THE ECONOMY RECOVERS PAST PRE-PANDEMIC LEVELS

The Indian economy, as seen in quarterly estimates of GDP, has been staging a sustained recovery since the second half of 2020-21(see Figure: 1). Advance estimates suggest that GDP will record an expansion of 9.2 percent in 2021-22. This implies that the level of real economic output will surpass the pre-COVID level of 2019-20.

DIFFERENCE BETWEEN GDP AND GVA

In 2015, in the wake of a comprehensive review of its approach to GDP measurement, India opted to make major changes to its compilation of national accounts and bring the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008. As per the SNA, gross value added, is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry, or sector. At its simplest, it gives the rupee value of goods and services produced in the economy after deducting the cost of inputs and raw materials used. GVA can be described as the main entry on the income side of the nation’s accounting balance sheet, and from economics, perspective represents the supply side. While India had been measuring GVA earlier, it had done so using ‘factor cost’ and GDP at ‘factor cost’ was the main parameter for measuring the country’s overall economic output till the new methodology was adopted. In the new series, in which the base year was shifted to 2011-12 from the earlier 2004-05, GVA at basic prices became the primary measure of output across the economy’s various sectors and when added to net taxes on products amounts to the GDP.

SECTORAL TRENDS IN THE ECONOMY

AGRICULTURE  

AGRI GROWTH: The agricultural sector was the least impacted by the pandemic-related disruptions. It is estimated to grow 3.9 percent in 2021-22. This sector now accounts for 18.8 percent of GVA(Figure 2)

FOOD PRODUCTION: The area is sown under Kharif and Rabi crops, and the production of wheat and rice has been steadily increasing over the years(Figures 5 and 6). In the current year, food grains production for the Kharif season is estimated to post a record level of 150.5 million tonnes.

FIGURE 2- REAL GVA: AGRICULTURE AND ALLIED SECTOR

INDUSTRIAL SECTOR

GROWTH DATA:

• The industrial sector went through a big swing by first contracting by 7 percent in 2020-21 and then expanding by 11.8 percent in this financial year.
• The share of industry in GVA is now estimated at 28.2 percent (Table 2)

INDICES TRAJECTORY:

• Since January 2021, the Purchasing Managers’ Index-Manufacturing has remained in the expansionary zone (i.e. over 50) except for one month when the second wave had slowed down economic activity.
• The Index of Industrial Production (IIP) and Core Industry indices have both followed a similar pattern and, in November 2021, went past their pre-pandemic level for the corresponding month in 2019(See Figure 7 and 8).

SERVICES

GROWTH DATA: 

• Services account for more than half of the Indian economy and were the most impacted by the COVID-19 related restrictions, especially for activities that need human contact.
• Although the overall sector first contracted by 8.4 percent in 2020-21 and then is estimated to grow by 8.2 percent in 2021-22, it should be noted that there is a wide dispersion of performance by different sub-sectors.

SUBSECTOR VARIATIONS:

• Both the Finance/Real Estate and the Public Administration segments are now well above pre-COVID levels.
• However, segments like Travel, Trade, and Hotels are yet to fully recover. It should be added that the stop-start nature of repeated pandemic waves makes it especially difficult for these sub-sectors to gather momentum.

INDICES PROJECTIONS:

• Despite contact-sensitive services still being impacted by COVID, there has been a strong recovery of the Purchasing Managers’ Index-Services since August 2021.
• Similarly, the Google Mobility Index has also recorded recovery to pre-pandemic levels. Both these indices, capture data before the Omicron struck the country.

NON-CONTACT SERVICES:

• In contrast to contact-based services, distance-enabled services have increased their share with the growing preference for remote interfaces for office work, education, and even medical services.
• Indeed, there has been a boom in software and IT-enabled services exports even as earnings from tourism have declined sharply (see Figures 15 and 16).

DEMAND TRENDS: COMPONENTS OF GDP

CONSUMPTION (PRIVATE AND GOVERNMENT):

• Total consumption is estimated to have grown by 7.0 percent in 2021-22 with government consumption remaining the biggest contributor as in the previous year.
• private consumption is yet to see the pre-pandemic level. Private consumption is poised to see stronger recovery with rapid coverage in vaccination and faster normalization of economic activity. This assessment is also seconded by RBI’s Consumer Confidence Survey.
• However, Government consumption is estimated to grow by a strong 7.6 percent surpassing pre-pandemic levels. (See Table 3).

INVESTMENT:

• Investment, as measured by Gross Fixed Capital Formation (GFCF) is expected to see strong growth of 15 percent in 2021-22 and achieve full recovery of pre-pandemic level.
• Government’s policy thrust on quickening virtuous cycle of growth via CAPEX and infrastructure spending has increased capital formation in the economy lifting the investment to GDP ratio to about 29.6 percent in 2021-22, the highest in seven years (Figure 19).

EXPORTS AND IMPORTS:

• India’s exports of both goods and services have been exceptionally strong so far in 2021-22.
• India’s total exports are expected to grow by 16.5 percent in 2021-22 surpassing pre-pandemic levels.
• Imports also recovered strongly with the revival of domestic demand and a continuous rise in the price of imported crude and metals. Imports are expected to grow by 29.4 percent in 2021-22 surpassing corresponding pre-pandemic levels.
• Merchandise exports have been above US$ 30 billion for eight consecutive months in 2021-22, and net services exports have also risen sharply.
• India’s net exports have turned negative in the first half of 2021-22, compared to a surplus in the corresponding period of 2020-21 with the current account recording a modest deficit of 0.2 percent of GDP in the first half (Figure 24).

GREEN SHOOTS IN INVESTMENT

While private investment recovery is still at a nascent stage, there are many signals which indicate that India is poised for stronger investment. The number of private investment projects under implementation in the manufacturing sector has been rising over the years. Companies hitting record profits in recent quarters and mobilization of risk capital bode well for an acceleration in private investment. A sturdy and cleaned-up banking sector stands ready to support private investment adequately. The expected increase in private consumption levels will propel capacity utilization, thereby fuelling private investment activity. RBI’s latest Industrial Outlook Survey results indicate rising optimism of investors and expansion in production in the upcoming quarters.

A GLIMPSE INTO THE STRATEGY OF POLICY MAKING OF THE GOVERNMENT OF INDIA

BARBELL STRATEGY:  AGILE RESPONSE& SAFTEY NETS

The last two years have been particularly challenging for policy-making around the world with repeated waves from a mutating virus, travel restrictions, supply-chain disruptions, and, more recently, global inflation. Faced with all this uncertainty, the Government of India opted for a “Barbell Strategy” that combined a bouquet of safety nets to cushion the impact on vulnerable sections of society/business, with a flexible policy response based on a Bayesian updating of information. This is a common strategy used in financial markets to deal with extreme uncertainty by combining two seemingly disparate legs: agile approach and safety nets.

The Agile approach is a well-established intellectual framework that is increasingly used in fields like project management and technology development. In an uncertain environment, the Agile framework responds by assessing outcomes in short iterations and constantly adjusting incrementally. It is important here to distinguish Agile from the “Waterfall” framework which has been the conventional method for framing policy in India and most of the world. Notice that the flexibility of Agile improves responsiveness and aids evolution, but it does not attempt to predict future outcomes. This is why the other leg of the Barbell strategy is also needed. It cushions for unpredictable negative outcomes by providing safety nets.

THE WATERFALL APPROACH:

• The Waterfall approach entails a detailed, initial assessment of the problem followed by a rigid upfront plan for implementation.
• This methodology works on the premise that all requirements can be understood at the beginning and therefore pre-commits to a certain path of action.
• This is the thinking reflected in five-year economic plans, and rigid urban master plans.
• While some form of feedback-loop-based policy-making was always possible, it is particularly effective at a time when we have wealth of real-time data.

AGILE APPROACH:

• Over the last two years, Government leveraged a host of High-Frequency Indicators (HFIs) both from government departments/agencies as well as private institutions that enabled constant monitoring and iterative adaptations.
• Such information includes GST collections, power consumption, mobility indicators, digital payments, satellite photographs, cargo movements, highway toll collections, and so on.
• These HFIs helped policymakers tailor their responses to an evolving situation rather than rely on pre-defined responses of a Waterfall framework.

A BRIEF OVERVIEW OF THE TWO LEGS OF BARBELL STRATEGY ADOPTED BY GOVT

AGILE APPROACH:

• The Government made its way forward by regularly announcing packages targeted at specific challenges.
• This agile approach was preceded by Safety Net.
• The fiscal mix changed over time towards supporting demand through capital expenditure and the supply-side through measures like production-linked incentives.
•  In line with the Agile approach, this mix can be changed again as per the requirements of an evolving situation.

SAFETY NET:

• Government’s initial measures in 2020-21 were mostly about making food available to the poor, providing emergency liquidity support for MSMEs, and holding the Insolvency and Bankruptcy Code in abeyance. (Read ahead. See Table:5)

THE BARBELL STRATEGY

The barbell strategy is an investment concept that suggests that the best way to strike a balance between reward and risk is to invest in the two extremes of high-risk and no-risk assets while avoiding middle-of-the-road choices. All investing strategies involve seeking the best return on investment that is possible given the degree of risk that the investor can tolerate. Investors who follow the barbell strategy insist that the way to achieve that is to go to extremes.

HIGH-FREQUENCY INDICATORS: LEVERAGING DATA FOR GOVERNANCE

In the last two years, Government leveraged an array of eighty HFIs representing industry, services, global trends, macro-stability indicators, and several other activities, from both public and private sources to gauge the underlying state of the economy on real-time basis. These include electricity generation, scheduled domestic flights, volume/value of financial transactions, capital flows, mobility indices, and so on. It also covers employment demanded under MGNREGA to gauge rural employment conditions, especially in the context of migrant workers. These indicators are regularly published in the Monthly Economic Report of the Ministry of Finance. While HFIs have the advantage of being real-time and frequent, they need to be used with care. Each indicator provides, at best, a partial view of developments. In a rapidly evolving situation, policy-makers can pick up useful signals that allow for faster response and better targeting. Thus, using HFIs for gauging trends in the economy is as much an art as a science.

A BRIEF OVERVIEW OF THE MACROECONOMIC PARAMETERS OF THE INDIAN ECONOMY

EXTERNAL SECTOR:

• Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years.
• The foreign exchange reserve as of Dec 2021 is equivalent to 13.2 months of imports and higher than the country’s external debt.
• As of end-November 2021, India was the fourth-largest foreign exchange reserves holder in the world after China, Japan, and Switzerland.

FISCAL BALANCE:

• The fiscal support given to the economy as well as the health response caused the fiscal deficit and government debt to rise in 2020-21.
• However, there has been a strong rebound in government revenues in 2021-22 so far.
• The gross monthly GST collections have crossed ` 1 lakh crore consistently since July 2021(See figures: 29 and 30)

FINANCIAL SECTOR:

• The financial system is always a possible area of stress during turbulent times. However, India’s capital markets, have done exceptionally well and have allowed record mobilization of risk capital for Indian companies.
• The Sensex and Nifty scaled up to touch their peak at 61,766 and 18,477 on October 18, 2021. Among major emerging market economies, Indian markets outperformed their peers in April-December 2021.
• Gross NPA ratio of SCBs decreased from 7.5 percent at end-September 2020 to 6.9 percent at end-September 2021.
• The Capital to risk-weighted asset ratio (CRAR) of SCBs increased from 15.84 percent at the end of September 2020 to 16.54 percent at the end-September 2021 on account of improvement for both public and private sector banks.

INFLATION:

• Inflation has reappeared as a global issue in both advanced and emerging economies (Figure 33).
• The surge in energy prices, non-food commodities, input prices, disruption of global supply chains, and rising freight costs stoked global inflation during the year. (See Figure 33 and 34).

THE GLOBAL SUPPLY-SIDE DISRUPTION DUE TO THE PANDEMIC

As the world economy recovered in 2021, it is faced with serious supply-side constraints ranging from delivery delays, container shortages, and semiconductor chip shortages.

CONTAINER INDUSTRY:

• The stress in the container shortages can be captured in the Drewry’s3 Composite World Container Index, which data reflects the problems in the sector.
• The shortage of containers has also impacted the Indian sea trade.
•  According to the Federation of Indian Export Organisation set up under the Ministry of Commerce and Industry, the lack of containers has resulted in rising sea freight rates in the range of 300 percent to 350 percent.
• Further, the production of the new containers has slowed since 2019.
• Simultaneously, a rise in the disposal of containers has also been observed for the same period.
• Thus, the overall growth in the containers has fallen from 11 percent in 2019 to 5 percent in 2021.

SEMICONDUCTOR CHIPS:

• A report by investment bank Goldman Sachs 2021 states that the supply chain disruptions in the semiconductor industry have spillovers in over 169 industries.
• The manufacturing of semiconductors requires a large amount of capital and has an average gestation period of 6-9 months.
• Moreover, it has a fairly long production cycle of about 18-20 weeks.
• Hence, any recovery from the supply chain disruptions will be a slow and costly affair.
• The report further stated that microchips and semiconductors account for about 4.7 percent of the value added by the automotive industry.
• With the delay in supply, the average lead time in the automobile industry for 2021 has been around 14 weeks globally.

REFORMS AND THE COVID-19: TWO-PRONGED STRATEGY

One distinguishing feature of India’s economic response has been an emphasis on supply-side reforms rather than a total reliance on demand management. The emphasis given to the supply-side in India’s COVID-19 response is driven by two important considerations. First, Indian policy-makers saw the disruptions caused by travel restrictions, lockdowns, and supply-chain breakdowns as an interruption of the economy’s supply side. Second, the post-Covid world will be impacted by a wide variety of factors – changes in technology, consumer behavior, geopolitics, supply-chains, climate change, and so on. In a nutshell, the supply-side reforms are built upon two broad strategies which are explained below:

FLEXIBILITY AND INNOVATION:

• Reforms that improve flexibility and innovation to deal with the long-term unpredictability of the post-Covid world.
• This includes factor market reforms; deregulation of sectors like space, drones, geospatial mapping, trade finance factoring;
• Also, process reforms like those in government procurement and in the telecommunications sector; removal of legacy issues like retrospective tax; privatization and monetization, creation of physical infrastructure, and so on.

RESILIENCE ORIENTATION:

• Reforms aimed at improving the resilience of the Indian economy range from climate/environment-related policies; social infrastructure such as the public provision of tap water, toilets, basic housing, insurance for the poor, and so on;
• Support for key industries under Atmanirbhar Bharat; a strong emphasis on reciprocity in foreign trade agreements, and so on.
• Some commentators have likened the Atmanirbhar Bharat approach to a return to old-school protectionism. Far from it, the focus on economic resilience is a pragmatic recognition of the vagaries of the international supply chain.

SOME CONCRETE EXAMPLES OF REFORMS UNDERTAKEN BY THE GoI

INDUSTRY:

• Production Linked Incentive Scheme approved for 13 sectors including Automobiles and auto components, Pharmaceuticals drugs, Specialty steel, Telecom & Networking Products, etc.
• Retrospective tax repealed to promote tax certainty and foreign investment.

TELECOM: Structural reforms:

• Rationalization of Adjusted Gross Revenue: Non-telecom revenue will be excluded from the definition of Adjusted Gross Revenue.
• Interest rates rationalized and penalties from delayed payments of License Fee or Spectrum Usage Charge (SUC) removed.
• 100 percent FDI under automatic route permitted in the telecom sector.
• No Spectrum Usage Charge (SUC) for spectrum acquired in future spectrum auctions.
• Spectrum sharing encouraged.
• The additional SUC of 0.5 percent for spectrum sharing was removed.

Process Reforms:

• Requirement of customs clearance for import of wireless equipment removed and replaced with self-declaration to improve the ease of doing business.

DRONE RULES (ANNOUNCED IN AUGUST 2021):

• Extended applicability of rules: Drones up to 500 kg are now subject to regulations, compared to the earlier limit of 300 kg.
• Several approvals were abolished with the total forms to be filled reduced from 25 to 5. Types of fees reduced from 72 to 4.
• Quantum of fees to be paid considerably reduced and delinked with the size of the drone. Removal of the requirement of prior security clearance.
• Earlier restrictions on all foreign entities owning, manufacturing, or dealing with drones in India have been done away with.
• Expanded area of drone operations: An interactive map on the Digital Sky platform specifies color-coded zones on the map i.e., green, yellow, and red, indicating free zones, those which require prior permission, and no-fly zones, respectively.
• The perimeters of these zones have also been liberalized to increase freely accessible airspace under the green category.

FINANCIAL SECTOR: Banking: Reforms in Deposit Insurance:

• Increase in deposit insurance from ` 1 lakh to ` 5 lakh per depositor per bank. Introduced interim payments:
• Interim payment will be made by Deposit Insurance and Credit Guarantee Corporation (DICGC) to depositors of those banks for whom any restrictions/ moratorium have been imposed by RBI under the Banking Regulation Act resulting in restrictions on depositors from accessing their own savings.
• Timeline of a maximum of 90 days has been fixed for providing interim payment to depositors.

Expansion in the factoring ecosystem:

• The earlier condition of NBFCs whose principal business was factoring has been removed and now all NBFCs are permitted to undertake factoring business.

DEFENCE:

• Corporatisation of Ordnance Factory Board (OFB) approved and 7 new Defence Public Sector Undertakings created.
• FDI enhanced in Defence sector up to 74 percent through the automatic route and up to 100 percent by government route.

DISINVESTMENT:

• New Public Sector Enterprise Policy and Asset Monetisation Strategy: New policy is for strategic disinvestment of public sector enterprises Public sector commercial enterprises are classified as Strategic and Non-Strategic sectors, with the policy of privatization in non-strategic sectors and bare minimum presence even in strategic sectors.
• The identified strategic sectors are (i) Atomic Energy, Space & Defense; (ii) Transport & Telecommunication; (iii) Power, Petroleum, Coal & other minerals; and (iv) Banking, Insurance & Financial Services Privatization of Air India.
• National Monetisation Pipeline: Aggregate monetization potential of ` 6 lakh crore through core assets of the Central Government over four years from 2021-22 to 2024-25. The top 5 sectors including roads, railways, power, oil & gas pipelines, and telecom account for around 83 percent of the aggregate value. So far, CPSEs have referred 3400 acres of land and other non-core assets for monetization.

GROWTH OUTLOOK

The Indian economy is estimated to grow by 9.2 percent in real terms in 2021-22 (as per the First Advance Estimates), after a contraction of 7.3 percent in 2020-21. Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. This projection is based on the assumption that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl., and global supply chain disruptions will steadily ease over the year. As per the IMF’s latest World Economic Outlook (WEO) growth projections released on 25th January 2022, India’s real GDP is projected to grow at 9 percent in both 2021-22 and 2022-23 and at 7.1 percent in 2023-24. This projects India as the fastest-growing major economy in the world in all these three years.

HIGHLIGHTS

• Indian economy is estimated to grow by 9.2 percent in real terms in 2021-22 (as per first advanced estimates) after a contraction of 7.3 percent in 2020-21.
• GDP projected to grow by 8- 8.5 percent in real terms in 2022-23.
• The year ahead is poised for a pickup in private sector investment with the financial system in a good position to provide support for the economy’s revival.
• Projection comparable with World Bank and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 percent and 7.5 percent respectively for 2022-23.
• As per IMF’s latest World Economic Outlook projections, India’s real GDP is projected to grow at 9 percent in 2021-22 and 2022-23 and at 7.1 percent in 2023-2024, which would make India the fastest-growing major economy in the world for all 3years.
• Agriculture and allied sectors are expected to grow by 3.9 percent; industry by 11.8 percent and services sector by 8.2 percent in 2021-22.
• On the demand side, consumption is estimated to grow by 7.0 percent, Gross Fixed Capital Formation (GFCF) by 15 percent, exports by 16.5 percent, and imports by 29.4 percent in 2021-22.
• Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.
• Combination of high foreign exchange reserves sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.
• Economic impact of the “second wave” was much smaller than that during the full lockdown phase in 2020-21, though health impact was more severe.
• Government of India’s unique response comprised of safety-nets to cushion the impact on vulnerable sections of society and the business sector, significant increase in capital expenditure to spur growth, and supply-side reforms for a sustained long-term expansion.
• Government’s flexible and multi-layered response is partly based on an “Agile” framework that uses feedback-loops, and the use of eighty High-Frequency Indicators (HFIs) in an environment of extreme uncertainty.

CONTEXT: On 18 February 2022 India and the United Arab Emirates (UAE) signed the Comprehensive Economic Partnership Agreement (CEPA) to boost the bilateral trade between the two countries. This write-up examines the issue in detail.

THE SALIENT FEATURES OF INDIA-UAE CEPA

1. CEPA is a balanced, fair, comprehensive & equitable partnership agreement, which will give enhanced market access for India in both goods and services.
2. India and UAE aim to increase bilateral goods trade over the next five years to $100 billion.
3. Under the agreement, the UAE is set to eliminate duties on 80 percent of its tariff lines which account for 90 percent of India’s exports to the UAE by value. This is particularly important for exports in highly competitive areas such as textiles and garments.
4. The partnership agreement will open doors, especially to labor-intensive Indian products which are exported to UAE – such as textiles, gem & jewelry, medicines, agricultural products, footwear, leather, sports goods, engineering goods, auto components, and plastics.

1. The agreement which is expected to come into effect in the first week of May is expected to generate “an additional 10 lakh jobs” in India.
2. It will help India in realizing the ambitious target of U.S $1 trillion of merchandise exports and the U.S $1 trillion of services exports by the year 2030.

THE ROADMAP ENVISAGED FOR THE ACHIEVING THE OBJECTIVES OF THE AGREEMENT

The roadmap will ensure that the two countries work together even more closely to address the shared global challenges, achieve shared objectives, and build a future-ready robust and resilient relationship. The roadmap will promote the development of new trade, investment, and innovation dynamics, and intensify bilateral engagement in diverse areas including:

ECONOMIC PARTNERSHIP: 

• This will create investment opportunities for Indian investors in establishing specialized industrial advanced technology zones. Integrating local value chains of the existing and future specialized economic zones in areas of logistics & services, pharmaceuticals, medical devices, agriculture, agri-tech, steel, and aluminum.

