Note4Students
From UPSC perspective, the following things are important :
Prelims level: Foreign exchange reserves
Mains level: Paper 3- Depreciation of rupee
Context
The Indian rupee has been in free fall. Some commentators have pointed out that it has fallen less against the US dollar than a lot of other currencies.
Significance of foreign exchange reserves
- Decline by 10 per cent: A large part of the current relative strength of the rupee vis-à-vis other currencies is due to the sale of dollars by the RBI — it has lost more than 10 per cent of its foreign reserves in the space of about nine months.
- Why country needs foreign exchange: A developing economy needs foreign exchange to finance its international transactions for both the current account (goods and services) and capital account (assets) transactions.
- Cost involved: The benefits of this stock are obvious, but there are also costs associated with the holding of these.
- The larger the stock, the more its reassuring value.
- Typically, because of their “liquid” nature, the returns on these are low.
How RBI manages the foreign exchange reserves?
- How country accumulates foreign exchange reserves? A country can accumulate reserves by running current account surpluses that is, keeping its total expenditure below its gross national product, and/or by interventions in the foreign exchange markets.
- India (usually) runs a current account deficit.
- Its reserves are then accumulated solely through “sterilised” interventions.
- When foreign entities want to invest in Indian assets (stocks and debt), the RBI gives them rupees in exchange for foreign exchange.
- Mindful of the fact that this may cause a surge in inflation, the RBI then sells government bonds, sucking out the additional rupees.
- The foreign exchange reserves rise, and are matched by an increase in government bonds outstanding.
How outflow of foreign financial capital affects foreign exchange reserves?
- When capital inflows were taking place, the RBI accumulated foreign exchange and allowed some currency appreciation.
- As long as capital flows were strong, foreign reserves kept piling up and the currency (in real terms) was strong.
- Depreciation of rupee: In recent months, we have witnessed an outflow of foreign financial capital, with reserves falling and the rupee depreciating.
- International capital flows tend to be pro-cyclical, that is, they move with the world economic activity.
- Unlikely to increase export: A depreciation of our currency is unlikely to see our exports rise very much because the world income levels are down.
- Inflation: What this depreciation will cause is imported inflation and bankruptcies.
Analysing the RBI’s role
- Allowed outward remittances: The RBI threw caution to the winds and allowed outward remittances in foreign currency by Indian residents, with almost no questions asked (up to $2,50,000 annually).
- The RBI could have had a much larger supply of foreign exchange had they not generously handed out foreign currency to be frittered away.
- While they have not restricted outward remittances, they are trying to shore up reserves by making FCNR (B) and FRE deposits more attractive.
- It is not in any individual’s interest to bail out the RBI.
- The RBI has also committed to using reserves to ensure an orderly depreciation.
- Futility of RBI’s intervention: If the world financial markets want a depreciated rupee, the RBI’s intervention would not be able to prevent it.
- But in spite of this, the RBI, with its commitment to inflation targeting, would try to prevent a depreciation (because it causes the price of imported goods to rise).
- Possible impact on the poor: Having too open a capital account policy was always fraught with risks.
- When countries are confronted with a crisis, the IMF is asked to provide assistance.
- But assistance from IMF would involve a “structural adjustment”, including cutting back on subsidies for the poor and vulnerable.
Conclusion
We are standing at the edge of a precipice, but, hopefully, the world will pull back in the nick of time. If not, it would be the chronicle of a death foretold.
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Back2Basics: FCNR(B) Account
- An FCNR ( Foreign Currency Non-resident) account is a type of term deposit that NRIs can hold in India in a foreign currency.
- FCNR (A) was introduced in 1975 to encourage NRI deposits.
- The Reserve Bank of India (RBI) guaranteed the exchange rate prevalent at the time of a deposit to eliminate risk to depositors.
- In 1993, the apex bank introduced FCNR (B), without exchange rate guarantee, to replace FCNR (A).
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: INSTC
Mains level: Paper 2- Significance of INSTC for India
Context
Last week, two 40-ft containers of wood laminate sheets crossed the Caspian Sea from Russia’s Astrakhan port, entered Iran’s Anzali port, continued their southward journey towards the Arabian Sea, entered the waters at Bandar Abbas and eventually reach Nhava Shiva port in Mumbai.
Launch of INSTC
- The journey of containers signalled the launch of the International North South Transport Corridor (INSTC), a 7,200-km multi-modal transport corridor that combines road, rail and maritime routes connecting Russia and India via central Asia and Iran.
- The legal framework for the INSTC is provided by a trilateral agreement signed by India, Iran and Russia at the Euro-Asian Conference on Transport in 2000.
- Since then Kazakhstan, Belarus, Oman, Tajikistan, Azerbaijan, Armenia and Syria have signed instruments of accession to become members of the INSTC.
- Once fully operational, the INSTC is expected to reduce freight costs by 30% and journey time by 40% in comparison with the conventional deep sea route via the Suez Canal.
- The corridor is expected to consolidate the emerging Eurasian Free Trade Area.
Significance for India
- Geopolitical link: The INSTC’s launch provides missing pieces of the puzzle about India’s refusal to condemn Russia’s invasion of Ukraine.
- India’s investment in the INSTC is exemplified by its involvement in Iran’s Chabahar port and the construction of a 500-km Chabahar-Zahedan railway line.
- The India Ports Global Limited, a joint venture between the Jawaharlal Nehru Port Trust and Kandla Port Trust, will develop the port along with Iran’s Aria Banader.
- IRCON International will contribute to constructing the railway line.
- A special economic zone around Chabahar will offer Indian companies the opportunity to set up a range of industries.
- The INSTC, thus, provides an opportunity for the internationalisation of India’s infrastructural state, with state-run businesses taking the lead and paving the way for private companies.
Geopolitical significance for India
- Access to Afghanistan and Central Asia: Once completed, this infrastructure will allow India access to Afghanistan and central Asia, a prospect strengthened by the Taliban government’s support for the project.
- India can now bypass Pakistan to access Afghanistan, central Asia and beyond.
- North-South transport corridor: The INSTC can shape a north-south transport corridor that can complement the east-west axis of the China-led Belt and Road Initiative (BRI).
- Non-alignment to multi-alignment: India’s founding role in both the INSTC and the Quad exemplify its departure from non-alignment to multi-alignment.
- The INSTC offers a platform for India to closely collaborate with Russia, Iran and Central Asian republics.
- That two of its partners are subject to Western sanctions hasn’t prevented India from collaborating with the U.S., Japan and Australia as part of the Quad to create and safeguard a free and open Indo-Pacific.
Conclusion
As a transcontinental multi-modal corridor that aims to bring Eurasia closer together, the INSTC is a laudable initiative in its own right. That it helps India consolidate its multi-alignment strategy sweetens the deal.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: India's coal import
Mains level: Paper 3- Issues with India's power sector
Context
Across several states, the fiscal situation is becoming increasingly challenging. Yet, the common thread that runs through these deficits — state ownership and control — remains unaddressed.
State ownership: structural cause of India’s deficit
- Coal India’s inability to raise production to meet growing demand contributed to the recent power crisis.
- The state-owned power distribution companies have failed to bring down losses despite many schemes and packages.
- The state control of these critical aspects of India’s power chain is central to a higher current account deficit and growing fiscal risks at the state level.
Coal output fails to meet the demand
- From 2013-14, the Indian economy has grown by around 50 per cent (in real terms).
- But Coal India, which accounts for around 80 per cent of India’s total coal production, was able to raise its output by just 34 per cent over the same period.
- Increased reliance on imported coal: India’s coal imports (thermal and cooking) rose to a staggering 230.3 million tonnes in 2020-21, up 37 per cent from 168.5 million tonnes in 2013-14.
- Coal imports for thermal power alone have more than doubled in the first quarter, compared to the same period last year.
- To put this in perspective — the value of coal imports in just the first three months of this year is likely to be around half of what was imported in all of last year.
- Increase in current account deficit: This growing reliance on coal imports (along with crude and gold) is at the root of the country’s widening current account deficit.
- An inability to ramp up production, to forecast demand accurately, as every episode of coal shortage over the years has exposed, is the hallmark of the coal sector that is still largely the preserve of a public sector monopoly.
Problem of DISCOMS
- No improvement in financial and operational issues: Despite repeated attempts to turn around their financial and operational positions, on key metrics, the divide between the public and private sector discoms is deepening.
- In 2019-20, public sector discoms lost Rs 0.72 per unit of power sold, while private discoms made Rs 0.20 per unit.
- High AT&C losses: Similarly, in 2019-20, the AT&C losses (due to operational inefficiencies) for state discoms were pegged at 21.7 per cent, while for the private sector, losses were at 8 per cent.
- With deteriorating finances, the net worth of all public sector discoms put together stands at a negative Rs 61,757 crore, while for the private sector, it is a positive Rs 24,965 crore.
- There have been several attempts to rescue state discoms.
- In the early 2000s, the scheme for repayment of SEB dues amounted to Rs 41,473 crore.
