[WpProQuiz 166]

THE CONTEXT: Among the many initiatives taken around the world to neutralize the gender binary, India faces its own challenge in the form of gender-caste intersectionality.

THE ISSUE: On the 2018 Gender Inequality Index, India ranked 122 out of 162 nations (United Nations Development Program (UNDP), 2019). India has both low rates of female labour force participation (FLFP) and large pay disparities between women and men in India. The FLFP is about 25% in rural regions and less than 20% in urban areas (Lahoti and Swaminathan 2016). The average wage of female employees is about 65% of average male wages in 2018-2019 (Chakraborty 2020). Aside from the steps taken to improve women’s political representation, no constitutional mandate or law ensures seats for women in public-sector employment or educational institutions. Only a few states – like Bihar, Gujarat, Madhya Pradesh, and Punjab – have introduced reservations for women in government jobs during the last decade. In terms of educational institutions, the Indian Institutes of Technology (IITs) introduced a reservation of 20% seats for women in 2018 to correct the low levels of female participation in STEM (science, technology, engineering, and mathematics) disciplines. This measure has been quite successful in increasing the share of women, from about 14% of total seats in 2018-19 to 20% in 2020-21. Yet, a large gulf remains in achievement by subaltern caste.

WHAT IS INTERSECTIONALITY?

The intersectionality perspective emphasizes that an individual’s social identity influences the individual’s beliefs and experiences of gender making it essential to understand gender within the context of power relations.

SOME OF THE EXAMPLE

Intersectionality of class, caste, and gender and its linkages with unmet need for care. Research on economic inequality and poverty demonstrated that unequal distribution of resources manifests in unequal access to opportunities including healthcare. Economic differences may not shape the opportunities in isolation rather than caste inequalities and

gender biases which are rooted in the social system, interacting with economic class influences the pathways of healthcare access some of the data in the case of gender intersectionality.

This clearly shows that a social gradient to health exists in India in the case of health outcomes.

The social gradient in health is a term used to describe the phenomenon whereby people who are less advantaged in terms of socioeconomic position have worse health (and shorter lives) than those who are more advantaged.

THIS INTERSECTIONALITY PREVAILS IN OTHER SECTORS TOO

• One of the RTI reports reveals that just 19% of the 17,000 companies had adopted the voluntary code of affirmative action for SC/ST communities. The hesitation of corporates in giving importance to caste-based hiring comes from their preference for talent over inclusion.
• However, the need for inclusion is imperative. Despite higher education systems providing placement opportunities to Dalit students, their scarce presence in corporates’ higher management across the country is worrying about.
• Many of the leaders of top companies in India have been vocal about their willingness to hire based on merit and academic performance instead of caste.
• At the same time, a few companies like Muthoot ask for the caste of candidates in the application form.
• A study conducted in 2012 found that over 93% of the Indian Corporate board members belong to the “upper-castes”. In such a scenario, the unconscious bias of companies and especially the recruiters can hardly be ignored.
• It has been observed that most of the Dalit workers in the private sector are employed at ground level and often as unskilled laborers. The absence of Dalit members in the management body directly impacts these lower-level employees.
• As a marginalized section, their needs and concerns remain unheard of and unresolved. This creates the condition of underrepresentation at the top level and overrepresentation at the bottom level.
• Impact of such anomaly.
• Impact on entrepreneurship: Dalit entrepreneurship has suffered due to a lack of resources as well as skills. The combined support of the government and the corporate houses is needed to boost such an entrepreneurial spirit. It is crucial to fill the gaps left by the education system through systematic training and skill development. Business houses such as Godrej and M&M are providing training facilities as well as funds to the deprived class entrepreneurs. The government has also been talking about bringing in equal opportunity legislation in the private sector along with financing for the training costs of underprivileged meritorious youth.

THE WAY FORWARD

The Union Ministry of Minority Affairs came out with a “diversity index” that measures the workforce’s diversity in an organization. It has been found through several studies that the more diverse companies perform better financially and consumers prefer them over those that take no stand in societal issues. Consequently, many companies have now started caste-profiling their employees. The need of the hour is a conscious effort from the corporate industry for inclusive hiring and talent development rather than just a few short-term CSR activities.

THE CONCLUSION: Despite caste-based reservations, caste-based discrimination persists, raising the question of whether alternative approaches in implementing affirmative action – other than reservations – should be considered. An alternative affirmative action strategy to reservations may be to devote more educational resources to prepare underrepresented groups for higher education students better. This approach may enhance representation while reducing negative stereotypes that women and lower caste groups have lower productivity or provide lower quality services. Enhanced representation and reduced discrimination against women and lower caste groups in high-skilled occupations can encourage competition and improve the overall quality of services.

THE CONTEXT: Efforts in the fight against “the tsunami of hate and xenophobia in social media” appear to be largely failing, because hate is increasing, not diminishing. In this context, attempts are being made to control it by moral suasion, voluntary controls by the regulators but the attempts are largely failing, sometimes due to vested interest, other time due to recognition of such issues.

THE ISSUE: In an unequal society, hate speech has developed out of unequal power relations, which determine one’s ‘vulnerability’ to extreme forms of discrimination. Hate speech is inflicted based on religion, gender, sexuality, disability, nationality, race, and caste. The tangible presence of hate speech can have the effect of silencing exactly those at the forefront of expressing dissent against that hate speech. But when it is done, offline, there are various mechanisms to prevent it. But, when it is done on digital platforms where the “ sense of control is missing”  generally out of regulatory lacuna problem arises. Further, it can condescend into real-life violence which was witnessed in the events like:

• Capitol Hill violence
• Frequent trolling of influential persons
• Caste-based hate speech
• Gender-based hate speech

WHAT IS CYBERHATE?

Cyberhate can be defined as the use of violent, aggressive or offensive language, focused on a specific group of people who share a common property, which can be religion, race, gender or sex or political affiliation through the use of the Internet and Social Networks, based on a power imbalance, carried out systematically and uncontrollably, through digital media and often motivated by ideologies to which individuals and groups adhere, deriving in behaviours that can be considered as acts of deviant communication as they may violate shared cultural standards, rules or norms of social interaction in group contexts.

REASONS FOR CYBERHATE

• Anonymity: One of the supposed advantages of the Internet as a medium for communication is that people are not compelled to reveal aspects of their offline identity unless they wish to do so. It has been suggested that the anonymity of the Internet can provide opportunities for freer speech because people can say what they think without fear that other people will react or respond unfavourably simply because of the colour of their skin, their sexual orientation, or even their gender identity
• The perceived anonymity of the Internet may remove the fear of being held accountable for cyberhate and may also evince a sense that the normal rules of conduct do not apply; the associated feeling of liberation may drive people to give in to their worst tendencies
• Invisibility A second potentially distinctive feature of online hate speech is that there can be a physical distance between speaker and audience, meaning that the speaker can be non-visible or in some sense invisible to the audience and vice versa.
• Community There is always people’s innate desire) to engage with like-minded others allied to the power of the Internet to put people in touch with each other—people who otherwise might be unable to connect due to geography or people who might be simply ignorant of each other’s existence
• In that sense, online hate speech is different in one sense simply because it has become the method of choice among hate groups for cementing in-group statuses and fermenting a sense of intra-group community. Of course, this fact itself also relies on some other distinctive features of the Internet. One feature is that the Internet is relatively cheap and easy to use compared to other comparable means of communication
• Instantaneousness: On the Internet, the time delay between having a thought or feeling and expressing it to a particular individual who is located a long distance away, or to a group of like-minded people or to a mass audience can be a matter of seconds.

THE ORIGIN OF INTERNET TROLLING

HARM

• Because the Internet allows cheap access to mass communication and easy transmission of words, images, music and videos, it has a tendency to support and encourage ingenuity, creativity, playfulness, and innovation in such content
• The same applies to hate speech. Online hate speech is heterogeneous and dynamic: it takes many different forms, and those forms can shift and expand over relatively short spaces of time
• The Internet is home to forms of hate speech that are banned by existing hate speech laws in India, including the stirring up of hatred toward people based on certain protected characteristics and certain public order and harassment offences aggravated by hostility toward people based on certain protected characteristics.
• But the Internet is also home to hate speech that is not directly banned by existing hate speech laws in India including forms of negative stereotyping, vilification, group defamation.

CURRENT LEGAL PROVISIONS TO DEAL WITH HATE SPEECH

• Not defined in the legal framework: Hate speech is neither defined in the Indian legal framework nor can it be easily reduced to a standard definition due to the myriad forms it can take.
• The Supreme Court, in Pravasi Bhalai Sangathan v. Union of India (2014), described hate speech as “an effort to marginalise individuals based on their membership in a group” and one that “seeks to delegitimise group members in the eyes of the majority, reducing their social standing and acceptance within society.”
• The Indian Penal Code illegalises speeches that are intended to promote enmity or prejudice the maintenance of harmony between different classes.
• Specifically, sections of the IPC, such as 153A, which penalises promotion of enmity between different groups;
• 153B, which punishes imputations, assertions prejudicial to national integration;
• 505, which punishes rumours and news intended to promote communal enmity, and
• 295A, which criminalises insults to the religious beliefs of a class by words with deliberate or malicious intention.
• Summing up various legal principles, in Amish Devgan v. Union of India (2020), the Supreme Court held that “hate speech has no redeeming or legitimate purpose other than hatred towards a particular group”.
• Lack of established legal standard: Divergent decisions from constitutional courts expose the lack of established legal standards in defining hate speech, especially those propagated via the digital medium.

From the private side

YouTube included caste policy in 2019

PROBLEMS IN CONTROLLING ONLINE HATE SPEECH

• Absolute free speech laws that protect against any type of censorship inadvertently render protection to hate speech as well. In India, hate speech is not profusely restricted, it remains undefined with appropriate IT Act provisions or a regulatory mechanism for online content. Absent appropriate codes or regulations for intermediaries, those who tend to have a louder voice—such as politicians or celebrities—can harness this capacity to incite anger or divide communities without being threatened by any form of liability. But, overcriminalisation can have a problem, as it will have a chilling impact on free speech.
• Both government authorities and social media platforms alike, have been criticised for their failure to secure data and effectively regulate content. Many platforms, experts, and politicians have welcomed a government-led moderation of illicit content, with ample checks and balances against arbitrary imposition.
• Human rights groups and activists express scepticism against allowing any avenue for governmental intervention through either the arbitrary imposition of bans, content moderation or internet shutdowns. Another paradigm champions the principle of “self-regulation”—where the platform itself adjudicates on their user-policy and community guidelines. Self-regulation has largely been ineffective in preventing abuse of the platform and has garnered criticism in various democracies
• The difficult question concerning hate speech or fake news legislation pertains to the existing ethical-legal gap, the executive response departing from the conservative understanding of online spaces and data. While disruptive technologies are evolving at a faster rate, the regulations fail to address gaps to deter unethical behaviour. The platforms alone are not equipped to oversee the task for a remodelled approach to counter manipulation and hate speech. Due to the overarching jurisdictional nature of these acts and easy multiplication, taking down content is not a silver bullet in countering hate speech and fake news.

THE STRUCTURAL PROBLEM

• The overregulation vs. under-regulation debate tends to overshadow the deeper and more inherent structural problems in the tech platforms themselves. The platform structure is driven by exploiting the disparities of wealth and power, as algorithms reward virality and interactions for monetary gains, even though they might be “divisive, misleading or false”.
• Platforms are also known to amplify certain types of users and content over others. Platforms decentralise free speech, but “special” megaphones are provided to sensationalist ideologies or popular content. Its algorithmic nature creates and perpetuates an information divide, alienating communities with different subscriptions through echo chambers and information silos.
• This has become obvious with the platform’s incentive structure, which is driven by monetisation of user data, advertisement money, and constant engagement. For example, a few popular YouTube channels that earlier achieved “Creator Award” were inciting violence including rape but suffered fewer takedowns. Platforms conveniently hide behind the garb of free speech enablers, with little responsibility, if at all.
• Even as xenophobia, communication and racism have long existed in the real world, the susceptibility of social media platforms to misuse has magnified such ill-speech at a faster pace.

THE BEST PRACTICES AROUND THE WORLD

WHAT SHOULD BE THE INDIA APPROACH?

• Institute an independent regulator to oversee compliance with fake news and hate speech codes that will be adopted;
• Proportional, necessary and minimal interventions from the government and platforms with effective and consistent application of their duties;
• An inclusive and ethical Code of Conduct developed in consultation with all stakeholders to realign the platform’s fiscal-driven-incentives with the public interest;
• Democratic application of penal and non-penal standards of existing laws; Periodic review policies to improve effectiveness;
• Encourage transparency by commissioning open-source research with periodic reports from regulators, platforms, civil society organisations and academia;
• Avoid creating any barriers or strengthening any dominant positions by large incumbents;
• Promote digital education initiatives and workshops to acquire necessary skills from a young age;
• Redressal and appellate mechanisms to provide support to any wrongful application of standards, take-downs or breach.
• There should be continuous collaborative engagements within the industry, along with state and non-state actors.
• While the creation of charters or codes that define each stakeholder’s duties and rights will be a lengthy process, a pre-emptive plan cannot be delayed further.
• This can enable the creation of voluntary multi-platform and multi-stakeholder initiatives. The Code of ethics and voluntary audits are other welcome by-products of these collaborative measures. Issue-specific methods of advertisement rules for transparency and media guidelines or ethical codes also aim to strengthen industry standards.
• Some shared responsibilities between the stakeholders have already been outlined but limited action has been taken to counter online harm.
• Platforms have deployed minimal resources to take down blatantly illegal content, as they lack real-time local responders who are well-versed in Indian languages.
• Even their community guidelines are globally uniform and limited due to implementational and definitional challenges locally. Therefore, the government and the tech platforms should complement other information gatekeepers like media and politicians.

THE CONCLUSION: Hate speech is provocative and divisive, and in extreme scenarios where it has remained unchecked, has been responsible for terrorism and genocide. With newer tools to weaponise and sensationalise enmity, it must not be protected under the realm of free speech doctrine. Similarly, misinformation (“fake news”) also has the potential to affect human safety and public health, and instigate violence. If fake news and hate speech continue to proliferate at the current rate, they pose threats to the democratic ecosystem. India must work to devise an all-stakeholder model to counter the weaponisation of online content before it further widens societal faultlines.

THE CONTEXT: As the crisis over Ukraine has entered a critical phase, most middle and great powers from Europe and Asia have rushed to either prepare for any eventuality or mediate by attempts to douse the flames. With the US recently calling a UNSC meet over the threat of the Russian invasion of Ukraine and Russian President Vladimir Putin traveling to Beijing to shore up its resolute stand on Ukraine, most nations find themselves on one side or the other of the emerging battle lines in eastern Europe. India, though, has avoided the strategic ensnarement.

THE BACKGROUND: Ukraine and Russia share hundreds of years of cultural, linguistic, and familial links. For many in Russia and in the ethnically Russian parts of Ukraine, the shared heritage of the countries is an emotional issue that has been exploited for electoral and military purposes. As part of the Soviet Union, Ukraine was the second-most powerful Soviet republic after Russia, and was crucial strategically, economically, and culturally.

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 favour.
• Buffer Zone for Western Countries: For the US and the European Union, Ukraine is a crucial buffer between Russia and the West.
• 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.
• Firstly, it is an important crossroads and strategic intersection for the entire region.
• 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 been facing a pro-Russian separatist movement since 2014.
• According to the various sources, the movement is actively supported by the Russian government and Russian paramilitaries make up between 15% to 80% of the separatists fighting against the Ukraine government.
• Invasion of Crimea: Russia seized Crimea from Ukraine in what was the first time a European country annexed territory from another country since world war 2
• 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. All these countries are NATO countries.
• 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 is seeking assurances from the US that Ukraine will not be inducted into NATO. However, the US is not prepared to give any such assurance.
• This has left the countries in a standoff, with tens of thousands of Russian troops ready to invade Ukraine.
• Russia is keeping the tensions high at the Ukraine border in order to get sanctions relief and other concessions from the West.
• Any kind of military action by the US or EU against Russia would precipitate a major crisis for the whole world and has so far not been mooted by any of the parties involved.

 THE DYNAMICS

INTERNATIONAL DYNAMICS:

• The sway of Bidden over American politics is decreasing an all-time low rating of 33% was witnessed. In such a case, conflict with Russia is seen as an attempt to bolster domestic politics.
• There is no unity among NATO on the issue of Russia. Recently, the German chancellor said they had no intention to impose an economic section over Russia.
• Britain’s standing and influence in Russia are practically negligent.
• American relation with France is all-time low after the AUKUS fiasco.

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 also for 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:

• In recent years, China has become the biggest threat for India—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 $2.7 billion.
• If a war breaks out, supply chains are going to be disruptive. And the one product that will worry India is oil, both as a fuel and cooking oil.
• Last year, India bought 1.8 million tonnes of sunflower oil and 74 percent of that came from Ukraine. So, if a war breaks out cooking oil may become more expensive.
• India is already preparing for this eventuality and new markets are being explored, like Brazil and Argentina.
• Then comes the petroleum. Brent crude has already breached the 90$-mark, which the possibility to reach even the $100-mark.
• Russia makes up around 20 percent of the global supply of natural gas. If Ukraine is attacked, the prices of natural gas are going to skyrocket
• And this could disrupt India’s energy plans. So, India has a lot at stake in this conflict.

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 and;
• In unison, these three compulsions also narrate the story of India’s challenges today and the implicit need for a more accommodative evolution of its traditional strategic autonomy to a positioning that straddles balancing and hedging with occasional pushing.

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 neighbours, 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.

THE CONTEXT: The government’s macro-economic strategy, as articulated through the Budget and the Economic Survey, can be stated simply: Growth will take care of all problems, as it had worked for India previously.  Yet many parameters have changed since then.

THE ISSUE: After the LPG era when the macro-economic indicators were comparable to today’s fiscal deficits, heavy interest burden on public debt, and problem-ridden banks. Yet the silver lining was world economy was growing which boosted tax revenues, reduced the deficit and debt in relation to GDP, and helped digest the interest burden. However, that scenario has changed since. In such a case, what’s the viability of growth being the centerpiece for the development in India?

THE SHACKLES NOW:  Due to inflationary pressure now, low-interest rates are climbing. While the global economy was accelerating then, it is slowing now. So, if the government thinks growth is the solution, can it be delivered in a slowing world with rising rates — bearing in mind also the domestic context of slower growth even during the pre-pandemic phase?

THE QUESTION NOW: In this case, given the status of the economy now Indian growth rate can sustain for 2-3 years, after which it will come under various traps. Some of these traps are

TRAPPED INDIA

Productivity trap: Persistently low productivity levels and poor productivity, performance across sectors in India are symptoms of a productivity trap. The concentration of exports of India on primary and extractive sectors undermines the participation of India in global value chains (GVCs). This, in turn, is associated with low levels of technology adoption and few incentives to invest in productive capacities. In all, competitiveness remains low, making it difficult to move towards higher added-value segments of GVCs. This fuels a vicious circle that negatively affects productivity.

Social vulnerability trap: Income growth paired with strong social policies since the beginning of the century has reduced poverty remarkably. Yet most of those who escaped poverty are now part of a new vulnerable middle class that represents 40% of the population. This comes with new challenges, as more people are now affected by a social vulnerability trap that perpetuates their vulnerable status. Those belonging to this socio-economic group have low quality, usually informal jobs associated with low social protection and low – and often unstable – income. Because of these circumstances, they do not invest in their human capital or lack the capacity to save and invest in entrepreneurial activity. Under these conditions, they remain with low levels of productivity, hence only with access to low-quality and unstable jobs that leave them vulnerable. This trap operates at the level of the individual, who is locked into a vulnerable status; this contrasts with the productivity trap, which refers to the whole economy.