CULTURAL COOPERATION ENERGY PARTNERSHIP, CLIMATE ACTION, AND RENEWABLE:

• Recognizing shared cultural heritage and strong ties rooted in history, the Leaders agreed to set up an India – UAE Cultural Council to facilitate and promote cross-cultural exchanges, cultural projects, exhibitions, and dialogue between thought leaders of the two countries.
• This will identify new collaboration opportunities to support India’s energy requirements, including new energies, and ensure the provision of affordable and secure energy supplies to India’s growing economy.
• As the UAE and India collectively navigate the global energy transition, both countries remain committed to working together to create a just and equitable transition to a low-carbon future
• To bring significant opportunities, for societies, economic growth, and businesses, the Leaders agreed to support each other’s clean energy missions.

FOOD SECURITY AND HEALTH COOPERATION:

• India and UAE will contribute to promoting and strengthening the infrastructure and dedicated logistic services connecting farms to ports to final destinations in the UAE.
• The countries will collaborate in the research, production, and development of reliable supply chains for vaccines and to enhance investments by UAE entities in the rapidly growing health infrastructure in India.
• The leaders also agreed to collaborate in providing health care in underprivileged countries.

EDUCATION COOPERATION AND SKILL COOPERATION:

• India and UAE agreed to establish an Indian Institute of Technology in the United Arab Emirates to establish world-class institutions that encourage and support innovation and technological progress.
• India-UAE agreed to enhance their cooperation to develop a mutually agreed professional standards and skills framework.

EMERGING TECHNOLOGIES:

• Recognizing the rapidly digitizing world, the two countries agreed to expand cooperation and collaborate on critical technologies and mutually promote e-businesses and e-payment solutions.
• They agreed to collaborate to promote start-ups from both countries to expand into the two regions and utilize such platforms as a basis for growth.

COOPERATION IN THE INTERNATIONAL ARENA:

• Reflecting shared values and principles, and growing strategic convergence, both countries have resolved to reinforce mutual support in multilateral areas to promote collaboration in economic and infrastructure spheres. They can also intensify cooperation in UNSC etc.

DEFENCE AND SECURITY:

• The countries agreed to enhance maritime cooperation contributing to the maintenance of peace and security in the region.
• Maintaining and strengthening peace in the Middle East through dialogue and cooperation must be the cornerstone of a more integrated, stable, and prosperous region.
• Joint commitment to the fight against extremism and terrorism, including cross-border terrorism, in all forms, at both regional and international levels.

MANY FIRSTS OF THE AGREEMENT

• Finalized and signed in a record time of just 88 days.
• The CEPA provides for automatic registration and marketing authorization of Indian generic medicines in 90 days, once they are approved in any of the developed countries. This will give big market access to Indian medicines.
• Indian jewelry exporters will get duty-free access to the UAE, which currently imposes a 5% customs duty on such products. This will substantially raise its jewelry exports.

SIGNIFICANCE OF THE AGREEMENT FOR INDIA

STRATEGIC LOCATION OF UAE: The UAE, due to its strategic location, has emerged as an important economic hub not just within the context of the Middle East/ West Asia, but also globally. A trade agreement with the UAE could well be a springboard to realize our ambitious export targets.

INCREASE IN REMITTANCES: The CEPA will also help in increasing remittances as Indian investments in UAE will bring Indian employees into the Gulf country. The remittances are expected to rise with the full economic recovery of the UAE’s post-pandemic economy. According to a study, (82% of India’s total remittances originated from seven countries that included Gulf countries like the UAE, Saudi Arabia, Oman, and Kuwait.) *Total Remittances to India is estimated to be US $ 83.3 Billion in FY20.

MARKET FOR INDIAN GOODS: Will allow increased visibility of Indian products in the UAE. Due to the reduction in tariff for Indian jewelry and gems, food items such as cereals, sugar, fruits and vegetables, tea, meat and seafood, textiles, engineering and machinery products, chemicals.

MAKING INDIAN MANUFACTURING EXPORT-ORIENTED: 

• The CEPA which covers almost 90% of exports will make it more attractive for Indian companies to invest in export-oriented businesses because of the zero-tariff facility that the UAE is expected to provide to Indian products.
• The agreement will provide significant benefits to Indian and UAE businesses, including enhanced market access and reduced tariffs. The CEPA will boost bilateral trade from the current $60 billion to $100 billion in the next 5 years.
•  CEPA is expected to create new jobs, raise living standards, and provide wider social and economic opportunities in both nations.

ENTRY TO AFRICAN MARKET:

• This FTA with the UAE will pave the way for India to enter the UAE’s strategic location and have relatively easy access to the Africa market and its various trade partners which can help India to become a part of that supply chain, especially in handlooms, handicrafts, textiles, and pharma.
• This can be achieved by offering attractive investment opportunities in India with a globally competitive infrastructure and an investor-friendly regulatory framework.
• The UAE is a major global redistribution center and much of exports to Africa are routed through Dubai. The CEPA will encourage Indian Businesses for setting up warehousing or distribution centers in the UAE for exports to Africa.

ACCESS TO GULF COOPERATION COUNCIL (GCC) COUNTRIES’ COOPERATION ON MULTILATERAL PLATFORMS:

• The UAE is a party to several regional and bilateral FTAs and has strong economic ties with GCC Countries which may open the gates for India to have strong economic ties with these GCC countries.
• UAE has become a non-permanent member of UNSC for 2022-23 and India will assume the Presidency of G-20 in Dec-2022; both countries may complement each other on multilateral platforms on various issues.

• India’s major exports to the UAE: include petroleum products, precious metals, stones, gems and jewelry, minerals, food items such as cereals, sugar, fruits and vegetables, tea, meat, seafood, textiles, engineering, and machinery products, and chemicals.
• India’s top imports from the UAE: include petroleum and petroleum products, precious metals, stones, gems and jewelry, minerals, chemicals, wood, and wood products.

POTENTIAL CHALLENGES IN THE IMPLEMENTATION

UAE IS A LOW TARIFF ECONOMY: The scope of tariff reduction is limited and hence the gains to Indian exporters. In most of the labor-intensive sectors like textiles, clothing, leather, footwear, etc., while the maximum tariff rate is 5 percent, the average tariff rate is either 5 percent or less. In other manufacturing sectors such as non-electrical machinery, electrical machinery, transport equipment, which constitute a significant proportion of the Indian export basket to the UAE, the maximum tariff rate is again 5 percent and the average tariff rate is less than 5 percent.

SURGE IN IMPORTS: The issue for India is the possibility of a surge in imports from the UAE. This is mainly because it is an entrepot economy and re-exports form a large proportion of its gross exports.

RISK OF TREATY ABUSE: While the agreement will be mutually beneficial for both countries, India needs to ensure that goods originating from outside the UAE are not allowed duty-free into India under this treaty. The risk of treaty abuse arises because the UAE is a global transshipment hub and hence, India should guard against duty-free imports of transshipped products.

THE WAY FORWARD

• It is imperative for India to not only have strong rules of origin provision under the CEPA but also it must enforce them.
• To get duty-free access to the Indian market under the CEPA, the required value addition in the UAE has been kept at 40 percent, which is significantly higher than other FTAs where value addition requirement is generally 30-35 percent.
• The CEPA would also have an effective enforcement mechanism in place. This will reduce the excessive surge in imports.
• To enhance the utilization of CEPA it is also important to ensure that the cost of compliance remains at the minimum level.

Exploring Other Trade OpportunitiesIn Future: The success of India-UAE CEPA will also provide much-needed insight and confidence to India to have other similar FTAs with other countries having a potential market for the Indian Goods and Services. The Government of India has prioritized at least six countries to engage with under the new FTA policy, with the UAE at the top of the list for an early harvest deal. The United Kingdom, the European Union, Australia, Canada, Israel, and a group of Gulf Cooperation Council countries are the others (GCC). In due future, the early harvest agreement will be expanded into a comprehensive FTA.

THE CONCLUSION: The CEPA brings the two nations closer, will open many new opportunities for Indians to work in UAE, including in fintech, tech, green tech, automation, and Artificial Intelligence. Technology, digital trade, and sustainability have a big focus in the partnership. The CEPA will not only improve the competitiveness of Indian products but also provide strategic advantages to India. Both countries will identify clear areas of focus and establish ways of working together to resolve trade remedy cases as envisaged in the MoU signed in January 2017.

BACK TO BASICS

INDIA-UAE RELATIONS IN THE RECENT PAST

• The UAE is the eighth-largest investor in India: The UAE has invested $11 billion between April 2000 and March 2021.
• Investment by Indian companies in the UAE is estimated to be over $85 billion
• The UAE is India’s second-largest export destination after the US, with exports valued at approximately $29 billion in FY20.
• India was the UAE’s second-largest trading partner in 2019, with bilateral non-oil trade valued at $41 billion
• The UAE is currently India’s third-largest trading partner with bilateral trade in FY20 valued at $59 billion.
• Indian Diaspora in UAE: Indian expatriate community of approx. 3.5 million (as per International Migrant Stock 2020 released by the Population Division of the UN Department of Economic and Social Affairs (DESA) is reportedly the largest ethnic community in UAE constituting roughly about 30 percent of the country’s population.
• Military exercises between India and UAE: Both countries have come together in the past to have bilateral as well as multilateral military exercises:

VARIOUS TYPES OF TRADE AGREEMENTS

Free Trade Agreement (FTA): To establish a fair set of rules of trade between the agreeing countries. They provide favorable treatment to each other by reducing trade barriers such as cutting the import duties to/from the other country. They also work on easing out non-tariff barriers to exports like easing quantitative import restrictions, easing customs procedures, improving market access for service exports, and better investment rules.

FTAs help in trade, job creation, and economic growth and also serve as a diplomatic tool for improving international relations Eg: ASEAN countries impose a 20% duty on the import of leather goods however for India this is 0%.

There are various types of trade agreements such as

• Preferential Trade Agreements (PTA): In a PTA, two or more partners agree to reduce tariffs on the agreed number of tariff lines. The list of products on which the partners agree to reduce duty is called a positive list. India MERCOSUR PTA (Argentina, Brazil, Paraguay, Uruguay, and Venezuela) is such an example. However, in general, PTAs do not cover substantially all trade.
• Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA): These terms describe agreements that consist of an integrated package on goods, services, and investment along with other areas including IPR, competition, etc. The India UAE CECA is one such example and it covers a broad range of other areas like trade facilitation and customs cooperation, investment, competition, IPR, etc.
• Broad-Based Trade and Investment Agreement (BTIA):  India and the European Union (EU) are set to resume negotiations for a (BTIA). The BTIA talks have been suspended since 2013

DIFFERENCE BETWEEN CECA/CEPA AND FTA

CECA/CEPA: More comprehensive and ambitious than FTA in terms of coverage of areas and the type of commitments i.e. a holistic coverage of many areas like services, investment, competition, government procurement, disputes, etc. CECA/CEPA looks deeper at the regulatory aspects of trade than an FTA.

FTA: FTA focuses mainly on goods. A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

FTAS  OF INDIA WITH OTHER COUNTRIES AND THEIR ANALYSIS

• Presently, India shares preferential market access and economic cooperation through trade agreements with over 50 countries.
• India actively engages in regional and bilateral trade negotiations to diversify and expand its export markets while ensuring access to the raw materials, intermediates, and capital goods needed to stimulate value-added domestic manufacturing.

Table 1 https://www.trade.gov/country-commercial-guides/india-trade-agreements

It’s true that most of the trade agreements have not delivered the expected results in terms of FTA utilization rate, market penetration, integration with regional or global production networks, etc. Given the complementarities in economic structures of the two countries, the India-UAE CEPA could be a win-win for both economies as India is highly dependent on oil imports and is an agriculture surplus economy, whereas UAE is an oil rich and agriculture deficit economy.

Mains Ques

1. The India-UAE CEPA will not only improve the competitiveness of Indian products but also provide strategic advantages to India. Explain
2. UAE being an entrepot economy, how the CEPA can enhance India’s export prospects not only to the UAE but also to West Asia and even Africa regions.
3. India –UAE CEPA may provide the much-needed boost to labour intensive sectors in India. Elaborate

[WpProQuiz 181]

THE CONTEXT: The Ukraine crisis has crossed a critical point, with Russia following up its recognition of rebel regions in eastern Ukraine (Donbas region)- Donetsk and Luhansk with a full-fledged invasion to “demilitarise” and “denazify” Ukraine. The United Nations Security Council (UNSC), on 27 February 2022, voted to convene an emergency special session of the General Assembly to consider a resolution on the situation in Ukraine, vetoed by Russia.

ABOUT UNITED NATIONS SECURITY COUNCIL (UNSC)

United Nations Security Council was established by 51 countries in 1945.

• It has primary responsibility, under the UN Charter, for the maintenance of international peace and security.
• The Security Council is made up of fifteen member states, consisting of five permanent members (P5)—China, France, Russia, UK, and the USA—and ten non-permanent members elected for two-year terms by the General Assembly on a regional basis.
• Election of non-permanent members: Non-permanent members are elected by a two-thirds vote of the UN General Assembly. The main criterion for eligibility is contribution “to the maintenance of international peace and security,” often defined by financial or troop contributions to peacekeeping operations. Present non-permanent members are mentioned in the table.
• Subsidiary organs supporting the council’s mission include Counter-Terrorism Committee, Sanctions Committee, Peace Keeping Operations, International Courts, and Tribunals.

UNSC and UNGA

• The Council also makes recommendations to the General Assembly to appoint a new Secretary-General and to admit new members to the UN. Security Council decisions are formal expressions of the will of the Council.
• The Security Council, the United Nations’ principal crisis-management body, is empowered to impose binding obligations on the 193 UN member states to maintain peace.
• The council’s presidency rotates every month, ensuring some agenda-setting influence for its ten non-permanent members, which are elected by a two-thirds vote of the UN General Assembly.
• The unconditional veto possessed by the five permanent members has been seen as the most undemocratic character of the UN.
• “Veto power” refers to the power of the permanent member to veto (Reject) any resolution of the Security Council.
• Critics claim that veto power is the main cause for international inaction on war crimes and crimes against humanity.
• Supporters of the veto power regard it as a promoter of international stability, a check against military interventions, and a critical safeguard against U.S. domination.

FOUR CASES IN RECENT PAST WHERE THE UN SYSTEM APPEARS TO HAVE FAILED QUITE VISIBLY

FIGHT AGAINST COVID:

• UNSC failed to hold China accountable; in fact WHO teams so far have not been able to conclude on the origins of the virus, particularly because they have not yet been able to get access to Chinese laboratories.
• The biggest international threat of the century, UNSC in particular is widely criticized for ‘Missing In Action in the fight against the Coronavirus.
• UN Systems failed to ensure the equitable distribution of the vaccines: many African nations (so-called third world nations) are waiting for their access to the first shot of vaccine whereas the developed countries /first world countries have already started with booster doses and are stockpiling the vaccines. It is not that they are not sharing but still they are not sharing on a scale where the entire world has access.
• As an outcome of this we see a situation where 4 million are dead and no one yet is held responsible for the origins of the virus, fear of new variants or another virus still keeps the world on toes.

COUP IN MYANMAR:

• Myanmar Military (Junta) last year February took over the democratically elected government, putting the elected leaders in prison, slapping them with national security cases, and even declaring a full emergency.
• UNSC has held at least 3 rounds of discussions on the issue but has taken no action yet against the Junta for the coup.
• All this comes against the already persisting and unresolved situation of the Rohingya Refugees and humanitarian crises.

TALIBAN TAKEOVER OF AFGHANISTAN:

• So far there have been three discussions in UNSC over the issue and one resolution but have not been able to deliver any binding or punitive statement rather at present the resolution shows the Taliban as the default force ruling the country.
• The UN has also failed to instill the idea of UN-led Transitional Council unlike in the case of East Timor where it ran the transitional council until it handed over after the independence of the country.

RUSSIA’S MILITARY ACTION ON UKRAINE:

• Russia vetoed a UN Security Council resolution, that would have demanded that Moscow immediately stop its attack on Ukraine and withdraw all troops.
• This significantly clears the doubt surrounding the abuse of veto powers being used by P5 countries.

ISSUES AND PROBLEMS WITH UNSC

GROUP OF ELITES:

• The winners of WW2, P5 members (France, Russia, United Kingdom, China, and United States) hold the veto powers and all the members are nuclear powers, only addressing the strategic interests and political motives of the permanent members.

ANACHRONISM OF PRESENT TIMES: 

• The veto powers that the UNSC’s five permanent members enjoy are an anachronism in this age. The UNSC in its current form has become a constraint in understanding the international changes and dynamics in the area of human security and peace.

POWER PLAY IN UNSC:

• Divisions among the P5 i.e. there is a deep polarization within the UN’s membership, so decisions are either not taken, or vetoed.
• Frequent divisions within the UNSC P5 end up blocking key decisions.
• Example: With the coronavirus pandemic emergence, the UN, the UNSC, and WHO failed to play an effective role in helping nations deal with the spread.

ABSENCE OF RECORDS AND TEXTS OF MEETINGS:

• The usual UN rules don’t apply to the UNSC deliberations, and no records are kept of its meetings.
• Additionally, there is no “text” of the meeting to discuss, amend or object.

IRONIC CONDITION:

• The main purpose of the UN in maintain peace and stability in the world. Five permanent members of the UN Security Council are the top five largest arms dealing countries in the world.

EFFECTIVENESS AND RELEVANCE:

• Unable to respond effectively to the emerging international conflicts and other humanitarian crises.

AN UNDER-REPRESENTED ORGANISATION:

• The existing gaps in terms of the under-representation of regions especially from Africa, Asia, and Latin America are crippling the UNSC as a global institution governing international peace and security.
• The absence in the UNSC of the globally important countries – India, Germany, Brazil, and South Africa – is a matter of concern.

REFORMS IN UNSC

WHAT SHOULD BE THE APPROACH:

• Reforms must reflect contemporary global realities and for this purpose, the reform of the UN including the expansion of the UNSC in both permanent and non-permanent categories is essential.

REGIONAL REPRESENTATION CHANGING GEOPOLITICS:

• European bias in P-5 due to the presence of the UK, France, and Russia while regions like Latin America, Caribbean group, Arabs and Africa do not have a single permanent member.
• There is a need to overcome the European and Western hegemony and have equitable geographical representation.
• The victors of World War II shaped the United Nations Charter in their national interests, dividing the permanent seats, and associated veto power, among themselves.
• It has been 76 years since the foundation of UNSC and the geopolitical realities have changed drastically and the structure of UNSC should also reflect the same.

QUESTION OF VETO:

• Veto power is grossly misused by the permanent members in their own interests. This also badly affects the conduct of the business of UNSC as many important proposals involving substantive issues get blocked. The Veto shall be rarely and cautiously used by world leaders.

TRANSPARENCY AND WORKING METHODS:

• While the expansion of the Security Council has been hotly debated across the world, debate on the working methods of the Council is an equally important aspect of reform to many member states.
• Participative, consultative, and democratic approaches to the functioning of the UN in general and UNSC, in particular, should be adhered to.

KOFI ANNAN MODEL FOR REFORMS – 2005:

• In 2005, the Former UN secretary-general presented two models for a total of 24 seats in the council.
• Model A: Six new permanent seats, with no veto being created, and three new two-year term non-permanent seats, to have representation from all regions.
• Model B: No new permanent seats but create a new category of eight 4-year renewable-term seats and one 2-year non-permanent and non-renewable seat.

CHALLENGES FOR REFORMS

AMENDMENT TO UN CHARTER:

This amendment involves a two-stage process:

• Stage I: General Assembly must approve the reform by a two‑thirds majority (i.e. at least 128 states).
• Stage II: amended Charter must then be ratified by at least two‑thirds of the member states, including the five permanent Council members.
• This process includes all Security Council’s permanent members, and they may not take a step to curb their own powers.

POLITICAL WILL AND INTEREST OF P5:

• Every country’s actions are based on its national interests and no one likes to get its power diluted.
• There has been no consensus reached among the UN members including the P5, on how to adjust the Security Council’s structure and in particular how to increase the number of new permanent members.

INTERGOVERNMENTAL NEGOTIATIONS:

• There is no coherence in the approach of supporters of UN reforms, The G4 bid has been opposed by a few countries, whereas other groups like Coffee Club opposed adding countries as permanent members.
• 13-member group that includes Pakistan and is known as United for Consensus (UfC) has been in opposition to adding more permanent members to the council.

INDIA AND UNSC

Why India should be admitted as a permanent member?

• The expansion of the Security Council, in the category of both permanent and non-permanent members, and the inclusion of countries like India as permanent members, would be a first step in the process of making the United Nations a truly representative body.
• At the core of India’s call for reformed multilateralism, lies the reform of the UN Security Council, reflective of the contemporary realities of today. When power structures continue to reflect the status quo of a bygone era, they also start reflecting a lack of appreciation of contemporary geopolitical realities.
• The Charter of the United Nations, alongside the call for a geographically balanced distribution of seats, also expressly states that countries that make considerable contributions to the UN should be members of the Security Council.
• India’s performance as a non-permanent member of the Security Council during 2011- 2012 has also significantly strengthened India’s claim to permanent membership
• By any objective criteria such as population, territorial size, GDP, economic potential, civilizational legacy, cultural diversity, political system, India is eminently suited for permanent membership of an expanded UNSC.

Why should India bid for a permanent seat in UNSC?

• Largest democracy in the world.
• 3^rd largest economy.
• Home to 1/6^th of the total world population.
• One of the largest peacekeeping contributors to the UN.

INDIA IN UNSC AS A NON-PERMANENT MEMBER FOR THE EIGHTH TERM (2021-2022)

INDIA’S 5-S APPROACH:

• SAMMAN – Respect
• SAMVAD – Dialogue
• SAHYOG – Cooperation
• SHANTI – Peace
• SAMRIDDHI – Prosperity

NEW OPPORTUNITIES FOR PROGRESS:

• As a rule-abiding democracy and a positive contributor to the security of the global commons, India should work constructively with partners to bring innovative and inclusive solutions to foster development.
• India calls for greater involvement of women and youth to shape the new paradigm.