- In 2012, the financial restructuring plan added up to Rs 1.19 lakh crore.
- In 2015, UDAY involved a transfer of Rs 2.01 lakh crore to state government balance sheets.
- Notwithstanding various schemes to turn around their finances, the total debt of all discoms put together stood at Rs 5.14 lakh crore at the end of 2019-20.
- Of this, Rs 4.87 lakh crore is owed by state discoms.
- Impact on entire power chain: A deterioration in the financial position of discoms means that their dues to power generating companies start mounting, which in turn delay payments to coal miners, affecting the financial stability of the entire power chain.
Declining cross-subsidisation
- As tariffs charged by discoms are much higher than the cost of alternatives, a sizeable part of non-agricultural sales of discoms (industrial and commercial consumers) have already shifted towards captive and solar.
- And with the ministry of power recently reducing the threshold for green energy open access, more and more consumers will increasingly opt out.
- This would mean that discom losses will rise as cross subsidisation from commercial and industrial consumers will decline, increasing their dependence on state subsidies.
- In 2019-20, the total state subsidy claimed and released was around Rs 1.1 lakh crore or 17 per cent of total discom revenue.
- This will only increase down the line, making future bailouts even more fiscally challenging.
Conclusion
Tackling these deficits requires addressing the issue of government control over critical aspects of India’s energy sector. Without shifting to market-determined prices — reforms are ultimately about price — little headway is likely to be made.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- Issues with PMLA
Context
The Supreme Court has upheld the constitutional validity of the provisions of the Prevention of Money Laundering Act (PMLA), calling it a “unique and special legislation” and underlining the powers of the Directorate of Enforcement (ED) to hold inquiries, arrest people and attach property.
Prevention of Money Laundering Act (PMLA)
- PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for confiscation of property derived from money laundering.
- It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering.
- PMLA and the Rules notified there under came into force with effect from July 1, 2005.
- The act was amended in the year 2005, 2009 and 2012.
Objectives of PMLA
The PMLA seeks to combat money laundering in India and has three main objectives:
- To prevent and control money laundering.
- To confiscate and seize the property obtained from the laundered money; and
- To deal with any other issue connected with money laundering in India.
Issues with the PMLA
- Opacity: The Enforcement Case Report (the analogue of an FIR) is not shared with the accused.
- Nor are the full grounds of arrest shared with you.
- Bail cannot be granted without hearing the prosecution and you are required to prove your innocence to get bail.
- Lack of clarity in definition: The definition of crime under this Act is elastic.
- The sovereign has immense latitude to define what counts as the relevant crime.
- It can also in a classic instance of rule by law change the presumption of innocence.
- Lack of safeguard: The list of crimes included overrides similar crimes in other parts of the law.
- The code has an exceptional procedure of its own that can trump the safeguards of the Criminal Code of Procedure.
- In theory, the law provides safeguards against attaching properties, but those safeguards are weak and do not allow for even reasonable exceptions that might be necessary for your dignity or continuing with your business or livelihood.
- Mere possession of the proceeds of a crime, without any surrounding consideration of how one came to be in possession of the proceeds, makes it an offence.
- That the state officials are not classed as police. But they, in some respects, have even more power than the police.
- Use of Money Bill route: The law itself has been enacted by using the controversial Money Bill route.
- Low conviction rate: The conviction rate under this law is very low, less than 0.5 per cent.
- Misuse of law: The stringent provisions and vagueness in definitions in the law make it susceptible to misuse against a political opponenet.
- International context: Post 9/11, there was concern with terrorist financing and arguably many international treaties actually weakened, rather than strengthened, individual rights protections.
- The goal of international treaties is laudable.
- But the rhetoric of international treaties is often used to override domestic rights safeguards.
Conclusion
There is a need for a review of the various provision and definitions in the law and their utility.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: International Tiger Day
Mains level: Paper 3- Tiger conservation in India
Context
India is now reporting increased tiger numbers, and a recent International Union for Conservation of Nature assessment suggests that tiger numbers have increased by 40% since 2005. This is cause for celebration. But is the rise in tiger numbers enough to prevent their extinction?
Relations between distribution and genetic variation
- Decades of research in ecology and evolution suggest that numbers are critical to avoid extinction.
- Populations that are smaller than 100 breeding individuals have a high probability of extinction.
- At the same time, for populations to persist, they should be part of larger landscapes with other such populations that are connected.
- This is because small populations are subject to chance/random events.
- These chance events may cause them to lose advantageous genetic variants, while other, detrimental genetic variants might increase in frequency.
- This process is called genetic drift.
- Individuals in small populations are more likely to be related, leading to inbreeding.
- This exposes the many slightly disadvantageous genetic variants that are present in all genomes.
- When expressed together, these detrimental genetic variants cause inbreeding depression, and reduced survival and reproduction of inbred individuals.
- A closer look at the distribution of tigers across their range shows that most tiger ‘populations’ are smaller than 100.
- This raises a question why are we not seeing extinctions happening more often? Is this because tiger populations are connected to each other?
Research findings about movement of tigers
- One way to answer the question about not so frequent extinction is to use movement data sourced from radio-collared tigers, often difficult to come by for a rare and endangered species.
- Alternatively, tigers can be genetically sampled using their excreta/scat, hair and other biological samples from different tiger reserves and analysed in a laboratory.
- Genetic variants in tiger DNA can be identified and analysed and compared across tiger reserves.
- Genetic variation in landscape with connectivity: Sets of tiger reserves that show shared genetic variation are well connected — the inference is that the intervening landscapes facilitate connectivity or movement.
- On the flip side, sets of tiger reserves that share less genetic variation must have barriers or landscapes that impede movement and connectivity.
- Most land-use types were not too bad for tiger connectivity, including agricultural fields.
- However, the presence of built-up areas and high traffic roads greatly impeded tiger movement.
- Results showed that extinction could be avoided if corridors were safeguarded.
- In summary, as long as we manage landscapes outside tiger reserves to allow tiger movement, and protect prey and tigers inside tiger reserves, tigers are sure to survive in landscapes such as central India.
Genetic changes in isolated tiger population
- Black tigers were found only in the Similipal tiger reserve in Odisha.
- Genome sequences of a litter of zoo tigers that included pseudo-melanistic cubs revealed that a single spelling mistake (or mutation) in a specific gene causes these tigers to look this way.
- Pseudo-melanistic or black tigers found in Odisha has demonstrated the genetic effects of isolation.
- Results of the research pointed to genetic drift, or random events that have lead to this genetic variant that causes pseudomelanistic coat colour becoming common only in Similipal.
- On the other side of India, in Rajasthan, genome sequences from wild tigers reveal that individuals in the Ranthambore tiger reserve show inbreeding.
- In short, we are seeing the genetic effects of isolation and small population size in wild tigers at some locations.
Way forward
- Focus on connectivity: While we celebrate the recovery of tiger populations only by looking at numbers, we must not lose sight of other factors that are critical to their continued survival, such as connectivity.
- Special attention is needed for populations that are becoming isolated and facing the genetic consequences of such isolation.
- The future of such populations may depend on genetic rescue or even the introduction of novel genetic variants.
Conclusion
We are fortunate that novel genome sequencing technology provides an opportunity to understand tigers much better in the context of their conservation. The future of tigers will require a ‘dialogue’ between such data and management strategies in order to ensure their survival. India is lucky to have so many wild tigers and we must work together to save them.
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Back2Basics: Pseudo-melanism
- Tigers have a distinctive dark stripe pattern on a light background of white or golden.
- A rare pattern variant, distinguished by stripes that are broadened and fused together, is also observed in both wild and captive populations.
- This is known as pseudo-melanism, which is different from true melanism, a condition characterised by unusually high deposition of melanin, a dark pigment.
- While truly melanistic tigers are yet to be recorded, pseudo-melanistic ones have been camera-trapped repeatedly, and only, in Simlipal, a 2,750-km tiger reserve in Odisha, since 2007
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FRBM Act
Mains level: Paper 2- Freebies and related issues
Context
In a recent address, the prime minister shared his anguish on what he called the “revdi” or the freebies culture.
Populist policies and its impact over the states’ finances
- What are freebies? N K Singh defined freebies as “something that is given to you without having to pay for them, especially as a way of attracting your support for or interest in something.”
- A recent report of the RBI on states’ finances highlighted the perilous condition of states’ finances and enhanced debt stress on account of flawed policies.
- Nothing undercuts more irresponsibly India’s abiding international and national commitments than the perils of this reckless populism.
Factors that need to be considered in devising welfare policies
1] Quest for sustainable development
- The initiatives undertaken at COP21 in Paris, the International Solar Alliance and subsequently at the COP26 in Glasgow represent India’s national consensus to forge a path of growth geared towards intergenerational equity and to exponentially increase development.
- Our ability to adhere to this commitment depends on two other commitments.
- 1] An increase in the percentage of renewable energy in our energy consumption.
- While subsidies are being promised in one form or the other by way of free electricity, the deteriorating health of state distribution companies seriously undercuts their financial viability.
