The Centre plans to table the Development of Enterprise and Service Hubs (DESH) Bill in the monsoon session of the Parliament, which will overhaul the special economic zones (SEZ) legislation.

What are SEZs?

• A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
• SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
• Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

SEZs in India

• The SEZ policy in India first came into inception on April 1, 2000.
• The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
• The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
• Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
• SEZ units used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years

Why replace the existing SEZ Act?

• The World Trade Organization’s dispute settlement panel has ruled that India’s export-related schemes, including the SEZ Scheme, were inconsistent with WTO rules.
• India has been accused of giving tax benefits to exports through SEZs.
• Countries aren’t allowed to directly subsidize exports as it can distort market prices.
• SEZs also started losing their allure after the introduction of minimum alternate tax and a sunset clause to remove tax sops.

How is the DESH legislation different?

• The DESH legislation goes beyond promoting exports.
• It has a much wider objective of boosting domestic manufacturing and job creation through ‘development hubs’.
• These hubs will no longer be required to be net foreign exchange positive cumulatively in five years (i.e, export more than they import) as mandated in the SEZ regime.
• They will be allowed to sell in the domestic area more easily. The hubs will, therefore, be WTO-compliant.
• DESH legislation also provides for an online single-window portal for the grant of time-bound approvals for establishing and operating the hubs.

Will there be any tax benefits at these hubs?

• It’s not clear yet.
• However, the draft Bill does state that states and the Centre will be allowed to give further incentives in the form of tax rebates, incentives, exemptions, and duty drawbacks.
• Subsidy schemes may be offered for goods and services at these hubs.
• States and the Centre may take fresh measures to speed up clearances and simplify compliance.

Will it be easier to sell in the domestic market?

• Companies can sell in the domestic market with duties only to be paid on the imported inputs and raw materials instead of the final product.
• In the current SEZ regime, duty is paid on the final product when a product is sold in the domestic market.
• Besides, there is no mandatory payment requirement in forex, unlike in the case of SEZs.
• However, the government may impose an equalization levy on goods or services supplied to the domestic market to bring taxes at par with those provided by units outside

What role will states play in DESH?

• DESH is expected to play a larger role, definitely.
• In the SEZ regime, most decisions were made by the commerce department at the Centre.
• Now, states will be able to participate and even directly send recommendations for development hubs to a central board for approval.
• Besides, state boards would be set up to oversee the functioning of the hubs.
• They would have the powers to approve imports or procurement of goods, and monitor the utilization of goods or services, warehousing, and trading in the development hub.

Way forward

• If indeed India needs the special hubs, the govt must address the critical gaps in existing SEZ law through the DESH bill and it must be thought through before bringing it to the Parliament.
• Effective implementation of the law could act as a lever to India’s growth.

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The Government has notified the Consumer Protection (Direct Selling) Rules, 2021, that prohibits all direct selling entities from promoting pyramid schemes or money circulation schemes, while also providing for a mechanism for redressal of consumer complaints.

What is Direct Selling?

• In Direct Selling, goods or services are directly sold to consumers through sellers who act as individual representatives of the direct selling entities, instead of a retail premises.
• For example: Brands such as Amway, Herbalife , Oriflame and Modicare etc. directly sell their products through outlets. They are generally expensive.

What are the new rules?

• The new Rules were primarily introduced to prohibit the promotion of pyramid and money circulation schemes by the direct selling industry.
• Apart from that, entities are now required to be registered in the country.
• Further, to provide a redressal mechanism for consumers, the Rules mandate that direct selling entities appoint grievance redressal officers who will put up their contact details on the website.
• Direct selling entities that are not established in India, but offer goods or services to consumers here, will also need to comply with the newly notified rules.

How big is the Indian Direct Selling industry?

• As per a report, the number of active direct sellers in the country stood at around 7.4 million in 2019-20.
• The two big categories were ‘wellness & nutraceuticals’ – which accounted for 57% of the sales, followed by cosmetics and personal care which contributed 22% to the sales.

Whom do these Rules apply?

• These Rules apply on all models of direct selling and all goods and services bought or sold through direct selling.
• Direct selling entities that are not established in India, but offer goods or services to consumers in India, will also need to comply with the newly notified Rules.