EFFECTIVE RESPONSE TO INTERNATIONAL TERRORISM:

• Addressing the abuse of ICT by terrorists.
• Disrupting their nexus with sponsors and transnational organized criminal entities.
• Stemming the flow of terror finance.
• Strengthening normative and operative frameworks for greater coordination with other multilateral forums

COMPREHENSIVE APPROACH TO PEACE AND SECURITY:

India’s vision for international peace and security is guided by:

• Dialogue and cooperation.
• Mutual respect.
• Commitment to international law.

INDIA ON RUSSIA-UKRAINE ISSUE:

• India strongly emphasized the need for all sides to exercise the utmost restraint and intensify diplomatic efforts to ensure a mutually amicable solution.
• India abstained from voting on the UNSC resolution condemning the Russia’s aggression on Ukraine.

WHAT SHOULD BE THE WAY FORWARD FOR INDIA?

• India should leverage its past experiences as a non-permanent member.
• India also needs to revitalise its engagement with its traditional partners in the “global south” by voicing their peace and security concerns in the UNSC. In this context, two sub-groups of the global south should be of particular interest: the Small Island States and Africa.
• The G4 nations of India, Brazil, Germany and Japan have reaffirmed that it is “indispensable” to reform the Security Council through an expansion in permanent and non-permanent seats to enable the UN organ to better deal with the “ever-complex and evolving challenges” to the maintenance of international peace and security.
• It’s been clear for some time now that the global multilateral order is not fit for its purpose. The Covid pandemic, Afghan issue, Nagorno-Karabakh issue and now Russia’s military action on Ukraine have only made the world more aware of the real-time consequences of this gradual decay. The United Nations Security Council has faced a lot of flak for not representing today’s international power realities and for not being able to shape the global discourse on the changing nature of security. Reforms in the UNSC and other multilateral institutions are the need of the hour.

THE CONCLUSION: The reform of the UNSC is a crucial issue on the current international agenda. Its progress will determine the effectiveness of the work of the whole UN system for the foreseeable future. The efforts in this area should be aimed, first of all, at enhancing the Council’s ability to promptly and effectively react to emerging challenges. This becomes even more relevant today as we witness multiple crises and conflicting situations.

Mains Ques:

1. Discuss the role and functions of UNSC in present times.
2. There have been many criticisms of Veto power held by the P5 nations in UNSC. Is it undermining the mandate of UNSC? Analyse.
3. Today’s peace and security challenges require a comprehensive and integrated approach, harmonizing national choices and international priorities. Analyse in context of Russia-Ukraine crises.

[WpProQuiz 179]

THE CONTEXT: In February 2021, Russian forces launched a major military attack on Ukraine on the orders of Russian President Vladimir Putin. Tanks and troops have poured into Ukraine at points along its eastern, southern, and northern borders. But why is Ukraine being invaded, and what might Russia want from its neighboring country? This article analyses the issue in detail.

A TIMELINE OF THE EVENT

Russia launched a large-scale invasion of Ukraine on Feb. 24. Here is a timeline of Ukraine’s fraught relationship with Moscow since it won independence in 1991 and the events that led to the current conflict.

• 1991: Shortly after the fall of the Soviet Union, Ukraine declares independence from Moscow.
• 2004: Pro-Russian candidate Viktor Yanukovich is declared President but allegations of vote-rigging trigger protests, known as the Orange Revolution, forcing a re-run of the vote. Pro-Western former prime minister, Viktor Yushchenko, is elected President.
• 2005: Yushchenko takes power with promises to lead Ukraine out of the Kremlin’s orbit, towards NATO and the EU.
• 2008: NATO promises Ukraine it will one day join the alliance.
• 2010: Yanukovich wins a presidential election.
• 2013: Yanukovich’s government suspends trade and association talks with the EU and opts to revive economic ties with Moscow, triggering months of mass rallies in Kyiv.
• February 2014: Parliament votes to remove Yanukovich after bloodshed in the protests. Within days, armed men seize parliament in the Ukrainian region of Crimea and raise the Russian flag. Moscow later annexes the territory.
• April 2014: Pro-Russian separatists in the eastern region of Donbas declare independence. Some 15,000 people have been killed since 2014 in fighting between the separatists and the Ukrainian army, according to the Kyiv government.
• September 2014: Minsk I
• Ukraine and the Russia-backed separatists agreed on a 12-point ceasefire deal in September 2014. Its provisions included prisoner exchanges, deliveries of humanitarian aid, and the withdrawal of heavy weapons. However, the agreement quickly broke down, with violations by both sides.
• February 2015: Minsk II
• Representatives of Russia, Ukraine, the Organisation for Security and Cooperation in Europe (OSCE), and the separatist-held regions Donetsk and Luhansk signed a 13-point agreement in February 2015. The leaders of France, Germany, Russia, and Ukraine gathered in Minsk to mark the occasion and issued a 13-points declaration of support.
• 2017: An association agreement between Ukraine and the EU opens markets for free trade of goods and services and visa-free travel to the EU for Ukrainians.
• 2019: Former comic actor Volodymyr Zelensky is elected President.
• 2021: Zelenskiy appeals to U.S. president Joe Biden to let Ukraine join NATO. In February, his government froze the assets of opposition leader Viktor Medvedchuk, the Kremlin’s most prominent ally in Ukraine.
• Spring 2021: Russia begins massing troops near Ukraine’s borders in what it says are training exercises.
• 2021: Satellite images show an ongoing buildup of Russian forces near Ukraine with estimates soon surpassing 100,000 troops deployed.
• 2017-2021: Russia presents security demands, including NATO pulling back troops and weapons from eastern Europe and barring Ukraine from ever joining.
• 2024-2022: NATO puts forces on standby and reinforces eastern Europe with more ships and fighter jets.
• 2026: Washington responds to Russia’s security demands, repeating a commitment to NATO’s “open-door” policy while offering a “pragmatic evaluation” of Moscow’s concerns. Two days later, Russia says its demands were not addressed.
• 2022: Amid growing Western fears Russia could attack Ukraine, the United States says it will send 3,000 extra troops to NATO members Poland and Romania. Washington and allies say they will not send troops to Ukraine but warn of severe economic sanctions if Russian President Vladimir Putin takes military action.
• 2021: In a TV address, Putin says Ukraine is an integral part of Russian history and has a puppet regime managed by foreign powers. After recognizing them as independent, Putin orders what he called peacekeeping forces into two breakaway regions in eastern Ukraine.
• 2022: The U.S., Britain, and their allies sanction Russian parliament members, banks, and other assets in response to Putin’s troop order. Germany halts the Nord Stream 2 gas pipeline project.
• 2023: Russian-backed separatist leaders ask Russia for help repelling aggression from the Ukrainian army.
• 2024: Putin authorizes “special military operations” in Ukraine. Russian forces begin missile and artillery attacks, striking major Ukrainian cities including Kyiv.
• 2026: Western allies announce new sanctions, including restrictions on Russia’s central bank and expelling key banks off the main global payments system.

CAUSE OF CONFLICT

• Balance of Power: Ever since Ukraine split from the Soviet Union, both Russia and the West have vied for greater influence in the country to keep the balance of power in the region in their favor.
  • Buffer Zone for Western Countries: For the US and the European Union, Ukraine is a crucial buffer between Russia and the West. As Ukraine is located between Western Europe and Russia and not part of NATO, it works as a buffer zone.
  • As tensions with Russia rise, the US and the EU are increasingly determined to keep Ukraine away from Russian control.
• Russian Interest in the Black Sea: The unique geography of the Black Sea region confers several geopolitical advantages to Russia.
  • Access to the Black Sea is vital for all littoral and neighboring states and greatly enhances the projection of power into several adjacent regions.
  • The region is an important transit corridor for goods and energy.
• Protests in Ukraine: Euromaidan Movement: European Square was a wave of demonstrations and civil unrest in Ukraine, which began in November 2013 with public protests in Maidan Independence Square in Kyiv, Ukraine.
  • The protests were sparked by the Ukrainian government’s decision to suspend the signing of an association agreement with the European Union, instead choosing closer ties to Russia and the Eurasian Economic Union
• Separatist Movement: The Donetsk and Luhansk regions of eastern Ukraine have faced a pro-Russian separatist movement since 2014.
  • • According to various sources, the Russian government actively supports the movement, and Russian paramilitaries make up between 15% to 80% of the separatists fighting against the Ukrainian government.
• Invasion of Crimea:
  • Russia seized Crimea from Ukraine in what was the first time a European country annexed territory from another country since WW-II
  • The annexation of Crimea from Ukraine followed a Russian military intervention in Crimea that took place in the aftermath of the 2014 Ukrainian revolution and was part of wider unrest across southern and eastern Ukraine.
  • The invasion and subsequent annexation of Crimea have given Russia a maritime upper hand in the region.

• Ukraine’s NATO Membership: Ukraine has urged NATO to speed up its country’s membership in the alliance.

• • Russia has declared such a move a “red line”, and is worried about the consequences of the US-led military alliances expanding right up to its doorstep.
  • The Black Sea is bordered by Bulgaria, Georgia, Romania, Russia, Turkey, and Ukraine. Romania, Turkey, and Bulgaria are NATO members.
  • Due to this faceoff between NATO countries and Russia, the Balck sea is a region of strategic importance & a potential maritime flashpoint.

CURRENT SITUATION

• Russia’s army has captured five cities of Ukraine and major Eastern ports.
• Russian troops are attacking Ukraine on multiple fronts and are advancing on the capital city of Kyiv.
• The Ukrainian Healthcare Ministry reported a total of 752 civilian and military deaths during Russia’s military attack on Ukraine as of February 27, 2022. Of them, 14 were children.
• This has left the countries in a stand-off, with tens of thousands of Russian troops ready to invade Ukraine. More than 1 million people were displaced after the first day of war and taken shelter in nearby countries.
• First round of talk was held in Belarus on 28 February 2022.

RUSSIA’S STAND

• Russia wants assurance from the West that Ukraine will never be allowed to join NATO. Kyiv is currently a “partner country”, which implies that it will be allowed to join the military alliance in the future.
• The US and its western allies are refusing to bar Ukraine from NATO, claiming it as a sovereign country that is free to choose its own security alliances.
• The Russian President justified the Ukraine crisis on the grounds of security interests and the rights of ethnic Russians in former Soviet Republics.

STAND OF MAJOR WORLD POWERS ON THE ISSUE

• The G7 nations strongly condemned Russia’s invasion of Ukraine.
• Sanctions have been imposed by the U.S., the European Union (EU), the UK, Australia, Canada, and Japan.
• China rejected calling Russia’s moves on Ukraine an “invasion” and urged all sides to exercise restraint.
• India did not join the Western powers’ condemnation of Russia’s intervention in Crimea and kept a low profile on the issue and abstained on a US-sponsored UNSC resolution that “deplores in the strongest terms” Russia’s aggression against Ukraine, with New Delhi saying dialogue is the only answer to settling differences and disputes and voicing “regret” that the path of diplomacy was given up.
• China too abstained, along with the United Arab Emirates (UAE) in the UNSC resolution.

 POSSIBLE IMPACTS OF THE RUSSIAN INVASION

THERE COULD BE COLLATERAL DAMAGE FROM SANCTIONS ON RUSSIA:

• In February, President Biden announced economic sanctions on two Russian banks with about $80 billion in assets and five Russian oligarchs and their families, and prohibited U.S. entities from purchasing Russian sovereign debt. More sanctions are expected to follow in the future. Severe U.S. sanctions could drive up prices for everyday Russians or cause Russia’s currency or markets to crash.

ENERGY PRICES COULD RISE:

• At the end of February 2022, crude oil was trading at more than $117 per barrel for the first time since 2014, rising nearly 20% to more than $96 per barrel.
• Russia is a major exporter of oil and natural gas, especially to Europe. As a result, the price of fuel is going up continuously.
• Russia could choose to cut off or limit oil and gas exports to Europe as retaliation for sanctions. Nearly 40% of the natural gas used by the European Union comes from Russia and Germany is the largest importer.

IMPACTS ON OTHER INDUSTRIES:

• Russia is a major exporter of rare-earth minerals and heavy metals such as titanium used in airplanes. Russia supplies about a third of the world’s palladium, a rare metal used in catalytic converters, and its price has soared after
• Ukrainian is a major source of neon, which is used in manufacturing semiconductors.
• Fertilizer is produced in major quantities in both Ukraine and Russia. Disruptions to those exports would mostly affect agriculture in the world and as a result, the price of food could rise.

GLOBAL MARKETS COULD DROP:

• The invasion rattled investors Wednesday, with Dow futures down more than 2% before the markets opened in the United States. Markets across Asia also dropped. The invasion sent the prices of traditional investment safe havens higher, with gold up more than 1.5% on the first night.
• The crisis is deeply impacting the stock market around.

RUSSIA COULD LAUNCH DISRUPTIVE CYBERATTACKS:

• Russia could respond to U.S. sanctions is through cyberattacks and influence campaigns.
• Russian cyberattacks have targeted Ukraine relentlessly in recent years, including attacks on the capital
• Power grids, hospitals, and local governments could all be targets.

A MAJOR INVASION WOULD LIKELY SPARK A REFUGEE CRISIS:

• The invasion could send 1 million to 5 million refugees fleeing Ukraine, as more than one million people were already displaced after the first day of the war.
• Europe and other parts of the world will see another refugee crisis. Poland, which shares a border with Ukraine and is already home to more than a million Ukrainians, would likely see the most refugees.
• At the largest scale, a refugee crisis would not be contained to Europe.

THREAT FOR FURTHER INVASION: 

• After the invasion of Russia in Ukraine, China can also gather strength to claim Taiwan and other territorial disputes around the world may occur.

POSSIBLE IMPACTS OF THE RUSSIAN INVASION

THERE COULD BE COLLATERAL DAMAGE FROM SANCTIONS ON RUSSIA:

• In February, President Biden announced economic sanctions on two Russian banks with about $80 billion in assets and five Russian oligarchs and their families, and prohibited U.S. entities from purchasing Russian sovereign debt. More sanctions are expected to follow in the future.
• Severe U.S. sanctions could drive up prices for everyday Russians or cause Russia’s currency or markets to crash.

ENERGY PRICES COULD RISE: 

• At the end of February 2022, crude oil was trading at more than $117 per barrel for the first time since 2014, rising nearly 20% to more than $96 per barrel.
• Russia is a major exporter of oil and natural gas, especially to Europe. As a result, the price of fuel is going up continuously.
• Russia could choose to cut off or limit oil and gas exports to Europe as retaliation for sanctions. Nearly 40% of the natural gas used by the European Union comes from Russia and Germany is the largest importer.

IMPACTS ON OTHER INDUSTRIES: 

• Russia is a major exporter of rare-earth minerals and heavy metals such as titanium used in airplanes. Russia supplies about a third of the world’s palladium, a rare metal used in catalytic converters, and its price has soared after
• Ukrainian is a major source of neon, which is used in manufacturing semiconductors.
• Fertilizer is produced in major quantities in both Ukraine and Russia. Disruptions to those exports would mostly affect agriculture in the world and as a result, the price of food could rise.

GLOBAL MARKETS COULD DROP:

• The invasion rattled investors Wednesday, with Dow futures down more than 2% before the markets opened in the United States. Markets across Asia also dropped. The invasion sent the prices of traditional investment safe havens higher, with gold up more than 1.5% on the first night.
• The crisis is deeply impacting the stock market around.

RUSSIA COULD LAUNCH DISRUPTIVE CYBERATTACKS:

• Russia could respond to U.S. sanctions is through cyberattacks and influence campaigns.
• Russian cyberattacks have targeted Ukraine relentlessly in recent years, including attacks on the capital
• Power grids, hospitals, and local governments could all be targets.

A MAJOR INVASION WOULD LIKELY SPARK A REFUGEE CRISIS: 

• The invasion could send 1 million to 5 million refugees fleeing Ukraine, as more than one million people were already displaced after the first day of the war.
• Europe and other parts of the world will see another refugee crisis. Poland, which shares a border with Ukraine and is already home to more than a million Ukrainians, would likely see the most refugees.
• At the largest scale, a refugee crisis would not be contained to Europe.

THREAT FOR FURTHER INVASION: 

• After the invasion of Russia in Ukraine, China can also gather strength to claim Taiwan and other territorial disputes around the world may occur.

INDIA’S POSITION AND STANDING

MILITARY EQUATIONS:

• Moscow makes up about half of India’s total weapons import. India needs Russia to service its arms and joint products, like the Brahmos missile.
• Hence, abandoning Russia is not an option for New Delhi. And at the same time, siding with Russia could incur American sanctions, i.e., CAATSA (The Countering America’s Adversaries Through Sanctions Act).
• The Biden administration is in the process of making a decision on whether to sanction India for its purchase of the S-400 Russian missile systems or to process a waiver, considering the close India-US defense ties.
• If New Delhi openly sides with Russia, then Biden may reconsider imposing sanctions.

CHINA FACTOR:

• China has become the biggest threat for India in recent years—openly acknowledged by Indian Army chief MM Naravane.
• Hence, India needs both Russia and US to counter China.
• America is China’s rival while Russia is an ally. One brings deterrence, whereas the other brings leverage.
• Russia could be effective in tempering China’s aggression and America, on the other hand, will undermine its designs.
• So, it’s a win-win for India. But that advantage disappears if India picks aside.

ECONOMIC FALLOUT:

• The India-Russia bilateral trade is worth $8 billion, while the India-Ukraine trade is worth around only $2.7 billion.
• After the war, supply chains are going to be disruptive. And the one product that will worry India is oil, both as a fuel and cooking oil.
• Last year, India bought 1.8 million tonnes of sunflower oil and 74 percent of that came from Ukraine. So, if a war breaks out cooking oil may become more expensive.
• India is already preparing for this eventuality and new markets are being explored, like Brazil and Argentina.

EXPLAINING INDIA’S POSITION:

• In the UNSC meeting, India abstained, circumventing a perception of supporting the US-led coalition against Russia.
• In the same breath, India also distanced itself from the Beijing Olympics through an official boycott, which in many ways has been projected and perceived as an anti-US as well as an anti-West congregation.
• The two decisions reflect two different assessments of its interests vis-à-vis compulsions of the great power politics on New Delhi.
  • While some interpreted India’s absence from the UNSC meets as depicting the limitations of its closeness to the US (alongside tacit support for Russia).
  • Its boycott of the Beijing Olympics evinced a coming of age in its strategic autonomy characterized by strong, independent, and interest-based decision-making irrespective of the nature of great power politics at play and the looming risk of antagonizing big powers.
  • For India, the decision to carefully weigh on the Ukraine crisis has balanced two strategic necessities:
• Expectations of a close strategic partner in the US; the need to maintain strong ties with Moscow.
• To avoid any perception of proximity to the emerging Sino-Russian axis.

LESSONS FOR INDIA

INDIA, HELP YOURSELF:

• The big takeaway for India from the ongoing Ukraine crisis is that no third country will come to New Delhi’s aid, militarily, in case China forces upon a war. Pakistan is a different case, and India has enough military-strategic depth to counter the western neighbor.
• The Americans are not going to war with China over India. While a lot of global verbal condemnation can be expected in favor of India.
• While Russia has been a close ally of India for decades, Moscow and Beijing are enjoying proximity in the new global scenario.
• Hence, any possibility of the Russians playing an active role on behalf of India cannot be expected. It may very well even abstain from any resolution passed in the United Nations Security Council or the General Assembly, reciprocating India’s position vis a vis Russia on Ukraine.

ATMANIRBHARTA: THE WAY FORWARD:

• The Russia-Ukraine crisis has clearly shown the importance of not being dependent on a second country for military equipment.
• The way ahead is increased focus on enhancing our own capabilities both in terms of spending more on defense and making indigenous equipment. We cannot be relying on a second country to cater to our defense needs, both in terms of war-fighting and equipment.
• The government should strongly push for its R&D in the military and a preference should be given to such products and companies developing systems based on their own research and technology.

FOCUS ON FUTURE TECH:

• The Russia-Ukraine war has also shown how reliance on traditional warfighting machines such as tanks and attack helicopters will not win you battles. This was also evident in the Azerbaijan-Armenia conflict.
• This has primarily been achieved by using armed drones, loitering munitions, and stinger man-portable air defense systems that can easily take out fully equipped and menacing attack helicopters and other aircraft swiftly without much cost.
• The war dynamics have changed and it is important to focus more on new military technology and not waste time in re-inventing the wheel.

THE CONCLUSION: As Indian strategic engagement with the United States has grown in recent years, the Modi government has shifted its reaction to developments in Ukraine ever so slightly. In 2014, the government of then-Indian Prime Minister Manmohan Singh talked about Russia’s “legitimate interests” in Ukraine; today, the Modi government underlines the “legitimate security interests of all countries” in Ukraine. It is keeping in mind our own experience of the neutral or cautious positions that Russia and the US and our other partners, including our neighbors, take on our differences with China and Pakistan, on the impact on our own security of the US/Russian policies in Afghanistan, on the omission of any direct reference to Pakistan on the issue of cross border terrorism, etc. Russia openly criticizes our Indo-Pacific and Quad choices, while the US still courts Pakistan, threatens our defense ties with Russia, and has impaired our ties with Iran.

Questions:

1. How far do you agree that the Russia-Ukraine crisis is a collective failure of the international community and is a result of the lethargic approach of the world community? Analyze your view.
2. The divide between Russia and the West over Ukraine presents a complicated challenge against India and this time, India needs to be very clear about its position. Do you agree with this view? Argue your view.
3. Russia-Ukraine Crisis has many lessons for India and the most important is that India needs to re-invent its foreign policy. Examine the statement.

THE CONTEXT: On February 11, 2022, the Securities and Exchange Board of India (SEBI) passed an order involving the country’s largest stock exchange-The National Stock Exchange. Apart from highlighting the issue of corporate misgovernance, the whole episode has raised questions on the role of the capital market regulator. In this article, we examine the issue in detail.