- Lowering the price for some consumers, offset through overcharging industrial and commercial contracts, reduces competitiveness, ushers slower growth both in incomes and employment.
- 2] The inability of discoms to actively encourage solar power is stymied by their financial condition and the inability to evolve tariff structures.
- Regulatory capture, a fixation on unrealistic tariffs and cross-subsidy in energy utilisation prevent a credible coal plan, which is central to our energy planning.
2] Challenges in providing basic facilities
- The government seeks to address the challenge of inequity by ensuring access to a wide range of basic facilities.
- These include banking, electricity, housing, insurance, water and clean cooking fuel, to mention a few.
- Removing this inequity to access helps boost the productivity of our population.
3] Issue of access
- Benefits under various welfare schemes such as PM Awas Yojana, Swachh Bharat Mission and Jal Jeevan Mission have eliminated the biggest barrier for citizens — the exorbitant upfront cost of access.
- Moreover, they are leading to irreversible empowerment and self-reliance.
- For instance, a house built under the PM Awas Yojana is a lifelong asset for the beneficiary household that cannot be taken back by any government.
4] Use of technology in direct benefit transfer
- Identification of beneficiaries through the SECC and prioritisation based on deprivation criteria has enabled the government to assist those who need it the most.
- Governments that end up taking the shortcut of universal subsidies or freebies often end up ignoring the poor and transferring public resources to the affluent.
5] Expenditure prioritisation
- The next issue that needs to be considered is of expenditure prioritisation being distorted away from growth-enhancing items, leading to intergenerational inequity.
- Investors, both domestic and foreign, and credit rating agencies look to macro stability in terms of sustainable levels of debt and fiscal deficit.
- After years of fiscal profligacy, we returned to the path of fiscal rectitude in 2014.
- The last time such an effort was made was by enacting the first FRBM Act on August 26, 2003.
6] Impact on future of manufacturing and employment
- The next factor that need to be considered is the debilitating effect of freebies on the future of manufacturing and employment.
- Freebies lower the quality and competitiveness of the manufacturing sector by detracting from efficient and competitive infrastructure.
- They stymie growth and, therefore, gainful employment because there is no substitute for growth if we wish to increase employment.
Conclusion
The poor state finance position should serve as a timely reminder to those promising fiscally imprudent and unsustainable subsidies.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: GDP
Mains level: Paper 3- Need for overhaul of India's economic performance measurement framework
Context
It is then apparent that GDP growth matters to the average Indian only if it can generate good quality jobs and incomes for them.
Background
- Nobel laureate Simon Kuznets, who conceived of GDP as a measure of economic performance, never intended it to be the single-minded economic pursuit for a nation that it has now become, and warned repeatedly that it is not a measure of societal well-being.
- Irrefutably, GDP is an elegant and simple metric that is a good indicator of economic progress which can be compared across nations.
- But a compulsive chase for GDP growth at all costs can be counter-productive, since it is not a holistic but a misleading measure.
- The excessive obsession over GDP growth by policymakers and politicians can be unhealthy and dangerous in a democracy.
- If growth in GDP does not translate into equivalent economic prosperity for the average person, then in a one person-one vote democracy, exuberance over high GDP growth can backfire and trigger a backlash among the general public.
- Global phenomenon: Sri Lanka’s mass uprising and people’s revolution can partly be explained through this prism of the structural break between headline GDP growth and economic prosperity for the people.
- The U.S. today produces fewer new jobs for every percentage point of GDP growth than it did in the 1990s.
- China produces one-third the number of new jobs today than it did in the 1990s for every percentage of its GDP growth.
Employment intensity of economic growth
- Data of ‘employment in public and organised private sectors’ published by the Reserve Bank of India (RBI) shows that in the decade between 1980 and 1990, every one percentage point of GDP growth (nominal) generated roughly two lakh new jobs in the formal sector.
- In the subsequent decade from 1990 to 2000, every one percentage point of GDP growth yielded roughly one lakh new formal sector jobs, half of the previous decade.
- In the next decade between 2000 and 2010, one percentage point of GDP growth generated only 52,000 new jobs.
- The RBI stopped publishing this data from 2011-12.
- In essence, one percentage of GDP growth today yields less than one-fourth the number of good quality jobs that it did in the 1980s.
- It is amply clear that the correlation between formal sector jobs and GDP growth has weakened considerably.
Implications of decline in GDP growth’s contribution to job creation
- Irrelevant as a political measure: GDP growth may be an important economic measure, but it is becoming increasingly irrelevant as a political measure, since it impacts only a select few and not the vast majority.
- Indicates changed nature of economic development: This divorce of GDP growth and jobs is both a reflection of the changed nature of contemporary economic development with emphasis on capital-driven efficiency at the cost of labour and GDP being an inadequate measure.
- Political backlash: The perils of the obsession over GDP growth will be felt by politicians who have to answer voters on lack of jobs and incomes despite robust headline growth.
- Voter disenchantment over the economy not working for them is already rife in many democracies across the world that have catalysed agitations and social disharmony.
- Electoral outcomes in favour of extreme positions in mature democracies such as the U.S., the U.K., France and Germany in the last decade may partly be a reflection of voters’ sense of deception over economic gains.
Way forward
- It is time for India’s political leaders to not be drawn into argument over GDP growth every quarter and instead clamour for an overhaul of India’s economic performance measurement framework to reflect what truly matters to the common person.
Conclusion
GDP growth has turned into a misleading and dangerous indicator that portrays false economic promises, betrays people’s aspirations and hides deeper social problems.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: IBC
Mains level: Paper 3- Point of trigger for insolvency
Context
In the recent judgement the Supreme Court held that the National Company Law Tribunal (NCLT) cannot admit an insolvency application filed by a financial creditor merely because a financial debt exists and the corporate debtor has defaulted in its repayment.
Why the point of trigger is important in insolvency law
- A critical element for any corporate insolvency law is the point of trigger.
- The law must clearly provide the grounds on which an insolvency application against a corporate debtor should be admitted.
- If there is any confusion at this stage, precious time could be wasted in litigation.
- That would cause value destruction of the distressed business.
- On the other hand, if the law is clear and litigation can be minimised, the distressed business could be resolved faster.
- Its value could be preserved.
- And all stakeholders collectively would benefit.
- Evidently, objective legal criteria for admission are critical for an effective corporate insolvency law.
Determining insolvency and implications of the SC ruling
- The balance-sheet test is one method for determining insolvency at the point of trigger.
- This test, however, is vulnerable to the quality of accounting standards.
- That’s why the Bankruptcy Law Reforms Committee did not favour this test in the Indian context.
- Instead, it recommended that a filing creditor must only provide a record of the liability (debt), and evidence of default on payments by the corporate debtor.
- This twin-test was expected to provide a clear and objective trigger for insolvency resolution.
- The Supreme Court’s latest ruling is likely to radically alter these expectations.
Implications of the Supreme Court ruling
- Resisting the admission by debtor: Now due to the Supreme Court ruling, even if the NCLT is satisfied that a financial debt exists and that the corporate debtor has defaulted, it may not admit the case for resolution if the corporate debtor resists admission on any other grounds.
- Corporate debtors are likely to use this precedent to the fullest to resist admission into IBC.
- Risk of value destruction due to delay: The likely outcome would be more litigation and delay at the admission stage, enhancing the risks of value destruction in the underlying distressed business.
Conclusion
In all fairness, the Supreme Court has been extremely pragmatic in its interpretation and application of the IBC. Even in the recent ruling, the court has rightly cautioned that the NCLT should not exercise its discretionary power in an arbitrary or capricious manner. Yet, this decision may have opened a Pandora’s box. Policymakers would be well-advised to take note before history starts repeating itself.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: LEO
Mains level: Paper 3- 5G network with LEO satellites
Context
As terrestrial 5G mobile networks are being rolled out across countries, there is a renewed interest in integrating Non-Terrestrial Networks.
SatNets for 5G
- Satellites and terrestrial networks have always been considered two independent ecosystems, and their standardisation efforts have proceeded independent of each other.
- The primary non-terrestrial network that is being considered is the low latency Low Earth Orbit (LEO) satellite networks (SatNets), as a complement to terrestrial networks.
- Towards this, Starlink, operated by the Elon Musk-owned SpaceX, and OneWeb, promoted by Bharti Global, have launched about 2,500 and 648 LEO satellites respectively at an altitude of about 1,200 km with the objective of promoting global broadband connectivity.
- There are other players such as Reliance Jio in a joint venture with Luxembourg-based SES and Amazon’s Project Kuiper.
Benefits of using SatNets
- 1] Service continuity in emergency: service continuity to provide seamless transition between terrestrial networks and SatNets in case of public safety, disaster management and emergency situations;
- 2] Providing service in remote area: Service ubiquity to provide 5G services in unserved and underserved areas of the world, thereby bridging the digital divide;
- 3] Scalability: Service scalability that utilises the unique capabilities of SatNets in multicasting and broadcasting similar content over a large geographical area.