Institutional trap: The expansion of the middle class in India has been accompanied by new expectations and aspirations for better quality public services and institutions. However, institutions have not been able to respond effectively to these increasing demands. This has created an institutional trap, as declining trust and satisfaction levels are deepening social disengagement. Citizens are seeing less value in committing to the fulfillment of their social obligations, such as paying taxes. Tax revenues are thus negatively affected, limiting available resources for public institutions to provide better quality goods and services, and to respond to the rising aspirations of society. This creates a vicious circle that jeopardizes the social contract in the region.

Environmental trap: This is linked to the productive structure of most developing economies, which is biased towards high material and natural resource-intensive activities. This concentration may be leading these countries towards an environmentally and economically unsustainable dynamic for two reasons. A concentration on a high-carbon growth path is difficult – and costly – to abandon; and natural resources upon which the model is based are depleting, making it unsustainable. This has also gained importance in recent years, with the stronger commitment to global efforts to fight climate change.

INTERACTIONS BETWEEN THESE DEVELOPMENT TRAPS

The four development traps interact and reinforce each other. This makes development challenges particularly complex and the need for sound analytical tools and coordinated policy responses increasingly relevant.

• There are many examples of how the traps are mutually reinforcing. With respect to the social vulnerability and productivity traps, the vulnerability associated with informal jobs is largely a by-product of low levels of productivity that characterize the Indian economy.
  • Meanwhile, informality itself acts as a strong barrier to increases in productivity and tax revenues.
• Likewise, weak institutions and social vulnerability are mutually reinforcing.
  • Populations are vulnerable because they lack an adequate safety net or because weak institutions do not provide them with quality public services such as education and health.
  • At the same time, vulnerability weakens the capacity and willingness to pay taxes and comply with formal rules, weakening the institutional setup.
• The productivity trap is also directly linked to institutions, which appear as one of the main determinants of success for countries that overcame this challenge.
• Eventually, the environmental trap is also directly linked to the diversification of the productive structure, and to the ability of the institutional setup to direct investments from resources and carbon-intensive sectors into environmentally efficient technologies.
• At the same time, environmental degradation and depletion reinforce the vulnerability trap by increasing the overall level of uncertainty.

THE WAY FORWARD

So Govt budget policy responses to overcome these development traps in India must consider their interactions. Better understanding the links and common causalities between different policy issues and objectives will be critical to developing responses that address their complex interactions effectively.

THE CONCLUSION: Leaving for the future the question of whether growth beyond 2025 can be maintained at a high pace, the question to ask today is whether such growth should be the sole measure of success. What about employment, poverty, the environment, education, and health — all of which have independent but also inter-linked salience, have suffered in the last couple of years, if not longer, and which the Budget seems to underplay?

THE CONTEXT: Recently, there is a debate on the illusion of rating agencies. Basically, the issues are -their necessities, flaws &fragilities, and the need for regulation. Similarly, credit score has also become complicated due to the current covid induced financial crisis.

WHAT IS A RATING AGENCY?

Credit rating is an informed opinion of a recognized entity on the relative creditworthiness of an issuer or instrument. In other words, it is an opinion “on the relative degree of risk associated with the timely payment of interest and principal on a debt instrument”. Such recognized entity is known as Credit Rating Agencies (CRAs).

CRAs typically rate on the basis.

• Debt securities
• Short term debt instruments, like commercial papers
• Structured debt obligations
• Loans and fixed deposits

WHY THERE ARE ISSUES OF ILLUSION?

IDEOLOGICAL BIASES: CRAs might lower ratings for left governments as a strategy to limit negative policy and market surprises as they strive to keep ratings stable over the medium term. For e.g. A panel analysis of Standard & Poor’s, Moody’s, and Fitch’s rating actions for 23 Organisation for Economic Co-Operation and Development (OECD) countries from 1995 to 2014 shows that left executives and the electoral victory of nonincumbent left executives are associated with significantly higher probabilities of negative rating changes.

CONFLICT OF   INTERESTS: CRAs are funded by the very companies they rate.

LACK OF ABILITY TO PREDICT: CRAs follow the market, so the market alerts the agencies of trouble. This reason can be attributed to CRA’s ability to predict frequent near default, default, and financial disasters.

NEGLIGENCE & INCOMPETENCE: The methodology of CRAs has come under question. For example, even after using different methodologies, the result for sovereign debts comes the same. It is also alleged that CRAs can make a sound judgement on rating, but they didn’t make an effort to do it. For e.g. Moody accepted that it did not have a good model on which it could have estimated a correlation between mortgage-backed securities, so they made them up.

POLITICALLY MOTIVATED: It has also been alleged that CRAs, through their rating mechanism, force the govt to follow the path they prescribe. For e.g. During the turmoil in Tunisia, S&P issued a report warning of “downward rating pressures” on neighbouring governments if they tried to calm social unrest with “populist” tax cuts or spending increases. Further, after Crimea’s annexation, rating agencies downgraded the rating of Russia.

POLICY MEDDLING: In 203, to stop predatory lending state of Georgia brought a law. Other states of the USA, was to follow suit until S&P retaliated. And it is well known that predatory lending is responsible for the financial crisis of 2008-09.

HOW A RATING AGENCY FUNCTION

1. FOR COMPANIES 

It is evident from the Above picture that credit rating agencies depend upon the audited statements. The agencies are only as effective the as honesty of their clients.

2. FOR COUNTRY

Following are the parameters on which a country is rated

• Regulatory framework
• Tariffs
• Fiscal Policy
• Monetary Policy
• Foreign Currency Control
• Physical and human Infrastructure
• Financial Markets
• Macro Factors (Consumer spending, Inflation, Interest Rates)

 WHY RATING AGENCY IS REQUIRED

From the 80s onwards, as the financial system became more deregulated, companies started borrowing more and more from the globalized debt markets, and so the opinion of the credit rating agencies became more and more relevant.

ROLE OF THE CRAs

REDUCE INFORMATION ASYMMETRY: Since CRAs get access to the tcompany’s management and confidential information about its working, they can give an informed opinion about the ability of an instrument to meet its obligations.

UTILITY FOR ISSUERS: The issuer concisely communicates the quality of their issue through the rating of the CRAs, which helps it establish its creditworthiness.

GATEKEEPERS FOR FINANCIAL MARKETS: CRAs provide tangible benefits to financial market regulators by reducing the costs of regulation. Regulators such as RBI use CRAs to improve the awareness and decision-making of their regulated entities. For instance, credit ratings are used to determine the capital adequacy of banks the resolution of stressed assets.

PURVEYORS OF REGULATORY LICENSES: Some financial regulators mandate that certain instruments must be rated mandatorily before they are issued. Extensive integration of CRAs into the financial system transforms their role as purveyors.

MORAL SUASION: It compels developing countries to pursue more prudent and sensible monetary and fiscal policies.

INSTANCES WHEN RATING AGENCIES FAILED

• The financial collapse of New York City in the mid-1970s
• Asian financial crisis
• Enron scandal
• Global Financial Crisis
• During the global financial crisis, hundreds of billions of dollars worth of triple-A-rated mortgage-backed securities were abruptly downgraded from triple-A to “junk” (the lowest possible rating) within two years of the issue of the original rating.
• The US Financial Crisis Inquiry Commission called them “key enablers” of the financial crisis and “cogs in the wheel of financial destruction.”

THE HISTORY OF RATING AGENCY

• Credit rating agencies were first established after the financial crisis of 1837 in the US. Such agencies were then needed to rate the ability of a merchant to pay his debts, consolidating such data in ledgers.
• Systematic credit rating started with the rating of US railroad bonds by John Moody in 1909.

COMPARATIVE RATING SYMBOLS FOR LONG TERM RATINGS

• DEGREE OF SAFETY: Highest
• RATING: AAA
• Meaning: Timely payment of financial obligations
• DEGREE OF SAFETY: High
• RATING: AA
• Meaning: Timely payment of financial obligations
• DEGREE OF SAFETY: Adequate
• RATING: A
• Meaning: Changes in circumstances can adversely affect such issues more than those in the higher rating categories.
• DEGREE OF SAFETY: Moderate
• RATING: BBB
• Meaning: Changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal.
• DEGREE OF SAFETY: Inadequate
• RATING: BB
• Meaning: Less likely to default in the immediate future
• DEGREE OF SAFETY: A greater likelihood of default
• RATING: B
• Meaning: While currently financial obligations are met, adverse business or economic conditions would lead to a lack of ability or willingness.
• DEGREE OF SAFETY: Vulnerable to default
• RATING: C
• Meaning: Timely payment of financial obligations is possible only if favorable circumstances continue
• DEGREE OF SAFETY: In default or are expected to default
• RATING: D
• Meaning: Such instruments are extremely speculative and returns from these instruments may be realized only on reorganization or liquidation.
• DEGREE OF SAFETY: Some factors which render instruments outstanding meaningless
• RATING: NM
• Meaning: Factors include reorganization or liquidation of the issuer; the obligation is under dispute in a court of law or before a statutory authority etc.

CREDIT RATING AGENCIES IN INDIA

CRISIL:

• This full-service rating agency is India’s major credit rating agency, with a market share of more than 60%.
• It is offering its services in the financial, manufacturing, service, and SME sectors.
• The headquarter of CRISIL is in Mumbai.
• The majority stake of CRISIL was held by the world’s largest rating agency, Standard & Poor’s.

CREDIT ANALYSIS AND RESEARCH LIMITED RATINGS (CARE) RATINGS:

• Credit Analysis and Research Limited Ratings was established in 1993.
• It is supported by Canara Bank, Unit Trust of India (UTI), Industrial Development Bank of India (IDBI), and other financial and lending institutions.
• This is considered the second-largest credit rating company in India.
• The headquarter of Credit Analysis, and Research Limited Ratings is in Mumbai.

SMALL AND MEDIUM ENTERPRISES RATING AGENCY (SMERA):

• It is a rating agency entirely created for the rating of Small Medium Enterprises.
• It is a joint enterprise by SIDBI, Dun & Bradstreet Information Services India Private Limited (D&B), and some chief banks in India.
• The headquarter of SMERA is in Mumbai
• It has accomplished 7000 ratings.

ONICRA CREDIT RATING AGENCY:

• SonuMirchandani incorporated it in 1993
• It investigates data and arranges for possible rating solutions for Small and Medium Enterprises and Individuals.
• The headquarter of ONICRA Credit Rating Agency is located in Gurgaon
• It has broad experience in performing a wide range of areas such as Accounting, Finance, Back-end Management, Analytics, and Customer Relations. It has rated more than 2500 SMEs.

FITCH (INDIA RATINGS & RESEARCH):

• Fitch Ratings is a global rating agency dedicated to providing the world’s credit markets with independent and prospective credit opinions, research, and data.
• The headquarter of Fitch Ratings is in Mumbai.

ICRA:

• It was created in 1991 by prominent financial institutions and commercial banks in India with a devoted crew of experts for the MSME sector
• Moodys, which is considered the international credit rating agency holds the major share.

DIFFERENT BUSINESS MODELS OF CREDIT RATING AGENCIES

• MODELS: ISSUER PAY MODEL
• ADVANTAGE: Ratings are available to the entire market free of charge and will greatly aid small investors. It gives the rating agencies access to high-quality information that enhances the quality of analysis.
• DISADVANTAGE: It can lead to a serious conflict of interest since the company pays the CRAs to get the rating. The CRAs may inflate the rating to satisfy the company. It may lead to ‘Rating Shopping’ which refers to the situations where an issuer approaches different rating agencies for the ratings and then choose to publish the most favorable ratings to disclose them to the public via media while concealing the lower ratings.
• MODELS: INVESTOR PAYS MODEL
• ADVANTAGE: It would avoid the serious conflict of interest of the CRAs. This would enable the investors to get the credit rating based on the company’s true and actual financial condition.
• DISADVANTAGE: Ratings would be available only to those investors who can pay for them and take ratings out of the public domain and thus affecting the small investors. The company may not always share all the necessary information with the CRAs which can have an adverse impact on the quality of the ratings. It can pose a serious conflict of interest involving the investors themselves. If investors are the payees, they can influence CRAs to give lower-than-warranted ratings to help them negotiate higher interest rates.
• MODELS: REGULATOR PAYS MODEL
• ADVANTAGE: It eliminates the conflict of interest as seen in both Issuer Pay Model and  Investor Pay Model.
• DISADVANTAGE: The problem with this model lies in choosing the CRA and payment to be fixed. The CRA chosen by the regulator may not provide the best credit rating. Further, if the regulator pays less amount of money to the CRA, the CRA may find it difficult to continue with its business and could have an adverse impact on the quality of the ratings issued.

SHOULD RATING AGENCIES BE REGULATED?

• RATING SHOPPING: It has often been seen that both issuer and investor are involved in rating shopping. CRAs inflate the rating, particularly for structured product markets for getting more market share and profit margins.
• OLIGOPOLISTIC TENDENCIES: Around 95% of the market is controlled by only 3 CRA VIZ. S&P, MOODY’S and  Further, they use expansionist marketing. For e.g. Hannover Re lost a big chunk of the market share when it didn’t pay the service fee. (CRAs promised it free service).
• HEGEMONIC CONTROL: As the big three CRAsare located in North America, America exerts great control on the functioning of CRAs. When CRAs downgraded the USA, CRAs were fined. Further, the rating of the country is not done objectively. UK was rated lower than the USA, even when the fiscal deficit of the UK was lower than the USA.
• CONTROL: CRAs have great control over the world economy as their rating can result in the flight of capital.
• ACCOUNTABILITY: CRAs are not accountable to any country and their functioning is not transparent

CHANGES THAT IS IMPERATIVE FOR BETTER FUNCTIONING

DODD-FRANK ACT

In response to the Global Financial Crisis of 2008-2009, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. It encourages CRAs to invest in due diligence, strengthen internal controls and corporate governance, and improve their methodology. But some of the following provisions of it are still unimplemented:

• The legal liability of credit rating agencies should be increased.
• The use of credit ratings in regulations that set capital requirements and restrict asset holdings for financial institutions should be removed or replaced.
•  Internal controls, conflicts of interest for credit analysts, standards for credit analysts, transparency, the internal conflict of interest, and rating performance statistics should be ruled based and regulated.

THE WAY FORWARD

• A rating agency run by the UN, funded by pooled contributions from both lenders and borrowers should be established. Rating business must be made a utility, rather than a semi-cartel that intimidates elected politicians and rakes in excess profits
• With the help of technology, open-source models with fully transparent inputs and outputs should be created and promoted. Credit Risk Initiative of the National University of Singapore Risk Management Institute is one such example.

THE CONCLUSION: CRAs play a valuable role in financial markets by analyzing credit for many investors, but their inaccurate ratings can create problems of enormous proportion for the world economy. A unified, integrated effort by all the country is needed to avoid another economic meltdown, which would have severe repercussions for both, any country or its citizen

ADDITIONAL INFORMATION

ALL YOU NEED TO KNOW CREDIT SCORE

Credit score: A credit score is a number between 300–850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.

The background: The credit score model was created by the Fair Isaac Corporation, also known as FICO, and financial institutions use it.

How Credit Scores Work: A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. People with credit scores below 640, for example, are generally considered to be subprime borrowers. Lending institutions often charge interest on subprime mortgages at a higher rate than a conventional mortgage to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.

The history of credit scores in India: Credit Information Bureau (India) Limited was founded in August 2000 and is India’s first credit information firm. The organization gathers and manages financial records of individuals as well as business organizations relating to loan and credit card payments & borrowings. CIBIL acquires this data with the assistance of its bankers and credit institutions.

• CIBIL is RBI authorized and is also known as the Credit Bureau. It is covered under the 2005 Credit Information Companies Regulation Act. To find relevant information, it requires support from its associated partners, including bank members & credit institutions. Associate partners give it every month.
• In 2014, keeping the prevalent information asymmetry in mind, the RBI decided to set up a technical group on credit information based on the recommendations of the Aditya Puri committee.
• The committee included chief executives belonging to all the four credit bureaus, representation from large banks, an executive from the Indian Banks’ Association (IBA), and several RBI officials.
• The Puri committee suggested that the Cibil format could be used to standardize data formats for both consumer and commercial borrowers.

Problems in credit ratings: Erroneous credit score could either be a genuine mistake by the bank or, in some cases, when an individual stands as a guarantor for a loan. Experts believe that customers should check their scores regularly and report any discrepancies that they notice in their credit history. Due to the data entry operator, the lackadaisical attitude of most lenders and the long-winding dispute resolution process cannot be pinned on customers. While checking credit scores at regular intervals would weed out any

[WpProQuiz 162]

THE CONTEXT: In his Parliament speech, PM Narendra Modi blasted the ‘babu’ culture in the country. He meant the steel frame of India, its civil servants. PM stressed the private sector’s vital role in the economy, the context was towards PSUs. To understand the essence of the PM’s criticism, we must understand the role, origin, and evolution of PSUs in India. This article discusses the evolution of PSUs, concerns, and challenges related to PSUs.

PUBLIC SECTOR UNDERTAKINGS IN INDIA

Definition:

• In India, a government-owned corporation is termed a Public Sector Undertaking (PSU). This term is used to refer to companies in which the government (either the federal Union Government or the many state or territorial governments, or both) own a majority (51 percent or more) of the company equity.

Evolution of public sector undertakings: 

• After independence in 1947, Indian industries were in a dilapidated state. It was not able to compete with the existing industries of the time.
• Industries in India were in need of a policy thrust for rejuvenation and starting fresh.
• In this direction, the Industrial Policy Resolution of 1956 of the Second Five year Plan (1956-61) provided the required framework for public sector undertakings/enterprises.
• With this, the PSUs were expected to play a leading role in the economic development of the country, preventing the concentration of economic power and reducing regional disparities for the common good.
• In 1991, the role of the public sector was reviewed due to liberalization, privatization, and globalization, and the public sector was reduced to only six areas like atomic energy, coal, defense, railway, mineral oils, and transport.
• After this, every effort was made to increase participation of the private sector in the public sector for making it profitable and enable them to compete with the private sector companies worldwide.

Role of public sector undertakings in India:

• PSUs have laid a strong foundation for the Industrial development of the country as it is not interested in profit-making but nation-building.
• They leverage the government through major shareholding in the Industries to intervene in the economy in a major way thus helping in achieving the desired socio-economic objectives and long-term goals.
• They help in pushing the agricultural economy onto the progressive pathway and rural development as well as providing basic infrastructural facilities, educational and employment opportunities.

PRIVATE SECTOR VS. BUREAUCRACY

The performance of the public and private sectors is often compared in India.

• The framework is generally that if the MBAs in the private sector can produce efficient and profitable enterprises, why can’t the IAS officers and other “public sector professionals” do the same in Government Departments and Public Sector Undertakings (PSUs)?
• It’s also argued that there is no accountability whatsoever in the public sector scenario, whereas in the private sector the deadwood is immediately jettisoned, leaving only the efficient and performance-oriented executives to progress upwards and rise to the top.
• It is quite frequently advocated that the corridors of powers as well as huge Public Sector behemoths ought to not only be manned by the private sector management-cum-subject specialists but that even the modern management practices and philosophy should be transplanted from the private to the public sector.

However, we fail to appreciate that the working scenario in the two sectors is fundamentally different and what might be regarded as an award-winning innovator in the private sector, if transposed as a clone into the public sector without a detailed examination and scrutiny, may well lead to the initiation of departmental/ vigilance proceedings. Some, such practices as paying commissions and incentives, etc. Might even be a criminal offense in the PSU arena.