ALL YOU NEED TO KNOW ABOUT THE NSE IMBROGLIO

THE SEBI FINDINGS:

• The National Stock Exchange (NSE)’s former Managing Director (MD) and Chief Executive Officer (CEO) is penalized for misusing her office for:
• making appointments,
• concealing confidential information about operations of the exchange,
• and making incorrect and misleading submissions to the Securities and Exchange Board of India (SEBI).
• The regulator states that her unknown spiritual guru influenced her decision-making.
• The former NSE Chief is also being examined for a case registered in May 2018 about alleged abuse of a trading software of the exchange and the SEBI order comes in this backdrop (Read Ahead).

IMPROPER PERSONNEL MANAGEMENT:

• The former NSE head appointed a person as the Chief Strategic Officer (CSO) of the exchange despite the latter not having any exposure to capital markets.
• SEBI notes that the exchange had not advertised any vacancy about the appointment of CSO
• SEBI notes that his previous work experience was not relevant to his new consultancy position at NSE. With recurrent appraisals and performance ratings, his compensation rose to ₹4.21 crore within two years(1.8 crores when he joined)

DIVULGING CONFIDENTIAL INFORMATION:

• The regulator found the former NSE Chief guilty of divulging confidential information about the NSE’s organizational appointments, financial results and projections, dividend pay-out ratio, and board meeting consultations to her unknown spiritual guru.

FAILURE OF THE NSE BOARD:

The NSE Board was found guilty of not informing the market’s regulator and opting to keep it under wraps.

PENALTIES IMPOSED:

• The former NSE Chief has been forbidden from dealing in stocks, etc. for three years, alongside a penalty of ₹3 crores.
• The erstwhile CSO has been restrained from associating with any market infrastructure institution or an intermediary for three years. He would also have to pay a penalty of ₹2 crores.
• NSE has been ordered not to launch any new product for the next six months.

AN ANALYSIS OF THE NSE SCAM?

BLOW TO CAPITAL MARKETS:

• The NSE is a Market Infrastructure Institution that provides facilities for trading stocks and other products in the capital market.
• The scam has sent alarm bells to the investors and trading community and even has the potential to undermine the economic security of the nation apart from hugely denting investors’ confidence.
• The government has already indicated that it will initiate measures to sustain investors’ confidence in the Indian capital market.

POOR CORPORATE GOVERNANCE:

• The approach by the Board of NSE amounted to a cover-up of the entire episode so that no outsider, including the regulator, would ever come to know.
• The public interest and shareholder directors collectively decided to not document the board discussion concerning the irregularities of the management, thereby abdicating their primary responsibilities.
• Instead of sacking her, the Board allowed her to resign with respectable compensation and buried the matter, reflecting the complete collapse of corporate governance in NSE.

REWARDING MALFEASANCE:

• The entire Board’s complicity is further indicated by the fact that, despite being aware that the MD-cum-CEO was divulging confidential information of the NSE to an anonymous individual and had recruited and excessively rewarded another individual, the Board allowed her to resign on December 2, 2016.
• For good measure, the Board placed on record her “sterling contribution and approved a 44-crore severance package!

CONDUCT OF DIRECTORS OF GOVT COMPANIES/BANKS:

• Senior executives of the LIC, the SBI group, and the Stock Holding Corporations, etc, are part of the BoD who are delegated to protect the interests of their companies. But they have not raised any alarm but went along with the questionable approach of the management.
• Their role highlights a troubling issue: when they are on the Board of prominent private sector companies, they apparently abandon their own companies.
• And it also seems they are ready to align themselves and take instructions from the executive management of the private sector companies. It raises questions for the public about how the parent companies themselves are managed.

REGULATOR’S CONDUCT:

• The SEBI’s order on the NSE saga and the delay of six years in concluding the probe raises troubling questions on the regulator’s role (Read Ahead)

A SERIES OF SCAMS IN NSE:

• The current scam comes in the backdrop of a progressing CBI-led investigation into the co-location scam and other glaring irregularities in NSEs.
• This points out that the NSE’s financial success and near-monopoly have clouded the judgment of the NSE leadership or they believe to be above the rule of law.

WHAT IS THE CO-LOCATION SCAM?

WHAT ARE CO-LOCATION FACILITIES?:

• There are dedicated spaces in the exchange building, right next to the exchange servers, where high-frequency and algo traders can place their systems or programs.

BENEFITS OF THESE FACILITIES:

• With the co-location facilities being extremely close to stock exchange servers, traders here have an advantage over other traders due to the improvement in latency (time taken for order execution).
• But the co-location is mainly used only by institutional investors and brokers for their proprietary trader. Retail investors have a negligible presence here.

UNFAIR ACCESS TO SERVERS:

• The scam in NSE’s co-location facility took place almost a decade ago. It was alleged that one of the trading members, OPG Securities, was provided unfair access between 2012 and 2014 that enabled him to log in first to the server and get the data before others in the co-location facility.
• It was alleged that the owner and promoter of said private company abused the server architecture of NSE in conspiracy with unknown officials of NSE, SEBI, etc.
• This preferential access allowed the algo trades of this member to be ahead of others in the order execution.

ROLE OF WHISTLEBLOWER AND MEDIA:

• The scam came to light due to a whistle-blower’s complaint to SEBI in 2015, in which the entire modus operandi of the people gaming the system was laid out.
• When Money life(a media outlet) exposed the scam, the NSE management adopted a high-handed attitude, slapping a ₹100 crore defamation suit against Money life.
• The matter moved to Bombay High Court, which came down hard on NSE and dismissed its suit. Further, NSE was told to pay ₹50 lakh as the penalty for its arrogant attitude in responding to the media.

EXTENT OF LOSS:

• The point to note is that there is no way of proving any loss to any investors or traders due to this scam. The SEBI order of 2019 directed OPG Securities and its directors to disgorge unfair gains of ₹15.7 core with the interest of 12 percent from April 7, 2014, as a national loss.

PENALTY ON NSE:

• In 2016, SEBI asked NSE to carry out a forensic audit of its systems and deposit the entire revenue from its co-location facilities into an escrow account. Deloitte was tasked with the job of conducting a forensic audit of NSE’s systems.
• In 2019, SEBI passed its order on the issue, asking NSE to pay ₹625 crores with an interest of 12 percent and also barred NSE from raising money from the stock market for six months.

CORRECTIVE MEASURES:

• NSE has changed its order execution protocol in the co-location facility to Multicast TBT from April 2014, thus plugging the loophole that allowed some to game the system.

THE SECURITIES AND EXCHANGE BOARD OF INDIA: AN OVERVIEW

CONSTITUTION OF SEBI:

• The Securities and Exchange Board of India was constituted as a non-statutory body on April 12, 1988, through a resolution of the Government of India.
• The Securities and Exchange Board of India was established as a statutory body in the year 1992 and the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

PROTECTIVE FUNCTION OF SEBI:

• Checking price rigging
• Prevent insider trading
• Promote fair practices
• Create awareness among investors
• Prohibit fraudulent and unfair trade practices

REGULATORY FUNCTION OF SEBI:

• Designing guidelines and code of conduct for the proper functioning of financial intermediaries and corporate.
• Regulation of takeover of companies
• Conducting inquiries and audits of exchanges
• Registration of brokers, sub-brokers, merchant bankers, etc.
• Levying of fees
• Performing and exercising powers
• Register and regulate credit rating agency

DEVELOPMENT FUNCTION OF SEBI:

• Imparting training to intermediaries
• Promotion of fair trading and reduction of malpractices
• Carry out research work
• Encouraging self-regulating organizations
• Buy-sell mutual funds directly from AMC through a broker

OBJECTIVES OF SEBI:

• Protection to the investors: The primary objective of SEBI is to protect the interest of people in the stock market and provide a healthy environment for them.
• Prevention of malpractices: This was the reason why SEBI was formed. Among the main objectives, preventing malpractices is one of them.
• Fair and proper functioning: SEBI is responsible for the orderly functioning of the capital markets and keeps a close check over the activities of the financial intermediaries such as brokers, sub-brokers, etc.

POWERS OF SEBI:

• SEBI is a quasi-legislative, quasi-judicial and quasi-executive body.
• SEBI has the power to regulate and approve any laws related to functions in the stock exchanges.
• It has the powers to access the books of records and accounts for all the stock exchanges and it can arrange for periodical checks and returns into the workings of the stock exchanges.
• It can also conduct hearings and pass judgments if there are any malpractices detected on the stock exchanges.
  When it comes to the treatment of companies, it has the power to get companies listed and de-listed from any stock exchange in the country.
• It has the power to completely regulate all aspects of insider trading and announce penalties and expulsions if a company is caught doing something unethical.

GOVERNANCE OF SEBI:

• The SEBI Board consist of nine members-
• One Chairman appointed by the Government of India
• Two members who are officers from Union Finance Ministry
• One member from the Reserve Bank of India
• Five members appointed by the Union Government of India

ENFORCEMENT OF LAWS:

• SEBI enforces provisions of the SEBI Act, the Depositories Act 1996, the Securities Contracts (Regulation) Act, 1956, among others.
• A Securities Appellate Tribunal established under section 15-K of the Securities and Exchange Board of India Act hears appeal from the orders of SEBI which can be challenged in the SC only.

A QUESTION MARK ON SEBI’S REGULATORY ROLE

INEXPLICABLE DELAY:

• Though SEBI began investigations in 2016, it has taken six years to arrive at this order. However, SEBI’s order raises more questions than it answers as it has not taken the issue to a logical conclusion.

DILUTION OF OFFENCE:

• The order passed by SEBI’s whole-time member contains no provision for conducting any investigation into the possible criminal aspects of the then NSE Chief’s conduct.
• It appears that SEBI sees her criminal offense of sharing NSE’s internal confidential information with an unknown person as indiscretion.
• But converting a grave criminal offense into a regulatory indiscretion may set a dangerous precedent for the entire capital market ecosystem.

POOR CAPACITY OF SEBI:

• Multiple complaints were lodged in SEBI against the then NSE MD &CEO, which led SEBI to investigate her case.
• If SEBI lacked the capability or capacity to take the investigation further, it should have sought the assistance of other investigating agencies.
• The NSE Board chairman, upon discovering that Chitra was sharing information regarding NSE with her Himalayan Yogi, apprised the NSE Board members in a closed-door meeting. And that information was too sensitive to be even recorded in minutes of the board meeting.

NO FEAR FOR REGULATORS:

• NSE had knowledge that she shared sensitive information with the alleged yogi and NSE Board had concealed this information from SEBI Long after she had resigned, and only when SEBI probed, NSE directed Ernst &Young to figure out the identity of the alleged Yogi.
• The whole episode reflects poorly on the status and respect the SEBI commands or put in other words; the regulated seems to have scant regard for the regulator and seems to believe that the system can be gamed and they will never get caught.

LOST OPPORTUNITY FOR REFORMS:

• SEBI missed an opportunity to make an example of the CMD’s case as a warning to rogue managers. However, the meager penalty meted out by SEBI indicates the regulator is as keen as NSE to close the case rather than address the ethical and legal cracks within the system. The penalty imposed on her is ₹3 crore – less than 7% of her severance package of ₹44 crores.

SEBI’S FAILURE TO UPHOLD NATIONAL INTEREST:

• By relegating this case to a mere issue of breach of compliance, SEBI has effectively turned a possible criminal offense into a civil case. This case will embolden more who may now find it easier to abuse their official positions to compromise their own company’s integrity or hurt national interest.

ABDICATION OF AUTHORITY:

• Despite being armed with exceptional powers among financial regulators to summon market participants and to search and seize evidence, SEBI failed to show the intent to get to the bottom of the scam while the trail was still hot.

REVITALIZING THE REGULATOR AND REFORMING THE NSE: THE WAY FORWARD

SCALE UP THE RESOURCE BASE:

• SEBI as a regulator has to scrutinize millions of transactions done almost every minute in the stock market and that by itself makes its task herculean. The problem is compounded by the need to act swiftly, and naturally, there are limitations.
• Hence, the resource base of SEBI, especially human infrastructure, needs to be scaled up so also its technological capability through AI, etc.

FAST TRACK REFORMS IN NSE:

• A leading stock exchange like NSE is a systemically important institution as it serves an economic function and is the symbol of the free market. Any disruption in the NSE has a repercussion on the economy and the country.
• The NSE leadership needs to put their house in order by upholding the laws of the land and also by holding accountability of the management to the Board, which also need to be accountable to the public.
• Processes and practices currently in place at NSE need to be revisited so that such an event doesn’t re-occur at such an important market infrastructure institution.

ACTIONS BY SEBI:

• SEBI has also instituted various changes in the governance of market infrastructure institutions (MIIs), including board committee structures and oversights, the tenor of management, accountability for lapses at MIIs, etc., which can strengthen the control environment.

FULFILLING SEBI’S MANDATE:

• SEBI has been tasked with preserving the integrity of the capital market and institutionalizing good governance in the stock market ecosystem.
• For the sake of millions who trust SEBI to preserve the integrity of the Indian capital market, the regulator must fix the systemic deficiencies in the Indian exchange.
• It must not be seen as favoring or taking a soft approach to matters of regulatory violation, especially by powerful players.

EXPECTATION FROM THE NEW SEBI CHIEF:

• Regulating the stock exchanges independently and efficiently, especially when doubts have arisen regarding the functioning of the NSE, should be high on the list of tasks for the newly appointed chairperson of SEBI.

ROLE OF PMO AND OTHERS:

• The SEBI order itself seems incomplete and there seems to be something more than what meets the eye. This could require further investigation by other agencies, and the Finance Ministry and the Prime Minister’s Office need to act expeditiously.
• The CBI investigation into this scam also needs to be fast-tracked and should be done professionally to unearth the truth and to prosecute and punish the guilty.

REGULATING THE REGULATOR:

• The SEBI order has done more damage to its credibility and many questions have remained unanswered. Thus, a thorough inquiry into the investigation conducted by SEBI by independent agencies needs to be undertaken to find out if any extraneous considerations were involved in the manner of investigation or its findings.
• This does not in any way will deem to be an encroachment into the regulator’s autonomy but will be a step towards improving regulatory quality.
• Additionally, a Regulatory Impact Assessment needs to be conducted to assess the functioning of SEBI and the Parliament’s control over it needs to be strengthened through standing committee oversight, periodic reports, etc.

RESTRUCTURING THE BOARD OF NSE:

• Persons occupying key management positions at important institutions, even if professionals, should be rotated at reasonable intervals.
• Allowing an individual to turn into a permanent fixture as CEO or MD is a bad idea. It is improper for an outgoing CEO/MD to continue on the Board.
• And it is worse if this happens when the ex-CEO’s deputy assumes charge as the new CEO. Not only can this create situations of nexus, but it can also tie down the successor from initiating a clean-up of legacy structures.

WHISTLEBLOWER PROTECTION:

• As it was a whistle-blower letter that alerted SEBI to the irregularities at NSE, MIIs must be asked to put in place well-defined employee whistle-blower mechanisms, where complaints can be lodged directly with the concerned.
• The identity of the whistle-blower must be strictly protected to prevent vindictive action.

PROFESSIONAL CONDUCT OF THE GOVT COMPANY/BANK REPRESENTATIVES:

• The LIC is coming to the market for its initial public offering, and prospective shareholders and policyholders have a right to demand an explanation from LIC on the unprofessional conduct of its representatives on NSE in this period.
• Similarly, shareholders of SBI also should demand an explanation from SBI on the conduct of its officers when deputed as directors in other companies.
• The govt should take note of the negligence/irresponsibility of these members and stringent actions need to be taken against them if found to be complicit.

THE CONCLUSION:  Despite the capture of power by a few individuals and the governance infractions they indulged in, few can dispute that the National Stock Exchange (NSE) has served Indian financial markets extremely well in the three decades of its existence. Its state-of-the-art electronic platform and reliable trading and settlement systems have ensured that there were no systemic failures through the worst of upheavals. It is therefore critical for the government and the regulator to get to work on fixing the loopholes in the governance structures at the NSE so that such infractions don’t recur. The regulator needs to introspect on its actions both in the co-location and ‘yogi’ scams and learn from the mistakes.

QUESTIONS:

• Stock exchanges as institutional mechanisms have an important role to play in ensuring the stability of the financial and economic system. But, the recent instances of misgovernance in India’s premier stock exchange have the potential to undermine the financial and economic security of the country. Elaborate.
• Who will regulate the regulator is a question that needs to be answered while balancing the imperatives of regulatory autonomy and accountability. Examine the statement in the context of the SEBI’s role in the recent National Stock Exchange scams.
• What do you understand by the term co-location in the context of capital markets? How far do you think that poor regulation by SEBI and questionable corporate governance at the National Stock exchange has contributed to it?
• The capital market regulator needs capital: human, financial, and technological. Comment
• When a regulatory authority combines legislative, executive, and judicial powers, there is bound to exist a lack of any meaningful accountability leading to arbitrariness in decision making which will defeat the purposes for which the regulator is created in the first place- fair play, competition, and facilitation. Critically examine.

ADD TO YOUR KNOWLEDGE

NSE was incorporated in 1992. It was recognized as a stock exchange by SEBI in April 1993 and commenced operations in 1994 with the launch of the wholesale debt market. NSE, set up after Harshad Mehta’s scam, is today the largest stock exchange in India in terms of trading volume and figures also in the top list of Asia’s stock exchanges.
The National Stock Exchange of India Limited offers a platform to companies for raising capital. Investors can access equities, currencies, debt, and mutual fund units on the platform. In India, foreign companies can raise capital using the NSE platform through initial public offerings (IPOs), Indian Depository Receipts (IDRs), and debt issuances. The NSE also offers clearing and settlement services.

NSE Functions

• To establish a trading facility for debt, equity, and other asset classes accessible to investors across the nation.
• To act as a communication network providing investors an equal opportunity to participate in the trading system.
• To meet the global standards set for financial exchange markets.

[WpProQuiz 178]

THE CONTEXT: A Bill to amend the Preamble to the Constitution has been introduced by a ruling party MP in the Rajya Sabha during the winter session of the Parliament (Dec 04, 2021) amidst protests by Opposition MPs. The winter session also saw the introduction of more than 150 Private Member Bills in the Parliament. In this article, we analyze the various aspects of the Private Member Bills with a special focus on the one introduced to amend the Preamble.

UNDERSTANDING THE MODALITIES OF THE PRIVATE MEMBER BILL

WHAT IS A PRIVATE MEMBER BILL?: 

• A Bill introduced in either House by a Member of Parliament, who is not a Minister, is a Private Member’s Bill.
• The MPs who intend to introduce private member bills have to notify the House Secretariat about the Bill at least a month before and these bills can only be introduced and discussed on Fridays.
• Currently, Private members’ bills have been capped at three bills/per session by an MP.
• If there are multiple private member bills scheduled for a particular Friday in the Lok Sabha, then the Parliamentary Committee on Private Member’s Bills and Resolutions classifies these bills based on their significance and urgency.

REQUIREMENT OF LEGISLATIVE COMPETENCE:

• The first and foremost requirement in the case of a Private Member’s Bill is that it should be within the legislative competence of the Parliament. In other words, the subject of the Bill should relate to the subjects included in the Union or Concurrent List contained in the Seventh Schedule of the Constitution of India.

ATTACHMENT OF MEMORANDUM OF DETAILS:

• Notices of Bills are required to be accompanied by copies of the text of the Bill, together with a Statement of Objects and Reasons, duly signed by the member giving notice.
• A Bill involving expenditure from the Consolidated Fund of India must also be accompanied by a financial memorandum inviting particular attention to the clauses involving expenditure.
• It must also give an estimate of recurring and non-recurring expenditures likely to be involved in case the Bill is passed into law.

THE MANDATE OF PRIOR RECOMMENDATION FOR INTRODUCTION:

• If the Bill cannot be introduced (Articles 3 and 274 ) without the previous sanction or recommendation of the President, the Bill should annex a copy of such sanction or recommendation.
• The notice is not valid until this requirement is complied with and hence cannot be introduced in the House.
• While Article 3 deals with the formation of new states or alteration of names or boundaries of existing States, Article 274 deals with Bills affecting taxation in which states are interested.

MANDATORY RECOMMENDATION FOR CONSIDERATION:

• A Bill which, if enacted, would involve expenditure from the Consolidated Fund of India, cannot be taken into consideration or referred to a Select/Joint Committee unless the member obtains the requisite recommendation of the President for consideration of the Bill under Article 117(3) of the Constitution.
• In the case of such Bills, members-in-charge should obtain the recommendation of the President beforehand to enable them to proceed further with the Bill.

CONSTITUTIONAL AMENDMENT:

• Bills seeking to amend the Constitution, apart from being subject to the normal rules applicable to Private Members’ Bills, have also to be examined by the Committee on Private Members’ Bills and Resolutions and only those Bills which have been recommended by the Committee are put down in the List of Business for the introduction.

COMMITTEE ON PRIVATE MEMBERS’ BILLS AND RESOLUTIONS

The Committee on Private Members’ Bills and Resolutions consists of not more than fifteen members nominated by the Speaker. The term of the Committee is one year. The Deputy Speaker is always included as a member and appointed Chairperson of the Committee. Private Members’ Bills and Resolutions are governed by Rules of Procedure and Conduct of Business in Lok Sabha and of the Directions by the Speaker.

The functions of the Committee on Private Members’ Bills and Resolutions are:

to examine every Bill seeking to amend the Constitution, a notice of which has been given by a private member, before a motion for leave to introduce the Bill is included in the List of Business;
to examine all Private Members’ Bills after they are introduced and before they are taken up for consideration in the House and to classify them according to their nature, urgency, and importance into two categories, namely, category A and category B;
to allot time to Private Members’ Bills and Resolutions for their discussion in the House; and
to perform such other functions in respect of Private Members’ Bills and Resolutions as may be assigned to it by the Speaker from time to time.

MAJOR PRIVATE MEMBER BILLS INTRODUCED IN THE WINTER SESSION OF THE PARLIAMENT

AMENDMENT TO THE PREAMBLE: Dealt with separately. Read Ahead.