- 4] Service to in-motion user: The LEO SatNets can provide service not only to stationary but also to in-motion users.
- 5] Low latency over long distance: Wireless communications through LEO satellites over long distances is proven to be 1.47 times faster than communication over the same distance through terrestrial optic fibre. It is this advantage along with global coverage that provide a strong use case for LEO SatNets to complement terrestrial optic fibre networks.
- SatNet in standardisation: In view of the above advantages, standard-setting organisations such as the Third Generation Partnership project (3GPP), comprising telcos and equipment manufacturers around the world, started integrating SatNets in the standardisation process.
Measures by the government
- Realising the advantages, the Government, in its National Digital Communications Policy 2018, has indicated the development of an ecosystem for local manufacturing of satellite communication systems and promoting participation of private players for the strengthening of satellite communication infrastructure in the country.
- Accordingly, the New Space India Limited (NSIL), a public sector enterprise, was established in 2019 to re-orient space activities from a ‘supply driven’ model to a ‘demand driven’ model, thereby ensuring optimum utilisation of the space assets.
- The Department of Space also established in 2020 a new regulatory body named the Indian National Space Promotion and Authorisation Centre (IN-SPACe).
- IN-SPACe is intended to provide a level playing field for private companies to use Indian space infrastructure.
Issues and challenges
- Allocation of frequency: Issues will involve addressing issues around frequencies to be allocated for satellite broadband, the methodology of allocation, the relatively higher cost of consumer equipment and the placement and interconnections of SatNets with terrestrial public landline/ mobile networks at the ground stations
- Cost: The other major challenge in LEO SatNets is the cost of user terminal and access charges to the end users.
- A recent research analysing both Starlink and OneWeb concludes that the standalone LEO SatNets have a distinct cost advantage only if the density is less than 0.1 person per square km compared to terrestrial broadband networks.
- Hence it is to the advantage of LEO SatNet providers to integrate their networks with terrestrial 5G networks to improve the cost economies.
Conclusion
All these, along with the proposed revisions to the Satellite Communications Policy of the Government, will provide the required fillip to LEO SatNets to become an integral part of the communication infrastructure of the country.
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Back2Basics: LEO satellites
- LEO satellites orbit between 2,000 and 200 kilometers above the earth. LEO satellites are commonly used for communications, military reconnaissance, spying and other imaging applications.
- A low earth orbit (LEO) satellite is an object, generally a piece of electronic equipment, that circles around the earth at lower altitudes than geosynchronous satellites.
- Satellites made for communications benefit from the lower signal propagation delay to LEO.
- This lower propagation delay results in less latency.
- Being closer to the earth has an obvious benefit for many types of earth observational satellites by resolving smaller subjects with greater detail.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Monkeypox
Mains level: Paper 2-Challenges of zoonotic diseases
Context
Monkeypox was previously limited to the local spread in central and west Africa, close to tropical rainforests, but has recently been seen in various urban areas and now in more than 50 countries.
About monkeypox
- A virus belonging to the poxviruses family causes a rare contagious rash illness known as monkeypox.
- This zoonotic viral disease (a disease transmitted from animals to humans) has hosts that include rodents and primates.
- It is a self-limiting disease with symptoms lasting two to four weeks and a case fatality rate of 3-6 per cent.
- Symptoms: A skin rash on any part of the body could be the only presenting symptom.
- Swollen lymph nodes are another distinguishing feature. Aside from these, other symptoms of a viral illness include fever, chills, headache, muscle or back aches, and weakness.
- Mode of transmission: Touching skin lesions, bodily fluids, or clothing or linens that have been in contact with an infected person can result in transmission.
- It’s also worth noting that monkeypox does not spread from person to person through everyday activities like walking next to or having a casual conversation with an infected person.
- Treatment: Monkeypox is mostly treated by managing symptoms and preventing complications if it is diagnosed.
- In the minor proportion who are immunocompromised, complications can occur; pulmonary failure was the most common complication with a high mortality rate.
Containment Measures
- Because symptoms usually appear 5-21 days after exposure, people with rashes, sores in the mouth, rash, eye irritation or redness, or swollen lymph nodes should be monitored.
- When symptoms appear, it is critical to isolate the infected from other people and pets, cover their lesions, and contact the nearest healthcare provider.
- It is also critical to avoid close physical contact with others until instructed to do so by our healthcare provider.
- It is preferable to use home isolation whenever possible.
- Priority should be given to educating grassroots workers about symptoms, specimen collection, disease detection, acquiring sample collection equipment, and maintaining cold storage of specimens.
- Increased surveillance and detection of monkeypox cases are critical for controlling the disease’s spread and understanding the changing epidemiology of this resurging disease.
- Preventive health measures, such as avoiding infected animal or human contact and practising good hand hygiene, are the best option.
Vaccines and drugs
- In the US, pre exposure vaccination with JYNNEOS® is available to healthcare workers and lab workers exposed to this group of poxviruses.
- The smallpox vaccine is 85 percent effective against the disease.
- Another vaccine, ACAM2000, is a live vaccinia virus vaccine that is otherwise recommended for smallpox immunisation and can also be used for high-risk individuals during monkeypox outbreaks.
- In addition, Tecovirimat, an antiviral drug used to treat smallpox, is recommended for monkeypox.
- Challenges: Smallpox vaccination programmes have been discontinued for the past 50 years, resulting in a scarcity of effective vaccines.
- There are approved drugs and vaccines, but they are not widely available to scale up controlling monkeypox.
Why WHO declared it as international concern?
- The increase in monkeypox cases in a short span of time in many countries necessitated the declaration of public health emergency of international concern (PHEIC) and additional research studies.
- It is unclear whether the recent sudden outbreaks in multiple countries result from genotypic mutations that alter virus transmissibility. SARS-CoV-2 and monkeypox virus co-infection can alter infectivity patterns, severity, management, and response to vaccination against either or both diseases.
- As a result, there is a need to improve diagnostic test efficiency.
Way forward
- Plan for pandemic preparedness: This is not the last such difficulty we will face, as the world is still witnessing more such public health crises.
- Zoonotic diseases are caused by various factors, including unchecked deforestation, climate coupled with a failure to prioritise public health, poverty, and climate change.
- Instead, a robust plan for pandemic preparedness should be accelerated, guided by a single health agenda.
- The world is yet to recognise emerging and re-emerging infectious diseases as a genuine threat.
- The immediate priority is to strengthen the surveillance infrastructure, including hiring public health professionals and field workers who can participate in outbreak detection and response during many future PHEICs.
Conclusion
Without prioritising public health strengthening, the threat of new and re-emerging infectious diseases, as well as the enormous social and economic challenges that accompany them, is real and grave.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Input tax credit
Mains level: Paper 3- Next stage of reforms in GST
Context
India has completed five years under the GST regime.
How GST has performed so far
- Before the GST, there were multiplicity of the Centre and state levies that masked the actual incidence of tax on products, the debilitating effects of the entry tax and the uncertainty of tax rates.
- Today, in contrast, we have a single tax across the country combined with a stability in rates and a common technology platform in the form of a GSTN.
- Record number of registrants: The ease of payments has improved over time with the technical glitches having been slowly sorted out, leading to a record number of GST registrants – increasing from 1.08 crore in April 2018 to 1.36 crore in 2022.
- The revenue gains have been significant.
- If we factor in the three-percentage point decline in the incidence of GST duty from 14.8 to 11.8 per cent as suggested by the RBI, the actual proportion in 2021-2022 would have been 7.4 per cent of the GDP (according to a recent article by Arvind Subramanian and Josh Felman).
What were the changes made to ensure the stricter compliance
- The above improvement can be traced to stricter compliance flowing from three factors.
- 1] Input credit only after supplier uploads invoice: Denial of input credit to the buyer without the supplier uploading the invoice.
- 2] The introduction of e-invoicing.
- 3] Third the introduction of e-waybills for transporters for value exceeding Rs 50,000 per consignment.
- Greater coordination between CBIC and CBDT: Another factor is greater coordination between the Central Board of Excise and Customs (CBIC) and Central Board of Direct Taxes (CBDT) in compliance verification.
Changes needed
- 1] Provisions for unregistered GST suppliers: The micro, small and medium enterprises (MSME) sector has been affected by the GST reforms because the large units have been reluctant to buy from them in the absence of input duty credit.
- An important measure here would be to amend the law to provide that all units buying from unregistered GST suppliers would have to pay duty on a reverse charge basis.
- 2] Rate rationalisation: While the revenue gains have come through better compliance, the next surge in GST revenues will have to come from an increase in the average incidence of GST duties.
- This will require a combination of measures — phasing out of exemptions, raising of the merit rate from the present level of 5 per cent and merging the 12 per cent rate with the standard rate, whether to 16 per cent or 18 per cent.
- 3] Inclusion of fuels and real estate: Including natural gas/ATF under GST should be considered.
- Further reforms in the factor markets — land, real estate and energy — would require their inclusion in the GST.
- This is essential because while the economic reforms of the 1990s restructured the product market, the factor market reforms were incomplete.