THE WORKING SCENARIO OF PSUs

1. Public Sector is inherently constrained

Constitutional obligations:

• Public Sector entities, whether in the nature of Government Departments or Commercial undertakings, including the PSUs, are “State” within the meaning of Article 12 of the Constitution of India. And, the Constitution casts certain statutory, nay constitutional, obligations on the “State”. For instance, Articles 14 and 16 are not applicable to the private sector.
• Thus, the Public Sector is inherently constrained, on account of these constitutional provisions, when it comes to recruitment and promotion (including the aspects of reservation in favour of SC/ STs) as well in granting performance-linked pay or bonus to the employees who are truly outstanding.

Human-resource obligations:

• In the start-up scenario and even in the established private entities, granting sweat-equity is a widely prevalent tool to acquire and retain good human resources.
• Where the 100%, or at worst a majority, of the equity is owned by the Government, such an incentive is unimaginable.
• Even on the side of firing and retrenchment, the Public Sector is limited by the provisions of Articles 310 and 311 of the Constitution and often the deadwood continues to burden the organization till their retirement.

Political obligations:

• Further, in routine administrative matters like transfers and postings, the bureaucrats are under formal and informal pressure of the political executive, and thus even in this aspect, the human-resource management is sub-optimal and below the desirable or achievable level of efficiency and effectiveness.

2.PSUs are not solely profit driven

Profit v/s social obligations:

• Profit is the supreme motive in the private sector. The maximization of the shareholder value is the ultimate objective, lip service to Corporate Social Responsibility notwithstanding.
• In Public Sector, the objectives are multiple and often in conflict with each other.
• For instance, in the State Transport Undertakings, while it is sought to maximize profit, one of the objectives is also allowing free and concessional travel to various categories of passengers.

Objectivity in the performance:

• The stated objectives of PSUs may really be mere rhetoric. In such a scenario, one cannot very rationally or objectively assess the performance of a Public Sector Enterprise, which is quite difficult and complex.
• Thus, it’s much easier for the Private Sector to be driven by a mission, whereas the public sector is more likely to be governed by rules and procedures.

3. Complex Decision-making

levels of decision-making:

• In the private sector, the levels of decision-making are crystal clear. The managerial and financial powers are delegated in a highly transparent manner and everyone in the organization is familiar with the same.
• In the public sector or governmental functioning, the “rules of business” may delineate similar policies and procedures, but often concurrence of independent units and Departments such as Finance, Law or Personnel may be required.
• The departmental decision-making is subject to, apart from the normal supervision by the political executive, by the Parliamentary and Legislative oversight through their Committees.
• Then, of course, the presence and working of the 3C’s — CAG, CVC, and the CBI effect, rather constrains, the decision-making in the ministerial or departmental scenario.
• External pressure groups, political parties, and Press also affect the public-sector decision-making. All this makes the decisions, slow, conservative and sub-optimal.

Accountability in decision making:

• In the Private Sector, those formulating policies or making decisions are also, in general, responsible for their implementation.
• In the Government, policies are usually formulated at a very high level and generally, the concerns and constraints of the cutting-edge staff or stakeholders are not taken fully into account.
• Moreover, the failure of the policy can very easily be attributed to poor implementation and thus the framers of the faulty policies are seldom questioned or called on to account.
• The private sector is not subject to any of these restraining circumstances. It may thus be very unfair to compare the decision-making in the two sectors.

Even though the working scenarios of the private sector and PSUs are very different, still there are challenges pertaining to PSU’s functions and operational efficiency. Though the working scenario of PSUs is very challenging we cannot ignore concerns related to it.

CONCERNS RELATED TO PSUs

Statism:

• PSU’s elevated status as drivers as the economy was romanticist in approach and thus led to issues like overstaffing, corruption, wasteful practices, lack of work culture, and motivation were unchecked and systematically ignored by the government and led to the subsidization of these concerns by them.
• This led to permanent drainage on the exchequer. Thus, instead of a socialist attitude, these PSUs were developing an attitude of Statism with all its dangers.

Political interference:

• Nepotism and favourability in PSU appointments by politicians lead to inefficiency and incompetency in functioning. Therefore merit should only be the criteria for selection.
• Directors appointed by the government to the Board of Directors of PSUs try to influence the decision-making process of the board without accepting responsibility at the end creating a lot of interference in their independent functioning and economical initiatives.

Delay and Authoritarianism:

• Control from above is a big impediment in the functioning of PSUs as whenever a new project is taken up by a PSU it has to go through the Expenditure Finance Committee and Project Investment Board which is very cumbersome and causes unnecessary delay and authoritarianism

Lack of profit-making attitude:

• Lack of authority in taking a commercial mode in areas where opportunities exist for profit-making and thus gets caught in bureaucratic and political red-tapism thus keeping it bureaucratic in nature instead of a complementing approach of profitability and social obligations.
• No proper retention policies for retaining competent staff from the lure of lucrative private offers.

What should be done?

• In the globalized world, times have changed, and India has new challenges, inviting altogether new approaches and processes to emerge as a global leader. It is time for path-breaking administrative reforms, and pump-priming entrepreneurship, innovation, and production processes in the Indian economy through liberal financing, cutting the red-tape, delays, and regulatory corruption. It is the moment for unleashing the fullest potential of all sectors of the Indian economy.
• There is an imperative need for bringing unsparing reforms in the prevalent PSU culture—operating upon them and replacing their bone marrow, without any loss of time.
• It is time to separate operational freedom and ownership. It is time to end the age-old colonial outdated governmental management hegemonies.
• A dynamic society needs a dynamic governance model; we should open up governance to draw expertise from the industry, academia, and society into the services. While further professionalizing the IAS and promoting domain expertise into the service will be a practical solution to the problem.

CONCLUSION

Comparing the performance of IAS officers and other civil servants in the Governmental setup with those of the Private Sector professionals is thus quite unfair as work scenarios are very distinct from each other. More importantly, one cannot prescribe a rather simplistic and naïve solution that would be the elixir of all the ills that plague the public sector performance currently — that is, mere transplanting the private sector policies and practices to the Public Sector. That’s not to say that IAS officers are Cat’s Whiskers and that their performance is par excellent. There’s always a scope of improvement and the same can come incrementally if all the stakeholders, including the bureaucracy and the political executive, take it as a pragmatic priority, in the right earnest.

[WpProQuiz 161]

THE CONTEXT: In the wake of Covid-19, climate changes and other important global issues such as globalization, cold war, trade, war, the world is facing several issues and the UN nearly just seems an audience in most of them. Hence, the demand is whether the world needs a global parliament for dealing with global issues. This article discusses this issue in detail.

WHAT IS WORLD PARLIAMENT?

The world should establish parliament to resolve the global issue and make the rules for International issues such as the pandemics, stockpiles of nuclear weapons, deadly biological weapons, natural disasters, climate change, loss of control over artificial intelligence, terrorism, serious imbalances in international trade, influence, intelligence, greed for power and a host of other threats.

It is obvious that these threats cannot be tackled by any one country alone and a united action at local, regional, and international levels alone can rid the world of these dangers.

THE ISSUES FACED BY MANKIND IN RECENT TIMES

• Amid ever-increasing threats facing humanity, it’s high time to initiate steps at the governance level to make the world a safer place for mankind.
• The COVID-19 pandemic has provided the impetus to the idea of a global democratic government and underlined the necessity of a world organization to tackle the dangers facing mankind in a more effective manner.
• These include — pandemics, stockpiles of nuclear weapons, deadly biological weapons, natural disasters, climate change, loss of control over Artificial Intelligence, terrorism, and so on.

NEED FOR THE WORLD PARLIAMENT

Transcending the Nation-State: There is nobody that represents the interest of the world community at Even if a treaty is concluded and ratified, a state can withdraw again. The international order recognizes no higher authority for decision or enforcement.

Social disparities between citizens: The world is witnessing the emergence of global social strata that are giving rise to vertical social tensions. The dividing line will no longer be between rich and poor countries, but between the super-rich and the rest everywhere.

Immigrationsemerged as a major issue: The promise of the “global village” is only valid for the rich. But for the poor people and minor communities of many countries face harassment and seek asylum in neighboring countries. As there is no world policy to resolve these issues they are facing many issues.

Addressing environmental threats: Humanity now shares a common destiny. The dangers posed by nuclear war, global pandemics, environmental devastation, biodiversity loss, or climate change affect everybody. Carbon dioxide in the atmosphere knows no borders.

Global ruling in a proper way: The supply of important public goods like food security or the stability of the financial and economic system depends on how well global structures are working. Regulating research and development in fields such as artificial intelligence, genetics, biotechnology or autonomous weapons must be on the global agenda. Based on the collaboration of 193 nominally sovereign states, global regulation will never work well.

WHY DOES THE WORLD NEED WORLD PARLIAMENT DESPITE HAVING UNITED NATIONS?

Presently a world body already exists known as United Nations Organization (UNO). Formed after world war II in 1945 to prevent and eliminate recurrence of wars and to maintain peace all over the world, it was also mandated in broader terms to look after some aspects of areas like economic, social, and cultural development.

PAST RECORD OF UN:

• The organization has been beneficial to mankind in many ways, but looking back at its record during the last over seventy-five years of its existence, there is not much to feel proud about.
• Soon after its formation in 1945, it had to face a cold war between the western Block and the Soviet Block headed by the former Union of Soviet Socialist Republics(USSR) which lasted till the collapse of the Soviet Block in 1991.
• It could not prevent local and regional wars in the Korean peninsula, Asia, Africa, and even in Europe and Latin America.
• It could not stop Chinese aggression against India in 1962 and the Cuban missile crisis between the then Soviet Union and the USA.
• Mostly because of the cold war, politics, and its attitude, it failed to take bold united action.
• Its response to natural disasters and epidemics at the national or international level also fell far short of its expectations.

THE ISSUE OF REPRESENTATION:

• Apart from the cold war, politics, other main causes responsible for its failure to meet expectations have been the lack of its full representative character and its failure to reform itself.
• Also, it has not restructured itself to keep up with the needs of changing world.
• Under these circumstances, its attitude towards enormous problems and threats and deviant forces facing mankind has been almost inflexible.
• Despite repeated calls by many countries, it has more or less continued with its inequitable representative character.
• A glaring example of this has been that India with over 1.38 billion population which constitutes about eighteen percent of the total world population has no permanent representation on its most important decision-making organ UN Security Council.
• While more basic structural changes in the organization will take years and years if not decades, it has to reform itself urgently to make itself fully representative to tackle the pressing problems.
• The urgency of such a step can also be gauged by the fact that last year in June out of 192 votes cast in the UN General Assembly,184 countries voted in favour of India for two-year non-permanent membership of UNSC which started from January this year.
• The world body has also to change its responses so that threats facing mankind are attended to promptly.

BIASED NATURE:

• In a world full of diversities and ideological differences, such an institution will have to be free from biases and prejudices and will have to transcend the diversities and differences to acquire a truly representative and independent profile.
• But it is evident in the recent past and in the past seventy-five years that the UN is facing business issues. It took actions against small countries, but against powerful countries, its peaceful appeal had no impact.

AN OLD CONCEPT: 

• One of the key challenges of modern cultural evolution is the time lag between rapid technological development and slow political adaptation.
• The United Nations that represents the best governance model humanity could come up with for the management of global affairs is now frozen in time.
• Its underlying principle of national sovereignty goes back to 1648, a hundred years before the industrial revolution even started.
• Today we live in the 21st century, the world population is approaching eight billion and technological development continues to accelerate.
• The need for global governance to catch up with the accelerating pace of change is more urgent than ever before.

HOW THE GLOBAL PARLIAMENT SHOULD WORK FOR BETTER OUTCOMES?

• In a world full of diversities and ideological differences, such an institution will have to be free from biases and prejudices and will have to transcend the diversities and differences to acquire a truly representative and independent profile.
• The parliament of the world body could be elected directly by proportional representation based on the population of each member nation or nation-state.
• The challenges facing mankind, as also the matters of economic and financial governance can be dealt with in a far better way by a Global Parliament.
• Such an institution will strengthen democracy, justice, and equity throughout the world and help in curbing fundamentalist and radical ideologies.
• Proper attention to all threats facing mankind could ensure the safety and survival of intelligent life on earth. But to realize it, the member countries will have to shed a few shades of their sovereignty which could democratically authorize and enable such a World Government to prevent deadly nuclear and biological wars at the local, regional, or international levels.
• At present, there are already scores of organizations in Africa, America, Europe, and elsewhere, and some of these are popularly elected.

WAY FORWARD

• The idea regarding the deep structural changes to turn the UN into a democratic World Government will take more time to come somewhat into shape.
• Moreover, in a world full of diversities and ideological differences, such an institution will have to be free from biases and prejudices and will have to transcend the diversities and differences to acquire a truly representative and independent character.
• Recently, with advancements in human civilization and thought, the necessity for such a global institution has been felt immensely at various stages.
• After the deeper restructuring of the existing world body, contours for a democratic World Government can be established and Parliament of the world body could be elected directly by proportional representation based on the population of each member nation.

CONCLUSION

The experience of democratic regimes teaches us that no parliament can govern a country alone. A government is necessary. So the World Parliament must be seen as a crucial milestone on the way toward forming a democratic government endowed with the necessary powers to enforce the laws approved by the World Parliament.

[WpProQuiz 160]

THE CONTEXT: The North Atlantic Treaty Organization (NATO) leaders will meet later this year. The organization will discuss the recommendations from a group of experts(NATO 2020 Reflection Process) that advocates extending a formal offer of partnership to India. Such an idea has been discussed before but has always sunk on India’s aversion to involvement in rival geopolitical blocs. Earlier this year, at the Munich Security Conference, NATO chief Jens Stoltenberg said that the Western allies and close partners must forge stronger ties to counter the threat posed by China’s rise for transatlantic security. Stoltenberg underlined that in view of global challenges no country – and no continent – can go it alone.

WHAT IS NATO?

• Formed in 1949 with the signing of the Washington Treaty, NATO is a security alliance of 30 countries from North America and Europe.
• NATO’s fundamental goal is to safeguard the Allies’ freedom and security by political and military means.
• NATO remains the principal security instrument of the transatlantic community and expression of its common democratic values.
• Article 4 of the treaty ensures consultations among Allies on security matters of common interest, which have expanded from a narrowly defined Soviet threat to the critical mission in Afghanistan, as well as peacekeeping in Kosovo and new threats to security, such as cyber attacks, and global threats such as terrorism and piracy that affect the Alliance and its global network of partners.
• Article 5 of the Washington Treaty — that an attack against one Ally is an attack against all — is at the core of the Alliance, a promise of collective defense.
• It also conducts extensive training exercises and offers security support to partners around the globe, including the European Union in particular, but also the United Nations and the African Union.

PARTNERSHIP, NOT MEMBERSHIP

• NATO alliance has long discussed India’s membership, the latest being September 2011 invitation to be a partner in its ballistic missile defense (BMD) but India refrained from getting entangled in rival geopolitical blocs.
• At present, NATO is not offering membership to India; nor is Delhi interested. The motive is the question of exploring potential common ground.
• NATO’s “partner” concept is shorn of the Article 5 guarantee of collective defense against armed attack but provides defense dialogue, military-to-military planning, joint exercises, interoperability, and predictability.
• In the event of a conflict, India would benefit from having prior planning and arrangements in place for cooperating with NATO and its Mediterranean partners (including Israel, with which India has a close strategic relationship) to secure its western flank and the approaches to the Red Sea.
• To play any role in the Indo-Pacific, Europe and NATO need partners like India, Australia, and Japan. Delhi, in turn, knows that no single power can produce stability and security in the Indo-Pacific.
• NATO’s partnerships are highly customized arrangements. In India’s case, the sheer size and importance of the country may warrant a new and special category of partnership — one that combines periodic high-level dialogue, technological cooperation, and defense planning for maritime contingencies.
• An India-NATO dialogue would simply mean having regular contact with a military alliance, most of whose members are well-established partners of India.

THE GEOPOLITICAL CONVERGENCE

Since the end of the Cold War India and NATO have been on trajectories that will likely converge in the not-too-distant future. Scholars and strategists argue for India and NATO to come out of their respective shells and openly partner to deal with issues of common interest and concern.

China’s meteoric rise has dramatically heightened India’s need for closer security relationships with politically reliable, like-minded states. As China’s aggressive actions in the Galway Valley and other border areas demonstrate, Beijing is increasingly willing to depart from its peaceful rise strategy to directly challenge even the largest of its neighbours. This behavioral shift is likely to accelerate as China’s military capabilities expand. Already, China spends more on its military than all of its immediate neighbours combined, and nearly three times as much as India.

In these circumstances, India’s longstanding strategy of careful equidistance is not viable. Inevitably, New Delhi will have to undertake more deliberate efforts to counter-balance the Chinese power.  It has already begun to deepen bilateral defense ties with Japan, the United States (US), and other regional players threatened by China, including through the Quad. Becoming a NATO partner would be a natural extension of this evolution.

NATO also wants to expand its influence in the Indo-Pacific and Asia-Pacific regions. As a result, NATO is likely to regard India’s unique geographical location and its position in the so-called democratic camp as important. NATO may shift its resources toward the Indo-Pacific region to adapt to the changing world landscape.

FEASIBILITY OF PARTNERSHIP

In the past, some NATO allies have effectively blocked discussion of the matter by insisting that any offer of partnership to India be accompanied by similar invitations to Pakistan. This may have seemed attractive to some in the era when NATO militaries were mainly focused on conducting operations in Afghanistan. But with the winding down of operations there, NATO has little in common with a Pakistan that is increasingly radicalized at home and aligned with China.

By contrast, the case for NATO partnership with India — a large maritime democracy with concerns and interests that tend to overlap with those of the US and many European allies — has only grown more compelling as China’s rise has accelerated.

During the Cold War, India’s refusal was premised on its non-alignment. That argument had little justification once the Cold War ended during 1989-91. Since then, NATO has built partnerships with many neutral and non-aligned states. NATO has regular consultations with both Russia and China, despite the gathering tensions with them in recent years. Also, Delhi does military exercises with two countries with which it has serious security problems — China and Pakistan — under the SCO. India has military exchanges with many members of NATO — including the US, Britain, and France — in bilateral and multilateral formats. So a collective engagement with NATO must not be problematic.

Thus, India is opening up to the idea of collaborating with NATO states to meet its enhanced national security needs, both in its neighborhood and in distant regions. NATO meanwhile, sees this as an opportunity to share international responsibilities with an emerging global power on a note of mutual trust and cooperation.

India is emerging as a global power to be reckoned with and the country has started asserting its influence at various international forums in order to augment its national interests. Unlike in the Cold War era, today India stands tightly integrated into the international economy and global political system.

Meanwhile, NATO as a security alliance is currently undergoing a transformational change from within. It is now involved in an array of capacity-building measures in order to refashion itself to suit the necessities of the day, while also preserving its fundamental identity and values. Since the fall of the Soviet Union, this collective security institution has been unable to define a common threat for all of its member states – especially an enemy state/states. However, it is now foreseeing the rise of China as a prospective threat for the sustenance of the established world order. So, in order to counterbalance the rising influence of Beijing, NATO is gearing up with essential changes to its strategic doctrine.

India and NATO both uphold a shared set of values, like democracy, rule of law, individual liberty, human rights, and international law. Moreover, at a strategic front India has extended its neighborhood framework beyond the Indian subcontinent over the past decade. This has brought it closer to NATO, which has forayed eastwards from the Mediterranean with its “out-of-area” operations during the same time.

Hence, the fundamental commonalities and emerging synergies are bringing the two parties together, both at the political and military levels.