REPEAL OF LABOUR CODES:

• The Private Member Bill was introduced in Rajya Sabha by an Opposition MP to repeal the four new Labour Codes being opposed by Trade Union Leaders and Labour law scholars alike.
• Private Bill introduced for repealing the four Labour Codes is called the Labour Codes (Repeal) Bill and it asserts that the new Codes have only diluted the provisions given by the previous Labour Acts, instead of fortifying them.
• Private Bill states that in addition to eliminating the shield of collective bargaining making it more difficult for the workers to assert their rights, the Labour Codes are intrinsically biased towards employers and corporates, emboldening them to violate the rights of workers.

OTHER BILLS INTRODUCED IN RS:

• Among the other private member’s Bills introduced in the RS was the Women’s (Reservation in Workplace) Bill, Bill to amend the Tenth Schedule of the Constitution, setting a three-month limit on deciding matters of disqualification of members under the anti-defection law, and the Population Control Bill, 2021

ANTI LYNCHING BILL:

• The ‘Protection from Lynching Bill’ was introduced in LS by a Congress member Shashi Tharoor that provides for effective protection of constitutional rights of vulnerable persons, to punish acts of lynching, and to have designated courts for expeditious trial of such offenses.

EMPLOYEE WELFARE:

• The ‘Right to disconnect Bill” introduced in LS by an Opposition MP that seeks to establish an employees’ welfare authority to confer the right on every employee to disconnect from work-related telephone calls and emails beyond work hours and on holidays and the right to refuse to answer calls and emails outside work hours.

TAMING THE INTELLIGENCE AGENCIES:

• Another Opposition MP introduced a Bill in LS to regulate the functioning and exercise of the power of Indian intelligence agencies and to provide for coordination, control, and oversight of such agencies.

RAJYASABHA REPRESENTATION FOR THE UT OF CHANDIGARH:

• Demanding that the Union Territory be given representation in the Rajya Sabha, an MP had moved the Private Members’ Bill in LS, saying that the member of the Upper House can be elected by an electoral college consisting of elected members of the municipal corporation of Chandigarh.
• It was mentioned in the Bill that earlier, Delhi councilors used to elect a Rajya Sabha member when there was no Assembly there.

SIGNIFICANCE OF THE PRIVATE MEMBER BILLS

FULFILLING PRIMARY RESPONSIBILITY:

• The primary role of our MPs is to legislate. Yet lawmaking has in practice become the exclusive preserve of the government of the day.
• Through the private member Bills, the MPs are actually doing the work they are elected to do-legislation.
• This is a vehicle that is available to an MP to play his part as an active legislator, in addition to speaking on bills introduced by the government.

ESCAPE THE RIGOUR OF THE ANTI-DEFECTION LAW:

• The anti-defection law basically reduces our MPs to a headcount because the decision of the political party on any piece of legislation is supreme and binding on all MPs in the party.
• The private member Bill route provides a viable alternative for the MPs to present their and their constituencies’ views/needs, which may not attract the wrath of Schedule 10.

OUTLINING POSSIBLE SOLUTIONS:

• MPs choose to use the Private Member Bill route as one more way of demonstrating their competence in not just understanding an issue but also coming up with possible solutions through a legislative proposal.

DEMONSTRATING THE SENSE OF THE HOUSE:

• MPs also believe that this is an important way of signaling to the government the need for legislation on some critical issues.
• Even though the Bill may not be passed, it sometimes brings out the “sense of the House” on an important policy issue, which can then be taken up by the government.
• Before the voting age was reduced from 21 years to 18 years in 1989, there was a private member’s Bill that proposed such a change. The debate on the floor of the House showed that MPs across party lines were in support of such a move. That Bill was not passed, but the government later brought a bill to amend the Constitution to bring about this change.

INDIVIDUAL AND INSTITUTIONAL BENEFITS:

• If more MPs use these opportunities to demonstrate leadership on critical issues on the floor of the House, then it will ensure their effective participation and revitalize the institution of Parliament, which arguably has been losing its sheen.
• This would go some way in addressing the perception that MPs do not do any work once elected.
• This will also help individual MPs prove that they are not mere “rubber stamps” of the political party leadership.

WHAT ARE THE CHALLENGES FACED BY PRIVATE MEMBER BILLS?

Government Bills enjoy greater chances of being accepted by the House than Private Members’ Bills. By convention, the motion for the introduction of a Bill is not opposed. However, there have been instances when the motion for introduction was opposed and also negatived by the House. The chances of a Private Bill becoming the law is minuscule considering only 14 Private Member Bills have become law so far, the last one being the Supreme Court (Enlargement of Criminal Appellate Jurisdiction) Bill, 1968, which was passed in 1970.

Further, the government’s backing becomes a must for such a bill to be passed in both Houses, given the numbers are stacked in favor of the ruling party. Often, governments also don’t want to be seen as ceding legislative space to individual MPs. Secondly, there is a general decline in the quality of members entering the House, which has reduced the quality of legislative business. Thirdly, the party structure based on High Command, the ADL, Whip, etc. has undermined the role of individual MPs in the Parliamentary system. Lastly, the MPs are laymen and unlike the Government Bills, they have negligible access to experts’ advice(bureaucracy) and secretarial service, which act as a roadblock in drafting legislation.

THE PRIVATE MEMBER BILL TO AMEND THE CONSTITUTION

FEATURES:

• The Bill, titled the Constitution (Amendment) Bill, 2021, seeks to substitute “EQUITABLE” for the word “SOCIALIST” in the Preamble to the Constitution.
• For the words “EQUALITY of status and of opportunity”, the Bill seeks to substitute the following:
• “EQUALITY of status and of opportunity to be born, to be fed, to be educated, to get a job and to be treated with dignity,
• ACCESS to information technology and all its implications, irrespective of caste, creed, social status or income.”
• For the words “FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation”, the Bill seeks to substitute the following, namely: –
• “FRATERNITY assuring the dignity of the individual and the community and the unity and integrity of the Nation
• HAPPINESS, assuring a high gross domestic happiness.”

CONTROVERSY:

• The opposition parties have claimed that Amendment to the Preamble is an attack on the very edifice of the Constitution, “adding that the Bill had not got the President’s prior consent.
• They wanted the Bill to be disallowed because Preamble is part of the “basic structure” of the Constitution and cannot be amended. Amendment to the Preamble is an attack on the edifice of the Constitution, they added.
•  Scholars point out that as the Bill aims to achieve equality of status and opportunity to be born, fed, and educated, apart from guaranteeing jobs and access to information technology, it is possible to suggest that it will involve expenditure from the Consolidated Fund of India, and therefore, will require the President’s recommendation in terms of Article 117(3) of the Constitution.
• It can also be suggested that these promises in the Preamble would involve revenue mobilization through taxation and, therefore, impinge on the states’ interests in the federal set-up. The rigor of Article 274 may, therefore, be attracted, barring the introduction of such a Bill.

CAN THE PREAMBLE BE AMENDED THROUGH A PRIVATE MEMBER BILL?

Before answering this question, it must be to analyze the current position of the Preamble vis-à-vis the Constitutional Amendment. While in the Berubari Union in 1960, the SC held that the Preamble is not a part of the Constitution, in Kesavanada Bharati 1973, it reversed its opinion. The majority in the Kesavananda Bharati case held that the Preamble is a part of the Constitution, and it can be amended, but, Parliament cannot amend the basic features of the Preamble. The court observed, “The edifice of our Constitution is based upon the basic element in the Preamble. If any of these elements are removed, the structure will not survive, and it will not be the same Constitution and will not be able to maintain its identity. The Preamble is amended once in 1976 through the 42nd Amendment Act, which in essence came after the 1973 ruling of the SC. Thus, the Preamble was amended even when it was the part of Basic Structure of the Constitution.
Now the question is whether, through a Private member Bill, the Constitution can be amended. A Private Member can introduce a CAB and is not barred from it except that s/he has to satisfy some conditions as discussed at the beginning of this Article. As the Constitution can be amended in three ways, it depends on the nature of the CAB introduced by the Private Member and the subsequent support/majority they get in passing it into a Constitutional Amendment Act. As also subject to judicial scrutiny as to whether such amendments fall foul of the Basic Structure. Having said that, the attempt to amend the Preamble at this juncture where there is a general lack of faithfulness to the Constitution, especially among the governing class, would be seen as another step towards tinkering with the original Constitution. In any case, the Preamble is neither a source nor a limitation on the power of the executive. Thus such proposed amendments will not serve any purpose but only lead to a political slugfest and legal challenges.

THE WAY FORWARD:

• The Private Member Bills have immense scope for furthering and deepening the participation of individual MPs in the parliamentary process and democratic governance. Thus, the MPs must utilize these opportunities fully, which will contribute towards enhancing the quality of lawmaking.
• The government of the day must have an open mind towards these Bills so that MPs will be encouraged to pilot them, which will reduce the dependency of the government over the administration for lawmaking.
•  It is necessary to provide expert advice, secretarial assistance, knowledge support, etc., for the MPs in a sustained manner. This will help improve the understanding of the MPs concerning critical issues and raise their capacity to formulate relevant legislative proposals.
• It goes without saying that using the Private Member Bill route for scoring political brownie points or to garner publicity will create a negative climate and will undermine the sanctity of this instrument of democracy.

THE CONCLUSION: It is a healthy sign that more than 150 Private Member Bills have been introduced in the 2021 Winter session of the Parliament. But, the chance for success of any of them is highly doubtful given the history. This must be changed. The Private Member Bills are vehicles to channel the grassroots issues into legislative proposals and actual laws. Thus, the governments must encourage and actively support this process. However, using this tool for personal aggrandizement, publicity, or further ideological considerations, as is seen in the Preamble amendment saga, needs to be eschewed.

QUESTIONS:

• What are Private Member Bills? To what extent it can be said that this device has been helpful for MPs from the opposition side to influence the policy decisions of the government of the day.
• “The instrumentality of Private Member Bills serves no purpose as none of them has been passed by the Parliament in the past five decades” Critically Examine
•  “As the Preamble of the Constitution does not confer any right on the citizen, the attempt to add lofty ideals through Amendments is nothing but a waste of political energy and Parliamentary resources”. Comment.

[WpProQuiz 177]

THE CONTEXT: The Haryana government has recently brought in the Haryana State Employment of Local Candidates Act 2020, which provides for reservation in certain categories of private sector employment. The law has been subject to critical judicial scrutiny while it is also objected to by industry associations. Earlier, states like Andhra Pradesh have also provided for such reservations in the private sector. In this write-up, we examine these issues in detail.

THE SALIENT FEATURES OF THE HARYANA STATE EMPLOYMENT OF LOCAL CANDIDATES ACT 2020

RESERVATION IN THE PRIVATE SECTOR:

• On January 15, 2022, the government notified the “Haryana State Employment of Local Candidates Act, 2020”.
• The law makes it mandatory for all employers in the state to reserve 75 percent of the jobs offering a monthly gross salary or wages of up to ₹30,000 for candidates “domiciled in the state of Haryana”.
• The state government also relaxed the residency requirement from 15 to five years for a person to get a bona fide resident certificate in the state to provide some flexibility to the private companies in hiring.
• This law applies to new recruitments and will not come into effect from retrospective effect.
  Exclusion has been made for Central and State governments and entities owned by them.

APPLICATION OF THE ACT:

• The Act applies to all the ‘Employers’ in the state.
• This includes all companies, partnership firms, societies, trusts, limited liability partnership firms and.
• Any person or employer that employs 10 or more employees in any trade, business, manufacturing unit, or enterprise.
• The law provides for fines between ₹10,000 and ₹2 lakh for violation of the provisions.

SUNSET CLAUSE:

• The law will have a sunset clause and will cease after ten years of enactment.

MANDATORY REGISTRATION:

• All employers in the state have been directed to register their existing employees garnering a monthly pay of not exceeding ₹30,000 on the designated portal within three months and can now initiate any new recruitment in this pay bracket only after completing this process.

ENSURING COMPLIANCE:

• All employers will also need to file a quarterly report on the government’s designated portal providing information regarding the local candidates employed and appointed in this pay bracket.
• These reports would be subject to scrutiny by designated officials, who will be empowered to ask the employer to furnish the documents or conduct verification.

PROVISION OF EXEMPTION:

• The government may exempt certain industries by notification and has so far exempted new start-ups and new Information Technology Enabled Services (ITES) companies, as well as short-term employment, farm labor, domestic work, and promotions and transfers within the state.
• There is a provision also for an exemption if an adequate number of local candidates of desired skill or proficiency are not available for a particular category of jobs. But the government can accept or reject the claim or direct the company to train local candidates in the desired skills.

THE ARGUMENTS OF THE GOVERNMENT IN FAVOUR OF THE ACT

• One of the key arguments of the government has been that urbanization and industrialization have led to substantial land acquisition in the state, which has historically been an agrarian society.
• The government believes this has led to a reduction in employment opportunities in the agriculture sector for the local youth and the law will help create new job opportunities for them and also encourage skill development.
• It also believes it will reduce the dependency of employers in Haryana on migrant workers and improve their efficiencies.
• The private jobs reservation was part of the election manifesto of the alliance partner in the coalition government in the state.
• Social justice is an important aim of any welfare state, and the law is enacted in this direction.
• According to the state, the Act makes a valid classification by grouping local candidates who are unemployed and domiciled in Haryana, irrespective of their caste, creed, sex, place of origin or place of birth and their social status, to achieve the object of providing suitable employment in the private sector.
• It says that the Act makes a “geographical classification” based on domicile and in furtherance of the fundamental right to life, livelihoods, and health conditions of persons domiciled in the state.
• It claimed that there is no restraint against a state legislature from creating geographical classification to incentivize and grant concessions to citizens or industrial units.

A CRITICAL SCRUTINY OF THE ACT

CONCERNS OF THE INDUSTRY:

• Industry bodies have raised concerns about the implementation of a law that is discriminatory and against the concept of one nation. They believe this will substantially increase their compliance burden, especially on small and micro-enterprises.
• One of the key concerns of the industry is also whether enough workers will be even available for jobs in trades that are dominated by workers from certain clusters of the country, such as construction and manufacturing as well as in the services sector such as hospitality and retail.
• Almost all of the employees in MSMEs fell under the ₹30,000 pay bracket. Such industries hire and let go of workers as per demand, it would not always be possible to find local employees when required.

IMPACT ON INVESTMENT CLIMATE:

• It is said that this will impact the business-friendly image of the state’s ease of doing business rankings and may also discourage fresh investments by industries.
• The Federation of Indian Chambers of Commerce and Industry (FICCI) has said that the law would “spell disaster” for private investment in the state and impede industrial development.
• This law is also held to be going back to Inspector Raj prevalent in the pre-1990 LPG era.

STATE INTERVENTION IN THE MARKET:

• Any rule which tries to artificially control the internal functioning of a private enterprise against the market will affect its competitiveness in the market and hurt its productivity.
• Minimal government interference is usually an indicator of a mature economy; in this case, that appears to have gone out of the window and is also against “Minimum Government and Maximum Governance”.

CHANCES OF RELOCATION OF INDUSTRIES:

• If companies in Haryana have difficulty finding skilled resources as a result of a law, they may be forced to relocate to other cities due to insufficient local manpower.
• This will further reduce the scope of employment.

ECONOMIC FRAGMENTATION:

• This Act violates the fundamental idea of the Indian economy as one unit and dilutes steps to integrate the markets, which may lead to labor market fragmentation.
• There would be an exodus of low-paid workers as they would be unable to find work unless their states of origin give them sufficient job opportunities.
• What if the other states also start following the Haryana way?

IMPACT ON COMPANIES:

• Jobs in the private sector is based “purely” on the “skills and the analytical bent” of the employee.
• Other than potentially increasing costs for companies, the compliance burden on them will be huge, which also may provide opportunities for rent-seeking for bureaucracy.

CONSTITUTIONAL ISSUES:

• It is held that the new law went against constitutional provisions and violates Articles 14, 15, and 19 of the Constitution ((Read ahead)
• The core issue is whether a state could restrict employment based on domicile that too in the private sector.
• The stay granted by the Punjab and Haryana High Court was vacated by the Supreme Court. But it directed the
• High Court to decide on the issue within a month and asked the state government not to take any coercive steps against the employers for the time being.

CONSTITUTIONAL ISSUES INVOLVED IN THE ACT

VIOLATES ARTICLE 14 and 15:

• The plea filed in the Court states that the Act violates Article 14 (equality before law) and Article 15, which prohibits discrimination on various grounds religion, race, caste, sex, or place of birth.

VIOLATES ARTICLE 16:

• Article 16 of the Constitution specifically provides for equality of opportunity for all citizens in public employment.
• It prohibits discrimination on several grounds, including place of birth and residence.
• However, it permits Parliament to make a law that requires residence within a State for appointment to a public office.
• This enabling provision is for public employees and not for private-sector jobs. And the law needs to be made by Parliament and not by a State legislature.

VIOLATES ARTICLE 19:

• It stands in violation of Article 19 of the Indian Constitution, which guarantees the right to freedom, including to reside and settle in any part of the Indian territory and practice any profession, business, or trade.
• Article 19(1)(g) of the Constitution guarantees freedom to carry out any occupation, trade, or business. There may be reasonable restrictions “in the interests of the general public”, and in particular related to specifying any professional or technical qualifications, or to reserve a sector for a government monopoly.
• This Act, by requiring private businesses to reserve 75% of lower-end jobs for locals, encroaches upon their right to carry out any occupation.

CONTRARY TO COMMON CITIZENSHIP:

• The plea states that the Act is contrary to the very idea of common citizenship for the Union of India and that it fails to uphold the federal structure of the Union of India, which is part of the basic structure of the Constitution of India.
• India was envisaged as a Union of States with Single citizenship, which necessarily implied that States were not entitled to either bestow citizenship individually or any resembling privilege.

VIOLATES 50 PERCENT NORM:

• The question of permissibility also arises if the Indira Sawhney vs Union of India case is considered, where the Supreme Court had capped the reservation limit in public sector jobs at 50% in 1992.
• Legal experts have said that one may then contend that the reservation limit in private sector employees should not exceed that prescribed for public services.

AGAINST RESERVATION JURISPRUDENCE:

• The Supreme Court, in 2002, ruled that preference given to applicants from a particular region of Rajasthan for appointment as government teachers was unconstitutional. It said that reservations could be made for backward classes of citizens, but this cannot be solely on account of residence or domicile.
• In 1995, Rules in Andhra Pradesh that gave preference to candidates who had studied in the Telugu medium were struck down because they discriminated against more meritorious candidates.

POLITICS OF DOMICILE RESERVATION: AN OVERVIEW

Domicile politics (Sons of the soil) is nothing new to India, and Haryana is far from the first state to enact such restrictive laws. Earlier, Maharashtra, Andhra Pradesh, Karnataka, and Madhya Pradesh enacted laws requiring locals to be given preference in private jobs. However, each had to overcome its own set of obstacles, ranging from Constitutionality to compliance. Andhra Pradesh was the first state to enact such a law in the face of rising unemployment in 2019, but it was challenged in the High Court there. Karnataka too passed such laws, most recently in October last year, asking the private sector to give preference to local candidates, but companies did not know how to ensure compliance. Madhya Pradesh too has promised to bring in a 70% private sector job reservation quota for locals. In August last year, Maharashtra too joined the bandwagon and announced that it would make it mandatory for the private sector to reserve 80% of its jobs for residents only.

ANDHRA PRADESH EMPLOYMENT OF LOCAL CANDIDATES IN THE INDUSTRIES/FACTORIES ACT, 2019

The Andhra Pradesh law, passed by the Assembly in July 2019, and notified promptly next month, reserved 75% of jobs for locals in industries and factories, including any joint venture and project taken up under the public-private partnership (PPP) model. Where suitable local candidates were not available, the industry or factory would be given three years to train local candidates with “active collaboration of the Government”. The government also laid down that industry would have to apply for any exemptions from the Department of Labour, Employment and Training before sourcing employees from other states.
For now, the priority for the state, according to industry experts, is on getting new industries to absorb the local candidates in phases, as implementing the law for the existing workforce would entail terminating employees who may be from other States. The government is not forcing employers to implement the Act for various reasons, which mainly include the prevailing gloomy industrial scenario, largely attributable to the pandemic’s aftermath.
While the government has begun training programs to develop skilled labor to cater to various sectors and implement the Act, an advocate has filed a writ petition challenging the law’s constitutional validity. The state, the advocate, stated, has no power to prescribe the domicile or place of birth or place of residence as a requirement for public employment.

THE WAY FORWARD

HUMAN CAPITAL FORMATION:

• When it comes to investment, Haryana has not been lacking. But, Investors, stakeholders, and industry bodies on multiple occasions have stated that there is a shortage of adequately skilled local workforce — especially in the technology sector.
• Thus, skill development programs need to be undertaken on a war footing in collaboration with industries, vocational training institutes, etc.
• The states need to work in tandem with the Ministry of Skill Development and Entrepreneurship for implementing the National Skill Development Mission etc.

RAPID EMPLOYMENT GENERATION:

• According to CMIE data, Haryana’s unemployment rate has been higher than the national average for the past four years. In April 2020, approximately 40% of Haryana’s job seekers returned home empty-handed.
• Thus, it is imperative to fast-track employment opportunities for the youth, and a good start would be filling up the state level and national level vacancies in governmental posts that run into lakhs.
• Secondly, start-up ecosystems need to be promoted for entrepreneurship and employment generation.

PERSUASION THAN COERCION:

• Given the bleak employment situation in the backdrop of the reported loss of millions of jobs during the pandemic, it is no surprise that the leadership in every state seeks to find employment opportunities for its youth.
• But, a more persuasive and incentivizing approach can achieve the objective than a coercive approach. For instance, tax incentives for companies employing local candidates, ease of compliance for such companies, land concessions, subsidies, etc.
• If reservations have to be made, they should begin with a lower threshold of 20%-25% and give time for the state’s youth to inculcate and hone their specialized skill sets.

