9 PM Daily Current Affairs Brief – January 2nd, 2023
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Mains Oriented Articles
GS PAPER - 1
Working-age population on the decline
Contents
- 1 About the declining working-age population in major economies
- 2 About the declining working-age population in China and India
- 3 What will be the impact of the declining working-age population?
- 4 Why do population incentivising policies will not stop the declining working-age population?
- 5 How nations can overcome the declining working-age population?
Source: The post is based on the article “Working-age population on the decline” published in the Livemint on 2nd January 2022.
Syllabus: GS 1 – Population and associated issues.
Relevance: About the declining working-age population.
News: In the majority of the developed countries working-age population is on the decline.
About the declining working-age population in major economies
According to the UN’s World Population Prospects 2022 (WPP2022) report, the global fertility rate, which stood at 2.3 overall in 2021, will hit the demographic tipping point of 2.1 by 2050. This is owing to a globally synchronized decline in birth rates, including in Africa and Latin America.
The report also pointed out that worldwide, persons aged 65 or over outnumbered children under five for the first time in 2018. By the middle of this century, there will be twice as many senior citizens as people under five, and around as many as the total number of people under 12.
Fertility rates have dropped below the replacement level in all eurozone countries, and they are strikingly low in Hong Kong, Macao, Singapore, South Korea, and Taiwan—the five wealthiest East Asian economies, omitting China.
At 0.81 and 1.38, respectively, South Korea and Hong Kong’s 2021 fertility rates are among the lowest in the world. The US fertility rate has more than halved over since 1960, falling from 3.7 to 1.66 in 2021.
About the declining working-age population in China and India
The situation of India: An emerging-market powerhouse like India is experiencing a population decline. For instance, India recorded fertility rates of 2.03 in 2021 and 2.05 the year before. This is the first time the country had fallen below the replacement rate.
The situation in China: The Chinese government ended its 35-year-old one-child policy in 2016. However, China’s fertility rate stood at just 1.16 in 2021, down from as high as 6.3 as recently as 1968.
Today, every 100 working-age Chinese need to support 20 retirees. If trends continue, by the turn of the next century, every 100 workers will have to support 120 retirees.
What will be the impact of the declining working-age population?
a) High-income economies will face increased pension and healthcare costs, b) The absence of more immigration will lower household consumption and economic growth, c) Historically, per capita output growth has accounted for around half of average annual world economic growth, with the other half coming from population growth. The declining working-age population will upset this balance, d) Many countries may adopt aggressively pro-natalist policies.
Why do population incentivising policies will not stop the declining working-age population?
According to Nobel laureate economist Gary Becker, the demand for children responds to changes in the price of the “marginal child”. Such policies tend to emphasize financial incentives, such as paid maternity leave, “bonuses” for couples that have children, monthly grants for mothers who take time off work to raise a third child, and personal tax deductions to cover childcare expenses.
But these inducements have not proven especially effective. For instance, despite France’s population incentivising policies, its fertility rate stood at just 1.83 in 2021.
How nations can overcome the declining working-age population?
International migration from low-income, high-fertility countries to those with higher average incomes and lower birth rates has helped shield the declining working-age population.
International migration has helped high-income countries sustain economic growth and ease the burden of supporting their growing elderly populations, including by keeping state pensions on a sustainable path.
So, the countries need to recognize the mutually beneficial relationship that exists between low- and high-fertility countries.
GS PAPER - 2
The success of translations has bridged the gap between writing in Indian regional languages and Indian writing in English
Source– The post is based on the article “The success of translations has bridged the gap between writing in Indian regional languages and Indian writing in English” published in The Indian Express on 2nd January 2023.
Syllabus: GS2- Indian literature
News– The article explains the status of vernacular literature in India
The International Booker Prize was awarded to Tomb of Sand. It is an English translation of Geetanjali Shree Hindi novel Ret Samadhi.
What is the status of literature in vernacular?
These languages have substantially smaller numbers of speakers than Hindi. But they have large readership and a vibrant literary sphere.