- 4] Creation of federal institution: We need to create another institution in the form of a GST state secretariat that can bring together senior officers from the Centre and states in an institutional forum registered under the Society Act.
- This forum could also provide a common point of contact for trade and industry to redress the grievances on non-policy matters.
Conclusion
As GST enters its sixth year journey, the changes suggested above will fine tune it to propel India towards $5 trillion economy.
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Back2Basics: GST Input Tax Credit
- Input Tax Credit means claiming the credit of the GST paid on purchase of Goods and Services which are used for the furtherance of business.
- The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: I2U2
Mains level: Paper 2- Changes in global order
Context
Adrift at the end of the 20th century, the world of the 21st century is proving to be highly chaotic.
Lack of strong European leadership
- Europe has been undergoing several major changes in recent months
- Germany, which has steered European politics for almost two wdecades under Angela Merkel, now has a Chancellor (Olaf Scholz) who has hardly any foreign policy experience.
- Without Germany’s steadying hand, Europe would be virtually adrift in troubled waters.
- Emmanuel Macron may have been re-elected the President of France, but his wings have been clipped with the Opposition now gaining a majority in the French National Assembly.
- The United Kingdom is in deep trouble, if not disarray.
- Consequently, at a time when actual and moral issues require both deft and firm handling, Europe appears rudderless.
- Economic impact: Compounding this situation is the negative economic impact of the war in Ukraine.
- What is evident already is that apart from the spiralling cost of energy, food and fertilizers, quite a few countries confront the spectre of food scarcity given that Ukraine and Russia were generally viewed as the granaries of the world.
- Apart from this, nations do face several other problems as well, including, in some cases, a foreign exchange crisis.
- The instruments employed by the West against Russia, such as sanctions, have not had the desired impact as far as the latter is concerned.
Growing Russia-China closeness and its implications for Indo-Pacific
- The situation in Europe is still to be decided, but what is also becoming obvious is that outside Europe, the conflict is beginning to take on a different dimension, leading to the emergence of new patchworks of relationships.
- China’s growing influence in the Pacific region, including in the Indo-Pacific, and further strengthened by the entente with Russia, may hardly be a by-product of the Ukraine-Russia conflict, but it has induced fresh energy into a possible conflict between two rival power blocs.
- Asia unwilling to take sides: Understanding the changing nature of relationships in Asia, and considering that most Asian nations appear unwilling to take sides in the event of a conflict, is important.
- No unity of purpose: Unlike the unity and the strength displayed by European nations — there is no evidence of any such unity of purpose in the event that China was to launch a conflict with Taiwan.
Challenges for India
- India cannot ignore the situation created by the stronger bonds between Russia and China.
- Uncertainty about Russia: India will need to determine whether Russia can be expected to play a role as a ‘trusted friend’ of India’s.
- Again, it would be too much to hope that in dealing with China, India can expect the same kind of support it may need from the Quad.
- China sidelining India: China, however, seems intent on establishing its dominance and also sidelining India in Asia, which New Delhi would have discerned in the course of the virtual BRICS Summit hosted by China in June.
- Afghanistan challenge: Apart from China, India also urgently needs to come to terms with a Taliban Afghanistan.
- Sri Lanka Challenge: At this time, the democratic upsurge in Sri Lanka presents India with a fresh set of problems.
- In a situation where ‘rage’ and ‘anger’ are the dominant sentiments, there is every reason for concern that even governments that have maintained a ‘hands-off’ relationship could become targets of the new forces emerging in Sri Lanka.
Major developments in West Asia
- The Abraham Accords in 2020, which brought about the entente between the United Arab Emirates and Israel, has been the harbinger of certain new trends in the tangled web of relationships among countries of West Asia.
- But even as the U.S.’s relations with Arab nations in West Asia appear to weaken, Russia and China are beginning to play key roles, with Iran as the fulcrum for establishing new relationships.
- China continues to steadily build on its connections with the region, and with Iran in particular.
- How India is dealing with the situation: India has been making steady progress in enlarging its contacts and influence in West Asia.
- While the India-Israel relationship dates back to the 1990s, the India-UAE relationship has blossomed in the past couple of years.
- India-Iran relations, however, seem to have reached a stalemate of late.
- Issues with I2U2: India has joined a U.S.-based group, the I2U2, comprising India, Israel the UAE and the U.S.
- Details of the new arrangements are unclear, but it is evident that the target is Iran, as China is for the Quad, injecting yet another element of uncertainty into an already troubled region.
Implications for nuclear deterrence
- The argument being adduced is that a wide gap exists today in regard to China and India’s nuclear deterrent capabilities, and implicitly blames India for its voluntary ban on testing and its ‘no-first-use’ doctrine from making progress in this arena.
- What is also implied is that India could overcome the lacuna by seeking the assistance of western nations which have such capabilities and knowledge.
- Way forward for India: It is important for India to guard against such pernicious attempts at this time to undo its carefully negotiated and structured nuclear policy and doctrine, and be inveigled into any anti-China western move on this front.
Conclusion
Geopolitical experts in the West confine their findings at present solely to the impact of the Russia-Ukraine conflict, believing that this alone would determine not only war and peace but also other critical aspects as well. Significant developments are also taking place in many other regions of the globe, which will have equal if not more relevance to the future of the international governance system.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- Digital economy and policy formulation challenges
Context
Hyperactivity in the digital regulatory space in India in the form of policies, rules and guidelines signals the accelerated growth of the digital ecosystem which needs regulatory nurturing.
Recent policy measures related to digital ecosystem
- The Ministry of Electronics and Information Technology (MeitY) has announced the draft amendment to the IT Rules 2021 (June 2022).
- The draft India Data Accessibility and Use Policy (February 2022),
- National Data Governance Framework Policy (May 2022) and the new cyber security directions (April 2022).
- Besides these, the most awaited and critical e-commerce policy and the Data Protection Bill, both of which have been in the making for at least a few years now, are likely to be announced soon.
- This hyperactivity signals the accelerated growth of the digital ecosystem which needs regulatory nurturing.
- The government has recently invited stakeholders to an open house discussion on the proposed changes to the IT Rules.
Participation of Big Tech platforms and other stakeholders in policy discussions
- Various aspects of digital economy: Governments have been pushed to respond to myriad aspects of the digital economy — from financial sector regulation to anti-trust to data privacy.
- With so much at stake, Big Tech platforms have upped their advocacy by hiring qualified professionals and funding empirical research, not only in India but also across the world.
- Google, Amazon, Facebook, Twitter and the likes are all actively engaged in policy discussions, either directly or through third parties to put forth a point of view.
- Similarly, start-ups, think tanks, civil society organisations and academics invested in the issues of the digital economy either as users or as observers contribute to the policy discourse.
Who is missing?
- Indian origin multinational corporations — the Tatas, Reliance, Aditya Birla Group, Godrej, ITC, Bajaj, and Hero — have collectively contributed to the country’s development.
- While these may not be quintessential digital companies, except for Reliance Jio, many are working towards adopting digital technologies for manufacturing, distribution, and client service.
- Many companies now have online distribution channels that retail through intermediary platforms or their own websites.
- The Tatas have taken the plunge into e-commerce, first with Tata Cliq and recently with Neu.
- Despite this, these Indian MNCs are distant from conversations on these landmark policies that will determine the future of Indian commerce.
Government relations and outreach functions of MNCs
- Government relations and outreach functions have always been important to big businesses.
- At what point and in what manner MNCs interact with the government will of course vary.
- Using a sector-specific example, all telecom companies in India committedly participate in TRAI’s open houses, industry deliberations and written submissions so that they can nudge policymakers toward industry-friendly decision-making that sits well with overall growth objectives.
- On general concerns such as infrastructure and the ease of doing business, intervention from the industry is much more indirect and often an ex-post phenomenon, that is, after the policy has been announced.
- The practice of multi-stakeholderism in policy formulation is present in letter, if not always in spirit.
Policy formulation in digital economy
- The case of the digital economy is different.
- There are multiple opportunities and avenues for participating in dialogue.
- Striking balance between business viability and government objectives: The policy teams of Big Tech make the most use of these channels to present their point of view and hope for reconciliation on issues, with the final policy document attempting to strike a balance between business viability and government objectives.
- Over the last few years of active debate on critical digital policies including those on data governance, privacy, anti-trust, and intermediary liability, there has been an overwhelming presence of the Big Tech Indian start-ups competing in this space, as well as their affiliated associations.
- Indian MNCs, for reasons unclear, has been mostly absent.
Conclusion
Absence of Indian MNCs resulted in is a disproportionate policy focus on keeping Big Tech in check as against creating an enabling, secure and trusted digital ecosystem in India. As many issues highlighted by Big Tech are likely to be pain points for Indian businesses as well, participation of Indian MNCs could break the “us versus them” problem plaguing policy making in India today.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: AUKUS
Mains level: Paper 2- Rethinking the nuclear policy
Context
Last week’s report on Asian nuclear transitions by Ashley Tellis of the Carnegie Endowment for International Peace and Japan’s debate on its atomic options underline the shared security challenges for Delhi and Tokyo.