JUDICIAL DETERMINATION:

• Even though the Constitution allows the Parliament to prescribe a residential criterion for employment to public posts, it is doubtful whether such a measure can be extended to the private sector.
• Thus, an authoritative pronouncement by the apex Court would provide clarity to the issue.

SHUN POLITICAL NATIVISM:

• The broader trend of raising the sons of the soil issue for electoral gains in States will hurt the investment climate across the country.
• If more states follow suit, there will surely be an extreme level of talent crunch across industries in different States, and the free movement of India’s manpower resources within the nation will be threatened.
• Thus, political nativism may lead to parochial economics which in turn can create social unrest in the polity.

BALANCED AND RAPID REGIONAL DEVELOPMENT:

• The rise in regional inequalities (east vis-a-vis west and south) since the 1990s has deepened social divisions, with migration largely headed towards the western and southern States where infrastructure is better developed.
• The setting up of educational and skills institutions in backward areas can bridge the gap between the states and within the states(urban-rural) and these regions can turn into hubs of economic activity.
• The Aspirational District Programme of the GoI and various schemes for MSME development have huge potential in this regard.

THE CONCLUSION:  The Constitution conceptualizes India as one nation with all citizens having equal rights to live, travel, and work anywhere in the country. These State laws seem to go against this vision by restricting the right of out-of-State citizens to find employment in the state. This restriction may also indirectly affect the right to reside across India as finding employment becomes difficult. Beyond the question of Constitutionality, what is flagged by such developments is the state of the economy, especially the labour economy. Thus, sustainable employment generation policies and programs formed and implemented with wide-ranging consultations, especially with the industries, will surely be considered as good politics and good economics.

QUESTIONS:

• Explaining the salient features of the Haryana State Employment of Local Candidates Act 2020, comment upon the challenges in its implementation.
• How far do you think that providing domicile reservation by states through enactments can solve the problem of unemployment?
• Critically analyze the Constitutional issues involved in making domicile requirements mandatory for private sector employment.
• “Political nativism may be good politics but is parochial economics”. Illustrate and comment.
• “Minimum government and Maximum governance philosophy of the government entails regulation and not control” Examine the statement in the context of state legislation mandating reservation in the private sector.
• The social justice pledge of the Indian Constitution is at variance with the quest for efficiency of the private sector. Thus, affirmative action programs should be limited to the public sector only. Critically Examine.

[WpProQuiz 176]

THE CONTEXT: The latest announcement about the creation of India’s first Maritime Theater Command by 2021 is a seminal development and part of the long-overdue transformation of India’s armed forces. The maritime theater command will be the first new “geographical” theater command to be created, as part of the biggest-ever military restructuring plan since India’s independence in 1947 when the Indian army, navy, and air force were initially structured under separate operational commands. This article discusses the significance, needs, and challenges related to the single Maritime Theater Command.

BASIC INFORMATION ABOUT MARITIME THEATER COMMAND

• Maritime Theatre Command, headed by a Navy vice-admiral and based in Karwar, Karnataka, responsible for the entire maritime domain. It will subsume the Navy’s current eastern and western commands, as well as the tri-Service Andaman and Nicobar Command, and include the Army’s amphibious formations.
• The Air Force’s surveillance, strike, and missile assets will be available to the Maritime Theatre Commander, but this integration will be looser than that between naval and army assets.
• The new maritime theater command commander-in-chief will exercise full operational control over extant western and eastern naval fleets.
• Operational control over maritime strike fighter jets and transport aircraft from the air force and the navy, two amphibious infantry brigades, and other assets under the Andaman and Nicobar Joint Command.
• The Maritime Theatre Commander will report to the Chiefs of Staff Committee, effectively making the Chief of Defence Staff the highest military commander.

SIGNIFICANCE

• Efficiency – This arrangement will impact overall operational planning and efficiency, particularly in matters related to a new acquisition, compatibility of equipment, drills/ procedures, training, and logistics, leading to huge wastages.
• Force multiplier– Under the maritime theater command, the integration of air force and army elements with naval assets will act as a force multiplier. For instance, a recently established Sukhoi 30 fighter squadron — the “Tigersharks” – equipped with the Brahmos missile, currently based at Thanjavur under the Southern Air Command, will now be part of the maritime theater command. With INS Vikramaditya being the sole operational aircraft carrier in the Indian navy’s arsenal, sustaining credible surveillance and dominance in the region badly required an additional punch, and the Sukhoi squadron provides that much-needed shot in the arm.
• Increased capability-Over the next few years, it is likely that the air force could position additional aircraft at other locations such as the Andaman and Nicobar Islands, overlooking the strategic Strait of Malacca. This could boost India’s maritime and air surveillance and strike capability deep into the Indian Ocean.
• Integration of the army troops with amphibious elements of the navy will help to strengthen the country’s expeditionary capabilities.

NEED OF MARITIME THEATER COMMAND

The geostrategic advantage-The central location of the Indian peninsula thrusting out into the Indian Ocean and the Andaman Nicobar Islands, overlooking crucial shipping lanes and strategic choke points, has provided India with a huge geostrategic advantage over China, which is heavily dependent on shipping for its global trade and energy needs. Up to this point, this geographical advantage seems to have worked for India in maintaining a favorable balance of power with China. But the last decade has seen a rapid growth of Chinese maritime power and economic/political influence in the Indian Ocean region.

Chinese influence-The PLA Navy’s continued deployments and activities in the region since 2009, when Chinese naval ships first entered the Indian Ocean to participate in anti-piracy patrols off Somalia, has impinged on India’s sphere of influence. In less than a decade China made quick gains in consolidating its position in the wider region by establishing its first naval base at Djibouti in 2017. Concurrently, strategic projects such as the Belt and Road Initiative have helped expand Chinese economic and political influence.

These developments have put pressure on the Indian navy and sometimes even also led to tensions. For instance, the increase in PLA Navy activities in the region including submarine deployments has forced the Indian navy to step up ship and air operations in the region. Also, in 2019, a Chinese naval vessel entered India’s exclusive economic zone without approval and was asked to leave by the Indian navy.

On the whole, these advances in China’s maritime powers have not only diluted India’s geostrategic advantage, posing a challenge to India’s leadership in the Indian Ocean region but also emboldened China to engender a conflict situation along the Line of Actual Control (LAC), at Doklam in 2017 and later in the Ladakh region this year. The new maritime theater command will further help India consolidate and strengthen its maritime power in the Indian Ocean region.

CHALLENGES

• The design of a single Maritime Theatre Command presumes that all maritime is one theatre. Yet, that is hardly the case. There are three distinct maritime geographies to the west, south, and east, making them distinct theatres.
• The adversaries, geopolitics, operational contexts, missions, and roles in the waters to India’s west, south, east, and beyond are vastly different in each of these theatres.
• The idea of a single Land Theatre Command or an Air Theatre Command is considered absurd because geography, adversary, and threats are distinctly different in the west, north, south, and east, despite the domains themselves being arguably “inseparable whole”. The maritime domain is no different, and no more a “single theatre” than land and air is.
• Our geographical and geopolitical context suggests that we need at least two maritime-focused commands, facing west and east. These should include the requisite land, air, space, and cyber components so that the theatre commander has the complete complement of assets necessary to handle the range of anticipated threats emerging in that theatre.
• The theatre commander need not always be a Navy officer but can come from any Service. Indeed, one urgent task for the CDS would be to ensure that the career track of officers is restructured such that the top echelons of the theatre command consist of officers who have cross-service experience.
• India is underinvested in sea power there is only so much you can do to move naval assets from one side of the peninsula to the other. If the pressure on defense expenditure is high, we must prioritize naval acquisitions.
• The Arabian Sea, the Persian Gulf, the Bay of Bengal, and the Straits of Malacca are all connected to the Indian Ocean but have distinct names for reasons of history, geography, and the resulting politics. The strategy should recognize this reality.

CURRENT COMMAND STRUCTURE IN INDIA

• The current structure of the armed forces includes 17 different commands. The army and Air force have 7 Commands each and 3 commands are headed by the Navy. Under the Army, the commands are the Northern, Southern, Eastern, Western, Central, South-western, Central, and Maintenance and Training.
• The Navy is divided into Western, Eastern, and Southern commands.
• Each command is headed by a 4-star rank military officer.
• India only has two tri-service commands. The first one is known as the Andaman and Nicobar Command (ANC) and was created in 2001. It is led by service chiefs on a rotational basis. The second is a functional command (not overseeing a particular geographical location) called the Strategic Forces Command established in 2006.

WAY FORWARD:

• Integrating tri-service elements seamlessly at various levels will require rigorous training and development of fresh joint doctrines and strategy, and these will probably be the next few steps in operationalizing the new command.
• India’s changed economic and fiscal trajectory had been a factor, the small Andaman and Nicobar Command to evolve into a regional power projection role, specializing in traditional “out of area” operations in deeper partnership with friendly foreign armed forces. Even so, we should not let present-day constraints permanently limit our thinking. If India has to be a major regional power in this century, we need expeditionary capacity.
• On balance, the maritime theater command will add a new dimension to India’s efforts to counter Chinese in the Indian Ocean, and once operationalized, it could even help to restore normalcy along the India-China LAC.

JUST TO ADD IN YOUR KNOWLEDGE

The post of Chief of Defence Staff was created to provide “effective leadership at the top level” to the three wings of the armed forces and to help improve coordination among them. Along with it, the Department of Military Affairs (DMA) was created as the fifth department within the Ministry of Defence.

• CDS acts as the permanent Chairman of the Chiefs of Staff Committee which will also have three service chiefs as members.
• His core function will be to foster greater operational synergy between the three service branches of the Indian military and keep inter-service frictions to a minimum.
• He will also head the newly created Department of Military Affairs (DOMA) in the Ministry of Defence.
• The CDS will be the single-point military adviser to the Defence Minister on matters involving all three services and the service chiefs will be obliged to confine their counsel to issues about their respective services.
• As the head of DoMA, CDS is vested with the authority in prioritizing inter-service procurement decisions as Permanent Chairman-Chiefs of Staff Committee.
• The CDS is also vested with the authority to provide directives to the three chiefs. However, he does not enjoy any command authority over any of the forces.
• CDS is first among equals, he enjoys the rank of Secretary within the DoD and his powers will be confined to only the revenue budget.
• He will also perform an advisory role in the Nuclear Command Authority (NCA).

[WpProQuiz 174]

THE CONTEXT: The progression to electric vehicles(EVs) is important for India because such vehicles are sustainable and profitable in the long term. Reducing dependence on crude oil will save the government money, reduce carbon emissions, and build domestic energy independence. Besides being an economically and environmentally viable option, India’s transition to electric vehicles will allow us to fine-tune our infrastructure.

THE TRANSITION TOWARDS ELECTRIC MOBILITY

The transition towards electric mobility offers India not only an opportunity to improve efficiency and transform the transport sector but also addresses several issues that the country is currently grappling with. The concerns regarding energy security and rising current account deficit (CAD) on account of rising fossil fuel imports can be addressed with the uptake of electric mobility.

India is a power surplus country and is currently witnessing lower plant load factors due to lower capacity utilization. As per the conservative estimates, demand from electric vehicles (EV) could greatly improve the utilization factor of underutilized power plants, as the charging pattern of EV users is considered to coincide with power demand during the non-peak hours in the country.

India has a clear intention of multiplying its generation from renewable energy (RE) sources which are inherently intermittent. Several reports suggest that EVs can complement the intermittent nature of power generated from RE by absorbing power at off-peak hours. The batteries in EVs can act as ancillary services for the proliferation of distributed generation resources (DER).

Apart from supporting RE generation, EVs with the feasible vehicle to grid technology can act as a dynamic storage media and can enhance the grid resilience through the ancillary market. This can reduce the burden of the exchequer to create static energy storage systems, especially in distribution networks, to support the proliferation of grid-connected rooftop solar and DERs.

ELECTRIC MOBILITY INITIATIVES IN INDIA

Electric mobility initiatives in India, initially, were led by the Ministry of Heavy Industries and Public Enterprises (MoHIPE) who launched the National Electric Mobility Mission Plan (NEMMP) in 2013 and Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) in 2015. Over the years, identifying cross-sectoral complex linkages of electric mobility and achieving a multi-stakeholder development NITI-Aayog was mandated to anchor and coordinate the Electric mobility efforts in India.

Coordinated efforts resulted in six key facilitative initiatives, namely, FAME II, Urban facilitation, power sector facilitation, evolving tax regime, public-private alliances, and demand aggregation, which are attributed to the development of electric mobility in India.

The FAME India Scheme

• The FAME India Scheme is aimed at incentivizing all vehicle segments.

Two phases of the scheme:

1. Phase I: started in 2015 and was completed on 31st March 2019
2. Phase II: started from April 2019, will be completed by 31st March 2022

• The scheme covers Hybrid & Electric technologies like Mild Hybrid, Strong Hybrid, Plug-in Hybrid & Battery Electric Vehicles.Monitoring Authority: Department of Heavy Industries, the Ministry of Heavy Industries, and Public Enterprises.

Fame India Scheme has four focus Areas:

1. Technology development
2. Demand Creation
3. Pilot Projects
4. Charging Infrastructure

Objectives of FAME Scheme:

• Encourage faster adoption of electric and hybrid vehicles by way of offering upfront Incentives on the purchase of Electric vehicles.
• Establish a necessary charging Infrastructure for electric vehicles.
• To address the issue of environmental pollution and fuel security.

SHIFTING ENERGY RESOURCES FROM MIDDLE EAST TO LATIN AMERICA

The government has allocated $1.3 billion in incentives for electric buses, three-wheelers, and four-wheelers to be used for commercial purposes till 2022, and earmarked another $135 million for charging stations. Besides these incentives, a proposal for a $4.6 billion subsidy for battery makers has also been proposed by the NITI Aayog.

These policies are embedded with the vision to have 30% electric vehicles plying the roads by 2030. In September 2019, Japanese automobile major Suzuki Motor formed a consortium with Japanese automotive component manufacturer Denso and multinational conglomerate Toshiba to set up a manufacturing unit in Gujarat to venture into the production of lithium-ion batteries and electrodes.

Developing domestic battery manufacturing capacity may fundamentally change India’s relationship with resource-rich Latin America as the government plans to buy overseas lithium reserves.

India’s energy security dependence will shift from West Asia to Latin America. India imported 228.6 MT of crude oil worth $120 billion in 2018–19, which made it the third-largest oil importer in the world in terms of value.

Lithium triangle

Latin America’s famous lithium triangle that encompasses lithium deposits under the salt flats of northwest Argentina, northern Chile, and southwest Bolivia hold about 80% of the explored lithium of the world. In Latin America, most of the production comes from Argentina, Chile, and Bolivia.

At present, India’s lithium-ion battery demand is fulfilled by imports from China, Vietnam, and Hong Kong. In the last two years, India has had a growing appetite for lithium-ion batteries, and so, lithium imports have tripled from $384 mn to $1.2 bn. Notably, the government has intercepted this growing demand from its incipience. With its policy intervention to support battery manufacturers by supplying lithium and cobalt, this industry is more likely to grow domestically to support India’s goal to switch to electric mobility.

CHALLENGES FOR INDIA’S ELECTRIC MOBILITY INITIATIVES

Presently, India is one of the fastest-growing economies in the world, but its increasing dependency on oil imports, rising environmental concerns, and growing need for sustainable mobility solutions are posing serious economic and social challenges for the country. Some of these changes are following:

Rising crude oil imports –an energy security challenge

Since early 2000, India’s crude oil imports have risen exponentially reaching a record high of 4.3mb/d in 2016. The demand for oil grew by 5.1% in 2016, higher than the world’s largest net importers, the US (0.7%) and China (2.9%), making India the world’s third-largest crude oil consumer.

India’s crude oil deficits stood at US$52 billion in 2017 and accounted for almost 50% of the total trade deficit of US$109 billion. This crude oil deficit is further expected to almost double to US$100 billion against the total trade deficit of US$202 billion in 2019.

Rising pollution levels –An environmental challenge

India ranks as the third-largest carbon-emitting country in the world accounting for 6% of the global carbon dioxide emissions from fuel combustion. According to the WHO Global Air Pollution Database (2018), 14 out of the 20 most polluted cities of the world are in India.

Rising population –A sustainable mobility challenge

India’s current population of 1.2 billion is expected to reach 1.5 billion by 2030. Out of the 1.5 billion people, 40% of the population is expected to live in urban areas compared to 34% of the 2018 population projection. The additional 6% population growth is likely to further add strain on the struggling urban infrastructure in the country, including a rise in demand for sustainable mobility solutions.

Evolving global automotive market –A manufacturing transition challenge

India is the world’s fourth-largest producer of the internal combustion engine (ICE) based automobiles. The growth in the automotive market in India has been the highest in the world, growing at a rate of 9.5% in2017. The recent shift in global automotive technology and increased uptake in electric vehicles is likely to pose a challenge to the existing automotive market if the country does not plan its transition towards newer mobility solutions and develop the required manufacturing competencies.

ELECTRIC MOBILITY: A POTENTIAL SOLUTION FOR INDIA

In India, the majority of the oil demand comes from the transport sector. The sector accounts for over 40% of the total oil consumption with around 90% of the demand arising from road transport.

By 2020, 330 mt(million tons) of carbon emissions are expected to arise from the transportation sector, 90% of which may be from road transport alone.

The premier thinks tank of GoI, NITI Aayog (National Institution for Transforming India), reports that India can save 64% of anticipated passenger road-based and mobility-related energy demand and 37% of carbon emissions by 2030 if it pursues electric mobility in the future.

This would probably result in an annual reduction of 156 Mtoe in diesel and petrol consumption for 2030, saving India INR3.9 lakh crores (or ~US$60 billion (at US$52/bbl of crude).

The cumulative savings for the tenure 2017-2030 is expected to reach 876 MToE of savings for petrol and diesel, which totals to INR22 lakh crores (or ~US$330 billion), and 1 gigaton for carbon-dioxide emissions.

WAY FORWARD:

The Indian market needs encouragement for indigenous technologies that are suited for India from both strategic and economic standpoints.

Since investment in local research and development is necessary to bring prices down, it makes sense to leverage local universities and existing industrial hubs.

Breaking away from the old norms and establishing a new consumer behavior is always a challenge. Thus, a lot of sensitization and education are needed, in order to bust several myths and promote EVs within the Indian market.

Subsidizing manufacturing for an electric supply chain will certainly improve EV development in India. Along with charging infrastructure, the establishment of a robust supply chain will also be needed. Further, recycling stations for batteries will need to recover the metals from batteries used in electrification to create the closed-loop required for the shift to electric cars to be an environmentally-sound decision.

CONCLUSION:

Operationalizing mass transition to electric mobility for a country of 1.3 billion people is a great challenge. Thus, a strong common vision, an objective framework for comparing state policies, and a platform for public-private collaboration are needed. In the present scenario, India must need to change its energy policy- from the Middle East to Latin America.

THE CONTEXT: December 12 marked the six-year anniversary of the Paris Agreement. The international community, including the European Union (EU) and India, gathered at the Climate Ambition Summit 2020 to celebrate and recognize our resolve in working towards a safer, more resilient world with net-zero emissions.

ABOUT PARIS AGREEMENT

• The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016.
• Its goal is to limit global warming to well below 2, preferably to 5 degrees Celsius, compared to pre-industrial levels.
• To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate-neutral world by mid-century.
• The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.

IMPLEMENTATION OF PARIS AGREEMENT

Implementation of the Paris Agreement requires economic and social transformation, based on the best available science. The Paris Agreement works on a 5- year cycle of increasingly ambitious climate action carried out by countries. By 2020, countries submit their plans for climate action known as nationally determined contributions (NDCs).

Nationally Determined Contributions (NDCs):

• In their NDCs, countries communicate actions they will take to reduce their Greenhouse Gas emissions in order to reach the goals of the Paris Agreement. Countries also communicate in the NDCs actions they will take to build resilience to adapt to the impacts of rising temperatures.

Long-Term Strategies: 

• To better frame the efforts towards the long-term goal, the Paris Agreement invites countries to formulate and submit by 2020 long-term low greenhouse gas emission development strategies (LT-LEDs).
• LT-LEDs provide the long-term horizon to the NDCs. Unlike NDCs, they are not mandatory. Nevertheless, they place the NDCs into the context of countries’ long-term planning and development priorities, providing a vision and direction for future development.

Is the Paris agreement binding?

• The legal nature of the deal–whether it will be binding–had been a hotly debated topic in the lead-up to the negotiations. The agreement walks a fine line, binding in some elements like reporting requirements while leaving other aspects of the deal—such as the setting of emissions targets for any individual country—as non-binding.

Difference between Paris Climate and Kyoto Protocol:

• The Kyoto Protocol had a differentiation between developed and developing countries listed as Annex 1 countries and non-Annex 1 countries But, in the Paris agreement, there is no difference between developing and developed countries.
• The Kyoto Protocol aimed at 6 major greenhouse gases but the Paris Agreement is focused on reducing all anthropogenic greenhouse gases causing climate change.

Talanoa dialogue

• The UNFCCC Climate Change Conference (COP23) was held in Bonn, Germany, and was presided over by the Government of Fiji. It concluded with countries putting in place a roadmap for ‘Talanoa Dialogue’, a year-long process to assess countries’ progress on climate actions.

What is Talanoa?

• Talanoa is a traditional approach used in Fiji and the Pacific to engage in an inclusive, participatory, and transparent dialogue;
• The purpose of Talanoa is to share stories, build empathy and trust;
• During the process, participants advance their knowledge through common understanding;
• It creates a platform of dialogue, which results in better decision-making for the collective good;
• By focusing on the benefits of collective action, this process will inform decision-making and move the global climate agenda forward.

The significance of Talanoa dialogue

• The goal of the Paris Agreement on climate change, as agreed at the Conference of the Parties in 2015, is to keep global temperature rise this century to well below 2 degrees Celsius above pre-industrial levels. It also calls for efforts to limit the temperature increase even further to 1.5 degrees Celsius.