QUAD and NATO

Amid increasing recognition of the Asia-Pacific Region as the engine and center of future global development and growth, the first high-level virtual summit of the Quad was held recently. The Quad’s recent resurgence has been driven by uneasiness about the rise of China and the security threat it poses to the international order. Yet there is no direct reference to China, or even military security, in Quad’s first-ever joint statement. On the contrary, the most significant outcomes of the summit are related to COVID-19 vaccine production, facilitating cooperation over emerging technologies, and mitigating climate change.

Not an Asian NATO

Commentators often cast it as an “alliance” in the making, perhaps an “Asian NATO.” It is not. Rather, the Quad is designed as a loose-knit network of like-minded partners aiming at a broader purpose.

The threat posed by China is at one level military, as evidenced by its proactive pursuit of territorial claims in South Asia, the South China Sea, and the East China Sea. At another, it is economic and technological. It is this broader aspect of the global order that the Quad aims to address, as is clear from two of the joint statement’s specifics, which focus on the establishment of working groups on vaccine development and critical technologies. Both these efforts seek to constrain China’s central position in the global system, but also to develop a world order that is broad-based and inclusive.

The third working group being set up is on climate change, an area in which China is a cooperative player and not a competitor, and thus downplays the notion that the Quad is simply an instrument of containment. Together, the three initiatives are designed to create an environment that encourages China to be a positive player and persuades other states to shed their hesitancy toward the Quad. With these arrangements, the Quad has the bandwidth to focus on countering the challenging non-security frontiers of Beijing’s influence.

Military Dimension:

Though the summit focused on non-military initiatives, the Quad by no means downplays the military dimension. Its members have established the basis for regular defense cooperation through naval exercises, and the sharing of intelligence and military logistics. Adding further heft to previous bilateral efforts, the trilateral India-U.S.-Japan Malabar naval exercises expanded to include Australia last year. The four states have consolidated their military responses by building a set of nested strategic partnerships: linking their bilateral relationships with the India-Japan-U.S., India-Australia-Japan, and U.S.-Japan-Australia trilateral. The Quad is a logical extension of this network and has the potential to build a “Quad Plus” arrangement involving Canada, France, and perhaps New Zealand and the United Kingdom.

Unique Selling Point:

Therein lays the Quad’s unique selling point: offering value to all states and banking on the network effect that underpins an emerging world order. The Quad is not so much a tight alliance as a core group that seeks to enlist the support and cooperation of other states in both military and non-military actions. The notion of a “Quad Plus” captures this well without focusing on membership. The elasticity of this framework incentivizes other states who may want to link to and unlink themselves from specific Quad initiatives as and when useful.

China’s View:

China, on the other hand, views “Quad” as a threat to its dominance in the region and says that the forum is an attempt by the US to create an Asian version of the NATO directly aimed at counterbalancing its interests. In fact, the US deputy secretary of state recently suggested that the informal defense alignment between the four nations could be the beginning of a Nato-style alliance in Asia.

But India remained committed to rules-based world order and respect for territorial integrity as well as sovereignty. And advancing the security and economic interests of all countries having legitimate and vital interests in the Indo-Pacific remained a key priority. During the recent visit of the Russian Foreign Minister to Delhi, both sides agreed that military alliances in Asia were inadvisable and counterproductive.

The Quad can set the framework for a global governance model in a post-pandemic world, but it is unlikely to become a NATO-like formal security alliance. Its evolution will be determined by its ability to mix global challenges in the interests of a wider range of countries.

BENEFITS OF PARTNERSHIP

In the near term, India would derive strategic-signaling value from even the appearance of drawing closer to the Western Alliance at a crucial, early phase of Beijing’s transition to a more aggressive posture. The signal will hold all the more value precisely because it has till now it has bordered on geopolitical taboo.

Strengthening ties with NATO now, while China is still in the early phase of a shift to a more assertive posture toward both South Asia and Europe, could pay dividends in dissuading aggression and ensuring that, should China continue on its current trajectory, India has as many friends as possible in the right places.

Longer-term, India would derive military-strategic benefits from a partnership with the world’s most powerful alliance. NATO partnerships come with regular defense dialogues, military-to-military planning, and joint exercises that improve readiness, interoperability, and predictability. In the event of a conflict, India would benefit from having prior planning and arrangements in place for cooperating with NATO and its Mediterranean partners (including Israel, with which India has a close strategic relationship) to secure its western flank and the approaches to the Red Sea. Partnering with NATO also carries technological benefits. Under a provision in the US 2020 National Defense Authorization Act, India now enjoys the same technology-sharing and cost-sharing perks as other non-NATO US allies for purposes of the Arms Export Control Act. But adding NATO partner status could also position India to benefit from possible future programs aimed at lowering the barriers for cooperation in emerging technologies between NATO and its Asia-Pacific partners

Europe: A pragmatic engagement with NATO must be an important part of India’s new European orientation, especially amidst the continent’s search for a new role in the Indo-Pacific. India’s real problem is difficulty in thinking strategically about Europe. The bureaucratization of the engagement between Delhi and Brussels and the lack of high-level political interest prevented India from taking full advantage of a re-emerging Europe. Talking to NATO ought to be one important part of India’s European strategy.

CHALLENGES

1. Non-alignment: Any suggestion that India should engage the NATO is usually presumed as a political taboo in foreign policy. India’s traditional stance of non-alignment is preventing it from translating the current uptick in the relationship with the US into any meaningful collaboration. The country’s political-military establishment has always held a skeptical attitude toward aligning with any military bloc or superpower under the notion of safeguarding national sovereignty.
2. Indo-Russian ties: India and Russia share a special and privileged strategic partnership. India is trying to balance Russia and the US. If India is to be included in a security system like NATO, which was founded to deal with the Soviet Union, India-Russia relations would suffer a decline. There has already been a backlash in Moscow over New Delhi’s strategic alignment with Washington in recent years. Russia has reservations about New Delhi joining the Indo-Pacific initiative and Quad. Russia has tacitly nudged India to stay away from any move by the United States to turn the Quad into a NATO-like military alliance in order to contain China in the Indo-Pacific region.
3. Pakistan-Russia ties: Russia can also take advantage of the opportunity to strengthen its cooperation with Pakistan in this light as a warning to India. If Russia intensifies its cooperation with Pakistan, India will face greater challenges in geopolitical security. Recently, after visiting Delhi, the Russian Foreign Minister visited Pakistan for the first time in nine years. This was a clear message of deepening ties. Russia has expressed readiness to strengthen Pakistan’s counterterrorism efforts with the supply of “relevant equipment”, which will raise eyebrows in Delhi.
4. AF-Pak: The U.S. government has not fully embraced India as a strategic partner over any of its existing partners in South Asia, including India’s arch-rival Pakistan, and elsewhere. The U.S.-led International Security Assistance Force (ISAF) — a NATO-led security mission in Afghanistan — continued to freely engage with Pakistan in its War on Terror in Afghanistan despite India’s calling Pakistan a terrorist state.
5. NATO’s Weaknesses: While NATO is an impressive military alliance, it is riven with divisions on how to share the military burden and strike the right balance between NATO and the EU’s quest for an independent military role. NATO members disagree on Russia, the Middle East, and China. Meanwhile, conflicts among NATO members — for example, Greece and Turkey — have sharpened. NATO’s recent adventures out of Europe — in Afghanistan, Iraq, and Libya have not inspired awe.

WAY FORWARD

There is an imperative need on part of both parties to collaborate immediately. The big question remains how they can move in this direction. At this juncture, NATO needs to explain to New Delhi’s strategic community how it has changed since the Cold War and clearly convey its intentions to forge a “partnership of equals.”

Moreover, NATO needs to make Indian policymakers realize that it is a win-win situation for both parties to enter cooperation and collaboration. On the other hand, India needs to come out of its Cold War mindset and consider NATO a potential partner.

India is certainly considered an essential element of any strategy in the region. But so far, New Delhi has not dared either to directly align itself with the U.S. To contain China or add an outright anti-Chinese dimension to its participation in the Quad.

Meanwhile, the growing gap in national power, the long-term border confrontation, and other related factors might well push Indian strategists to a certain revision of the policy of strategic autonomy and make the U.S. the main security donor, as in the case of Australia and Japan.

If Delhi is eager to draw a reluctant Russia into discussions on the Indo-Pacific, it makes little sense in avoiding engagement with NATO, which is now debating a role in Asia’s waters. Russia has not made a secret of its reservations to the Quad and Delhi’s ties with Washington. Putting NATO into that mix is unlikely to make much difference.

Delhi, in turn, can’t be happy with the deepening ties between Moscow and Beijing. As mature states, India and Russia know they have to insulate their bilateral relationship from the larger structural trends buffeting the world today.

Meanwhile, both Russia and China have an intensive bilateral engagement with Europe. Delhi’s continued reluctance to engage a major European institution like NATO will be a stunning case of strategic self-denial.

China sees India as the principal impediment to the realization of its ambitions to dominate Asia and this is likely to lead to more violent confrontations. New Delhi should pursue a multifaceted strategy that includes cooperative elements, but there is ultimately little that India can do to mitigate the underlying sources of the rivalry. India has all the more reason to partner with the United States in a NATO-style arrangement.

CONCLUSION

Partnering with NATO would not significantly constrain India’s broader geostrategic options. Egypt and Israel are both NATO partners who maintain defense relationships with Russia. Switzerland, Finland, Sweden, and Austria are all NATO partners with long-standing neutralist traditions.

A sustained dialogue between India and NATO could facilitate productive exchanges in a range of areas, including terrorism, changing geopolitics; the evolving nature of military conflict, the role of emerging military technologies, and new military doctrines. More broadly, an institutionalized engagement with NATO should make it easier for Delhi to deal with the military establishments of its 30 member states. On a bilateral front, each of the members has much to offer in strengthening India’s national capabilities. NATO must extend a formal partnership offer to Delhi; India must shed its hesitation. Both have a common challenge.

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THE CONTEXT: The, leaders of the “Quad” – U.S., India, Japan, and Australia – met in March 2021 for the first time as a group to put forward a positive agenda and address Chinese behavior in the Indo-Pacific region. The Quad summit signals about the Biden administration’s regional strategy, and the significance of the newly announced COVID-19 vaccine initiative.

ABOUT THE FIRST HEAD OF THE STATES MEETING 2021

The leaders of the four ‘Quad’ countries – India, Japan, United States, and Australia, met for the first time in a virtual conference and interacted about the prevailing scenario in the world including the ongoing covid-crisis.

Quad Leaders’ Joint Statement: “The Spirit of the Quad”

1. Commitment to quadrilateral cooperation between Australia, India, Japan, and the United States. We bring diverse perspectives and are united in a shared vision for the free and open Indo-Pacific. We strive for a region that is free, open, inclusive, healthy, anchored by democratic values, and unconstrained by coercion.
2. Together, we commit to promoting a free, open rules-based order, rooted in international law to advance security and prosperity and counter threats to both the Indo-Pacific and beyond.
3. Our common goals require us to reckon with the most urgent of global challenges. Today, we pledge to respond to the economic and health impacts of COVID-19, combat climate change, and address shared challenges, including in cyberspace, critical technologies, counterterrorism, quality infrastructure investment, humanitarian assistance, and disaster relief as well as maritime domains.
4. Building on the progress our countries have achieved on health security, we will join forces to expand safe, affordable, and effective vaccine production and equitable access, to speed economic recovery and benefit global health.
5. To advance these goals and others, we will redouble our commitment to Quad engagement. We will combine our nations’ medical, scientific, financing, manufacturing and delivery, and development capabilities and establish a vaccine expert working group to implement our path-breaking commitment to safe and effective vaccine distribution; we will launch a critical- and emerging-technology working group to facilitate cooperation on international standards and innovative technologies of the future.

For the first time, they issued a joint statement which features have been mentioned in the table, with the poetic title – “Spirit of the Quad”.

They also agreed to commit to manufacturing one billion doses of vaccine by 2022 for distribution in Asia, where China’s presence casts a large shadow.

SIGNIFICANCE OF QUAD SUMMIT

For the first time, a head-level meeting was held. The meeting focused on three major areas:

1. A shared vision for the free and open Indo-Pacific
2. Open rules-based order, rooted in international law
3. Focus on the establishment of three working groups on
4. Vaccine development
5. Critical technologies
6. Climate change

Shared challenges, including in cyberspace, critical technologies, counterterrorism, quality infrastructure investment, and humanitarian-assistance and disaster-relief as well as maritime domains. The Summit for the first time adopted a joint statement with a clear vision which indicates it is more as a non-military organization rather than what China considers as an Asian-NATO. On the contrary, the most significant outcomes of the summit are related to COVID-19 vaccine production, facilitating cooperation over emerging technologies, and mitigating climate change. Also, the summit didn’t directly mention China this time. Even in the joint statement, countries avoided direct references to China.

UNDERSTANDING THE SIGNIFICANCE AND IMPLICATIONS OF THE THREE MAJOR FOCUS

THE FOCUS: A SHARED VISION FOR THE FREE AND OPEN INDO-PACIFIC AND OPEN RULES-BASED ORDER, ROOTED IN INTERNATIONAL LAW

THE DEVELOPMENT: One of the most important objectives of the QUAD is Indo-Pacific which has been seen in recent times. India-Pacific which has changed to Indo-Pacific is very crucial for India and has been focused for the US under its Asia-Pivot theory due to the unprecedented rise of China and security concerns. The ‘Incremental Encroachment Strategy’ of China exhibited in SCS, East China Sea (ECS) and Ladakh is a serious concern not only to the countries directly affected by overlapping EEZ or unsettled borders but also to the rest of the world. China continues to convert features/atolls into military bases, expect others to accept them like islands, and apply the ‘Baseline principle’ under UNCLOS-III to claim its 200 nautical miles of EEZ thus converting SCS into ‘Chinese lake’ over a period of time. It poses threat to freedom of navigation (FON) and flight along global Sea Lines of Communication (SLOC) and may lead to some restrictions like Air Defence Identification Zone in SCS. Any such action by any country to restrict FON/flight or violation of rule of law must be challenged in UN Security Council backed by Quad.

THE CHALLENGES: To implement the idea of a Free and Open Indo-Pacific on a “rules-based” legal framework is needed. All members of Quad except the US have ratified the United Nations Convention on the Law of the Sea (UNCLOS III); hence the US needs to ratify the same, to have a moral high ground to implement it. Quad will therefore need a formal structure and a secretariat to take it forward.

FOCUS ON THE ESTABLISHMENT OF WORKING GROUP ON VACCINE DEVELOPMENT

While ensuring that vaccines have been made available to our people, “Quad” partners will launch a landmark partnership to further accelerate the end of the COVID-19 pandemic. Together, Quad leaders are taking shared action necessary to expand safe and effective COVID-19 vaccine manufacturing in 2021 and will work together to strengthen and assist countries in the Indo-Pacific with vaccination, in close coordination with the existing relevant multilateral mechanisms including WHO and COVAX.

1. Quad partners are working collaboratively to achieve expanded manufacturing of safe and effective COVID-19 vaccines at facilities in India, prioritizing increased capacity for vaccines authorized by Stringent Regulatory Authorities (SRA).
2. Quad partners will address financing and logistical demands for the production, procurement, and delivery of safe and effective vaccines.
3. The United States is to finance increased capacity to produce at least 1 billion doses of COVID-19 vaccines by the end of 2022 with Stringent Regulatory Authorization (SRA) and/or World Health Organization (WHO) Emergency Use Listing (EUL), including the Johnson & Johnson vaccine.
4. Japan is to provide concessional yen loans for the Government of India to expand manufacturing for COVID-19 vaccines for export, with a priority on producing vaccines that have received authorization from WHO Emergency Use Listing (EUL) or Stringent Regulatory Authorities.
5. Quad partners will ensure expanded manufacturing will be exported for global benefit, be procured through key multilateral initiatives, such as COVAX, that provide life-saving vaccines for low-income countries, and by countries in need.

Quad partners will also cooperate to strengthen “last-mile” vaccination, building on existing health-security and development programs, and across our governments to coordinate and strengthen our programs in the Indo-Pacific. This includes supporting countries with vaccine readiness and delivery, vaccine procurement, health workforce preparedness, responses to vaccine misinformation, community engagement, immunization capacity, and more. This group will support Quad cooperation in the long term, and use science and evidence to:

1. Design and implementation plan for the Quad COVID-19 vaccine effort;
2. Identify hurdles impeding vaccine administration in the region;
3. Work with financiers and production facilities to monitor timely and sufficient capacity expansion that will lead to wider distribution of safe and effective vaccines;
4. Share governmental plans to support Indo-Pacific health security and COVID-19 response, and identify practical cooperation on “last-mile” delivery for hard-to-reach communities in need;
5. Strengthen and support the life-saving work of international organizations, including the WHO, COVAX, Gavi, CEPI, UNICEF, the G7, ASEAN, and governments, and call on other countries to do the same.

FOCUS ON THE ESTABLISHMENT OF WORKING GROUP ON CRITICAL TECHNOLOGIES  

Quad leaders recognize that a free, open, inclusive, and resilient Indo-Pacific requires that critical and emerging technology is governed and operates according to shared interests and values. In that spirit, we will convene a Critical and Emerging Technology Working Group, which will:

1. Develop a statement of principles on technology design, development, and use;
2. Facilitate coordination on technology standards development, including between our national technology standards bodies and working with a broad range of partners;
3. Encourage cooperation on telecommunications deployment, diversification of equipment suppliers, and future telecommunications, including through close cooperation with our private sectors and industry;
4. Facilitate cooperation to monitor trends and opportunities related to developments in critical and emerging technology, including biotechnology;
5. Convene dialogues on critical technology supply chains.

FOCUS ON THE ESTABLISHMENT OF WORKING GROUP ON CLIMATE CHANGE  

1. Cooperation, both among ourselves and with other countries, to strengthen implementation of the Paris Agreement, including to keep a Paris-aligned temperature limit within reach;
2. Working together and with other countries to support, strengthen, and enhance actions globally;
3. Committing to advancing low-emissions technology solutions to support emissions reduction;
4. Cooperation on climate mitigation, adaptation, resilience, technology, capacity-building, and climate finance.

THE EVOLUTION OF QUAD SINCE 2004

Quad was formed nine days after a tsunami struck seven Indo-Pacific rim countries on December 26, 2004, a group of officials from Australia, Japan, India, and the US had congregated on a conference call to coordinate their rescue and relief operations. Called the Tsunami Core Group, they met at an appointed time every day for calls that lasted no more than 40 minutes. One of their “primary objectives” was “putting itself out of business”. The group was shut down on January 5, 2006. But it had sown, by then, seeds of a habit that would grow over a period of time to become the Quadrilateral Security Dialogue.

1. Quadrilateral Security Dialogue (Quad) is the informal strategic dialogue between India, the USA, Japan, and Australia with a shared objective to ensure and support a “free, open and prosperous” Indo-Pacific region.
2. The idea of Quad was first mooted by Japanese Prime Minister Shinzo Abe in 2007. However, the idea couldn’t move ahead with Australia pulling out of it, apparently due to Chinese pressure.

• In December 2012, Shinzo Abe again floated the concept of Asia’s “Democratic Security Diamond” involving Australia, India, Japan, and the US to safeguard the maritime commons from the Indian Ocean to the western Pacific.
• In November 2017, India, the US, Australia, and Japan gave shape to the long-pending “Quad” Coalition to develop a new strategy to keep the critical sea routes in the Indo-Pacific free of any influence (especially China).

