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

A TIMELINE OF THE EVENT

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

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

CAUSE OF CONFLICT

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

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

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

CURRENT SITUATION

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

RUSSIA’S STAND

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

STAND OF MAJOR WORLD POWERS ON THE ISSUE

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

 POSSIBLE IMPACTS OF THE RUSSIAN INVASION

THERE COULD BE COLLATERAL DAMAGE FROM SANCTIONS ON RUSSIA:

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

ENERGY PRICES COULD RISE:

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

IMPACTS ON OTHER INDUSTRIES:

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

GLOBAL MARKETS COULD DROP:

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

RUSSIA COULD LAUNCH DISRUPTIVE CYBERATTACKS:

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

A MAJOR INVASION WOULD LIKELY SPARK A REFUGEE CRISIS:

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

THREAT FOR FURTHER INVASION: 

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

POSSIBLE IMPACTS OF THE RUSSIAN INVASION

THERE COULD BE COLLATERAL DAMAGE FROM SANCTIONS ON RUSSIA:

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

ENERGY PRICES COULD RISE: 

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

IMPACTS ON OTHER INDUSTRIES: 

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

GLOBAL MARKETS COULD DROP:

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

RUSSIA COULD LAUNCH DISRUPTIVE CYBERATTACKS:

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

A MAJOR INVASION WOULD LIKELY SPARK A REFUGEE CRISIS: 

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

THREAT FOR FURTHER INVASION: 

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

INDIA’S POSITION AND STANDING

MILITARY EQUATIONS:

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

CHINA FACTOR:

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

ECONOMIC FALLOUT:

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

EXPLAINING INDIA’S POSITION:

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

LESSONS FOR INDIA

INDIA, HELP YOURSELF:

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

ATMANIRBHARTA: THE WAY FORWARD:

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

FOCUS ON FUTURE TECH:

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

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

Questions:

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

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

ALL YOU NEED TO KNOW ABOUT THE NSE IMBROGLIO

THE SEBI FINDINGS:

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

IMPROPER PERSONNEL MANAGEMENT:

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

DIVULGING CONFIDENTIAL INFORMATION:

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

FAILURE OF THE NSE BOARD:

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

PENALTIES IMPOSED:

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

AN ANALYSIS OF THE NSE SCAM?

BLOW TO CAPITAL MARKETS:

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

POOR CORPORATE GOVERNANCE:

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

REWARDING MALFEASANCE:

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

CONDUCT OF DIRECTORS OF GOVT COMPANIES/BANKS:

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

REGULATOR’S CONDUCT:

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

A SERIES OF SCAMS IN NSE:

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

WHAT IS THE CO-LOCATION SCAM?

WHAT ARE CO-LOCATION FACILITIES?:

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

BENEFITS OF THESE FACILITIES:

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

UNFAIR ACCESS TO SERVERS:

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

ROLE OF WHISTLEBLOWER AND MEDIA:

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

EXTENT OF LOSS:

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

PENALTY ON NSE:

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

CORRECTIVE MEASURES:

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

THE SECURITIES AND EXCHANGE BOARD OF INDIA: AN OVERVIEW

CONSTITUTION OF SEBI:

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

PROTECTIVE FUNCTION OF SEBI:

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

REGULATORY FUNCTION OF SEBI:

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

DEVELOPMENT FUNCTION OF SEBI:

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

OBJECTIVES OF SEBI:

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

POWERS OF SEBI:

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

GOVERNANCE OF SEBI:

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

ENFORCEMENT OF LAWS:

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

A QUESTION MARK ON SEBI’S REGULATORY ROLE

INEXPLICABLE DELAY:

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

DILUTION OF OFFENCE:

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

POOR CAPACITY OF SEBI:

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

NO FEAR FOR REGULATORS:

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

LOST OPPORTUNITY FOR REFORMS:

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

SEBI’S FAILURE TO UPHOLD NATIONAL INTEREST:

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

ABDICATION OF AUTHORITY:

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

REVITALIZING THE REGULATOR AND REFORMING THE NSE: THE WAY FORWARD

SCALE UP THE RESOURCE BASE:

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

FAST TRACK REFORMS IN NSE:

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

ACTIONS BY SEBI:

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

FULFILLING SEBI’S MANDATE:

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

EXPECTATION FROM THE NEW SEBI CHIEF:

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

ROLE OF PMO AND OTHERS:

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

REGULATING THE REGULATOR:

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

RESTRUCTURING THE BOARD OF NSE:

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

WHISTLEBLOWER PROTECTION:

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

PROFESSIONAL CONDUCT OF THE GOVT COMPANY/BANK REPRESENTATIVES:

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

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

QUESTIONS:

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

ADD TO YOUR KNOWLEDGE

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

NSE Functions

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

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

UNDERSTANDING THE MODALITIES OF THE PRIVATE MEMBER BILL

WHAT IS A PRIVATE MEMBER BILL?: 

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

REQUIREMENT OF LEGISLATIVE COMPETENCE:

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

ATTACHMENT OF MEMORANDUM OF DETAILS:

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

THE MANDATE OF PRIOR RECOMMENDATION FOR INTRODUCTION:

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

MANDATORY RECOMMENDATION FOR CONSIDERATION:

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

CONSTITUTIONAL AMENDMENT:

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

COMMITTEE ON PRIVATE MEMBERS’ BILLS AND RESOLUTIONS

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

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

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

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

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

REPEAL OF LABOUR CODES:

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

OTHER BILLS INTRODUCED IN RS:

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

ANTI LYNCHING BILL:

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

EMPLOYEE WELFARE:

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

TAMING THE INTELLIGENCE AGENCIES:

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

RAJYASABHA REPRESENTATION FOR THE UT OF CHANDIGARH:

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

SIGNIFICANCE OF THE PRIVATE MEMBER BILLS

FULFILLING PRIMARY RESPONSIBILITY:

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

ESCAPE THE RIGOUR OF THE ANTI-DEFECTION LAW:

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

OUTLINING POSSIBLE SOLUTIONS:

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

DEMONSTRATING THE SENSE OF THE HOUSE:

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

INDIVIDUAL AND INSTITUTIONAL BENEFITS:

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

WHAT ARE THE CHALLENGES FACED BY PRIVATE MEMBER BILLS?

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

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

THE PRIVATE MEMBER BILL TO AMEND THE CONSTITUTION

FEATURES:

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

CONTROVERSY:

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

CAN THE PREAMBLE BE AMENDED THROUGH A PRIVATE MEMBER BILL?

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

THE WAY FORWARD:

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

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

QUESTIONS:

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

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

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

RESERVATION IN THE PRIVATE SECTOR:

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

APPLICATION OF THE ACT:

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

SUNSET CLAUSE:

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

MANDATORY REGISTRATION:

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

ENSURING COMPLIANCE:

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

PROVISION OF EXEMPTION:

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

THE ARGUMENTS OF THE GOVERNMENT IN FAVOUR OF THE ACT

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

A CRITICAL SCRUTINY OF THE ACT

CONCERNS OF THE INDUSTRY:

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

IMPACT ON INVESTMENT CLIMATE:

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

STATE INTERVENTION IN THE MARKET:

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

CHANCES OF RELOCATION OF INDUSTRIES:

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

ECONOMIC FRAGMENTATION:

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

IMPACT ON COMPANIES:

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

CONSTITUTIONAL ISSUES:

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

CONSTITUTIONAL ISSUES INVOLVED IN THE ACT

VIOLATES ARTICLE 14 and 15:

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

VIOLATES ARTICLE 16:

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

VIOLATES ARTICLE 19:

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

CONTRARY TO COMMON CITIZENSHIP:

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

VIOLATES 50 PERCENT NORM:

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

AGAINST RESERVATION JURISPRUDENCE:

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

POLITICS OF DOMICILE RESERVATION: AN OVERVIEW

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

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

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

THE WAY FORWARD

HUMAN CAPITAL FORMATION:

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

RAPID EMPLOYMENT GENERATION:

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

PERSUASION THAN COERCION:

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

JUDICIAL DETERMINATION:

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

SHUN POLITICAL NATIVISM:

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

BALANCED AND RAPID REGIONAL DEVELOPMENT:

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

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

QUESTIONS:

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

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

BASIC INFORMATION ABOUT MARITIME THEATER COMMAND

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

SIGNIFICANCE

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

NEED OF MARITIME THEATER COMMAND

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

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

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

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

CHALLENGES

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

CURRENT COMMAND STRUCTURE IN INDIA

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

WAY FORWARD:

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

JUST TO ADD IN YOUR KNOWLEDGE

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

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

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

THE TRANSITION TOWARDS ELECTRIC MOBILITY

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

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

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

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

ELECTRIC MOBILITY INITIATIVES IN INDIA

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

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

The FAME India Scheme

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

Two phases of the scheme:

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

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

Fame India Scheme has four focus Areas:

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

Objectives of FAME Scheme:

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

SHIFTING ENERGY RESOURCES FROM MIDDLE EAST TO LATIN AMERICA

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

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

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

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

Lithium triangle

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

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

CHALLENGES FOR INDIA’S ELECTRIC MOBILITY INITIATIVES

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

Rising crude oil imports –an energy security challenge

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

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

Rising pollution levels –An environmental challenge

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

Rising population –A sustainable mobility challenge

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

Evolving global automotive market –A manufacturing transition challenge

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

ELECTRIC MOBILITY: A POTENTIAL SOLUTION FOR INDIA

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

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

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

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

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

WAY FORWARD:

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

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

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

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

CONCLUSION:

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

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

ABOUT PARIS AGREEMENT

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

IMPLEMENTATION OF PARIS AGREEMENT

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

Nationally Determined Contributions (NDCs):

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

Long-Term Strategies: 

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

Is the Paris agreement binding?

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

Difference between Paris Climate and Kyoto Protocol:

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

Talanoa dialogue

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

What is Talanoa?

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

The significance of Talanoa dialogue

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

The Under2 Coalition

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

FRAMEWORK OF PARIS AGREEMENT

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

Finance

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

Technology

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

Capacity-Building

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

ENHANCED TRANSPARENCY FRAMEWORK (ETF)

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

INDIA AND PARIS AGREEMENT

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

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

India’s Intended Nationally Determined Contribution (INDC)

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

India’s effort to address Climate Change

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

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

Recent developments

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

SIX YEARS AFTER PARIS AGREEMENT

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

(1) Unclear targets and response

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

(2) Degradation isn’t stopped

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

(3) Countries aren’t scaling up their targets

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

WAY FORWARD:

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

CONCLUSION:

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

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

WHAT DOES THE TERM ‘CURRENCY MANIPULATOR’ MEAN?

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

ALL ABOUT US’s CURRENCY WATCH LIST

Why is India on the monitoring list?: 

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

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

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

What are the parameters used: 

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

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

Consequence: 

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

Other countries on the list:

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

UNDERSTANDING CURRENCY MANIPULATION

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

IMPACT ON INDIA

WAYFORWARD:

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

CONCLUSION:

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

JUST TO ADD IN YOUR KNOWLEDGE

EXCHANGE RATE

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

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

BRIEF DESCRIPTION OF NEGOTIATIONS AT THE WTO

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

OSAKA TRACK

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

INDIA’S CONCERNS

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

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

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

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

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

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

SHOULD INDIA RECONSIDER ON ITS STAND?

Advantageous to the MSMEs:

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

Growing e-commerce market:

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

Tax losses:

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

Stand of other countries: 

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

Developmental approach:

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

INDIA’S PREPARATION

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

OTHER INITIATIVES

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

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

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

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

WAY FORWARD:

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

CONCLUSION:

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

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

HISTORICAL PERSPECTIVE OF INDIA’S REGIONAL POLICY

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

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

KEY FOREIGN POLICY CONSIDERATIONS

NEED FOR POLICY REWORK

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

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

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

CHALLENGES

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

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

Lack of Consensus on Security and Development:

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

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

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

India’s Hard Power Tactics:

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

Political loggerheads:

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

WHAT SHOULD BE DONE

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

1. Soft Power:

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

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

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

3. Learn from ASEAN: 

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

4. Multi-vector foreign policy:

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

5. Understand limitations of the neighbourhood first:

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

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

WAY FORWARD:

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

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

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

CONCLUSION:

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

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

PERSPECTIVE FOR INDIAN MARKET

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

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

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

NEED TO HOLD ACCOUNTABLE

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

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

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

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

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

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

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

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

MEASURES TAKEN AT THE NATIONAL AND INTERNATIONAL LEVEL

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

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

WHAT SHOULD BE DONE?

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

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

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

WAY FORWARD:

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

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

CONCLUSION:

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

JUST TO ADD IN YOUR KNOWLEDGE

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

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

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

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

Rights of the individual:

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

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

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

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

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

Offenses:

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

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

EVIDENCE-BASED POLICY

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

DATA TO DATA POLITICS

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

DATA-BASED GOVERNANCE

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

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

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

CASE STUDY

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

IMPACT OF THE STUDY

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

IMPORTANCE OF THE STUDY

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

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

EXAMPLES OF EVIDENCE POLICYMAKING IN INDIA

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

CHALLENGES OF POLICYMAKING

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

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

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

THE WAY FORWARD:

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

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

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

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.

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.

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.

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.