Common nuclear challenge for India and Japan and need for rethink
- At the root of that common nuclear challenge is the continuing growth in Chinese military power and the rapid modernisation of Beijing’s nuclear arsenal.
- 1] Modernising and expansion by China: China is modernising and expanding its nuclear arsenal as part of the general military transformation. Some estimates say China’s arsenal could grow to 1,000 warheads by 2030 from about 350 now.
- 2] Muscular approach of China: Xi Jinping’s China has taken a more muscular approach to its territorial disputes, including with India and Japan.
- 3] Reluctance of the world to confront nuclear power: The Ukraine crisis has revealed that if a nuclear weapon power invades and seizes the territory of a neighbour, the rest of the world is reluctant to directly confront the aggression for fear of an escalation to the nuclear level.
- Russia made this amply clear with its threat to use nuclear weapons if the US and NATO decide to join the war.
Nuclear disarmament challenge
- Indian and Japanese capacity to deter China is eroding steadily thanks to the problems with India’s minimum deterrence posture and the US nuclear umbrella over Japan.
- India and Japan have long presented themselves as champions of nuclear disarmament.
- Despite its call for total nuclear disarmament, India never agreed to give up its own nuclear weapons.
- Japan, as the world’s victim of nuclear bombing, had even a higher moral claim than India as the champion for the global abolition of nuclear weapons.
- But Japan’s narrative is shaded by one reality—Tokyo’s reliance on the US nuclear umbrella.
- Today neither Delhi nor Tokyo is ready to sign the 2017 Treaty on the prohibition of nuclear weapons.
- It is the problem presented by the expanding Chinese nuclear arsenal and its growing sophistication.
- Locked in a confrontation with the US, China is determined to raise its nuclear profile.
- As China closes the economic and military gap with the US, there is a darkening shadow over the credibility of the US-extended deterrence for Japan.
- This uncertainty is transforming the Japanese security debate.
- For India, the question is whether its nuclear restraint and policy of minimum deterrence are enough to prevent China’s bullying.
How Japan is responding to the challenge?
- In Japan, former prime minister Shinzo Abe had called for a fresh look at Japan’s nuclear policy.
- He was suggesting that Tokyo must consider “nuclear weapon sharing” with the US.
- The model is Europe, where several countries including Belgium, Italy, Germany, Italy and the Netherlands have arrangements to participate in the US nuclear weapon deployment and use.
- This proposal was rejected by the current prime minister.
- While rejecting nuclear solutions to the problem of deterring China, Japan’s focus has been on raising the defence expenditure, developing sophisticated conventional weapons, beefing up the alliance with the US and widening the circle of Asian as well as European military partners,
Suggestions in the report
- Unlike Japan, India has no constraints on its nuclear weapons programme except the ones it has imposed on itself.
- In the wake of the nuclear tests of 1998, India quickly announced a policy of minimum deterrence and a doctrine of no-first-use of nuclear weapons.
- The big question is whether this conservatism in India’s nuclear posture can or should be sustained in the face of China’s military modernisation, nuclear expansion and strategic assertiveness.
- Fresh debate on nuclear policies: The Tellis report, detailed and technical, should provide a basis for a fresh Indian debate about its nuclear weapons policies.
- Revising US attitude to India’s nuclear weapons: Tellis also calls on the US to revise its attitudes to India’s nuclear weapons programme.
- In the past, the US insisted on constraining India’s nuclear weapon programme.
- Today a strong Indian nuclear deterrent against China is critical for the geopolitical stability of Asia and the Indo-Pacific and in the US interest.
- Facilitating more sophisticated nuclear warheads: Tellis suggests that the US should be prepared to facilitate India’s development of more sophisticated nuclear warheads as well as improve the survivability of the Indian deterrent against the expanding Chinese nuclear arsenal.
- The US should midwife an agreement under which France would help India accelerate the development of an Indian underwater deterrent based on ballistic missile carrying submarines (SSBN) as well as nuclear attack submarines (SSN),
Conclusion
Tellis is calling both Delhi and Washington to reconsider entrenched nuclear assumptions in the two capitals. While the resistance to his ideas will be strong, Delhi and Washington will have to respond, sooner than later, to the dramatic changes in the global environment triggered by the rise and assertion of China.
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Back2Basics: Nuclear umbrella
- At the dawn of the nuclear age, to encourage friendly countries to refrain from building nuclear weapons, the United States promised to protect them with U.S. nuclear weapons.
- This arrangement came to be called the nuclear umbrella. The experts call it extended nuclear deterrence.
- The umbrella covers the countries in the North Atlantic Treaty Organization (NATO), Japan, South Korea, and Australia.
- It is not a binding legal arrangement included in their security treaties with the United States.
- It is an informal assurance reinforced by dialogue and, in the case of NATO, cooperative arrangements to deliver U.S. nuclear weapons if authorized by a U.S. president.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: 10th Schedule
Mains level: Paper 2- Role of Opposition in democracy
Context
Role of Opposition in indispensable in the democracy.
Reasons for adopting parliamentary democracy
- The Indian Constitution adopted the parliamentary system and not the presidential system.
- B.R. Ambedkar provided the rationale for this: “A democratic executive must satisfy two conditions –
- (1) It must be a stable executive and
- (2) it must be a responsible executive.
- Unfortunately it has not been possible so far to devise a system which can ensure both in equal degree.
- Assessment of executive: In England, where the parliamentary system prevails, the assessment of responsibility of the executive is both daily and periodic.
- Daily assessment: The daily assessment is done by members of Parliament, through questions, resolutions, no-confidence motions, adjournment motions and debates on addresses.
- Periodic assessment: Periodic assessment is done by the electorate at the time of the election.
- The daily assessment of responsibility which is not available under the American system it is felt far more effective than the periodic assessment and far more necessary in India.
Role of Opposition in democracy
- Democracy is the basic feature of the Constitution.
- The presence of a vigilant Opposition is necessary not just for a vibrant democracy but for its very survival.
- When the Opposition criticises the government or carries on an agitation to arouse public opinion against a party’s misdeeds, it is performing a duty that is assigned by the Constitution.
- Without an effective Opposition, democracy will become dull and legislature will become submissive.
Significance of anti-defection law
- Encouraging defections from the parties in power in States will sound the death knell for democracy.
- The Tenth Schedule has failed to serve its purpose.
- The Supreme Court, in Kihoto Hollohan v. Zachillhu (1992), while upholding the 52nd Amendment said that: “On the one hand there is the real and imminent threat to the very fabric of Indian democracy posed by certain levels of political behaviour conspicuous by their utter and total disregard of well recognised political proprieties and morality… On the other hand, there are… certain side-effects which might affect and hurt even honest dissenters and conscientious objectors.”
- In upholding the law, the court held: “But a political party functions on the strength of shared beliefs… Any freedom of its members to vote as they please independently of the political party’s declared policies will not only embarrass its public image and popularity but also undermine public confidence in it.”
- What is whip? The whip system is part of the established machinery of political organisation in the House and does not infringe on a member’s rights or privilege in any way.
- Some political thinkers have recognised as an additional device the ‘theory of recall,’ so that a member whose personal behaviour falls below standards expected of his constituents goes back and seek their approval.
- This power is particularly apt when a member shows disloyalty to his party but declines to resign from his seat and to fight an immediate by-election.
- The anti-defection law was supposed to be the justification underlying the power of recall.
Way forward
- Political parties, the judiciary and civil society must take steps to ensure that democracy does not fail.
- The Opposition must be tolerated because if it is left for the party in power to decide what is healthy and unhealthy criticism, then every criticism of the latter will be treated as unhealthy.
- while the Opposition must be credible and strong, it is for the Opposition to make itself credible and strong. It must feel the pulse of the people.
- Unless it makes itself respectable, it cannot demand any respect. This is the biggest challenge facing the nation today.
Conclusion
The Opposition must also work constructively. Our constitutional goal was to establish a sovereign, democratic republic.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: GFCF
Mains level: Paper 3- Long term growth through public capital expenditure
Context
The Finance Minister, Nirmala Sitharaman, said recently that India’s long-term growth prospects are embedded in public capital expenditure programmes. She added that an increase in public investment would crowd in (or pull in) private investment, thus reviving the economy.
Significance of public investment-led economic growth
- Public investment-led economic growth forms a credible strand of explanation for India’s post-Independence economic growth.
- Revival after Asian financial crisis: When it was faced with a slow-down after the Asian financial crisis of 1997, the government initiated public road building projects.
- In the form of the Golden Quadrilateral and the Pradhan Mantri Gram Sadak Yojana, these initiatives sowed the seeds of economic revival, culminating in an investment and export-led boom in the 2000s; GDP grew at 8%-9% annually.
- In comparison, the investment record during the 2010s has been dismal.
- However, a recent uptick is evident in the real gross fixed capital formation (GFCF) rate — the fixed investment to GDP ratio (net of inflation).