WHAT QUAD IS MEANT FOR THE FOUR COUNTRIES AND THEIR RELATIONS WITH CHINA

COUNTRIES: USA

QUAD: The USA had followed a policy to contain China’s increasing influence in East Asia. Therefore, the USA sees the coalition as an opportunity to regain its influence in the Indo-Pacific region. The US has described China, along with Russia, as a strategic rival in its National Security Strategy, National Defense Strategy, and the Pentagon’s report on Indo-Pacific Strategy.

COUNTRIES: Australia

QUAD: Australia is concerned about China’s growing interest in its land, infrastructure, and politics, and its influence on its universities. Taking into account its overwhelming economic dependence on China for prosperity, Australia has continued its commitment to a Comprehensive Strategic Partnership with China.

COUNTRIES: Japan

QUAD: In the last decade, Japan has expressed concerns related to China’s territorial transgression in the region. Trade volume with China remains the key lifeline to the Japanese economy, where net exports contributed exactly one-third of Japan’s economic growth since the beginning of 2017. Therefore, considering its importance, Japan is balancing its economic needs and territorial concerns with China-Japan has also agreed to involve in the Belt and Road Initiative by participating in infrastructure programs in the third country. In this way, Japan can mitigate Chinese influence in those countries while improving relations with China.

COUNTRIES: India

QUAD: In recent years, China’s violation of international norms, particularly its construction of military facilities on reclaimed islands in the South China Sea, and its growing military and economic power, pose a strategic challenge to India. Considering China’s strategic importance, India is carefully balancing China on one hand and the US on the other, by remaining committed to strategic autonomy to China, which has generally proved reassuring to China.

INDIA’S GEOPOLITICAL PERSPECTIVE

• For India, the new terms of the Quad will mean more strategic support after a tense year at the LAC with China.
• It will also provide a boost for India’s pharmaceutical prowess, opportunities for technology partnerships, and more avenues for regional cooperation on development projects and financing infrastructure.
• India’s insistence on an inclusive approach was in keeping with the sentiments of many smaller countries in the region, which may not take an explicit anti-China position.
• This could also pave the way for India to become the manufacturing destination for Quad countries, thus reducing dependence on China.

INDIA AND US RELATIONS

Joe Biden defeated Donald Trump to become the 46^th US President. Biden’s running mate Kamala Devi Harris has become the first woman and first Indian- and African- American Vice President of the country. Biden and Harris sworn into office on 20th January 2021. On October 27th, 2020, India and the United States signed the Basic Exchange and Cooperation Agreement – BECA. It was signed during the third round of 2+2 dialogue.

What is BECA?

BECA stands for Basic Exchange and Cooperation Agreement. It is a pact or communication agreement proposed for geo-spatial cooperation between the Ministry of Defence of the Government of India and the National Geospatial-Intelligence Agency of the US Department of Defence. It will enable the two countries to share military information and strengthen their defense partnership.

The main provisions of the BECA Agreement

• The pact will allow the armed force of the US to provide advanced navigational assistance and avionics on US-supplied aircraft to India.
• India will get real-time access to American geospatial intelligence that will enhance the accuracy of automated systems and weapons like cruise missiles, ballistic missiles, and armed drones.
• India gets access to topographical and aeronautical data through the sharing of information on maps and satellite images, this will be helpful in navigation and targeting.
• BECA will provide Indian military systems with a high-quality GPS to navigate missiles with real-time intelligence to precisely target the adversary.
• BECA is to help India and the US counter growing Chinese influence in the Indo-Pacific region.

BECA completes the “foundational pacts” for deep military cooperation between the two countries. India and the US have already signed three key foundational agreements-

1. General Security of Military Information Agreement – GSOMIA in 2002, that covered the area of areas of security and military information
2. The Logistics Exchange Memorandum of Agreement – LEMOA in 2016 covering logistics exchange and communications
3. Communications Compatibility and Security Agreement – COMCASA in 2018 which was for compatibility and security.

India-US relations have become increasingly multi-faceted, covering cooperation in areas such as trade, defense and security, education, science and technology, civil nuclear energy, space technology and applications, environment, and health. Grass root-level interactions between the people of the two nations provide further vitality and strength to this bilateral relationship. There have been regular contacts at political and official levels with a wide-ranging dialogue on bilateral, regional, and global issues have taken place. A “Strategic Dialogue” was established in July 2009 during the visit of US Secretary of State Hillary Clinton to India with the objective of strengthening bilateral cooperation across diverse sectors. The first round of the Strategic Dialogue was held in Washington, DC in June 2010, followed by the second round in New Delhi in July 2011. The Minister of External Affairs led the Indian delegation for the Dialogue; the US Secretary of State led the Dialogue from the US side. The third meeting of the Strategic Dialogue will be held in Washington in June 2012.

QUAD AND CONVERGENCE AND DIVERGENCE OF INTERNATIONAL FORA AND ALIGNMENTS

FORA NAD ALLIGNMEENTS: ASEAN

THE DYNAMICS: At present, ASEAN is the premier forum for regional affairs in the Asia-Pacific. Other major regional institutions, such as the East Asia Summit (EAS), the ASEAN Regional Forum (ARF), and the Asia-Pacific Economic Cooperation, fulfill complementary roles and are either descendants of or enjoy the full support of ASEAN. Questions have arisen about how the Quad and ASEAN might coexist in a region already deeply enmeshed with multilateral fora. The Quad is not as incompatible with ASEAN’s interests as presumed. Though ASEAN has had an interest in its members’ security since its inception, over time its attention progressively turned outwards, seeking to shape regional affairs.

FORA NAD ALLIGNMEENTS: East Asia Summit (EAS), ASEAN Security Forum

THE DYNAMICS: East Asia Summit (EAS), ASEAN Security Forum, and the decades-old APEC are some of them. But these forums have become lazy talking shops without any discernible results.

FORA NAD ALLIGNMEENTS: SCO

THE DYNAMICS: China is the founding member. Other members like India, Pakistan, and Russia are going through changes in their strategic interests.

FORA NAD ALLIGNMEENTS: RECP Operationalization

THE DYNAMICS: For Japan and Australia, China remains the biggest trading partner, a relationship that will only grow once the 15-nation RCEP gets operationalized. In this context, it would be difficult for Quad members countries like Japan and Australia to strategically align with the US and India.

FORA NAD ALLIGNMEENTS: BRICS

THE DYNAMICS: Except Brazil and SA, the other three have divergence on QUAD

FORA NAD ALLIGNMEENTS: There are both convergence and divergence on QUAD

QUAD AS  “ASIAN NATO”

• Since the first steps towards the Quad’s construction in 2007, China has sought to define the regional discourse by describing the forum as the “Asian NATO” and the harbinger of a “new Cold War”.
• The conflation of the Quad with the annual Malabar naval exercises added to the image of the Quad as a military formation and generated much unease across the Indo-Pacific.
• There is also an expansion of Malabar naval exercise which becomes an indication for a military alliance.
• India’s increasing strategic defense relation with the US is also the manifestation of such understanding.

THE UNCERTAINTY AND CHALLENGES OF QUAD

• What QUAD is-a a military alliance, a political forum, or an emerging grouping for global re-alignment is not clear which is the most important challenge. As of now, it is an informal grouping without any Office or secretariat. Hence, the questions are: will it become a formal group and have its secretariat?
• Is it more as Asia-Pivot of the US policy based on China containment? Whether the US is taking advantage of the situation in Asia and aligning against China as a new cold-war strategy.
• In Global Times, a newspaper under China’s People’s Daily group, one-piece argues that amid escalating China-US tensions, the US “has seized the opportunities of the downturn in China-India relations and the intensity of China-Australia ties to repeatedly court India and Australia, in order to make up for the weak points of the ‘Quad’ mechanism.”
• The countries, including Vietnam, South Korea, New Zealand, among others – would not be too receptive to a Quad, which assumes the form of a military alliance, even if they harbour their own disputes against China.
• How far India will go “in the next step” depends not only on whether its relations with China will cool down, but also on US-China tensions, US domestic policies, and India-Russia relations.
• India’s foreign policy should neither be China-containment-centric or US-centric. Both can be disastrous.
• HIMALAYAN QUAD: If QUAD becomes a military alliance, China may try to form a Himalayan QUAD with Nepal, Bhutan, Pakistan, and Afghanistan.

WAY FORWARD

The Quad may not be a full-scale alliance yet, but a new “minilateral” is taking shape. Quad’s immediate focus on vaccines and sharing of responsibility was welcomed by India. India is already supplying 60% of the world’s vaccines. The initiative will further boost its vaccine manufacturing capacity. This could also pave the way for India to become the manufacturing destination for Quad countries, thus reducing dependence on China. Quad partners such as Japan and Australia were unhappy over India’s decision to stay out of the Regional Comprehensive Economic Partnership. If Quad emerges as an economic powerhouse, it will be beneficial to the entire region.

WHAT NEEDS TO BE DONE?

INSTITUTIONALISATION OF THE QUAD: It should be made a formal organization with its secretariat.

NEED FOR CLEAR VISION: The Quad nations need to better explain the Indo-Pacific Vision in an overarching framework with the objective of advancing everyone’s economic and security interests. This will reassure the littoral States that the Quad will be a factor for the regional benefit, and a far cry from Chinese allegations that it is some sort of a military alliance.

EXPANDING QUAD: India has many other partners in the Indo-Pacific, therefore India should pitch for countries like Indonesia, Singapore to be invited to join in the future.

NEED FOR A MARITIME DOCTRINE: India should develop a comprehensive vision on the Indo-Pacific which would ideate on the current and future maritime challenges, consolidate its military and non-military tools, engage its strategic partners.

RECALIBRATION NEEDED FROM CHINA: As the Quad summit has done well to shed the image of Anti-China bias, it is up to China now to rethink its current aggressive policies and seek cooperative relations with its Asian neighbors and the US.

CONCLUSION

The challenges posed by the pandemic presented a perfect setting for the Quad nations to demonstrate their commitment to the broader agenda that is in tune with the urgent requirements of the region. In this context, the repurposing of the Quad to deal with shared challenges in the Indo-Pacific ensures the forum’s political sustainability over the longer term. The Summit did not signal expansion, but it needs to have the flexibility to incorporate like-minded democratic countries, as many would be keen to join Quad in the future because the Indo-Pacific region is becoming the economic center of gravity and manufacturing hub of the world. Support of other navies like France, the UK, Germany, and other NATO members will be good deterrence to peace spoilers. Quad in its present form may not be structured to check Chinese adventurism, but it certainly has the potential to become one of the most effective instruments to do so. Chinese reactions indicate that it certainly has put China on notice, without even naming it.

THE CONTEXT: China’s forceful advance, the near-complete breakdown in China-US relations, the threat and opportunities of emerging technologies, the import of cybersecurity, coupled with the fragmenting effects of a less-globalized world are plainly noticeable. In the wake of these changing geopolitics and emerging challenges amid Covid-19, Indian needs a proper security document to address these challenges. In this article, we will analyze what should be the approach in this regard and how India can effectively address these challenges with this document.

BACKGROUND OF THE ISSUE?

• The Indian National Security Council (NSC) has been in existence since 1999.
• Yet, the government has not put out an official document outlining a National Security Strategy for India.
• This is despite the fact that India faces numerous formidable challenges to its national security. The earlier attempts to set up the NSC, notably in 1990, proved short-lived.
• The governments make statements on national security, but there is no proper document in this regard.

WHY INDIA DOES NEED A NATIONAL SECURITY DOCUMENT?

NO POLITICAL CONSENSUS IN THE COUNTRY ON NATIONAL SECURITY ISSUES: The government’s policies on these issues have fluctuated. For example;

• There is no consensus on how to treat challenges from Pakistan and China.
• There is little agreement on how to deal with Maoism.
• The views of political parties on Kashmir and insurgencies in the North East differ widely.
• In the aftermath of the Mumbai terror attacks, there was an acute debate on how India should have responded to the attacks. Even today, there is no clarity on how the government will deal with such terror attacks in the future.

Need proper coordination

• The government has not been able to address the crucial issue of coordination required to formulate and address the issues of national security. The NSC has been a useful invention, but it is anemic in terms of resources and it lacks powers to enforce anything.
• There is no common understanding among various segments of the government of what national security constitutes.

Changing geopolitics

• India needs a National Security Strategy urgently. The world is changing very fast.
• New security challenges have arisen. In the absence of a coherent strategy, the government’s responses will remain ad hoc and partial. This may prove costly.

There is an urgent need to build a broad political consensus on national security issues. An official National Security Strategy document, for the next 10 years, is urgently needed. This will help clarify confusion over national security matters and consolidate the government’s responses. More important, it will generate informed debate which may help build consensus.

SUGGESTED OUTLINE OF A NATIONAL SECURITY STRATEGY DOCUMENT

A National Security Strategy document should have, at the minimum, the following elements:

• a working definition of national security and national security objectives;
• an appreciation of the emerging security environment, taking into account the geopolitical changes in the world;
• an assessment of the national strengths and weaknesses of the country in dealing with the challenges;
• Identification of the military, economic, diplomatic resources needed to meet the challenges.
• Pay serious attention to coordination among different segments of the government.

WHAT, HOW THE NATIONAL SECURITY STRATEGY DOCUMENT SHOULD BE? AN ANALYSIS

A draft National Security Strategy document for the next 10 years may consist of:

Definition of national security and political security objectives:

• The document must define national security in broad terms, including military as well as non-military dimensions of security.
• It must clearly state the objectives of the National Security Strategy.
• These might be:
• protecting and defending the territorial integrity and national sovereignty of the country;
• protecting the core values of the nation as enshrined in the Indian Constitution;
• Ensuring the socio-economic development of the country must also be an objective of the National Security Strategy because human security is an important component of comprehensive national security.
• India’s goal should be to play a positive and effective role in global and regional affairs.

Appreciation of the geopolitical environment:

• The document should describe the geopolitical environment and how it has affected India.
• These include
• the transition in the international system to multipolarity;
• the rise of China and its intense drive for military modernization,
• the growing dysfunctionality of Pakistani state;
• the impending withdrawal of US and ISAF troops from Afghanistan;
• the developments in the Indian Ocean region;
• the growth of Africa and Latin America;
• The discovery of energy resources in the Arctic Ocean and the economic uncertainty in the US and Europe.
• In addition, there are non-territorial challenges too with which India will have to cope. These are no less important than the hard security challenges.
• These include the increasing threat of piracy in the high seas, maritime security, increasing militarization of space, threats from cyberspace, and intensification of competition for scarce resources like energy and strategic minerals.
• The implications of climate change for India’s security must be spelled out.
• The strategy document must identify the growing challenge of terrorism and asymmetric warfare for Indian security.
• A broad counter-terrorism strategy must be identified and implemented.

Challenges from the Neighbourhood:

• The document may pay special attention to the neighbourhood the neighbouring countries, the extended neighbourhood, and the Indian Ocean. Instability in these regions will cause instability in India.
• India must prepare itself to face the backlash if some states in the region fail.
• At the same time, India should be prepared to contribute towards stability through bilateral and regional cooperation.

Coping up with the challenges:

• Having defined the challenges in a clear and unambiguous manner, the strategy document may pay focussed attention to how India will cope with these challenges.
• For a realistic National Security Strategy, there must be an appreciation of the ends and means.
• The end objective is to secure India’s security, but the means to be adopted to do so must preserve the freedoms and rights of the individuals as enshrined in the Constitution. Thus, for example, a counter-terrorism strategy is needed, but it should have enough safeguards to protect individual rights and freedoms.
• India should seek a prominent role for itself in the international community without being hegemonistic or threatening. International cooperation; regional and sub-regional cooperation should be given high priority.
• Permanent membership of the UN Security Council should be aspired for.

Internal Security:

• The document will need to give urgent attention to internal security issues including left-wing extremism, Jammu and Kashmir, the North East, communalism, corruption, religious fundamentalism and extremism, regional and socio-economic inequalities.
• These issues will have to be dealt with within the democratic framework of the Indian Constitution. Adequate sensitivity to people’s aspirations will need to be paid.
• An effective counter-terrorism strategy encompassing intelligence reforms, police reforms, legal reforms, and involving clear rules of engagement with insurgents, militants, and terrorists should be adopted.
• A counter-insurgency strategy aimed at firmly dealing with insurgents while addressing the grievances of the alienated groups within the Indian Constitution should be put in place.

Border management:

• A neglected area should be given high priority.
• An effectively regulated border that discourages illegal movement, but facilitates people-to-people contacts is necessary.
• Modern border management practices should be adopted. The Visa regime and immigration policies should be overhauled.
• The link between internal security issues and external factors, e.g. Externally sponsored terrorism, fake Indian currency, drugs, etc., may be specified.

Resources and Capabilities: 

• Making India secure will require building diverse capabilities – economic, diplomatic, military, human resources, governance reforms- and creating synergy between them.
• A strong economy and inclusive growth should form the basis of the National Security Strategy, maintaining strong economic growth will give India a huge strategic advantage as it will strengthen its hard and soft power and increase governments’ policy options.
• Without sustained and sustainable economic growth, the Indian National Security Strategy will come to naught.
• Our diplomatic resources will need to be expanded and strengthened. More diplomats, more training, and more synergy with resources outside the government will be needed.
• Diplomacy will need to include diverse interests. Public diplomacy will be an integral component of diplomacy.

Others:

1. Technology: Technology will underpin many of our strengths. Thus, India will need to build capacities in research and development (R&D) in diverse fields to help socio-economic economic development, and self-reliance in strategic sectors including space, defense technologies, agriculture, manufacturing, information technology, clean and green technologies, etc.
2. Military reforms: While military modernization is necessary, the need for military reform is even more acute. Civil-military relations should be carried out in a harmonious way. Command and control systems for strategic systems must be made robust.
3. Cyber security: Information warfare and cyber security issues will need to be given due attention. Critical infrastructure potential should assume high priority. The government needs to come out with a comprehensive cyber security policy in this regard.
4. Skill developments: The county should create high-quality analytical skills for understanding and interpreting the ongoing changes and their implications for India. Universities and think tanks should be strengthened.
5. Governance reform: For effective implementation of the National Security Strategy, a wide range of governance reforms will be needed. Governance can be overhauled only through a thoroughgoing reform of the electoral system, the criminal justice system, etc.

INDIA CAN LEARN FROM UNITED KINGDOM

In March 2016 United Kingdom announced and published the Integrated Review (IR). Here are the major features of the document:

• It is intended ‘as a guide for action,’ providing ‘hand-rails for future policymaking.’
• It rightly outlines ‘China as a systemic competitor’.
• It clearly recognizes that the global economy is steadily shifting to the Indo-Pacific.
• Britain seeks to ‘transform’ its relations with India in the next decade.
• It clearly emphasizes the urgent need to prepare for a ‘post-COVID international order that will be increasingly contested… reducing global cooperation’.
• The document is backed by a detailed budget with allocations for clean energy and digital technologies and defense to counter-terrorism.

WAY FORWARD

• India’s challenges, much like any other country, are multi-layered. Renewing relations with China and managing an equitable trade partnership requires jet-setting economic reforms within India.
• The National Security Strategy document needs to be succinct yet it should flag all major issues concerning a security strategy and provide guidelines to concerned departments to pre-frame suitable action plans.
• Since the global and regional situation is dynamic, the National Security Strategy document should be revised periodically.

CONCLUSION:
It is important to underline that a National Security Strategy document should be realistic and balanced. While recognizing the challenges, it should also underline the opportunities. In, a successful national security strategy can give a fillip to our national consciousness, economy, and socio-economic development, thus creating a calmer environment conducive for national development.

THE CONTEXT: An ongoing debate in India is whether or not Indian non-banking financial companies (NBFCs) are “shadow banks”. This question appears important because we have learned from the ongoing global financial crisis that shadow banking might create systemic risks which have been defined “broadly as the expected losses from the risk that the failure of a significant part of the financial sector leads to a reduction in credit availability with the potential for adversely affecting the real estate and economy at large.

