop solar and electric vehicles, the grid needs to be flexible and smart.
- Energy storage systems will play a key role in providing this flexibility by acting as a load when there is a surplus generation, as well as generating sources when there is a supply shortage.
- There are two major methods of integrating battery storage into the electric grid:
- Front-of-the-meter (FTM): It is implemented at the utility-scale, wherein the battery system is connected to the transmission or distribution network that ensures grid reliability. This happens on a considerably large scale (~MWh scale).
- Behind-the-meter (BTM): The other method is implemented at the residential and commercial/industrial level, mainly to provide backup during a power failure or to store excess locally generated energy from solar rooftop photovoltaic (PV) systems.
India’s storage capacity
- About 34 GW / 136 GWh of battery storage is expected to be installed by 2030, according to the Central Electricity Authority of India.
- This capacity would be used for RE integration, demand-side and peak load management services.
Storage challenges
- The solar segment offers a huge market opportunity for advanced battery technologies.
- However, manufacturers have some ground to cover in addressing technical limitations of batteries, such as charging characteristics, thermal performance and requirement of boost current to charge deep cycle batteries.
- Since solar companies may directly procure batteries from manufacturers and require after-sale services and technical support, battery companies should have wider a presence to address these expectations.
Other key challenges
- Rooftop solar source doesn’t match the rise in renewable energy in India.
- While industrial and commercial consumers account for 70% of total installed capacity residential consumers remain a big untapped potential to give the boost
- Solar rooftops also face several challenges such as little consumer awareness, lack of innovative government policies or attention, bureaucratic hassles, and limited support from discoms.
Way forward
- Supportive policies and innovative technological approaches are needed for the sector to achieve its potential.
- Indian policymakers need to plan for rooftop solar plus storage, rather than rooftop solar alone with the grid as storage (net / gross metering).
- The declining cost of storage solutions, along with that of rooftop solar solutions, is likely to change the future of the Indian power sector.
- Several countries such as Australia, the United States, Germany, among others have already endorsed solar power with battery storage.
- Energy storage, therefore, represents a huge economic opportunity for India.
- The creation of a conducive battery manufacturing ecosystem on a fast track could cement India’s opportunity for radical economic and industrial transformation in a critical and fast-growing global market.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Privilege Motion
Mains level: Breach of Privilege
A spokesperson of the non-ruling political party has said that he will move a privilege motion against the Health Minister for misleading Parliament that no deaths were reported specifically because of shortage of oxygen.
Breach of Privilege
- Parliamentary privilege refers to the right and immunity enjoyed by legislatures, in which legislators are granted protection against civil or criminal liability for actions done or statements made in the course of their legislative duties.
- The powers, privileges and immunities of either House of the Indian Parliament and of its Members and committees are laid down in Article 105 of the Constitution.
- Article 194 deals with the powers, privileges and immunities of the State Legislatures, their Members and their committees.
What is a privilege motion?
- Parliamentary privileges are certain rights and immunities enjoyed by members of Parliament, individually and collectively, so that they can “effectively discharge their functions”.
- When any of these rights and immunities are disregarded, the offence is called a breach of privilege and is punishable under law of Parliament.
- A notice is moved in the form of a motion by any member of either House against those being held guilty of breach of privilege.
- Each House also claims the right to punish as contempt actions which, while not breach of any specific privilege, are offences against its authority and dignity.
What are the rules governing privilege?
- Rule No 222 in Chapter 20 of the Lok Sabha Rule Book and correspondingly Rule 187 in Chapter 16 of the Rajya Sabha rulebook govern privilege.
- It says that a member may, with the consent of the Speaker or the Chairperson, raise a question involving a breach of privilege either of a member or of the House or of a committee thereof.
- The rules however mandate that any notice should be relating to an incident of recent occurrence and should need the intervention of the House.
- Notices have to be given before 10 am to the Speaker or the Chairperson.
What is the role of the Speaker/Rajya Sabha Chair?
- The Speaker/RS chairperson is the first level of scrutiny of a privilege motion.
- The Speaker/Chair can decide on the privilege motion himself or herself or refer it to the privileges committee of Parliament.
- If the Speaker/Chair gives consent under Rule 222, the member concerned is given an opportunity to make a short statement.
What is the privileges committee?
- In the Lok Sabha, the Speaker nominates a committee of privileges consisting of 15 members as per respective party strengths.