The Under2 Coalition

• The Under2 Coalition is a coalition of subnational governments that aims to achieve greenhouse gases emissions mitigation. It started as a memorandum of understanding, which was signed by twelve founding jurisdictions on May 19, 2015, in Sacramento, California. Although it was originally called the Under2 MOU, it became known as the Under2 Coalition in 2017.
• As of September 2018, the list of signatories has grown to over 220 jurisdictions which combined encompasses over 3 billion people and 43% of the world economy.
• The intent of the memorandum signatories is for each to achieve Greenhouse gas emission reductions consistent with a trajectory of 80 to 95 percent below 1990 levels by 2050and/or achieving a per capita annual emission goal of less than 2 metric tons by 2050.
• Currently, Telangana and Chhattisgarh are signatories to this pact from India, as compared to representations from the other top emitters: 26 subnational governments in China and 24 in the U.S. Greater representation of Indian States is crucial.

FRAMEWORK OF PARIS AGREEMENT

The Paris Agreement provides a framework for financial, technical, and capacity-building support to those countries who need it.

Finance

The Paris Agreement reaffirms that developed countries should take the lead in providing financial assistance to countries that are less endowed and more vulnerable, while for the first time also encouraging voluntary contributions by other Parties. Climate finance is needed for mitigation because large-scale investments are required to significantly reduce emissions. Climate finance is equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

Technology

The Paris Agreement speaks of the vision of fully realizing technology development and transfer for both improving resilience to climate change and reducing GHG emissions. It establishes a technology framework to provide overarching guidance to the well-functioning Technology Mechanism. The mechanism is accelerating technology development and transfer through its policy and implementation arms.

Capacity-Building

Not all developing countries have sufficient capacities to deal with many of the challenges brought by climate change. As a result, the Paris Agreement places great emphasis on climate-related capacity-building for developing countries and requests all developed countries to enhance support for capacity-building actions in developing countries.

ENHANCED TRANSPARENCY FRAMEWORK (ETF)

• With the Paris Agreement, countries established an enhanced transparency framework (ETF). Under ETF, starting in 2024, countries will report transparently on actions taken and progress in climate change mitigation, adaptation measures, and support provided or received. It also provides international procedures for the review of the submitted reports.
• The information gathered through the ETF will feed into the Global stocktake which will assess the collective progress towards the long-term climate goals.
• This will lead to recommendations for countries to set more ambitious plans in the next round.

INDIA AND PARIS AGREEMENT

India has not only achieved its targets but has exceeded them beyond expectations as per the Prime Minister. He delivered a virtual speech at the Climate Ambition Summit that India has reduced its global emissions by 21 percent compared to 2005 and is on its way to doing more.

• India mentioned that it has not caused the climate change crisis and it is meeting its obligations under the Paris Climate Accord.
• It stated that the developed nations have been the highest carbon emitters and thus, were responsible for global warming.
• It mentioned that besides India, only Bhutan, the Philippines, Costa Rica, Ethiopia, Morocco, and the Gambia were complying with the accord.

India’s Intended Nationally Determined Contribution (INDC)

• To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from the 2005 level.
• To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030.
• A total of 40% of the installed capacity for electricity will be from non-fossil fuel sources.

India’s effort to address Climate Change

The Government of India has launched eight Missions under the National Action Plan on Climate Change (NAPCC) for assessment of the impact and actions required to address climate change. These eight missions are:

1. National Solar Mission
2. National Mission for Enhanced Energy Efficiency
3. National Mission on Sustainable Habitat
4. National Water Mission
5. National Mission for Sustaining the Himalayan Ecosystem
6. National Mission for A Green India
7. National Mission for Sustainable Agriculture
8. National Mission on Strategic Knowledge for Climate Change

Recent developments

• India has achieved a reduction of 21% in emission intensity of its GDP between 2005 and 2014, which fulfills its pre-2020 voluntary target.
• The Renewable energy installed capacity has increased by 226% in the last 5 years and stands more than 87 GW.
• The Government has provided 80 million LPG connections in rural areas, providing them with clean cooking fuel and a healthy environment.
• More than 360 million LED bulbs have been distributed under the UJALA scheme, which has led to energy savings of about 47 billion units of electricity per year and a reduction of 38 million tonnes of CO2 per year.
• It leapfrogged from Bharat Stage-IV (BS-IV) to Bharat Stage-VI (BS-VI) emission norms by April 1, 2020, which was earlier to be adopted by 2024.

SIX YEARS AFTER PARIS AGREEMENT

All states have submitted their national contributions to mitigate and adapt to climate change. Distant hypothetical targets are being set. Seems like we are still speeding in the wrong direction or we are lagging far behind.

(1) Unclear targets and response

The world is still unclear for six years as to how the net-zero pledges will translate into shorter-term targets. Few of the countries that have announced ambitious long-term goals have implemented national policies to reach them in time.

(2) Degradation isn’t stopped

Meanwhile, we continue to destroy the world’s carbon sinks, by cutting down forests – the world is still losing an area of forest the size of the UK each year, despite commitments to stop deforestation – as well as drying out peatlands and wetlands, and reducing the ocean’s capacity to absorb carbon from the air.

(3) Countries aren’t scaling up their targets

Although 151 states have indicated that they will submit stronger targets before December 31, only 13 of them, covering 2.4 percent of global emissions, have submitted such targets. While states have been slow to update their national contributions for 2025-2030, several have announced exaggeratedly high “net zero” targets in the recent past.

WAY FORWARD:

• The Paris agreement still provides the best hope of avoiding the worst ravages of climate breakdown: the question is whether countries are prepared to back it up with action, rather than more hot air.
• Renewing the shorter-term commitments is the best way ahead.
• Making promises for the 2050s-60s is one thing, but major policy changes are needed now to shift national economies onto a low-carbon footing.
• None of these (net zero) targets will be meaningful without very aggressive action in this decade. A diplomacy is inevitably a tool in global climate action.

CONCLUSION:

For many, there is a mismatch between short-term actions and long-term commitments. A credible short-term commitment with a clear pathway is the key. Not all states will be in a position to pledge net-zero targets, nor should they be expected to. All states, including India, can, however, pledge actions that are credible, accountable and fair. Our real test on climate change is on building a new domestic consensus that can address the economic and political costs associated with an internal adjustment to the prospect of a great global reset.

THE CONTEXT: The United States has once again included India in its monitoring list of countries with potentially “questionable foreign exchange policies” and “currency manipulation”.The designation of a country as a currency manipulator does not immediately attract any penalties but tends to dent the confidence about a country in the global financial markets. This article discusses US’s currency watch list and its implications on India.

WHAT DOES THE TERM ‘CURRENCY MANIPULATOR’ MEAN?

• This is a label given by the US government to countries it feels are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar.
• The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others.
• This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

ALL ABOUT US’s CURRENCY WATCH LIST

Why is India on the monitoring list?: 

The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.

• India, which has for several years maintained a “significant” bilateral goods trade surplus with the US, crossed the $20 billion mark, according to the latest report.
• The bilateral goods trade surplus totaled $22 billion in the first four quarters through June 2020.
• Based on the central bank’s intervention data, India’s net purchases of foreign exchange accelerated notably in the second half of 2019.
• Following sales during the initial onset of the pandemic, India sustained net purchases for much of the first half of 2020, which pushed net purchases of foreign exchange to $64 billion–or 2.4% of GDP–over the four quarters through June 2020.

India and Singapore had intervened in the foreign exchange market in a “sustained, asymmetric manner” but did not meet other requirements to warrant designation as manipulators.

What are the parameters used: 

An economy meeting two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 is placed on the Watch List. This includes:

• A “significant” bilateral trade surplus with the US — one that is at least USD 20 billion over a 12-month period.
• A material current account surplus equivalent to at least 2% of gross domestic product (GDP) over a 12-month period.
• “Persistent”, one-sided intervention — when net purchases of foreign currency totaling at least 2% of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months.

Consequence: 

• Inclusion in the list does not subject to any kind of penalty and sanctions but it deteriorates the global financial image of the country in the financial markets in terms of foreign exchange policies including undervaluation of currencies to gain export advantages.
• According to some experts, the tag could lead to rupee appreciation as the Reserve Bank of India (RBI) might step back from its dollar purchases.

Other countries on the list:

• The US Department of the Treasury Office of International Affairs, in its latest report to the US Congress, has included India, Taiwan, and Thailand in its Monitoring List of major trading partners that “merit close attention” to their currency practices and macroeconomic policies.
• Other countries in the latest list comprise China, Japan, Korea, Germany, Italy, Singapore, and Malaysia.

UNDERSTANDING CURRENCY MANIPULATION

• Consider the laws of demand and supply. The value of a commodity rises when there’s considerable buying pressure and it tumbles when people start selling it en masse. It’s the age-old maxim that applies to almost everything you see around you, including currencies.
• So when the Reserve Bank of India shows an insatiable desire to buy the Indian currency by selling the US Dollar, then you are most likely to see an appreciation in its value. And when they start selling the rupee in exchange for dollars, then the value of our currency depreciates.
• In general, countries prefer their currency to be weak because it makes them more competitive on the international trade front.
• A lower currency makes a country’s exports more attractive because they are cheaper on the international market. For example, a weak Rupee makes Indian exports less expensive for offshore buyers.
• By boosting exports, a country can use a lower currency to shrink its trade deficit.
• A weaker currency alleviates pressure on a country’s sovereign debt obligations.
• After issuing offshore debt, a country will make payments, and as these payments are denominated in the offshore currency, a weak local currency effectively decreases these debt payments.

IMPACT ON INDIA

WAYFORWARD:

• India has traditionally tried to balance between preventing excess currency appreciation on the one hand and protecting domestic financial stability on the other.
• India being on the watch list could restrict the RBI in the foreign exchange operations it needs to pursue to protect financial stability. This comes when global capital flows threaten to overwhelm domestic monetary policy.
• The two most obvious consequences could be an appreciating rupee as well as excess liquidity that messes with the interest rate policy of the RBI.
• Other things remaining the same, government securities may also gain marginally as the RBI could choose OMOs to provide primary liquidity.

CONCLUSION:

• It will be a tall ask for India to be able to qualify all three conditions of the US Treasury to be tagged as a currency manipulator.
• Thus for India, it would not lead to any meaningful change in diplomatic and trade ties with the US. However, it may keep RBI somewhat guarded on aggressive forex intervention if capital flows continue to flood Indian shores, and thus could be mildly positive for the rupee.

JUST TO ADD IN YOUR KNOWLEDGE

EXCHANGE RATE

• The exchange rate is the price of one currency in terms of another currency.
• It often determines the affordability of buying or selling internationally. For instance, if one wants to buy a car produced in the U.S. that will involve two transactions: one, using rupees to buy dollars; two, using these dollars to buy the car.
• The exchange rate for any currency would be determined by the interplay of its demand and supply. For instance, if more Indians want to buy US goods, there would be a higher demand for the dollar relative to the rupee. This, in turn, would mean the dollar would be “stronger” than the rupee — and gain in strength as the demand increases.
• If demand falls, the dollar would depreciate relative to the rupee (or the rupee would appreciate relative to the dollar).
• Sometimes a central bank of a country intervenes to reduce wild fluctuations in the exchange rate. But excessive and undisclosed interventions are not considered fair.
• For instance, if China’s central bank buys dollars in the forex market, it can artificially weaken the yuan — and Chinese goods will then become more affordable (and competitive) in the international market.

[WpProQuiz 169]

THE CONTEXT: India is planning to bring about a national e-commerce policy. However, the government has decided to stay away from negotiations at the World Trade Organization platform to set international e-commerce rules due to many concerns. This article discusses WTO negotiations on e-commerce and India’s stand.

BRIEF DESCRIPTION OF NEGOTIATIONS AT THE WTO

The second phase of the final discussion started after 2019 and still date it is going on. India decided to stay away from negotiations.

OSAKA TRACK

• The G20 summit took place in June 2019 in Osaka, Japan. At the sidelines of the summit, a special event on the digital economy gathered G20 leaders and other countries who are currently participating in the informal plurilateral negotiations on e-commerce at the WTO. Together, they issued the Osaka Declaration on Digital Economy, announcing the launch of the ‘Osaka Track’, a process that aims to intensify efforts on international rule-making on the digital economy, especially on data flows and e-commerce, while promoting enhanced protections for intellectual property, personal information, and cybersecurity.
• The signatories of the Osaka Declaration on the Digital Economy hope to ‘provide a political impetus to the negotiations on e-commerce at the WTO’.
• The Osaka Track is inspired by the idea of ‘Data Free Flow with Trust (DFFT)’ proposed by Japanese Prime Minister Shinzo Abe at the World Economic Forum 2019, aiming to eliminate restrictions on cross-border data flows.
• India, Indonesia, and South Africa, among other countries, decided not to sign the Declaration.

INDIA’S CONCERNS

The government has decided to stay away from negotiations at the WTO (World Trade Organization) platform to set international e-commerce rules. It believes that the WTO framework may not safeguard the interest of its fledgling domestic e-commerce sector, hamper its control over cross-border data flow, and undermine its sovereignty over national legislation regarding custom taxation.

Cross-border data flow: India is wary of the demand made by developed countries to ban the regulations that many countries passed to protect the data.

Taxation issues: The WTO has already, for several years, been applying an agreed moratorium on tariffs for goods that are transmitted electronically. Developed countries are arguing for making this moratorium permanent. India fears that as more and more goods shift to the digital domain (in light of developments in digital manufacturing technologies such as 3-D printing), these could mean a substantial loss of revenue for emerging economies like India.

Underprepared MSMEs: Domestic retailers, especially small businesses, are underprepared to compete with large global e-commerce companies.

Digital divide: India is opposed to the formalization of talks on any form of an international treaty prior to the resolution of cross-cutting issues such as the digital divide between developed and developing nations.

Predatory pricing: In the case of B2C, there are issues related to shifting consumers from store to non-store formats, predatory pricing, providing heavy discounts to retain consumers, etc. Indian regulations related to predatory pricing are weak, and it is in fact difficult to prove predatory pricing.

SHOULD INDIA RECONSIDER ON ITS STAND?

Advantageous to the MSMEs:

• One of the key assumptions of the WTO negotiation is that it would help MSMEs by enhancing their scope for participating in international trade.
• It would be cost-effective for small and medium enterprises to use e-platforms to sell their products in wider geographical areas.
• However, here India must argue in favor of the Non-Discriminatory Market Place (NDMP) model as against an inventory-based model. As NDMP models are more favorable to the MSMEs.

Growing e-commerce market:

• With private domestic consumption in the economy showing a secular downward trend from a high of 61% (2013-14) to 55% (2018-19) as per the latest Economic Survey, it must capture the growing e-commerce market to boost exports.
• It can do so effectively by remaining in the WTO framework and negotiating in a way that is to its advantage.
• Most of the countries of Africa and even China is ready to be part of the negotiation; India cannot afford to remain isolated. It will have to join the framework at some point in time.
• However, terms may not be favorable then because consensus could have been reached without India’s participation. Therefore, India must join the negotiation now and put its views prudently and forcefully.

Tax losses:

• India could increase its share in the global e-commerce market by remaining in the WTO framework and thus could offset some of the tax losses through custom duty by the increased revenue (thus corporation taxes) of its domestic e-commerce companies.

Stand of other countries: 

• All WTO members recognize that e-commerce will be an integral part of business activities in the future; it will reduce the cost of doing business and connect SMEs to the global market.
• Developing countries are in a state of readiness to welcome international rules and, therefore, global competition. This can perhaps be correlated to the enhanced level of digital adoption by small businesses in many such countries.
• India must learn from China, which has a very strict data-localization policy but is still willing to join the negotiation calling for a ‘global data governance’ mechanism.

Developmental approach:

• The willingness of other G-77 countries to participate in international negotiations on e-commerce indicates that a developmental approach is superior to a regulatory one, to foster competitiveness in new markets.
• The renewed momentum in the domestic policy process is also an opportunity for India to recalibrate its command-and-control ethos. For instance, the previous draft policy sought government access to source codes of e-commerce companies, to ensure a lack of algorithmic bias.
• A focus on standards rather than state control is also a better fit for globalization.

INDIA’S PREPARATION

• The government of India released a draft e-commerce policy on 23 February 2019. The major tenets of the policy are related to data storage and localization, encouraging foreign direct investment (FDI) in the marketplace model, measures to contain the sale of counterfeit, prohibited, and pirated items, and making India’s e-commerce exports competitive and attractive.
• The Consumer Protection Bill 2019, which was passed by Parliament, paves the way for a regulator that could haul up eCommerce companies such as Amazon and Walmart-owned Flipkart if they influence pricing, unfairly promote products or misrepresent the quality of goods and services sold on their platforms.
• The government has also been working on various policies to more strictly regulate data storage by technology companies. For e-commerce, the new regulator will likely define categories of e-commerce data that would have to be stored locally within India.

OTHER INITIATIVES

Digital India: The Digital India program is a flagship program of the Government of India which aims to transform India into a digitally empowered society and knowledge economy. The Digital India program is based on three key vision areas:

• Digital infrastructure as a core utility to every citizen
• Governance and services on demand
• Digital empowerment of citizens.

Make in India: The Make in India initiative was launched to transform India into a global design and manufacturing hub and to reduce dependence on imports of goods such as electronic goods.

Start-up India: Startup India was intended to build a strong ecosystem for nurturing innovation and start-ups in the country to drive sustainable economic growth and generate large-scale employment opportunities.

WAY FORWARD:

• E-commerce has been hailed by many as an opportunity for developing countries to gain a stronger foothold in the multilateral trading system. E-commerce has the ability to play an instrumental role in helping developing economies benefit more from trade.
• Unlike the requirements necessary to run a business from a physical building, e-commerce does not require storage space, insurance, or infrastructure investment on the part of the retailer. The only prerequisite is a well-designed web storefront to reach customers.
• Additionally, e-commerce allows for higher profit margins as the cost of running a business is markedly less.

CONCLUSION:

E-commerce is generally presented in very positive terms but along with the potential benefits come potential problems for developing countries. In this case, the role of government becomes crucial. For example, the Federal Trade Commission of the United States is the nodal agency that regulates e-commerce activities, such as commercial email, online advertising, and consumer privacy. Similarly, India must also have such an agency that can control multiple dynamics of online retail. And should build institutional capacity for WTO negotiations and international competitions.

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THE CONTEXT: Recent visits by Foreign Secretary Harsh Vardhan Shringla and National Security Adviser Ajit Doval to countries in the region appear to show new energy in India’s neighbourhood policy. This article discusses the need for the reworking of neighbourhood policy.

HISTORICAL PERSPECTIVE OF INDIA’S REGIONAL POLICY

• The notion of regional primacy certainly persisted in the Nehruvian era —seen in the three security treaties that the first prime minister signed with Bhutan, Sikkim and Nepal during 1949-50.
• The post-colonial phase, which broadly began in the late 1940s, again, has had a complementariness that helped India and its neighbours to propel ideas such as non-alignment in the international arena, which was inspired by a macro-level “third worldism”, “South-South cooperation” and so on.
• As India got involved in border conflicts with Pakistan & China and also due to persisting poor economic policies, its influence in the neighbourhood got marginalised.
• Though multilateralism prevailed in India’s foreign policy at the international level, there has been a tremendous focus on bilateralism in India’s approach to its immediate neighbourhood.
• India’s economic reorientation since 1991 and the rediscovery of regionalism did open possibilities for reconnecting with its neighbors.

In that context, to a large extent, India’s foreign policy approach towards its neighbours was shaped by the “principle of balancing”.

KEY FOREIGN POLICY CONSIDERATIONS

NEED FOR POLICY REWORK

It is extremely important that our engagement with our neighbouring countries should not be event-oriented; it should be process-oriented. And we should have a plan for a continuous engagement at various levels.

• Recently, there have been many strains in ties with neighbours. For instance, With Nepal over its Constitution in 2015 and now over the map, and With Bangladesh over the Citizenship (Amendment) Act (CAA).
• Need clarity regarding China. It is very easy to accuse any of India’s neighbouring countries of being too close to China. But it’s very difficult to set out the exact terms of what they should or shouldn’t do with China.
• South-East Asia is one of the largest regions in the world by population. It is one of the least integrated regions with tremendous deficits in terms of infrastructure, connectivity, and interdependence. It is a region that is now being exposed to various geopolitical competition dynamics.
• We should focus on creating interdependence in this region that will give India strategic leverage.

There should be an awareness that there is a price to be paid if we try to always prioritize domestic factors over foreign policy issues. Generosity and firmness must go hand in hand. If you have determined what your key interests are, then it is better to make it known what the red lines are.

CHALLENGES

Structural Challenges: India has historical legacies of border conflict, ethnic and social tensions and India’s are the dominant structural handicaps working against the success of India’s policy in South Asia.

• The challenges of settling boundaries, sharing river waters, protecting the rights of minorities, and easing the flow of goods and people, affects regional diplomacy.
• For example, the issues related to Madhesis in Nepal, Tamils in Sri Lanka, border and river water disputes with Bangladesh are accorded to various structural handicaps of India.

Lack of Consensus on Security and Development:

• South Asia is one of the only regions without any regional security architecture.
• India’s big brotherly stature has been seen as more of a threat by other countries of the region rather than an enabling factor to cooperate for the security and development of the region.

Chinese influence:  Beyond the bilateral territorial dispute between India and China, the emergence of a powerful state on India’s frontiers affected India’s relationship with its neighboring countries.

• China has made foray into India’s neighbourhood of alternative trade and connectivity options after the 2015 India-Nepal border blockade (e.g. highway to Lhasa, cross-border railway lines to the development of dry port).
• In Sri Lanka, Bangladesh, the Maldives and Pakistan, China holds strategic real estate and has a stake in their domestic policies.
• China is undertaking political mediations such as stepping in to negotiate a Rohingya refugee return agreement between Myanmar and Bangladesh, hosting a meeting of Afghanistan and Pakistan’s foreign ministers to bring both on board with the Belt and Road Initiative (BRI) and is also mediating between Maldivian government and opposition.