WHAT IS SHADOW BANKING?

• Shadow banking is a blanket term to describe financial activities that take place among non-bank financial institutions outside the scope of federal regulators. These include investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds, and payday lenders, all of which are significant and growing sources of credit in the economy.
• Although these entities do not accept traditional demand deposits offered by banks, they do provide services similar to what commercial banks offer.
• The shadow banking system had overtaken the regular banking system in offering loans in the US before the financial crisis erupted in 2008.

WHAT ARE THE RISKS ASSOCIATED WITH SHADOW BANKING?

• The 2008 financial crisis has shown that shadow banking can be a source of systemic risk to the banking system. The risks can be transmitted directly and through the interconnectedness of partially-regulated entities with the banking system.

WHY IS RBI TIGHTENING SHADOW BANKING RULES?

• The Reserve Bank is simply following the trend of global central banks increasing surveillance on shadow banking. Basel III norms require central banks to tighten supervision on shadow banks across the globe through steps such as defining minimum capital.

WHAT STEPS IS RBI TAKING?

• The Usha Thorat committee has come out with draft regulations on NBFCs, such as increasing tier I capital and risk weight on certain assets. After the recommendations, smaller NBFCs with asset sizes of less than 25 crores are likely to go out of business.

WHAT IS THE GLOBAL SITUATION?

• The size of shadow banking has reached a record $67 trillion in 2011, according to a report by the Finance Stability Board, a regulatory task force for the world’s group of 20 economies. America has the biggest shadow banking system, followed by the Eurozone and the United Kingdom.

Key Takeaways:

• The shadow banking system consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.
• It is generally unregulated and not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks are.
• The shadow banking system played a major role in the expansion of housing credit in the run-up to the 2008 financial crisis but has grown in size and largely escaped government oversight even since then.

WHY SHADOW BANKING SHOULD WORRY POLICYMAKERS?

• RBI has warned that economic disruptions may intensify systemic risks to India’s financial sector, primarily because NBFCs remain vulnerable with their deteriorating asset quality and the reluctance of the market to lend them money.
• The banking regulator RBI issued a clear warning in its Fiscal Stability Report, that the economic disruptions may intensify risks to its shadow banking firms, the Non-Banking, Financial Companies (NBFCs), “and consequently” the systemic risks to the entire financial sector.

THREAT TO INDIA’S FINANCIAL SYSTEM

• The threats to the NBFCs come from two sources: (i) their deteriorating asset quality and (ii) continued reluctance of the market to lend money in the aftermath of implosion in two leading NBFC players, Infrastructure Leasing & Financial Services Limited (IL&FS) and Dewan Housing Finance Corporation Ltd (DHFL) in 2018 and 2019. Both were taken over by the RBI for loan defaults and now face bankruptcy proceedings.
• About 50% of the NBFCs’ aggregate assets were under the moratorium on loan repayment as per the latest analysis. Banks, which have been fighting shy of lending directly to the industry because of the growing threat of bad loans (non-performing assets or NPAs), increased their lending to the NBFCs in recent years, as a result of which bank lending accounted for 28.9% of the total NBFC borrowings in December 2019 – up from 23.1% in March 2017.
• The RBI noted that, notwithstanding this support from banks, the real risks to the NBFCs’ liquidity come from declining market borrowings. It said that under the stress tests, 11.2% to 19.5% of NBFCs would not be able to comply with the minimum regulatory capital requirements (CRAR) of 15%.

The following graph maps the NBFCs’ assets quality (GNPA and NNPA ratios) and capital-to-risk-assets ratio (CRAR) since FY14.

In the meanwhile, the NBFCs have grown in influence, as is evident from the RBI data mapped below, against the GDP (at constant prices).

• Shadow banking not only poses a threat to India but is equally a risk to the global financial order. For better appreciation, the 2007-08 financial crisis needs to be revisited.

ENDURING OVERALL GROWTH IN SHADOW BANKING

• When the world woke up and started monitoring shadow banking, Kodres recorded the growth in their assets. In 2015, she wrote, their assets in the US was 28% of the total financial sector (down from 32% in 2011); in the euro area, it was 33% (up from 32% in 2011) and globally they accounted for $92 trillion (up from $62 trillion in 2007 and $59 trillion during the crisis).
• One big initiative to monitor shadow banking was the multinational Financial Stability Board (FSB), set up in 2011. India is a part of this initiative.
• But Kodres was not happy. She commented: “The authorities (monitoring shadow banking) are making progress, but they work in the shadows themselves – trying to piece together disparate and incomplete data to see what, if any, systemic risks are associated with the various activities, entities, and instruments that comprise the shadow banking system.”
• Initially, the FSB defined shadow banks broadly to include all entities “outside the regulated banking system that perform core banking function”, which meant credit intermediation (taking money from savers and lending it to borrowers) and they were called Non-Banking Financial Intermediation (NBFI).
• In its latest report of January 2020, the FSB divided those into three categories: (a) MUNFI (Monitoring Universe of Non-bank Financial Intermediation): “broad measure” of all NBFIs that are not central banks, banks, or public financial institutions (b) OFIs (Other Financial Intermediaries): a subset of MUNFI that excludes insurance corporations, pension funds or financial auxiliaries and (c) NBFIs: “narrow measure” of NBFI comprising of non-banks that authorities have identified as the ones that may pose bank-like financial stability risks and/or regulatory arbitrage.
• The NBFIs (narrow measure) are the ones identified as posing systemic risks.

HEIGHTENED SYSTEMIC RISKS FROM SHADOW BANKING

• The 2020 FSB report shows that global estimates for the MUNFI assets stood at $183.6 trillion in 2018 or 49% of the total financial assets ($379 trillion). Of this, OFIs accounted for $114.3 trillion (30% of the total); NBFI for $50.9 trillion (13.4% of the total), and the rest for $18 trillion.
• The FSB 2020 report says the “systemic risk” comes from activities that are “typically performed by banks, such as maturity/liquidity transformation and the creation of leverage”.
• The alarming aspect of the NBFI is that it is growing.
• The FSB 2020 report says it “has grown faster than GDP since 2012, increasing to 77% of all participating jurisdictions’ GDP in 2018 from 64% in 2012. This trend is observed in most jurisdictions”.
• The FSB measures 29 jurisdictions (including India and China), representing over 80% of global GDP.

GROWTH IN INDIA’S SHADOW BANKING (NBFCS)

• What does the FSB of 2020 say about India? (India’s NBFCs correspond to the NBFIs.)  It shows India is an outlier – in a negative way.

Here are two examples

• India recorded 22.4% growth in OFI assets in 2018, while the global growth was 0.4%.
• As for NBFIs (NBFCs in India), a major drawback is their over-dependence on short-term funding for long-term lending (technically called EF2 function).
• Globally, such funding accounted for 7% of the total in 2018 and it grew 6.9%. In sharp contrast, India recorded a 17.4% growth in 2018. As for its share in the total NBFC funding, the RBI’s banking trend report released in December 2017 revealed that it stood at an unbelievably high of 99.7%.
• In the NBFC context, short-term means a period of up to three years and long-term for up to 15 years, as in the case of housing and infrastructure loans. Why such anomaly continues in the NBFCs’ functioning is an abiding mystery.
• Little wonder, when the NBFC crisis hit India in 2018 and 2019, the two big players to implode (IL&FS and DHIL) were associated with infrastructure and housing sectors, though this is only one part of the saga.

IS SHADOW BANKING A SERIOUS THREAT IN EMERGING MARKETS?

• The IL&FS crisis has exposed the vulnerabilities of non-bank lending. But in India, the problem is one of a huge bad debt pile-up despite low credit disbursal.
• Everyone seems to have woken up to the fact that global debt levels are too high and portent difficulties ahead. As Figure 1 indicates, the levels of credit to GDP, which were so high as to be unsustainable and resulted in the big crisis of 2008, have increased even more since then.
• There was a phase of deleveraging in the advanced economies until around 2014, and in developing countries and emerging markets until 2011, but since then, credit/debt has been expanding again.
• So much so that the credit GDP levels in 2017 were 15 percent higher than in 2008 in the advanced economies, and more than 80 percent higher for emerging markets (Figure 1).
• More recently, the attention has shifted from bank lending to shadow banking activities, which are by those institutions that do not collect deposits but still provide loans. These include a variety of institutions, ranging from trusts, investment funds, and similar corporations to kerb lenders.

• Because they do not come under the regulatory framework for banks, yet tend to be interlinked with them in various ways, there are concerns that overlending and default in such institutions can destabilize the financial system.

LINGERING FRAGILITIES

• Ever since the IL&FS crisis broke in India, there has been much discussion of the fragilities posed by non-bank lending and the potential for financial and economic crises in emerging markets that could be led by the collapse of shadow banks. This is in no small measure due to the significant role played by such shadow lending in the core capitalist countries (especially the US) in the build-up to the Great Financial Crisis in 2008.
• However, since then, shadow lending appears to have reduced or at least been contained relative to GDP, as indicated by Figure 2. For the G20 countries taken as a group, credit from non-banks as a percent of GDP was about 6 percentage points lower in 2017 than in 2007, while bank credit had actually increased by 15 percentage points. This suggests that excessive debt creation is much more a problem of the banking sector as a whole than the non-bank or shadow bank sector.

• Table 1 provides data for some important advanced and emerging economies to assess the extent to which this argument is valid. Significantly, the reliance on shadow banking appears to have reduced significantly in the advanced economies by 2015-17 from what it was during 2008-10, other than in Germany, where it seems to have remained at roughly the same level of around 30 percent. Even the increase in bank credit was confined to Japan and South Korea, rather than the US, UK, or Germany, where it has fallen relative to the levels of 2008-10.

WAY FORWARD:

• It is also increasingly suggested that the problem of shadow banking has become more significant in emerging markets rather than in advanced economies and that the dramatic increase in such loans in these economies is what will be associated with the next big systemic risk to global finance.
• In particular, it is suggested that the rapid increase of shadow banking in Asia, especially China, points to the likely area of greatest future concern.

CONCLUSION:

NBFC sector has been stung by a crisis set off by the shock collapse of non-bank lender IL&FS group in 2018. India’s shadow banks, which lend to everyone from teashop merchants to property tycoons, get a mixed bill of health in Bloomberg’s latest check. Revitalization of the industry, whose woes mounted when major mortgage lender Dewan Housing Finance Corp. missed repayments is key to helping staunch a further slowdown in the nation’s economy. In a sign that creditors remain jittery, borrowing costs rose. The extra yield investor’s demand to hold five-year AAA-rated bonds from shadow banks over government notes increased, one of the gauges shows. Shadow lender woes have made it harder for policymakers to prop up the economy, which grew at its weakest pace since 2009. The slowdown hurts borrowers’ ability to repay debt and has prompted the central bank to predict that an improvement in banks’ bad-loan ratios will reverse. So, it is established that Indian NBFCs are shadow banks and they do pose systemic risks to a certain extent. Hence, the RBI should make a long-term policy for the Indian NBFC sector to mitigate any risk that may crop up in the already fragile financial sector in India.

[WpProQuiz 153]

THE CONTEXT: The 17th Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMSTEC) ministerial meeting was held on 1 April 2021. Though the grouping is ready to move forward, a number of obstacles stand in the way of this, including regional tensions, uncertainties surrounding SAARC, and China’s involvement in the multilateral.

ABOUT THE RECENT BIMSTEC SUMMIT

The 17th Ministerial virtual Meeting of BIMSTEC leaders was held on April 01, 2021. Here are the major outcomes of the summit;

• India’s commitment to further building the momentum of regional cooperation under the BIMSTEC framework and making the organization stronger, vibrant, more effective, and result-oriented.
• India is the Lead Country to Counter Terrorism & Trans-national Crime, Transport & Communication, Tourism, and Environmental & Disaster management.
• BIMSTEC Master Plan for Transport Connectivity for adoption at the next BIMSTEC Summit and three MoUs / Agreements for signing at the next BIMSTEC Summit.
• Member States to complete their internal procedures for adoption of the BIMSTEC.
• Chair to hold the Fifth BIMSTEC Summit in Sri Lanka.
• BIMSTEC Centre for Weather and Climate, being hosted in India, is fully functional with the state of the art facilities to provide Disaster Early Warnings.

ISSUES FACING BY BIMSTEC IN RECENT TIMES?

BIMSTEC is facing several issues in recent times. Those are posing challenges to the grouping. Major challenges are as follow:

THE ISSUE OF MEETING:

• While most multilateral groupings from G20 to ASEAN and SCO held their deliberations at the highest political level in the midst of the COVID-19 pandemic in 2020, BIMSTEC leaders failed to do so.
• In contrast to a meeting of even SAARC leaders held at India’s initiative a year ago, BIMSTEC could not arrange its ministerial meeting until April 2021.

ISSUES BETWEEN THE MEMBER STATES:

• A strong BIMSTEC presupposes cordial and tension-free bilateral relations among all its member-states.
• This has not been the case, given the trajectory of India-Nepal, India-Sri Lanka, and Bangladesh-Myanmar ties in recent years.

THE ISSUE OF SAARC:

• Uncertainties over SAARC hovers, complicating matters.
• Both Kathmandu and Colombo want the SAARC summit revived, even as they cooperate within BIMSTEC, with diluted zeal.

CHINA PRESENCE IN SOUTH ASIA:

• China’s decisive intrusion in the South-Southeast Asian space has cast dark shadows.
• It is believed that BIMSTEC would make progress if China is accepted as its principal interlocutor and partner. This perspective has hardly any takers in India and its friendly partners in the grouping.

MILITARY COUP IN MYANMAR:

• The military coup in Myanmar, brutal crackdown of protesters, and continuation of popular resistance resulting in a protracted impasse have produced a new set of challenges.

WHY BIMSTEC IS FACING THESE ISSUES?

LACK OF RESOURCES:

• Despite its huge potential, the forum has long suffered from a lack of resources and proper coordination among its member states.
• Many factors have contributed towards the sluggishness of BIMSTEC and it is still beset with difficulties.
• India, its largest member, has often been blamed for not providing strong leadership.
• Consequent to the slow progress of its mandate, Thailand and Myanmar have often seen ignoring BIMSTEC for ASEAN Forum.

LACK OF PROPER MEETINGS:

• The relevance of BIMSTEC as an organization can be gauged from the fact that only four meetings have been held since its inception 21 years back.
• It took seven years for its first summit to take place in 2004 in Thailand; the second one was held four years later in 2008 in India; the third one six years later in Myanmar in 2014 and the fourth summit has just concluded in Nepal on 31 Aug 2018.
• It also took 17 long years for this Forum to establish its permanent secretariat in Dhaka in 2014.

LACK OF ECONOMIC COORDINATION:

• The organization currently faces the challenge of realizing its vision of an integrated economic space and a bridge between South and Southeast Asia that drove its founding members.
• The BIMSTEC Free Trade Agreement (FTA), signed in 2004, is yet to be implemented.
• The protectionist economies of South Asian countries and so-called national interests are making free trade an unattainable objective.
• Countries like Bangladesh on the other hand, often fear that whenever India discusses connectivity, it means benefits only for India.
• Such fears & apprehensions question the basic fabric of BIMSTEC and foster mistrust, thus blighting any prospect of free movement of goods.

ADMINISTRATIVE ISSUES:

• BIMSTEC Secretariat, established in 2014 in Dhaka, has been unable to adequately contribute to the development of the organization, and its negligible budget affects its capacity to perform a basic convening function.

ROHINGYAS FACTOR:

• The Rohingyas factor emerged as a major issue.
• Their refugee crisis has complicated relations between Bangladesh and Myanmar, may affect BIMSTEC’s multilateralism in the future, and completely derail its efforts to foster regional cooperation.

MISUNDERSTANDING BETWEEN MEMBERS:

• Another challenge lurking in the forum is the impression that it is an India-dominated bloc, a problem that India faced for a long time in SAARC too.
• This perception of Indian hegemony, coupled with the over-dependence of BIMSTEC Countries, on China, seems to be a major impediment to this Forum’s success.
• Nepal’s pulling out of the ongoing BIMSTEC military exercise being conducted in India probably substantiates this point.
• The underlying aspiration of China to be part of BIMSTEC, on the same lines as it harnesses a desire to be a permanent part of SAARC groupings, further aggravates the problem.

PRESENT DYNAMICS & RENEWED INITIATIVE

However, two recent developments have generated renewed hopes for BIMSTEC to forge an effective regional group for broader economic integration.

1. First was the Outreach Summit, held in Goa, India in October 2016, wherein the BRICS-BIMSTEC leaders pledged to work collectively towards making BIMSTEC stronger. This Summit, brokered by India, has certainly reinvigorated BIMSTEC by inviting its members to participate in a larger platform like BRICS, comprising five major emerging economies of the world.
2. The second is the concluded Fourth summit of BIMSTEC at Kathmandu from August 30 to 31, 2018. The theme of the summit was ‘Towards a Peaceful, Prosperous and Sustainable Bay of Bengal Region. Representatives of all member nations explicitly showed their renewed desire to forge ahead on mandated objectives with the signing and adoption of the Kathmandu Declaration.

THE ANALYSIS

• The 18-point Declaration is expected to enhance the effectiveness of the BIMSTEC Secretariat by engaging it in various technical and economic activities in the region. Foreign ministers of BIMSTEC countries signed a Memorandum of Understanding on the establishment of BIMSTEC Grid Interconnection.
• The Declaration stresses ending poverty in the region by 2030 & strongly condemns terrorism in all its forms and manifestations. It covers issues such as agricultural technology exchange, gradual reduction of the impact of climate change, increased trade and investment, and ease in visa processing for the people of member states. It also highlights the importance of trade and investment as one of the major contributing factors for fostering economic and social development in the region.
• It now remains to be seen as to how all the seven members can take this momentum forward in making BIMSTEC more ‘effective’, ‘visible’ and ‘result-oriented’ as well as draw synergies with other groupings to hasten the process of integration for the benefit of 1.6 billion people in the region.

RELEVANCE OF BIMSTEC FOR INDIA

• For India, BIMSTEC stands at the very important juncture of ‘Neighborhood First’ and ‘Act East Policy. Its relevance to India is driven by two key factors, one, the potential economic rewards of greater regional connectivity it provides. Second, the rapidly changing geostrategic context of Asia and India’s need to look at the Bay of Bengal as a key theatre for containing an increasingly capable and assertive China.
• BIMSTEC, unlike SAARC’s subcontinental focus, is the only forum that brings together India’s strategic peripheries under one single grouping. Regional integration comes more naturally to India through BIMSTEC vis-a-vis SAARC, which is dominated and hamstrung by tensions between India and Pakistan. BIMSTEC also allows India to push a constructive agenda to counter Chinese investments.
• Three projects pending with BIMSTEC, when finished, are likely to transform the region, especially India.
• Kaladan Multimodal project linking India and Myanmar: The project envisages connecting Kolkata to Sittwe port in Myanmar, and then Mizoram by river and road. India and Myanmar had signed a framework agreement in 2008 & are yet to be finished.
• Trilateral Highway connecting India and Thailand through Myanmar: The highway will run from Moreh in Manipur to Mae Sot in Thailand via Myanmar thereby establishing connectivity between India and Southeast Asian countries. The project is currently underway.
• The goods and vehicles: were signed in the year 2015 and is, awaiting internal clearances of some members, involves the movement of goods and vehicles. Bangladesh, Bhutan, India, and Nepal (BBIN) have signed this pact. Trial runs are on.
• India has finally realized that the lack of importance given to BIMSTEC can seriously jeopardize its economic and strategic agenda. Consequently, it has committed to re-energising BIMSTEC, which was evident during the BRICS Outreach Summit. This pragmatic step on India’s part lucidly demonstrated its intentions &potential to play the role of a regional leader.