Why have they been notified now?

• Fraud prevention: The guidelines aim for preventing fraud and protecting consumer interest. Earlier, these were not regulated under enforceable law.
• Costly products: A direct selling entity or a direct seller cannot refuse to take back “spurious goods or deficient services” and provide a refund, or charge consumers any entry fee or subscription fee.
• Coercive persuasion: They often tend to persuade consumers to make a purchase based upon the representation that they can reduce or recover the price by referring prospective customers.
• Providing legitimacy to DS: The Rules provide legitimacy to the industry and also help attract more foreign direct investment (FDI).

What do the rules say?

• Registration: Every direct selling entity with operations in India needs to be registered in the country, and have a minimum of one physical location as its registered office within India.
• Self-declaration: The entities will need to make a self-declaration that it is in compliance with these Rules and is not involved in any pyramid scheme or money circulation scheme.
• Data storage within India: Additionally, such entities are required to store sensitive personal data within India and take steps to ensure the protection of such data.
• Grievance redressal: The Rules mandate that direct selling entities appoint one or more grievance redressal officers and put up their details such as name, telephone number and email address, on their website.
• Officer to ensure compliance: Every direct selling entity will need to appoint a nodal officer who will be responsible for ensuring compliance with the provisions of the Act.
• Restricted visits: A direct seller will not visit a consumer’s premises without identity card and prior appointment or approval, or provide any literature to a prospect, which has not been approved by the direct selling entity.

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The Union Home and Cooperation Minister has announced the decision to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.

What is MSCS Act?

• Cooperatives are a state subject, but there are many societies such as those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
• The MSCS Act was passed to govern such cooperatives.
• For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.

What are Multi-State Cooperatives?

• They draw their membership from two or more states, and they are thus registered under the MSCS Act.
• Their board of directors has representation from all states they operate in.
• Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.

Why does the government plan to amend the Act?

(1) Issues with Central Registrar

• The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies.
• The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
• What was supposed to facilitate smooth functioning, however, has created obstacles.
• For state-registered societies, financial and administrative control rests with state registrars who exercise it through district- and tehsil-level officers.

(2) Multiple checks and balances

• Thus if a sugar mill wishes to buy new machinery or go for expansion, they would first have to take permission from the sugar commissioner for both.
• Post this, the proposal would go to the state-level committee that would float tenders and carry out the process.
• While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies.
• Instead, the board of directors has control of all finances and administration.

(3) Lack of govt control

• There is an apparent lack of day-to-day government control on such societies.
• Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
• The central registrar can only allow inspection of the societies under special conditions — a written request by one-third of the members of the board.
• Inspections can happen only after prior intimation to societies.

(4) Lack of infrastructure

• The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
• For members of the societies, the only office where they can seek justice is in Delhi, with state authorities expressing their inability to do anything.

(5) Ponzi schemes functioning as MCS

• There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.
• Such schemes mostly target small and medium holders with the lure of high returns.
• Fly-by-night operators get people to invest and, after a few instalments, wind up their operations.

What kind of amendments can be expected?

• The Centre is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc.
• The centre might increase their manpower, first in Delhi and then in the states, to ensure better governance of the societies.
• Also, technology will be used to bring in transparency.

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Last week, the Competition Commission of India (CCI) has slapped a penalty on a cartel of beer companies for hiking the prices.

What is a Cartel?

• According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
• The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
• The three common components of a cartel are:

1. an agreement
2. between competitors
3. to restrict competition

What is Cartelization?

• Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
• But when prices are controlled by the government under a law, that is not cartelization.
• The Competition Act contains strong provisions against cartels.
• It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
• This has proved a highly effective tool against cartels worldwide.
• Cartels almost invariably involve secret conspiracies.

How do they work?

• According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:

1. price-fixing
2. output restrictions
3. market allocation and
4. bid-rigging

• In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.

How do cartels hurt?

• While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
• A successful cartel raises the price above the competitive level and reduces output.
• Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.

In other words, by artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.

Are there provisions in the Competition Act against monopolistic prices?

• There are provisions in the Competition Act against abuse of dominance.
• One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
• Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
• However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.

How might cartels be worse than monopolies?