India’s Hard Power Tactics:

• India has a central location in South Asia and being the largest geographically and economically, India should be expected to hold greater sway over each of its neighbours but many of its hard power tactics do not seem to work.
• The 2015 Nepal blockade and a subsequent cut in Indian aid did not force the Nepali government to amend its constitution as intended and may have led to the reversal of India’s influence there.

Political loggerheads:

• For various reasons other governments in the SAARC region are either not on ideal terms with India or facing political headwinds.
• In the Maldives, President Yameen Abdul Gayoom has challenged India through its crackdown on the opposition, invitations to China and breaking with India’s effort to isolate Pakistan at SAARC.
• In Nepal, the K.P. Sharma Oli government is not India’s first choice, and both countries have disagreements over the Nepalese constitution, Treaty of Peace and Friendship 1950 etc.
• In Sri Lanka and Afghanistan, where relations have been comparatively better for the past few years, upcoming elections could pose a challenge for India.

WHAT SHOULD BE DONE

Many of these factors mentioned are hard to reverse but the fundamental facts of geography and shared cultures in South Asia are also undeniable, and India must focus its efforts on “Making the Neighbourhood First Again”

1. Soft Power:

• Despite the apparent benefits of hard power and realpolitik, India’s most potent tool is its soft power.
• Its successes in Bhutan and Afghanistan, for example, have primarily been due to its development assistance than its defence assistance.
• Considering this India’s allocations for South Asia have also increased by 6% in 2018 after two years of decline.

2. Approach towards China: Instead of opposing every project by China in the region, India must attempt a three-pronged approach:

• First, where possible, India should collaborate with China in the manner it has over the Bangladesh China-India-Myanmar (BCIM) Economic corridor.
• Second, when it feels a project is a threat to its interests, India should make a counter-offer to the project, if necessary, in collaboration with its Quadrilateral partners, Japan, the U.S. and Australia. Third, India should coexist with projects that do not necessitate intervention, while formulating a set of South Asian principles for sustainable development assistance that can be used across the region.

3. Learn from ASEAN: 

• Like ASEAN, SAARC countries must meet more often informally, interfere less in the internal workings of each other’s governments, and that there be more interaction at every level of government.
• Further, some experts have argued that like Indonesia India too must take a back seat in decision-making, enabling others to build a more harmonious SAARC process.

4. Multi-vector foreign policy:

• Promotion of a multi-vector foreign policy by diversifying its foreign policy attention on multiple powers (not only the US; but also Russia, the European Union, Africa and so on) in the global arena while developing a stronger matrix of multilateralism and employing stronger diplomatic communications strategies.

5. Understand limitations of the neighbourhood first:

• India needs investments, access to technology, fulfilment of its defence and energy needs and defends of its interests in international trade negotiations, besides seeking reform of the international financial and political institutions to obtain its rightful say in global governance which may not be fulfilled by its neighbours.

Proximity is one of the greatest assets which we have with respect to all our neighbors. But this connectivity has to be linked with the ‘software of connectivity’.

WAY FORWARD:

A new neighborhood policy needs to be imaginatively crafted in tune with the emerging realities in order to maintain its regional power status and to realize status transformation to the next level in the near future. Such re-strategizing can enable India to strengthen its position in the region/neighborhood.

• India’s neighborhood policy can go a long way if these initiatives are properly backed up by sufficient innovative hard power resources (defense and economy) and the use of soft power strategies.
• Soft power strategies can be operationalized only by way of creatively propelling India’s democratic values and ideas, which can further improve its civilizational ties with regional states. This in turn can lead to a recalibration of India’s neighbourhood policy.
• India’s neighborhood policy should be based on the principles of the Gujral Doctrine. This would ensure India’s stature and strength cannot be isolated from the quality of its relations with its neighbors and there can be regional growth as well.

The China factor, the changing global power architecture, and the existing conflicts with neighbours will play a significant role in India’s foreign policy, of which its neighbourhood policy is a crucial one.

CONCLUSION:

There is no doubt that the challenges which India must deal with in its neighborhood will become more complex and even threatening compared to two decades ago. But neighborhood first policy must be anchored in the sustained engagement at all levels of the political and people to people levels, building upon the deep cultural affinities which are unique to India’s relations with its neighbors.

THE CONTEXT: With the Internet playing a central role in determining how humans live and work, a few big technology companies have gathered remarkable clout. The clout is a result of the fact that users depend heavily on a few companies for most of their needs. Efforts by competition regulators in the European Union, the United States, and India have not conclusively settled issues that have emerged as a direct result of the dominance of big tech players. This article discusses why accountability is needed.

PERSPECTIVE FOR INDIAN MARKET

India’s digital age has brought with it tremendous opportunities. Indian SMEs now have access to a global market, leveling the playing field for these businesses.

• With a population of over a billion, there are about 500 million active web users and India’s online market is second only to China.
• According to the World Investment Report by UNCTAD, the FDI inflow into India rose 13 percent on year in FY20 to a record $49.97 billion compared to $44.36 billion in 2018-19, mostly in the digital sector.
• Credit Suisse recently revealed that the digital transactions in India are expected to rise fourfold, to $1 trillion, by 2023.
• Google generates $1 billion in ad revenues in India and Facebook is accessed by 217 million people every month.
• Currently only half of India’s population is online, which leaves these companies a fairly chunky market segment to expand into. And just so we don’t lose sight of scale here – that’s a market size of 650 million.
• The global pandemic has supercharged digital adoption in India, noting that the digitization of MSMEs is a particularly exciting trend to keep track of.

With a handful of internet companies projected to control 30% of the world’s gross economic output by 2030, the essential question before many regulators across the world is, how to fix accountability?

NEED TO HOLD ACCOUNTABLE

Access and availability aren’t the only things that have changed. Big tech firms are now some of the most powerful groups in the world because they, in many ways, shape and control the content that social media users see and consume online.

Content moderation: The common people deserve to know how their information is being used, censored, and potentially exploited online. These companies have an obligation to explain it. As social media platforms continue to evolve, so too must the laws that govern them.

Antitrust: Google’s rise now has implications not only for business but also politics and society — which makes the antitrust conversation relevant for all countries, including India. This conversation also needs to extend to other digital companies, such as Facebook, the other gatekeeper of information online.

Anti-competitive behavior: New-age internet companies often exhibit anticompetitive behavior not by cartelizing and hiking prices, but by keeping consumer prices low, or even free, and using it to achieve dominance across multiple businesses verticals.

Privacy concerns: Lack of transparency in the way tech companies process user data; this has raised serious and pressing privacy concerns.

Acting as a referee: They’ve developed high-powered, opaque algorithms that learn online behavior and deliver customized results based on what we search, see, and share online. Some platforms have gone a step further – beyond delivering customized results and content – and have appeared to act as the arbiters of truth by moderating and censoring user-generated political content – political speech, essentially. How they do it is largely unknown, which is one of the reasons why they need to testify and hold accountable. Whether or not these companies believe they’re acting as a referee, suppression of people’s political speech is occurring.

Other issues: Other issues that need consideration include intellectual property rights and licensing, international taxation, and a user-centric data security regime.

The gap between the tech giants and their closest competitors is wide and has naturally given rise to a slew of complaints of abuse of dominance, illegal mergers, and acquisitions, and anti-competitive business practices such as bundling, predatory pricing, and deep discounting, exclusive arrangements, and cartelization and others.

MEASURES TAKEN AT THE NATIONAL AND INTERNATIONAL LEVEL

Governments across the world have introduced stringent laws to ensure users’ right to privacy by requiring tech companies (and any other entity that utilizes user data) to adhere to certain basic and essential data security and privacy measures.

• The E.U. introduced the General Data Protection Regulation (GDPR) to function as a consolidated set of data protection laws for Europe and Europeans, with a focus on certain basic principles of privacy which all entities handling user data must adhere to.
• In India, social media companies are able to absolve themselves of any liability by citing the Information Technology (IT) Act’s provisions protecting intermediaries from any legal action for user-generated content.
• India is also working on a Personal data protection bill.
• The U.S. has now set its sights on big tech. After the announcement of anti-trust litigation against Google, a major overhaul of how these companies operate in nearly every possible arena is likely.
• There is also a bipartisan effort to investigate censorship policies on Facebook and Twitter and also, relatedly, into the issues of ethical journalism and fake news.

WHAT SHOULD BE DONE?

Big Tech Companies shape how you live, think, consume, vote, read, work and holiday. Forcing them to be accountable is essential.

• Sites would also be required to provide an easily digestible disclosure of their content moderation practices for users. And, importantly, they would be required to explain their decisions to remove material to consumers. They would need to create an appeals process for users, too.
• There’s a growing bipartisan consensus that it’s time to shed greater light on these secretive processes. People deserve to know how their information is being treated by big tech.
• India needs to draw on the work that led to the American lawsuit, and take into account conversations in the European Union, where courts and policymakers have dealt some of the strongest blows to big tech’s propensity to cartelize.
• If these proposals (for Potential Avenue for invasion of privacy, choices one key new yardstick, antitrust investigation) turn into law, they could offer a whole new set of tools to regulators and alter the face of the digital landscape for a generation.
• Anti-competitive behavior should be punished with record-setting fines and ordering changes in business models and structuring.

Whether this is sufficient in terms of regulation remains to be seen.

WAY FORWARD:

Digital tech giants such as Google, Facebook, Microsoft, Amazon, and Walmart are all eagerly participating in writing the next chapter to the great Indian tech odyssey. This is just the beginning. So how can India use tech to supercharge its economy?

• If the role played by digital tech to counter the disruption caused by the Covid-19 pandemic is anything to go by, then digital is definitely the way forward.
• India has two possible paths ahead: adopt progressive new antitrust approaches which may emerge from the ongoing global churn that could help create more innovation-friendly markets or adopt a narrow nationalistic plank and characterize the problem as merely a “foreign” monopoly concern.
• The changing landscape of the tech sector and markets in general and the fact that these entities have unimaginable wealth and power has meant that traditional methods will be insufficient to arrive at any long-term, concrete solutions.

CONCLUSION:

Given the size and impact of the Indian market, all regulatory action in India is bound to be closely monitored and can have a far-reaching impact elsewhere in the world. There is a good chance that the close scrutiny of major tech players by Indian regulators will lead to reform in the other regions and provide some heft to the growing concerns around their dominance. Given the importance of the Indian market, companies themselves will be inclined to ensure that the local regulators are satisfied.

JUST TO ADD IN YOUR KNOWLEDGE

PERSONAL DATA PROTECTION BILL:  The Bill seeks to provide for the protection of the personal data of individuals. The Bill governs the processing of personal data by:

• Government
• Companies incorporated in India
• Foreign companies dealing with the personal data of individuals in India

Obligations of data fiduciary: Personal data can be processed only for a specific, clear, and lawful purpose. Additionally, all data fiduciaries must undertake certain transparency and accountability measures such as:

• Implementing security safeguards (such as data encryption and preventing misuse of data), and
• Instituting Grievance Redressal Mechanisms to address complaints of individuals. They must also institute mechanisms for age verification and parental consent when processing sensitive personal data of children.

Rights of the individual:

• Seek correction of inaccurate, incomplete, or out-of-date personal data.
• Have personal data transferred to any other data fiduciary in certain circumstances.
• Restrict continuing disclosure of their personal data by a fiduciary, if it is no longer necessary or consent is withdrawn.

Grounds for processing personal data: The Bill allows the processing of data by fiduciaries only if consent is provided by the individual. However, in certain circumstances, personal data can be processed without consent. These include:

• If required by the State for providing benefits to the individual,
• Legal proceedings,
• To respond to a medical emergency.

Exemptions- The central government can exempt any of its agencies from the provisions of the Act:

• In the interest of the security of the state, public order, sovereignty and integrity of India and friendly relations with foreign states, and
• For preventing incitement to the commission of any cognizable offense (i.e. arrest without warrant).

Offenses:

• Processing or transferring personal data in violation of the Bill is punishable with a fine of Rs 15 crore or 4% of the annual turnover of the fiduciary, whichever is higher, and
• Failure to conduct a data audit is punishable with a fine of five crore rupees or 2% of the annual turnover of the fiduciary, whichever is higher.

THE CONTEXT: The new currency driving governance today is data. Whether it is the debate on the hunger index or the arguments regarding the caste census, data is at the centre of these controversies: how it is coll­ected, interpreted, and constructed into an index is being vociferously debated by everyone, including those who have only a rudimentary understanding of data. The pandemic management that relies heavily on numbers in terms of testing, vaccinating or tracking recoveries and deaths has only heightened this fascination with data.

EVIDENCE-BASED POLICY

• The reason for this obsession with data is because evidence-based policy (EBP) making or data-based governance has been touted as a rational form of governance that bases its decisions not on populist pressures but on objective data.
• This requires evidence-based data at all stages of policymaking. EBP is viewed as especially important for deve­loping countries where public resources are often scarce or limited. It requires both data and the process of data collection to be scientific, rigorous and validated both in the process of the collection as well as analysis. However, the entire process of data collection and its interpretation often tends to be imbued with political economy issues in deve­loping countries.

DATA TO DATA POLITICS

• Information and communication technologies (ICTs) have had a defining impact on how data is currently viewed as “it rec­onfigures relationships between states, subjects, and citizens”.
• Today, big data, machine learning and algorithms are the frameworks within which citizens operate—oblivious to the manner in which this digital interface is converting them into data to be used by unknown entities.
• In this age of data politics, new players like transnational corporations that control ICTs and social media domains are becoming more important forces than the state.
• This is alarming as, unlike the checks and bala­nces that limit the state’s influence, these large, transnational corporations are not constrained or held accountable by any such mechanisms. This merits a deeper inquiry.

DATA-BASED GOVERNANCE

• Amassing large, granular data about the citizens by the state through census, periodic surveys, etc. Now through digital convergence has continued unabated and gained further traction in the context of EBP.
• Data-based governance aims to facilitate the use of research and evidence to inform programmatic funding decisions.
• The goal is to further ­invest in what works to improve outcomes for citizens based on prior evidence. In general, data-based governance assumes the existence of a system of reliable, rigorous and validated data with associated infrastructure.
• However, in reality, the governance process is often messy and riddled with political compulsions as governance involves both formal and informal dom­ains, rules and actors.
• This makes governance outcomes even more challenging to measure.
• This is especially because governance outcomes combine tangible outputs and intangible processes.
• Measuring only tangible outputs without capturing the intangible processes is likely to provide misleading inferences. For example, if one is trying to assess women’s participation in a gram sabha, the number of women participants (outcome) needs to be captured and the nature of participation (process) should be documented.
• Often, quantitative data collections focus only on quantifiable measures, thus omitting qualitative processes that give mea­ning to those numbers.

WHY DATA CENTRIC GOVERNANCE (EVIDENCE-BASED POLICY MAKING) IS IMPERATIVE FOR DEVELOPING NATIONS

Evidence from randomised evaluations can yield insights and conclusions into questions at the heart of controversial policy debates. Since the past decade or so, evidence-based policy-making has gained traction, with some governments and NGOs having institutionalised processes for rigorously evaluating innovations and incorporating evidence into decision-making.

CASE STUDY

• The seminal and pioneering work of Noble Prize winner of Abhijit Banerjee, Esther Duflo and Michael Kremer in development economics using randomised evaluations to test the effectiveness of social programmes and policies with the objective of reducing poverty marks a definite shift in discerning development from an entirely theoretical perspective.
• The path-breaking approach that they follow is popularly known as randomised control trial (RCT), which is used to test the effect of small interventions on individual behaviour. The lab has transformed the field of development economics from being mainly theoretical to empirical with high-quality evidence that has influenced piloting, testing, and scaling of effective policies around the globe. For example, with support from Jameel Poverty Action Lab (J-PAL), the Ministry of Education in Peru formed a dedicated unit to identify, test and scale low-cost interventions to improve educational outcomes.
• J-PAL is promoting the scale-up and replication of effective programmes. Randomised evaluations allow researchers to learn not only about the impact of a particular programme but also to draw out the mechanisms behind its success to help derive general lessons that can be applied in the same context.

IMPACT OF THE STUDY

• From randomised evaluations in India, Ghana and Kenya, researchers learnt why children are behind in school and thereby built a range of cost-effective strategies based on the insight of regrouping students by their current learning level rather than by their age group.
• On the other hand, the Government of Zambia has been able to apply the general idea of “Teaching at the Right Level” (TaRL, an approach developed by Indian NGO Pratham) to inform the design of its own remedial programs. This has significantly improved the learning opportunities in both India and Africa.

IMPORTANCE OF THE STUDY

Cases that highlight the value of EBP in developing nations: one where evidence-based policies transformed lives and the other where the lack of an evidence-based response has caused widespread death.

• First, the Government of Tanzania has implemented various health service reforms informed by the results of household disease surveys. This EBP contributed to over 40% reductions in infant mortality in two pilot districts.
• Second, the AIDS/HIV crisis has aggravated in some countries because respective governments have ignored the evidence of what causes the disease and how to prevent it from spreading further.

EXAMPLES OF EVIDENCE POLICYMAKING IN INDIA

• CENSUS BY MINISTRY OF HOME AFFAIRS
• SWACHCH SARVEKSHAD BY MINISTRY OF HOUSING AND URBAN AFFAIRS
• NATIONAL FAMILY HEALTH SURVEY BY MINISTRY OF HEALTH AND FAMILY WELFARE, GOVERNMENT OF INDIA
• MULTI-DYNAMIC POVERTY INDEX BY NITI AAYOG
• SDG RANING OF STATES BY NITI AAYOG
• ASER REPORT BY PRATHAM NGO

CHALLENGES OF POLICYMAKING

• States routinely gather vast quantities of administrative data. However, large proportions of these data remain unutilised or are unusable as ­often these administrative data are not validated or updated.
• At times, the same data is collected by different agencies with different identifiers making integration or consolidation of data difficult. To avert duplication of data, which is costly both in terms of human as well as financial resources, it is essential to standardise data collection across departments.
• Data starts to become scarce and variable at lower tiers of governance, for instance, the devolution of funds at the sub-block level is often opaque and self-reported without external validation. This makes matching of funds, particularly untied grants with specific functions at the sub-block level challenging as funds are often fungible.
• Administrative data is generally inaccessible to the public and researchers for scrutiny or analysis. Citing the example of Denmark, where opening up of administrative data on tax collection gave significant insights that led to key tax reforms, advocate encouraging and incentivising governments to share the administrative data, especially in the context of Sustainable Development Goals (SDGs).
• Measuring governance is a challenging proposition. This is particularly true in the domain of law and order, which is an essential aspect of governance. Two studies aiming to measure governance across states in India by developing a composite governance index lay bare the challenges of choosing appropriate indicators and their measurement and interpretations.

WHY DATA-CENTRIC GOVERNANCE IS THE RIGHT STEP TO CHOOSE AND HOW INDIA CAN ACHIEVE IT?

• India is mired in a data-driven world. Governance is increasingly being pushed to become data-centric.
• Data-centric governance or policymaking is a step in the right direction. However, the paradox of data-centric governance in India right now is that it is caught between two countervailing forces—a rel­entless churning of digital and other forms of data that are often unreliable and/or prone to errors on the one hand and a steady erosion of credible, scientific sources of data on the other.
• If governance decisions are to be data-centric, there is a need to ensure a good, robust and reliable database system. With several national statistical bases, such as the National Sample Surveys, that provide an interim glimpse into the trajectory of the economy in between the decadal census counts, getting eroded either through delays or data suppression, the danger of a “statistical vacuum” has been raised by some scholars (like Drèze) and others who have advocated a decentralised system of data collection process where states take the lead in building their own bottom-up databases.
• This requires individual states to invest heavily in both human and technical infrastructure with built-in quality control measures to ensure those policy decisions are based on robust and rigorous data.
• Finally, it is equally essential to ack­nowledge that policymaking is a contested space that is interactive, discursive and, therefore, a negotiated process.
• In the global South, the rigorous, constant implementation of data-based governance or policymaking is likely to be challenging. The government often discretionary policy decisions need to be taken by the government by prioritising one group over the other to redress historical inequalities.
• Thus, data-based governance req­uires not just validated and scientific data but also requires the policymakers to use it wisely by contextualising it to ensure equality and equity.

THE WAY FORWARD:

• Data-driven governance is being touted globally as a new approach to governance, one where data is used to drive policy decisions, set goals, measure performance, and increase government transparency.
• Evidence-based policymaking (EBP) assists in making decisions about projects, programmes and policies by placing the best available evidence from research conducted at the heart of policy development and implementation. It also makes explicit what is known through scientific evidence.
• In contrast to opinion-based policymaking, evidence-based policymaking needs an evidence base at all stages in the policy cycle to define issues, shape agendas, make active choices, identify options, deliver them, and monitor their impact and outcomes. Basically, it is a set of methods that informs the policy process, rather than aiming to directly affect the eventual objectives of the policy directly. Thereby, EBP advocates a more systematic, rational and rigorous approach to produce better outcomes.
• The pre-requisite for evidence-based policy is that the data must be trustworthy, and it depends upon the quality of the data and the quality of the professional statisticians.
• Credible statistics is important for good governance and decision-making in all sectors of society. Therefore, policy-makers are more likely to use evidence in decision-making if that evidence is unbiased, rigorous, substantive, relevant, timely, actionable, easy to understand, cumulative and easy to explain to constituents. EBP approaches can dramatically help reduce poverty and improve economic performance in developing nations.
• Impact evaluations of social programmes have emerged as an important tool to guide social policy in developing polities as they allow for accurate measurement and attribution of impact can help policy-makers identify programmes that work and those that do not work so that effective and performing programmes can be promoted and ineffective ones can be discontinued.

THE CONCLUSION: The EBP has the potential for high impact change that India shouldn’t ignore. Thereby, systemic institutionalisation of EBP is the way forward in eradicating poverty and improving economic performance, education, health care, and social assistance for millions of people. But, if governance decisions are to be data-centric, there is a need to ensure a decentralised, robust, reliable database system. Data-based governance requires not just validated and scientific data but also requires the policymakers to use it wisely by contextualising it to ensure equality and equity.