BIMSTEC VS. SAARC: WHICH IS MORE SUITABLE FOR INDIA?

If India wants to prove itself as a regional power, as the largest country in South Asia, India cannot escape its responsibilities under SAARC. The following points explain the differences between SAARC and BIMSTEC. In the end, it can be seen that none of them can substitute for each other. Rather, they can complement each other’s roles.

PARAMETER: VIBRANCY AND DYNAMISM

BIMSTEC:

• BIMSTEC meetings have been held only four times in the last twenty years.
• BIMSTEC meetings are rather considered to be retreats for the leaders of the member nations and there are hardly any talks on policy.
• As of now, BIMSTEC finds vibrancy since India is using it to promote its Act East Policy that aligns with the Look West Policy of Thailand.
• It is argued that India also uses the BIMSTEC platform to substitute SAARC. However, the success of BIMSTEC does not render SAARC pointless; it only adds a new chapter in regional cooperation in South Asia.

SAARC:

• SAARC on the other side is a more active group. Over the last 32 years, ignoring the annual SAARC summits that have been postponed 11 times for political reasons, SAARC has been assiduously nurtured through a multitude of meetings and initiatives, including 18 summits.
• This has seen it evolve a whole set of conventions, organs, and mechanisms and a network of more than a dozen regional centers and other institutions, with a secretariat in Kathmandu.
• Since the SAARC summit has only been postponed, not cancelled, the possibility of revival remains.

PARAMETER: GOALS

BIMSTEC: BIMSTEC’s role is more restricted to the economy and regional integration only.

SAARC: 

• SAARC has broader goals compared to BIMSTEC.
• SAARC is aimed at promoting the welfare of the people; accelerating economic growth, social progress, and cultural development; and strengthening collective self-reliance.
• Other objectives include strengthening cooperation with other developing countries and cooperating with international and regional organizations with similar aims and purposes.

PARAMETER: INTRA-TRADE

BIMSTEC: Trade among the BIMSTEC member countries reached six percent in just a decade.

SAARC: In SAARC, it has remained around five percent since its inception.

PARAMETER: CAPACITY OF THE SECRETARIAT

BIMSTEC: The BIMSTEC secretariat faces a severe resource crunch, both in terms of money and manpower, which has adversely affected its performance.

SAARC: SAARC secretariat has more resources. This can be used when SAARC meetings are held.

PARAMETER: COVERAGE

BIMSTEC:

• BIMSTEC is interregional and connects both South Asia and ASEAN.
• BIMSTEC provides SAARC countries a unique opportunity to connect with ASEAN.

SAARC:

• SAARC is a purely regional organization.
• Thus, it is also possible that both the regional organizations can thrive together and even prove complementary in geographically overlapping regions.

CHALLENGES & IMPLICATIONS FOR INDIA

India faces a few challenges which need to be ironed out for the smooth functioning of BIMSTEC. From the strategic perspective, two factors merit as a challenge;

• The first is India’s realization that regional integration in South Asia would work only if Pakistan was not involved. Thus projecting BIMSTEC as more relevant in spite of its overlapping mandate and members with SAARC, appears a daunting task for India.
• The second factor is China’s strategic & economic influence on BIMSTEC members, who can make BIMSTEC hostage to Indo-China regional rivalry. India, therefore, will have to carefully navigate through this emerging regional geopolitics& reassure South Asia that the region can work together to achieve common goals with India playing its due role.
• India is currently the largest contributor to the BIMSTEC secretariat’s budget with an annual contribution of Rs 2 crore (32% of the total budget) for 2017-18. With the secretariat now planning to strengthen its capacity, India may need to consider allocating more resources. India’s generosity would be a key test of its commitment to the subregional grouping.
• Another issue that besets BIMSTEC is that it is an India-dominated bloc. However, due to changing Geo-economics, most of the smaller neighbors today are more willing to engage India due to its economic rise. India needs to proactively engage them and show sensitivity to their concerns.

HOW BIMSTEC CAN REINVENT ITSELF

BIMSTEC as a Forum is well equipped in facilitating this new regionalism. However, its visibility needs to be enhanced for which its member states should:-

• Instill in the organization a vision for a cooperative, multilateral, regional order which is based on principles of liberalism, not on unilateralism.
• Empower the BIMSTEC secretariat with greater financial resources enabling it to proactively drive the organization’s agenda.
• Prioritize sustained physical connectivity and high-quality infrastructure, to facilitate greater regional flows of goods& services.
• India’s role as an informal leader has to be expanded.
• Open BIMSTEC to cooperate with regional powers committed to inclusive regionalism to include Australia, European Union, Japan, and the United States.

CONCLUSION:

BIMSTEC holds the catalytic potential to transform the economies of member states and create a peaceful, prosperous, and integrated neighborhood. The road from potential to reality will be successfully traversed only when all actors and stakeholders come together to play their role well to achieve a shared dream of peace, stability, and prosperity for this dynamic region.

[WpProQuiz 151]

THE CONTEXT: During the COVID-19 second wave, the government’s efforts to tackle this unprecedented crisis have all but collapsed. Only a proper institutional design will ensure that we are equipped better to tackle future similar disasters.

PRESENT INSTITUTIONAL FRAMEWORK

• The Disaster Management Act, 2005, and Epidemic Diseases Act, 1897 are used to tackle the Covid-19 Pandemic.
• As public health is a state subject under the Indian Constitution, State Governments have issued orders under the Epidemic Diseases Act, 1897 (EDA)
• The National Disaster Management Authority (NDMA) issued guidelines considering the “coronavirus pandemic” as a “disaster” within the meaning of the Disaster Management Act, 2005 (DMA).
• The Disaster Management Act, 2005 provides those powers which the Epidemic Diseases Act, 1897 does not provide and allows the Central Government to take the necessary steps for a functional response.
• On the health advice side, there are bodies like the National Center for Disease Control (NCDC) and Indian Council for Medical Research (ICMR).

 NEED FOR A SEPARATE AUTHORITY

Limitations of Epidemics Disease Act, 1897:

• The EDA was enacted in the wake of the bubonic plague epidemic in 1896, in Bombay and it has just four sections. It doesn’t define “epidemic disease”. Its concise nature gives wide powers to the executive.
• The Central government’s power under this law only seems to be restricted to controlling the movement and detention of vessels at ports.

Disaster Management Act: 

• Disasters are normally geographically-localized catastrophic events, disrupting normal life for a few hours or days, but unlike a public health epidemic, do not last over a long period of time.
• While the DMA offers effective and aggressive measures to combat any kind of disaster, including epidemics, it may be inadequate due to two issues.

1. While the definition of a “disaster” under the DMA may be wide enough to include an epidemic, it does not contain any specific provisions or the graded approach to deal with the unique problems created by an epidemic.
2. Even the aggressive measures provided for in the DMA may be inadequate due to the exponential growth rate of the pandemic.

Others:

• The use of such an ad-hoc institutional architecture with a multiplicity of statues has resulted in a patchwork response against the epidemic in several areas.
• As the frequency of pandemics is expected to increase in the future due to factors like climate change and global warming, an empowered Central authority may be constituted with a clear mandate to control pandemics.

EXAMPLE OF DISASTER MANAGEMENT

• Looking at a parallel example, India has done well in its institutional design for tackling natural disasters other than pandemics.
• Through the Disaster Management Act 2005, the Union government set up multi-disciplinary Disaster Management authorities from the national to the state, district, and local levels.
• These authorities were assigned clear functions and responsibilities. A separate fiscal window was carved out to deal with natural disasters.
• The purpose of such a design was to create a rapid response structure free of bureaucratization.
• The success of this approach has been seen in the way India has since handled natural disasters such as floods, cyclones, and earthquakes.

DESIGNING AN EFFECTIVE SYSTEM FOR PANDEMICS

Basic Rules:

• First, functions ought to be carefully allocated to different levels as exclusively as possible. Some concurrency of action is inevitable, but too much overlap between the functions of different levels can create confusion and dilute accountability.
• Second, finance must follow function. No mandates must be given to institutions without giving them recourse to adequate resources for execution; if unfunded mandates exist, sooner than later, they will not be carried out.
• Third, every institution that is given a mandate must be given command and control over the staff and other capacities required to deliver that mandate effectively.

Pandemic Response Authority:

• There is a need to establish a high-powered Pandemic Response Authority at the national level and mimic the structure of the Disaster Management System.
• A Pandemic Response Unit should be established on the lines of NDMA like authority or body, having representation from both the Centre and states, responsible for designing and implementing well-coordinated surveillance, identification, contact-tracing, quarantine, isolation, testing strategy, and treatment.
• While establishing a new Pandemic Response Unit, care must be taken to avoid the danger of over-centralization. It is quite possible that a Pandemic Response Unit becomes a super-ministry, exercising unnecessary discretion and hampering effective response rather than aiding it.
• Ideally, what can be done at a lower level ought not to move upward. Only those residual matters that cannot be handled at a state or local government level need to be handled by an apex unit.
• Matters that have wide repercussions across jurisdictions are best centralized. So also are matters that enjoy scales of economy.

Functions:

• Four important matters in which a Pandemic Response Unit would add value would be in strategic medium-term and long-term planning, promoting research, international cooperation, and capacity-building.
• Develop, exercise, and periodically revise national and state pandemic preparedness and response plans in close collaboration with human and animal health sectors and other relevant public and private partners with reference to current WHO guidance.
• Anticipate and address the resources required to implement proposed interventions at national and sub-national levels, including working with humanitarian, community-based, and non-governmental organizations.
• Develop national surveillance systems to collect up-to-date clinical, virological, and epidemiological information on trends in human infection with seasonal influenza viruses, which will also help to estimate additional needs during a pandemic.
• Identify, regularly brief, and train key personnel to be mobilized as part of a multisectoral expert response team for animal or human influenza outbreaks of pandemic potential.

CONCLUSION:

Public health planning should have been strengthened, taking into account the experiences and lessons learned from the current crisis. Handling of the Covid pandemic in Indian states, in spite of scientific and public health advances, demands honest and critical reflections by policymakers and health experts alike. Political accountability has to be fixed and there is a need to get the management response right. It is priorities to set up systems that can work are set up, and they work right. If that is not done, we will continue to suffer far into the future.

THE CONTEXT: The government has set its sights on an aggressive plan to sell its equity holdings in State-owned enterprises from which it hopes to rake in Rs 1.75 trillion. In order to do so, the govt has significantly widened the scope of its privatization plan by unveiling a new policy for strategic disinvestment of public sector enterprises that will provide a clear roadmap for disinvestment in all non-strategic and strategic sectors.

THE PRESENT PRIVATISATION POLICY OF THE GOVERNMENT

Fulfilling the governments’ commitment under the AtmaNirbhar Package of coming up with a policy of strategic disinvestment of public sector enterprises, with the following feature

• Strategic Sector: Bare minimum presence of the public sector enterprises and remaining to be privatized or merged or subsidiaries with other CPSEs or closed.
• Strategic sector: industries considered strategic if it has large innovative spillovers and if it provides a substantial infrastructure for another forum in the same or related industry

• Following 4 sectors to come under it:

• • • Atomic energy, Space and Defense
    • Transport and Telecommunications
    • Power, Petroleum, Coal, and other minerals
    • Banking, Insurance, and financial services

• Non-Strategic Sector: In this sector, CPSEs will be privatized, otherwise shall be closed.

Non-strategic sector

• will include hotel and tourist services, transportation vehicle and equipment industry and consumer goods trading and marketing and transport and logistics

The policy of the government on the 18 strategic sectors other sectors

18 strategic sectors under 3 different classificatory types are

• mining and exploration
• processing and generation and
• the service sector

Policy regarding PSU by the govt

• Govt will completely exit the non-strategic sector
• in the strategic sector govt will keep a maximum of 1-4 PSU and subsequently opt for strategic disinvestment

 PRIVATISATION OF PSU SINCE 2014 INCLUDING BANKS

The increase of supply of PSU stocks and the constrained investor appetite had started affecting the prices. The trade-off between the political objective to privatize and revenue maximization was witnessed the most in this period. Resultantly, the government resorts to Strategic Sales.

However, in a departure from past govt is also disinvesting profit-making ventures with a rationale that disinvestment of profit-making enterprises by a public offering of shares is desirable as it leads to dispersed shareholding and avoids concentration of economic power.

However, in the case of banks, an amalgamation policy was followed, which reduced the number of national banks from 28 to 12 by merging various banks.

• But even after this, there was no meaningful resolution of the NPA crisis.
  • In fact, post the covid crisis this problem will increase as small banks are facing the problem of balancing credit growth and risk.
  • With the specter of insolvencies looming at the start of pandemic-led lockdown, there was a flight of deposits from small banks to bigger ones.
• In view of this, the govt has focused on taking PSBs out of government control

Overall approach

Since 2014, the Modi government’s strategic disinvestment approach was to sell minority stakes in public companies to raise revenue, while retaining management control. During the 2014-2019 period, the government raised Rs. 2,79,622 crore from the disinvestment of public sector enterprises (PSEs), compared to Rs 1,07,833 crore collected during 2004-14. However, this has changed now. Recently, five companies were up for 100 percent disinvestment, including three large, profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India, and the Shipping Corporation.

THE EVOLUTION OF PSU FROM 1956 TO 1999

Historical antecedents Industrial Policy in India:

• National Economic Planning Committee set up by the All India Congress Committee in 1937: suggested vigorous efforts for India’s industrial development through a mixed economy with a dominant role for the public sector.
• Peoples Plan’ prepared by Mr. M N Roy: all-in-all role to public sector and financing of the industrial plan through internal resources
• Bombay Plan (Tata-Birla plan) recommended government support for industrialization, including a direct role in the production of capital goods. It had called for a substantial role of the private sector in the industrial development
• Defense of India Rules (interim rule): The plan suggested by the interim government for industrial development categorized industries into four divisions, of which two were exclusively reserved for the public sector and these related to core and heavy industrial sectors. Of the remaining two, public and private sectors were allowed access to intermediate industries forming the third sector, while the consumer goods industry was reserved for the private sector [Trivia: first Industrial Policy Statement of 1948 was a restatement of the 1945 categorization as adopted by the interim government.]

Industrial Policy Statement – 1948: 

Industries were divided into four broad categories

• Exclusive State: Monopoly included the manufacture of arms and ammunition, production and control of atomic energy, and the ownership and management of railway transport
• State Monopoly for New Units
• State Regulated category
• Unregulated private enterprises

Industrial Policy Resolution – 1956: 

• It was shaped by the Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the economy towards a long-term higher growth path. The Resolution widened the scope of the public sector. The objective was to accelerate:
• Bombay Plan prepared by leading Indian industrialists in 1944-45 had recommended government support for industrialization, including a direct role in the production of capital goods.
• Economic growth and boost the process of industrialization as a means to achieving a socialistic pattern of society.
• The Industrial Policy Resolution – 1956 classified industries into three categories
• The first category comprised 17 industries exclusively under the domain of the Government. These include, inter alia, railways, air transport, arms and ammunition, iron and steel, and atomic energy.
• The second category comprised 12 industries, which were envisaged to be progressively State-owned but the private sector was expected to supplement the efforts of the State.
• The third category contained all the remaining industries and it was expected that the private sector would initiate the development of these industries, but they would remain open for the State as well
• Despite the demarcation of industries into separate categories, the Resolution was flexible enough to allow the required adjustments and modifications in the national interest.

Industrial Policy Measures in the 1960s and 1970s: 

• Industrial Licensing Policy Inquiry Committee (Dutt Committee), constituted in 1967, recommended that larger industrial houses should be given licenses only for setting up industry in core and heavy investment sectors, thereby necessitating reorientation of industrial licensing policy.
• The new Industrial Licensing Policy of 1970 classified industries into four categories.
• The first category, termed as ‘Core Sector’, consisted of basic, critical, and strategic industries.
• The second category termed as ‘Heavy Investment Sector’, comprised projects involving an investment of more than Rs.50 million.
• The third category, the ‘Middle Sector’ consisted of projects with investment in the range of Rs.10 million to Rs.50 million.
• The fourth category was ‘De- licensed Sector’, in which investment was less than Rs.10 million and was exempted from licensing requirements.

Industrial Policy Statement – 1980: 

The Industrial Policy Statement of 1980 placed the accent on the promotion of competition in the domestic market, technological up-gradation, and modernization of industries A number of measures were initiated towards technological and managerial modernization to improve productivity, quality and to reduce the cost of production. The public sector was freed from a number of constraints and was provided with greater autonomy. There was some progress in the process of deregulation during the 1980s. In 1988, all industries, excepting 26 industries specified in the negative list, were exempted from licensing. The exemption was, however, subject to investment and locational limitations. The automotive industry, cement, cotton spinning, food processing, and polyester filament yarn industries witnessed modernization and expanded scales of production during the 1980s.

PRIVATISATION FROM 1991 TO 2014 AND PROS AND CONS

Phases of Disinvestment Policy in India

Phase 1 91 to 99: Disinvestment was mainly through the Sale of Minority Shareholding in CPSEs. Mostly, the auction method was adopted for the sale of a minority shareholding, though Global Depository Receipts issues have been reported to as well in the last two years of that phase. There were no Strategic Sales in this period. The ideological focus was on gradual privatization. Further, the focus was also on the modernization of PSUs, in order to increase their ‘efficiency’ while protecting the interests of employees. But, the main aim was to mitigate the fiscal deficits of the government. It never focused on revenue maximization. However, with Rangarajan Committee a shift from public offerings to strategic / trade sales was witnessed in the field of core and non-core.

Phase 2 99 to 03: The ambit of disinvestment was widened the most during the second phase. Targets higher than ever before were set, a Department of Disinvestment was constituted on 10th December 1999 and later a full-fledged ministry was set up, an aggressive disinvestment policy was pursued and the government exited several PSUs completely. Consequently, with a higher supply of  PSUs’ shares in the still-developing market, prices of equity sold were low, subsequently destroying the value of PSUs, resulting in the government failing to achieve the disinvestment targets.

Phase 3 03 to 009: The government adopted the National Common Minimum Programme (NCMP) and the following are the aspects of the program that related to the public sector5:

• The government was to retain the existing “Navratna” companies.
• The program stated that profit-making PSUs will not be privatized and in line with this disinvestment through strategic sale of profit-making CPSEs was called off.
• Public Sector companies and nationalized banks were encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors.

There were no targets fixed and the total receipts. Disinvestment was majorly done through the Offer for Sale or Sale route. It was in this phase that the National Investment Fund (NIF) was constituted. All the proceeds from the disinvestment of central PSUs were transferred into this fund and 75% of the annual collections of the fund had to be invested in social sectors. The management of it was assigned to public sector mutual funds.

Phase 5 09-14: The disinvestment process restarted with full vigor, but the government didn’t resort to the Strategic Sale route. In most years, the sale of minority shares was done through an offer for sale.

How not disinvest?