• It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
• That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

How to stop the spread of cartelisation?

• Cartels are not easy to detect and identify.
• As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
• Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
• However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelisation.
• In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.

Try this PYQ:

One of the implications of equality in society is the absence of:

(a) Privileges

(b) Restraints

(c) Competition

(d) Ideology

 

Post your answers here.

6

Please leave a feedback on thisx

Back2Basics: Competition Commission of India (CCI)

• The CCI is the chief national competition regulator in India.
• It is a statutory body within the Ministry of Corporate Affairs.
• It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.

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The Ministry of Corporate Affairs has expanded the turnover and borrowing thresholds for Small and Medium-sized Companies (SMC), allowing a larger number of firms to benefit from reporting exemptions under accounting norms.

What is the change?

• The MCA has increased the turnover threshold for SMCs to Rs 250 crore from Rs 50 crore, and the borrowing threshold to Rs 50 crore from Rs 10 crore.
• SMCs are permitted to avail a number of exemptions under the Company (Accounting Standards) Rule 2021 to reduce the complexity of regulatory filings for smaller firms.
• Banks, financial institutions, insurance companies, and listed companies cannot be classified as SMCs.
• Further, any company which is either the holding company or subsidiary of a company that is not an SMC cannot be classified as an SMC.

What are the exemptions available to SMCs that are not available to other firms?

• SMC are completely exempted from having to file cash flow statements and provide a segmental break up of their financial performance in mandatory filings.
• SMCs can also avail partial reporting exemptions in areas including reporting on employee benefits obligations such as pensions.
• SMCs are exempted from having to provide a detailed analysis of benefit obligations to employees, but are still required to provide actuarial assumptions used in valuing the company’s obligations to employees.
• SMCs are also exempted from having to report diluted earnings per share in their filings.
• Diluted earnings per share reflect the per-share earnings of a company assuming that all options to convert other securities into shares are exercised.

Answer this PYQ in the comment box:

Q. What is/ are the recent policy initiative(s) of the Government of India to promote the growth of the manufacturing sector?

1. Setting up of National Investment and Manufacturing Zones.
2. Providing the benefit of single window clearance.
3. Establishing the Technology Acquisition and Development Fund.

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

How does this impact these firms?

• Experts have noted that the move would promote ease of doing business for the firms that would now be included under the definition of SMC.
• The Accounting Standards for SMC, which were notified in December 2006 and amended from time to time, are much simpler as compared to Indian Accounting Standards (Ind AS).
• These accounting standards involve less complexity in their application, including the number of required disclosures being less onerous.
• Ind AS standards are applied to larger firms and are largely similar to International Financial Reporting Standards (IFRS) used in most developed jurisdictions.

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The Gujarat Maritime University signed a Memorandum of Understanding (MoU) with the International Financial Services Centres Authority in GIFT City to promote the Gujarat International Maritime Arbitration Centre (GIMAC).

What is GIMAC?

• The GIMAC will be part of a maritime cluster that the Gujarat Maritime Board (GMB) is setting up in GIFT City at Gandhinagar.
• The Maritime Board has rented about 10,000 square feet at GIFT House which is part of the Special Economic Zone (SEZ) area with clearance from the development commissioner.
• This will be the first centre of its kind in the country that will manage arbitration and mediation proceedings with disputes related to the maritime and shipping sector.
• The centre is expected to be ready by the end of August.

Why is such a centre needed?

• It is required because, for instance, the ship owners belong to a different country and the person leasing the ship is from another country.
• Any dispute arising between them can be resolved within this centre.
• There are over 35 arbitration centres in India. However, none of them exclusively deals with the maritime sector.
• The arbitration involving Indian players is now heard at the Singapore Arbitration Centre.
• The idea is to create a world-class arbitration centre focused on maritime and shipping disputes that can help resolve commercial and financial conflicts between entities having operations in India.
• Globally, London is the preferred centre for arbitration for the maritime and shipping sector.

What is the current status of the project?

• The process of recruiting staff for the arbitration centre is currently underway.
• A 10-member advisory board for GIMAC, consisting of international experts and professionals, has been created, which will help in the framing of rules for the arbitration centre and in empanelling arbitrators.

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