- The ratio recovered to 32.5% in 2019-20 from a low of 30.7% in 2015-16.
Analysing the Investment distribution
- As in the June edition of the Ministry of Finance’s Monthly Economic Review, the fixed investment to GDP ratio was 32% in 2021-22.
- However, there is need for caution in reading the most recent data, as they are subject to revision.
- Moreover, the budgetary definition of investment refers to financial investments (which include purchase of existing financial assets, or loans offered to States) and not just capital formation representing an expansion of the productive potential.
- The National Accounts Statistics provides disaggregation of gross capital formation (GCF) by sectors, type of assets and modes of financing; over 90% of GCF consists of fixed investments.
- No change in investment distribution: The investment distribution has hardly changed over the last decade, with the public sector’s share remaining 20%.
- Fall in share of agriculture and industry: Between 2014-15 and 2019-20, the shares of agriculture and industry in fixed capital formation/GDP fell from 7.7% and 33.7% to 6.4% and 32.5%, respectively.
- Services’ share rose to 52.3% in 2019-20 compared to 49% in 2014-15.
- The rise in the services sector is almost entirely on transport and communications.
- The share of transport has doubled from 6.1% to 12.9% during the same period.
- Within transportation, it is mostly roads.
- Decline in the share of investment: Its share in the investment ratio (column 2.1) fell from 19.2% in 2011-12 to 16.5% in 2019-20.
- This indicates that ‘Make in India’ failed to take off, import dependence went up, and India became deindustrialised.
- Import dependence on China is alarming for critical materials such as fertilizers, bulk drugs (active pharmaceutical ingredients or APIs) and capital goods.
- Instead of boosting investment and domestic technological capabilities, the ‘Make in India’ campaign frittered away time and resources to raise India’s rank in the World Bank’s Ease of Doing Business Index.
- Decline in foreign capital in GFC: The contribution of foreign capital to financing GCF fell to 2.5% in 2019-20 from 3.8% in 2014-15 (or 11.1% in 2011-12).
- With declining investment share, industrial output growth rate fell from 13.1% in 2015-16 to a negative 2.4% in 2019-20, as per the National Accounts Statistics.
Way forward
- Need for balance: As roads and communications are classic public goods, investment in them is welcome.
- However, for healthy domestic output growth, there is a need for balance between “directly productive investments” (in farms and factories) and infrastructure investments.
- And this balance was missed.
- The recent upturn in the aggregate fixed capital formation to GDP ratio is positive, though the rate is still lower than its mark in the early 2010s.
Conclusion
The claim that the investment revival is public sector driven is not borne out by facts. The budgetary figures refer to financial investment, not estimates of capital formation, indicating expansion of the economy’s productive capacity.
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Back2Basics: Gross fixes capital formation
- Gross fixed capital formation (GFCF), also called “investment”, is defined as the acquisition of produced assets (including purchases of second-hand assets), including the production of such assets by producers for their own use, minus disposals.
- The relevant assets relate to assets that are intended for use in the production of other goods and services for a period of more than a year.
- The term “produced assets” means that only those assets that come into existence as a result of a production process are included.
- It therefore does not include, for example, the purchase of land and natural resources.
- This indicator is available in different measures: GFCF at current prices and current PPPs in US dollars, and annual growth rates of GFCF at constant prices, as well as quarterly data for percentage change over previous period and percentage change over same period last year.
- The indicator at current prices and current PPPs is less suited for comparisons over time, as developments are not only caused by real growth, but also by changes in prices and PPPs.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India-US relations
Context
The possibility of India’s continuing rise over this century seems to be on a stronger wicket today than it did a decade ago, marred as the early 2010s were by political instability and economic turmoil.
Historical background of dominance of world economy by the East
- Prior to the era of colonial exploitation followed by self-inflicted stagnation due to communist economic policies adopted across the region, the ancient civilisations of India and China dominated the world economy
- There existed a deep history of scientific innovation and technological prowess, which spread by osmosis and intercourse from the East to the West.
- The West, led principally by Great Britain, then stole a march over Asia with the advent of the Industrial Revolution.
- Emergence of the US: A pyrrhic victory for Britain in the Second World War marked the formal transfer of the Western bloc’s leadership to the US.
Geopolitics in 2020s
- Emergence of China: China is now home to a manufacturing-led and technology-driven economy, competing head-on with the US in areas like biotech, robotics, artificial intelligence, and advanced materials.
- India, which faced an economic setback when the liberalisation process largely came to a halt between 2004-2014, is back on its feet, with consistent commitment and concerted policy action focused on building domestic capabilities in critical technologies as well as in key manufacturing industries and pursuing important structural economic reforms.
- Common threat of China: From seeing non-democratic China as a benign partner, the US now sees it as a threat, the present preoccupations in Europe notwithstanding.
- India, which for a time welcomed Chinese involvement in its economy, has also recalibrated after the 2020 Galwan face-off.
- Unlike India and the US, which are both well-established republics with deep democratic cultures, China is “a party with a state attached to it”.
- Concerns for India: Being inextricably linked by geography, Beijing’s ambition to dominate its periphery and proximate region is of particular concern to India.
What this mean for India-US relations?
- Natural allies: Given this background, India and the US are natural allies to confront the challenges posed by an expansionist and aggressive China in the Indo-Pacific and beyond.
- New areas of cooperation: There are clear signals of unprecedented cooperation between the two countries in areas like national security, defence production and most prominently, new-age information technology and internet industries where American financial firms and blue-chip corporates are contributing growth capital as well as know-how.
- Closer cooperation in scientific research and critical emerging technologies is imperative.
- Reducing India’s dependence for defence equipment: In particular, as some American lawmakers highlighted when providing India with exemption under CAATSA that the American defence industry should contribute to reducing India’s dependence on Russian armaments and equipment.
- Technology cooperation: Connected to the expansion of defence-industrial ties is the broadening of technology collaboration in areas like artificial intelligence, drones, advanced materials, space technology, semiconductors, and biotech in India, beyond the consumer tech and software sectors.
Conclusion
Demographic and economic trends firmly position India as a global force that will have the weight to stride alongside America and China, who would constitute the other two geopolitical — and ideological — poles over the 21st century.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 3- AI governance
Context
Artificial intelligence (AI) is more present in our lives than ever. From predicting what we want to see as we scroll through social media to helping us understand weather patterns to manage agriculture, AI is ubiquitous.
Issues with AI and it why it matters to India
- Bias and discrimination: The data used to feed into AI often aren’t representative of the diversity of our societies, producing outcomes that can be said to be biased or discriminatory.
- Errors in facial recognition: There are problems emerging in facial recognition technologies, which are used to access our phones, bank accounts and apartments, and are increasingly employed by law-enforcement authorities, in identifying women and darker-skinned people.
- For three such programs released by major technology companies, the error rate was 1% for light-skinned men, but 19% for dark-skinned men, and up to 35% for dark-skinned women.
- Biases in facial recognition technologies have led to wrongful arrests.
- Indeed, if the business model of how these technologies are developed does not change to place human interests first, inequalities will grow to a magnitude never before experienced in history; access to the raw material that is data is key.
- These issues are of particular importance to India, which is one of the world’s largest markets for AI-related technologies, valued at over $7.8 billion in 2021.
- The National Strategy on Artificial Intelligence released by NITI Aayog in 2018 highlights the massive potential of AI in solving complex social challenges faced by Indian citizens across areas such as agriculture, health, and education, in addition to the significant economic returns that AI-related technologies are already creating.
UNESCO agreement
- To ensure that the full potential of these technologies is reached, the right incentives for ethical AI governance need to be established in national and sub-national policy.
- India has made great strides in the development of responsible and ethical AI governance, starting with NITI Aayog’s #AIForAll campaign to the many corporate strategies that have been adopted to ensure that AI is developed with common, humanistic values at its core.
- UNESCO’s recommendations: Last November 193 countries reached a groundbreaking agreement at UNESCO on how AI should be designed and used by governments and tech companies.
- UNESCO’s Recommendation on the Ethics of Artificial Intelligence took two years to put together and involved thousands of online consultations with people from a diverse range of social groups.
- It aims to fundamentally shift the balance of power between people, and the businesses and governments developing AI.
- Countries which are members of UNESCO have agreed to implement this recommendation by enacting actions to regulate the entire AI system life cycle, ranging from research, design and development to deployment and use.
- This means they must use affirmative action to make sure that women and minority groups are fairly represented on AI design teams.
- The Recommendation also underscores the importance of the proper management of data, privacy and access to information.
- It establishes the need to keep control over data in the hands of users, allowing them to access and delete information as needed.
- It also calls on member states to ensure that appropriate safeguards schemes are devised for the processing of sensitive data and effective accountability, and redress mechanisms are provided in the event of harm.