A model is followed in India, which neither qualifies as disinvestment nor privatization. In such a transaction—where one PSU is buying out another take place. This resulted in a transfer of resources already with the public sector to the government and did not lead to any change in the stake of the public sector or government in disinvested PSUs. It can be seen as merely money-making exercise merely moneymaking measures. (ONGC-LIC, HPCL-ONGC) Further, the government is not exiting completely in many of the PSU thus creating contrived confusion in the policy framework (Air India)

THE CRITICAL ANALYSIS OF PRIVATISATION POLICY BY THE PRESENT GOVERNMENT

Is privatization of bank panacea for success

• Private players in the financial sector are prone to failure: this fact gave the world economic shock of astronomical proportion, which was overreachingly created by private bank
• Private banks fail all the time the 20 years from 2001 to 2020, as many as 559 private banks with assets of $721 billion failed in the US
• The principle followed by private banks is when they make profits, it goes to shareholders: When they make losses, it gets socialized and falls in the lap of the government to make good the deposits either through insurance or taxpayer bailout. (Yes Bank, Federal Deposit Insurance Corporation (FDIC), bailed out the above bank.)
• Big private banks can fail any time: There is a myth that if a bank gets large enough, it will not fail. While one can agree that the larger the bank, the greater its ability to absorb losses, this does not mean it cannot fail. The axiom “Higher you go, harder the fall” applies best to private banks. Yes, Bank, Citi Bank, Washington Mutual Bank are all such examples.

Looking at the larger interest

• The move towards divesting ownership in strategic sectors will have long-term consequences. A diluted public sector would possibly mean that India missing out on the opportunity to capitalize on the global distrust against Chinese supply lines in the wake of the current crisis.
• Moreover, the valuation of PSU is at an all-time low. At the start of NDA-2, the valuation of PSU at the BSE was 22% which has reduced to 9.4% in Oct 2020.
• At present, because of the crisis presented by the pandemic, it is highly unlikely that more than 10 percent of the shares of the LIC are subscribed, as the market may not be able to absorb more.

 whether privatization is the only option for PSUs

PSU models in different countries

PSUs exist virtually everywhere. In, Asia, where PSUs have played an important role in shaping the economy. According to an OECD report, PSUs pulls plenty of economic might-

• in China, they account for 30% of GDP,
• in Vietnam 38%,
• And they account for roughly a fourth of GDP in India and Thailand.
• PSUs are also big employers in many of these countries — 15% in China, 5% in Malaysia.
• PSUs play an important role in BRICS economies.
  • According to a recent KPMG report, of the 2,000 largest companies globally, 260 are from BRICS economies.
  • About 123 or 47% of the largest BRICS enterprises are PSU. The market value of PSU amounts to 32% of GNIs (gross national income) among all BRICS countries.

All the above example shows that privatization is not the only panacea for bringing efficiency, improving productivity, and building productive assets.

THE GLOBAL PRACTICES

Reshaping the PSU buy other countries

Three former planned economies have set up centralized holding entities — SASAC in China in 2003, SCIC in Vietnam in 2007, and Druk Holdings and Investments in Bhutan. In 2006, the Philippines pioneered the development of a PSU governance scorecard which has become an important tool for pushing PSU reforms. Since 2004, Malaysia has rolled out a comprehensive ‘transformation program” to overhaul its PSUs.

An incorporated holding company Temasek to better manage its assets on a commercial basis was launched in Singapore. This allowed its Ministry of Finance to focus on policymaking. At inception, Temasek’s initial portfolio was S$354 million, spanning 35 companies. Thereafter began the process of restructuring SOEs. Some were corporatized and privatized, others were allowed to go for big global expansions.

THE CHINA EXAMPLE: 

In 2003, a holding company, the State-Owned Assets Supervision & Administration Commission (SASAC) was created to manage the SoEs. The agency, which controls nearly 100 of the largest SOEs, lies “at the heart of China’s industrial deep state.

WAY FORWARD: WHAT INDIA CAN LEARN?

Negative bids: The government should permit negative bids: a bid where the government pays someone to take the company off its hands. Negative bids were an important part of the massive privatization, which took place in Germany after the end of socialism and helped to get productive assets rapidly into the hands of efficient managers in the private sector.

MOU models: In South Korea PSUs with high social obligation operate with private sectors with the help Of MOUs. But one of the most important things, that is forgotten in the outright privatization of CPSUs is that it is unaccompanied by the necessary reforms in the overall regulatory framework in which they operate. Reforms of the regulatory frameworks and the markets are crucial for the performance of both PSUs and private companies, ensuring a rule-based competitive structure covering entry, exit, bankruptcy, and competition among existing companies, as manifested by the British privatization of the 1980s and 90s.

CONCLUSION:

While the experience of other countries is available to India by way of guidance, it would have to evolve its own techniques, best suited to its level of development. The historic, cultural, and institutional context influences the way in which and the pace at which privatization is implemented. Where the market economy is not fully developed, ways would have to be found to safeguard the interests of consumers and investors, which would ensure a fuller play to the wealth-creating role of the entrepreneurs.

THE CONTEXT: Recently the Government of India has passed three farm bills that are being widely criticized by many farmer organizations. The farm bills are criticized for being pro-market reforms that have the potential of harming farmers’ interests in the long run.

HISTORICAL BACKGROUND

• Since 1991, economic liberalization and reforms by successive governments across the political spectrum – except during the lost decade of 2004-14 – have enabled a return to these core economic principles.
• That these timeless principles – advocated in as disparate Indian literature as the Arthashastra and the Thirukural – work is seen in the enormous prosperity well-regulated markets have delivered since 1991. Even the Chinese economic miracle is testimony to the role of markets in enabling economic prosperity for citizens.

WHAT IS FARM BILL 2020?

• In September 2020, the Indian government passed three agricultural bills, which are – Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bil, 2020, Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Bill, 2020, and the Essential Commodities (Amendment) Bill, 2020.
• The new farmers’ bill allows the farmers to sell their products directly to private buyers breaking the monopoly of man is regulated by the government. The people get empowered to get into a legal deal with the companies and produce agro-products for them. The farmers’ bill India also allows stocking of food articles by the agri-businesses removing the ability of the government to impose arbitrarily.

The three farm acts:

1. Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

• This act allows farmers to engage in trade of their agricultural produce outside the physical markets notified under various state Agricultural Produce Marketing Committee laws (APMC acts). Also known as the ‘APMC Bypass Bill’, it will override all the state-level APMC acts.
• Promotes barrier-free intra-state and inter-state trade of farmer’s produce.
• Proposes an electronic trading platform for direct and online trading of produce. Entities that can establish such platforms include companies, partnership firms, or societies.
• Allows farmers the freedom to trade anywhere outside state-notified APMC markets, and this includes allowing trade at farm gates, warehouses, cold storages, and so on.
• Prohibits state governments or APMCs from levying fees, cess, or any other charge on farmer’s produce.
• The three farm acts are likely to have a significant impact on farmers and agriculture in the country.

2. Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020

• The act seeks to provide farmers with a framework to engage in contract farming, where farmers can enter into a direct agreement with a buyer (before sowing season) to sell the product to them at pre-determined prices.
• Entities that may strike agreements with farmers to buy agricultural produce are defined as “sponsors’’ and can include individuals, companies, partnership firms, limited liability groups, and societies.
• The act provides for setting up farming agreements between farmers and sponsors. Any third parties involved in the transaction (like aggregators) will have to be explicitly mentioned in the agreement. Registration authorities can be established by state governments to provide for an electronic registry of farming agreements.
• Agreements can cover mutually agreed terms between farmers and sponsors, and the terms can cover supply, quality, standards, price, as well as farm services. These include supply of seeds, feed, fodder, Agrochemicals, machinery and technology, non-chemical agro-inputs, and other farming inputs.
• Agreements must have a minimum duration of one cropping season or one production cycle of livestock. The maximum duration can be five years. For production cycles beyond five years, the period of agreement can be mutually decided by the farmer and sponsor.
• The purchase price of the farming produce—including the methods of determining the price—may be added to the agreement. In case the price is subject to variations, the agreement must include a guaranteed price to be paid as well as clear references for any additional amounts the farmer may receive, like bonus or premium.
• There is no mention of minimum support price (MSP) that buyers need to offer to farmers.
• Delivery of farmers’ produce may be undertaken by either party within the agreed time frame. Sponsors are liable to inspect the quality of products as per the agreement, otherwise, they will be deemed to have inspected the product and have to accept the delivery within the agreed time frame.
• In the case of seed production, sponsors are required to pay at least two-thirds of the agreed amount at the time of delivery, and the remaining amount is to be paid after due certification within 30 days of the date of delivery. Regarding all other cases, the entire amount must be paid at the time of delivery, and a receipt, the slip must be issued with the details of the sale.
• Produce generated under farming agreements are exempt from any state acts aimed at regulating the sale and purchase of farming produce, therefore leaving no room for states to impose MSPs on such produce. Such agreements also exempt the sponsor from any stock-limit obligations applicable under the Essential Commodities Act, 1955. Stock limits are a method of preventing hoarding of agricultural produce.
• Provides for a three-level dispute settlement mechanism: the conciliation board—comprising representatives of parties to the agreement, the sub-divisional magistrate, and appellate authority.

2. Essential Commodities (Amendment) Act, 2020

• An amendment to the Essential Commodities Act, 1955, this act seeks to restrict the powers of the government with respect to the production, supply, and distribution of certain key commodities.
• The act removes cereals, pulses, oilseeds, edible oils, onion, and potatoes from the list of essential commodities.
• Government can impose stock holding limits and regulate the prices for the above commodities—under the Essential Commodities, 1955—only under exceptional circumstances. These include war, famine, extraordinary price rise, and the natural calamity of grave nature.
• Stock limits on farming produce to be based on price rise in the market.  They may be imposed only if there is: (i) a 100 percent increase in the retail price of horticultural produce, and (ii) a 50 percent increase in the retail price of non-perishable agricultural food items. The increase is to be calculated over the price prevailing during the preceding twelve months, or the average retail price over the last five years, whichever is lower.
• The act aims at removing fears of private investors of regulatory influence in their business operations.
• Gives freedom to produce, hold, move, distribute, and supply products, leading to harnessing private sector/foreign direct investment in agricultural infrastructure.

ARGUMENTS SUPPORTING THE FARM LAWS

The purpose of the new farm laws is to end the historic exploitation of farmers at the APMC markets and free them from the clutches of the middlemen. Farmers who sell their produce to mandi merchants, or ‘arhatiyas’, at agricultural produce market committee (APMC) markets still receive informal white slips with the transaction amount scribbled on them, making the record non-transparent. The purpose of the new farm laws is to end the historic exploitation of farmers at the APMC markets and free them from the clutches of the middlemen.

Economic history of exploitation at mandis:

• Fifty-five years since the APMCs were introduced, the country’s farmers are still receiving a low share of the consumer’s rupee as indicated by a Reserve Bank of India study covering mandis in 16 states, 16 food crops, and 9,400 farmers, traders, retailers.
• The farmers’ shares were 28 percent for potato, 33 percent for onion, 49 percent for rice, a crop with minimum support price (MSP) guarantee.
• The provision of MSP alone will not ensure farmers draw a greater share of the consumer’s rupee because supply is greater than demand.
• The demand is also influenced by schemes such as the national food security mission, where food grains are offered free or at low prices. When rice and wheat are offered virtually free of cost, why will the consumer buy Ragi, Jowar, Bajra at a higher price?
• Injecting competition by widening farm markets will benefit farmers, which the three farm laws aim at.

Inefficiencies in APMCs:

• The APMCs still don’t issue formal receipts which are supposed to mention the price, quantity, or quality of the produce.
• Further, due to interlocked markets, farmers are forced to sell to those middlemen who they have borrowed money from, starting off a vicious circle of exploitation in times of distress sales.
• Buyers make a large income from informal lending. Such illegal paired with unfair deductions, undercover sales, cartels, and collusions at APMCs have continued denying remunerative prices to the farmers.

Widened markets benefit farmers:

• Due to green revolution technologies, supply has increased but is limited to APMCs for handling. This causes the prices to be capped at a lower value. Permission to buy or sell outside APMCs will benefit farmers by creating new supply or value chains.
• The nominal protection coefficient (domestic price divided by international price) for agriculture is 0.87. This implies that farmers can get at least 13 percent higher prices in international markets by exporting.

Infringement of rights: 

• Farmers’ right to sell their produce to whomever, wherever, whenever, and in whichever quantity cannot be infringed upon. The elasticity of price transmission between that at APMCs and farmgate price (market value minus selling cost) is impressive. Thus, buyers outside APMC will have to compete with APMC prices and vice versa to attract farmers’ produce.

No interference with the state:

• Entry 26 of the state list enables states to regulate trade in agricultural commodities within their boundary. But this is subject to entry 33 in the concurrent list, which allows both the Centre and the states to frame these regulations.
• Such market reforms can double farmer incomes. Also, with Article 249, the Centre can enact the law in the national interest of saving farmers from exploitation by middlemen.

Multiple markets and competition:

• Allowing buyers outside APMC mandis promotes competition and halts exploitation. At present, while consumers are paying a higher price, farmers are still receiving lower returns due to inefficiencies and imperfections. Thus, setting the markets right is crucial through the new laws.
• Unified market platform (UMP) in Karnataka resulted in an increase of prices by 38 percent. This implies that current market prices are depressed by 38 percent due to a lack of adequate competition. Opening up the markets can push the APMCs to offer competitive prices.
• Competition in procurement and distribution costs can also reduce from 30 percent to 15 percent.

Bihar’s impressive performance:

• Economic reforms in Bihar in 2005 that removed the APMC act resulted in impressive agricultural and overall performance.
• Before 2005, Bihar’s economy grew at a rate of 5.3 percent while India’s economy grew at 6.8 percent. After the reforms, Bihar’s economy grew at 11.7 percent with a 4.7 percent agriculture boost, while India’s economy grew at 8.3 percent with agricultural growth at 3.6 percent.
• Between the pre and post-reform period, the average wholesale price of paddy increased by 126 percent, maize by 81 percent, and wheat by 66 percent.
• Considering the impact of reforms on crop output, in the pre-reforms (2000 to 2007) and post-reforms (2008 to 2015) period, the growth rates of the output of field crops (1.53 percent, 4.29 percent) were higher than that of horticulture crops (-3.51 percent, 2.85 percent), with an impressive growth rate of the overall output of agriculture and allied sectors (2.57 percent, 4.66 percent).

Contract farming:

• Contract farming enabled farmers to offer products at a predetermined price. When the market price is above the contractual price, farmers have the liberty to sell at a higher price.
• Small farmers have benefitted more than large farmers in contract farming as income derived per acre was the highest for small farmers.

Agriculture markets starved of 3Cs: 

• Agricultural markets are starved of capital, competition, and commitment. Capital injection postpones the operation of the law of diminishing marginal returns.
• The gross private capital formation in agriculture is 75 percent. Investment in marketing infrastructure, processing, logistics benefits society, where the private sector has potential. For these, political will is crucial and hence, the Union government should not repeal the three laws.
• New provisions of the Essential Commodities Act enable scale economies in agricultural marketing to attract private sector investment.

National overseeing authority: 

• Farmers cannot be left to the free will of competitive markets due to skewed asset distribution. A national body, a national agricultural marketing board similar to TRAI and SEBI, needs to be created to enhance the bargaining power of farmers and protect them, along with purchasers, sellers, and consumers from possibilities of exploitation.

WHY ARE THE FARMERS PROTESTING AGAINST THE FARM BILLS?

• More than half of all government procurement of wheat and paddy in the last five years has taken place in Punjab and Haryana, according to Agriculture Ministry data. More than 85% of wheat and paddy are grown in Punjab, and 75% in Haryana, is bought by the government at MSP rates. Farmers in these States fear that without MSPs, market prices will fall.
• These States are also most invested in the APMC system, with a strong mandi network, a well-oiled system of arthritis or commission agents facilitating procurement, and link roads connecting most villages to the notified markets and allowing farmers to easily bring their produce for procurement. The Punjab government charges a 6% mandi tax (along with a 2.5% fee for handling central procurement) and earns annual revenue of about ₹3,500 crores from these charges.
• The very right of the Centre to enact legislation on agricultural marketing. Article 246 of the Constitution places “agriculture” in entry 14 and “markets and fairs” in entry 28 of the State List. But entry 42 of the Union List empowers the Centre to regulate “inter-State trade and commerce”. While trade and commerce “within the State” are under entry 26 of the State List, it is subject to the provisions of entry 33 of the Concurrent List – under which the Centre can make laws that would prevail over those enacted by the states.
• Entry 33 of the Concurrent List covers trade and commerce in “foodstuffs, including edible oilseeds and oils”, fodder, cotton and jute. The Centre, in other words, can very pass any law that removes all impediments to both inter-and intra-state trade in farm produce, while also overriding the existing state APMC Acts.

ISSUE REGARDING THE BILL

• Yes, there were many flaws in the decades-old APMC Act, but critics believe that the need was to plug the loopholes instead of introducing a new system altogether. A similar system has already been introduced in America and some European countries where it has failed miserably, we can only hope this does not happen in India and government will not repeat those mistakes.
• From the attitude of the government, the stand of the government is very clear that it is not going to change anything because already it has been termed as Masterstroke. Right now, it is just an Act both are results are possible; farmers income becomes double as said by the government, or their conditions worsen as feared by farmers. History is the best judge. While the intent of the Government is laudable, we will be able to see the results of these new Acts after a few years only. Right now, everything is just speculation.
• The bill has triggered strong protests all over the country. Let’s have a look at the issues that are triggering so many protests across the nation.
• These new farmers’ bills might end MSP or minimum support prices and this bothers the farmers.
• Another concern is the lack of bargaining capability with big companies. The people involved in farming might get the freedom to deal with the biggest of the companies but due to the lack of knowledge, he/ she might not be able to negotiate the best possible terms.
• Outside the mandis or government-regulated markets, there is hardly any regulation, and a grievance redressal system is also not present there.
• The new farmers’ bill may weaken the APMC system which is considered to be very helpful for small farmers.
• As per the suggestions of agricultural economists, the focus should be given to strengthening APMCs rather than transferring everything to private entities.
• Many are fearing that the people involved in agriculture might be turned into slaves due to contractual farming.
• Due to the removal of restrictions on food storage, big companies may store agro products in huge quantities and create artificial hikes in price.

WAY FORWARD

Three fundamental reforms are necessary to make India’s growth more just and more inclusive.

• The first is, policymakers must listen to the less powerful people in markets. Therefore, institutions that represent small people — associations and unions of farmers, informal workers and small enterprises — must be strengthened, not repressed. When reforms are supposedly in their interests, they have a right to be heard.
• The second is the formation of cooperatives of producers and workers. By aggregating the small into larger-scale enterprises owned by themselves, not only do the producers have more power in negotiations with their buyers, suppliers, and with government, they are also able to retain a larger part of the value they generate and increase their own incomes and wealth. Government regulations must encourage the formation of strong cooperatives, and improve their ease of doing business.
• The third is, market reformers must clean up their ideological lenses and see the reality of where power lies in markets. As Barbara Harriss-White, a scholar of India’s agricultural markets once observed, “deregulated imperfect markets may become more, not less, imperfect than regulated imperfect markets.”

CONCLUSION:

• Farmers are debt-ridden, starved of funding and of assured price mechanism. The three legislations if taken together accentuate the crisis even further. In the absence of a guaranteed support price mechanism, the legislations even fail to mention very strong support for the MSP as a benchmark price as a fundamental condition for open agriculture trade and winding up of mandis. For years farmers have demanded statutory support prices for their produce from the government.
• There is a need to restore the shaken confidence of the agrarian sector. In order for that to happen the government of India needs to give an iron-clad guarantee on holding the price line 100% over and above the inflation-linked cost of production to the primary producer and not allowing any players to offer a price below that line to them. Only such a guarantee will ensure the confidence of the farmers in the system.
• We need to understand that if the country has to come out of its grave economic crisis, the answer does not lie in the economies of the urban or of the extractive economies of the capital. The answer decisively lies in the revival of the rural with dignity and respect. The country, it must be understood, cannot survive if the rural falls and chances of such an event happening today can only be averted with a considered policy response initiated with empathy and care.