- A report is then presented to the House for its consideration. The Speaker may permit a half-hour debate while considering the report.
- The Speaker may then pass final orders or direct that the report be tabled before the House.
- A resolution may then be moved relating to the breach of privilege that has to be unanimously passed.
- In the Rajya Sabha, the deputy chairperson heads the committee of privileges, which consists of 10 members.
Answer this PYQ in the comment box:
Q.With reference to the Parliament of India, which of the following Parliamentary Committees scrutinizes and reports to the House whether the powers to make regulations, rules, sub-rules, by-laws etc. conferred by the constitution of delegated by the Parliament are being properly exercised by the Executive within the scope of such delegation?
(a) Committee on Government Assurances
(b) Committee on Subordinate Legislation
(c) Rules Committee
(d) Business Advisory Committee
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Monkey B Virus
Mains level: Zoonotic Diseases
China has reported the first human death case with the Monkey B virus (BV).
What is Monkey B virus?
- The virus, initially isolated in 1932, is an alphaherpesvirus enzootic in macaques of the genus Macaca.
- B virus is the only identified old-world-monkey herpes virus that displays severe pathogenicity in humans.
Answer this question from our AWE initiative:
There is been an increase in occurance of zoonotic human infectious diseases are zoonotic . Give reasons for this. Also suggest ways to contain and decrease the frequency of such events.(250 Words)
How is it transmitted?
- The infection can be transmitted via direct contact and exchange of bodily secretions of monkeys and has a fatality rate of 70 per cent to 80 per cent.
- According to the Centre for Disease Control and Prevention, Macaque monkeys commonly have this virus, and it can be found in their saliva, feces, urine, or brain or spinal cord tissue.
- The virus may also be found in cells coming from an infected monkey in a lab. B virus can survive for hours on surfaces, particularly when moist.
When can a human get infected with B virus?
- Humans can get infected if they are bitten or scratched by an infected monkey.
Symptoms
- Symptoms typically start within one month of being exposed to B virus but could appear in as little as three to seven days.
- The first indications of B virus infection are typically flu-like symptoms such as fever and chills, muscle ache, fatigue and headache.
- Following this, a person may develop small blisters in the wound or area on the body that came in contact with the monkey.
- Some other symptoms of the infection include shortness of breath, nausea and vomiting, abdominal pain and hiccups.
- As the disease progresses, the virus spreads to and causes inflammation (swelling) of the brain and spinal cord, leading to neurologic and inflammatory symptoms.
Is there a vaccine against B virus?
- Currently, there are no vaccines that can protect against B virus infection.
Who are at higher risk for infection?
- The virus might pose a potential threat to laboratory workers, veterinarians, and others who may be exposed to monkeys or their specimens.
- To date, only one case has been documented of an infected person spreading the B virus to another person.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: One District One Focus Product
Mains level: Not Much
ODOFP programme
- The ODOFP programme cover products of agriculture and allied sectors for 728 districts of the country.
- The products have been identified from agricultural, horticultural, animal, poultry, milk, fisheries, aquaculture, marine sectors across the country.
- These identified products will be supported under the PM-FME scheme of the Ministry of Food Processing Industries, which provides incentives to promoters and micro-enterprises
- This scheme is being implemented for a period of five years from 2020-21 to 2024-25.
- The scheme adopts One District One Product (ODOP) approach to reap the benefits of scale in terms of procurement of inputs, availing common services and marketing of products.
About ODOP
- The ODOP scheme aims to identify one product per district based on the potential and strength of a district and national priorities.
- A cluster for that product will be developed in the district and market linkage will be provided for that.
- It is operationally merged with the ‘Districts as Export Hub’ initiative implemented by the Director-General of Foreign Trade (DGFT), Department of Commerce.
- Under the initial phase of the ODOP programme, 106 Products have been identified from 103 districts across 27 States.
Back2Basics: PMFME Scheme
- A centrally sponsored scheme that aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry.
- It aims to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry and promote formalization of the sector,
- It further aims to promote formalization of the sector and provide support to Farmer Producer Organizations, Self Help Groups, and Producers Cooperatives along their entire value chain.
- The scheme envisions directly assist the 2,00,000 micro food processing units in providing financial, technical, and business support for the up-gradation of existing micro food processing enterprises.
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