- Socio-cultural impact: The broader socio-cultural impacts of AI-related technologies are also addressed, with the Recommendation taking a strong stance that-
- 1] AI systems should not be used for social scoring or mass surveillance purposes;
- 2] That particular attention must be paid to the psychological and cognitive impact that these systems can have on children and young people;
- 3] Member states should invest in and promote not only digital, media and information literacy skills, but also socio-emotional and AI ethics skills to strengthen critical thinking and competencies in the digital era.
- In a number of countries, the principles of the Recommendation are already being used in AI regulation and policy.
- Finland provides an example of good practice of this regard, with its 2017 AI Strategy.
Conclusion
The new agreement is broad and ambitious. It is a recognition that AI-related technologies cannot continue to operate without a common rulebook. Over the coming months and years, the Recommendation will serve as a compass to guide governments and companies, to voluntarily develop and deploy AI technologies that conform with the commonly agreed principles it establishes.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Dollar Index
Mains level: Paper 3- Depreciation of Indian rupee
Context
The Indian rupee has depreciated by around 7% against the U.S. dollar, since the start of the year, in response to various domestic and global factors.
What are the factors responsible for decline?
- A widening current account deficit, persistent risk-off sentiment as a result of geopolitical tensions, ‘a strengthening dollar index, and continuous sell-off by foreign portfolio investors have all put pressure on the rupee’.
- Reversal of monetary policy in the US: The runaway inflation levels since last year, which have seen consumer price index (CPI) inflation in the United States reaching a multi-decade high of 9.1% in June 2022, have prompted the reversal in the monetary policy stance of the US Federal Reserve.
- With inflation rising unabated, the Fed is widely expected to continue raising interest rates.
- Higher risk-free return in the US: As a result of higher risk-free returns being available in the U.S., there have been persistent outflows of foreign portfolio capital since October 2021, which, on a cumulative basis, stands at $30 billion this year.
Comparison with the depreciation in the past
- Even as the rupee has fallen sharply against the dollar, the depreciation has been relatively lower compared with past crises.
- During the global financial crisis of 2008, the rupee had weakened by over 20% between December 2007-June 2009 and during the Taper Tantrum of 2013 for seven months from the start of the crisis in May 2013, the rupee had depreciated by over 11%.
- Reduced external vulnerability: The relative lower depreciation this time is attributed to the lowering of India’s external vulnerability measured in terms of a relatively high import cover and low short-term external debt.
- During the Taper Tantrum, India’s import cover stood at over seven months as compared to around 12 months in the current period.
Decline in foreign exchange reserves
- The Reserve Bank of India (RBI) has stepped in to arrest a large depreciation in the currency, with interventions in the spot and forward foreign exchange markets.
- Consequently, India’s foreign exchange reserves have moderated by almost $55 billion from a high of $635 billion seen this year.
- Elevated global crude oil prices have impinged on India’s oil import bill, in turn widening the trade deficit, thus increasing the demand for U.S. dollars, and affecting forex reserves further.
Effects of weak rupee
- Export to become competitive: Among the benefits is the premise that the rupee’s weakening should aid exporters in becoming more competitive.
- However, the concomitant depreciation of currencies of some of India’s competitors such as South Korea, Malaysia and Bangladesh against the dollar, alongwith a high import intensity of some of its key export segments (petroleum, gems and jewellery and electronics), is likely to have blunted the ameliorative impact on India’s exports.
- Increase in the price of imported commodities: a weaker rupee is driving up prices of key import commodities such as coal, oil, edible oil, gold, thus impacting the imported component of inflation.
- Impact on the borrowers: The unhedged component of corporate debt denominated in dollars is also likely to bear the brunt of a weaker rupee.
- Impact on investment: Most importantly, a continuously sliding exchange rate discourages foreign investors from making fresh investments, which keep losing value in dollar terms.
- For this reason, it is ideal to provide confidence to investors by arresting a continuous slide in the exchange rate.
Measure by the RBI to arrest the weakening of rupee
- Apart from intervening in the forex market to arrest the fall in the rupee’s value, the RBI announced a slew of measures recently to liberalise foreign inflows into the country and make them more attractive.
- Measures such include:
- Promoting trade settlements between India and other countries in rupee terms.
- Offering higher interest rates on fresh Foreign Currency Non-Resident (Bank) and Non-Resident External deposits.
- A widening of investible universe of government and corporate debt, a relaxation of the interest rate.
- Amount ceiling for External Commercial Borrowing loans, among others, have contributed to arresting the rupee’s slide against the greenback.
Way forward
- Inclusion of companies in glabal indices: The Government could encourage some of the large market cap companies (private and public sectors) to be included in the major global indices such as MSCI and FTSE.
- This will help increase the weight of Indian equities in these indices, compensating for foreign portfolio outflows to some extent as investors are unlikely to be underweight on India.
- India’s entry into bond indices: The Government could also expedite India’s entry into bond indices such as J.P. Morgan’s Emerging-Market Bond Index and Barclays Global Bond Index.
- This will not only lead to forex inflows but also have a benign impact on interest rates.
- Such measures will keep the forex war chest of the RBI at a comfortable level, providing the central bank the requisite ammunition in case there is further weakness.
- The maintenance of the U.S.-India interest rate differential along with timely forex market interventions by the central bank to manage volatility will prove to be salutary in preserving the rupee value against the greenback.
Conclusion
Even as the rupee is expected to remain under pressure in the near term because of global uncertainty, high commodity prices and rising U.S. interest rates, mitigating measures have to be taken to partly arrest the slide.
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Back2Basics: What is taper tantrum?
- Taper tantrum refers to the 2013 collective reactionary panic that triggered a spike in U.S. Treasury yields, after investors learned that the Federal Reserve was slowly putting the breaks on its quantitative easing (QE) program.
- The Fed announced that it would be reducing the pace of its purchases of Treasury bonds, to reduce the amount of money it was feeding into the economy.
- The ensuing rise in bond yields in reaction to the announcement was referred to as a taper tantrum in financial media.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much
Mains level: Paper 2- India-Sri Lanka relations
Context
Ranil Wickremesinghe’s election as the President of Sri Lanka in a crucial Parliament vote on July 20, 2022, gives India an opportunity to take the lead in the foreign aid game in its neighbourhood.
Background of the crisis in Sri Lanka
- Sri Lanka has been facing economic turbulence since its pre-emptive default on its foreign debt obligations in mid-April this year.
- Following the debt default and a shortage of dollars, the Sri Lankan economy is experiencing stagflation.
- Inflation has spiralled to over 50%, translating into higher food and fuel prices.
- Sri Lanka’s worst economic crisis since its independence in 1948 is due to a tepid recovery from the COVID-19 pandemic, the Russia-Ukraine conflict shock and economic mismanagement under the administration of the Rajapaksas.
- Sri Lanka is also facing challenges in getting foreign aid, as 60% of the world’s poorest countries are also experiencing debt distress.
Opportunities for India
- In the first six months of 2022, Indian aid worth $3.8 billion has flowed to Sri Lanka through loans, swaps and grants.
- This is India’s largest bilateral aid programme in recent times.
- Stabilising Sri Lanka’s economy could prove to be a major win for Indian’s ‘neighbourhood-first’ policy.
- Moreover, once the Sri Lankan economy stabilises, India can deepen its trade and investment linkages with Sri Lanka, transcending the current humanitarian aid relationship.
- On the other hand, an unstable Sri Lankan economy could pose security risks to India and lead to a flood of refugees across the Palk Strait.
- This is an opportunity for India to strengthen bilateral and regional partnerships.
- Countering Chinese influence: In recent years, China has emerged as a major partner for Sri Lanka, especially for infrastructure projects, many of which are under scrutiny now.
- This provides an opportunity for India to upscale its aid and cement its first mover advantage over China by leading an aid consortium for Sri Lanka, working closely with other friendly countries such as the United States, Japan and the European Union as well as the International Monetary Fund (IMF).
Why China is reluctant to help?
- China worries that unilaterally restructuring Sri Lanka’s debt or giving it moratoria would set a new precedent in its lending practices, leading to a queue of similarly distressed countries seeking debt relief from Beijing.
- Furthermore, China, which is a G2 economy, and wanting to challenge the U.S., does not want its reputation to be tarnished by bailing out a floundering economy.
Steps Sri Lanka needs to take
- Concluding the talks with Sri Lanka: The government must show that it is serious about stabilising the economy by concluding talks on an IMF programme which will increase taxes and utility prices to raise revenue and increase interest rates to control inflation.
- Economic reforms: It has to implement structural reforms to make the economy more open to trade and investment and allow market forces to determine resource allocation.
- National consensus on IMF program: It has to build national consensus on implementing the IMF programme and reforms by explaining that this is the only solution to the crisis.
- Anti-corruption policies: It has to restore the rule of law and enforce strong anti-corruption policies (including asset declarations for all parliamentarians and a strong anti-corruption office supported by the United Nations).
- Reset foreign policy: It has to reset foreign policy towards a more neutral direction.
Conclusion
With political will and the right set of policies, Sri Lanka stands a sporting chance of achieving some economic normalcy within the next three years. India stands to gain by supporting Sri Lanka in its hour of need. A friend in need is a friend indeed.
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