JCB award is given to the best Indian novel published in English or translated into English from any Indian language. For the last three years, it has gone to novels originally written in Malayalam. This year it has gone to translation from Urdu.
Over the last two decades, novels from the Indian language have been translated into English. They have occupied a larger space in the literary ecosystem. The Bhojpuri novel Phoolsungi translated into English in 2020 has made waves.
All these novels were written in the 20th or 21st century in Western-realist mode. They deal with modern social-historical themes. Phoolsungi depicts indigo cultivation and the coming of railways in Bihar.
How the differences between vernacular literature and Indian literature in English have reduced with time?
Ever since Bankim Chander, the majority of writers in all Indian languages have been well versed in English while preferring to write in their own languages.
The difference between the vernacular writers and Indian writing in English has not been much of sensibility and quality. It is about language affiliation and social class.
But now vernacular literature has emerged equal to Indian writing in English and enjoys a substantial demographic dividend.
The deep bilingualism that has always coexisted between English and Indian languages at literary level seems now to be breaching linguistic borders.
India-China: between pre-1962 and now
Source– The post is based on the article “India-China: between pre-1962 and now” published in The Hindu on 2nd January 2023.
Syllabus: GS2- India and its neighbourhood relationship
Relevance– Bilateral relationship between India and China
News– The article explains the similarities and differences between India-China bilateral relations and the situation along LAC in the 1960s and now.
What are the differences between India- China bilateral conduct in the 1960s and now?
The focus in the 1950s was on the “territorial dispute”of Aksai Chin and NEFA. Today, China is firmly in occupation of Aksai Chin and India is firm in guarding its territorial integrity in Arunachal Pradesh. The immediate issue is transgressions along the LAC.
The differences in the western sector are no longer confined to the Daulet Beg Oldie and Demchok as was the case in earlier decades. China is now seeking claims in the Depsang, Galwan, Pangong Lake and Hot Springs areas.
The border infrastructure on the Indian side was in poor condition earlier. But now, India is rapidly building its border infrastructure.
In 1962, India was forced to approach the U.S. and other Western countries for military assistance to meet the Chinese challenge. In the current phase, India has rapidly inducted new weapon systems.
In the 1950s, China did not claim open support for Pakistan, including on Kashmir. China’s support for Pakistan on Kashmir became self-apparent in the 1960s. Today, China openly works with Pakistan against India’s interests .
The biggest difference between the situation in the 1960s and now is the political will of the Modi government and the determination of the Indian army to block Chinese patrols.
What has not changed in their bilateral relations?
Traditionally, China has enjoyed an advantage in terms of terrain and logistics in Tibet. China has always projected a spurious interpretation of the LAC. It has shied away from clarifying its position through exchanges of large-scale maps.
China’s internal vulnerabilities have always impacted bilateral relations with India. Tibet has remained a source of insecurity for China.
In the late 1950s, Mao Zedong adopted an aggressive stance towards India for consolidating his leadership in the face of internal challenges and avoiding criticism of disastrous political and economic policies.
Today, Mr. Xi is facing challenges for the dreadful Zero-COVID policy, and growing authoritarianism. The tendency to create external diversions is a common thread.
The LAC between India and China is frequently open to challenge by either side. There are areas along the LAC that have been patrolled by both sides in the past.
In the middle, the Barahoti pasture north of Chamoli in Uttarakhand has been at the centre of the dispute for the past seven decades.
In the eastern sector, the international boundary and the LAC are defined by the 1914 McMahon Line. Yet, China seeks to make inroads in the Tawang sector, Upper Subansiri region, and near the tri-junction with Myanmar.
India’s dilemmas in an Asian century
Contents
- 1 What are important geopolitical developments taking place across Asia?
- 2 What will be the shape of the Asian century and its impacts on the stability of global order?
- 3 What is the Indian version of multipolarity?
- 4 What can be the implication of multipolar South Asia for global financial order?
- 5 What is the dilemma created by multipolar Asia before Indian foreign policy establishment?
Source– The post is based on the article “India’s dilemmas in an Asian century” published in The Hindu on 2nd January 2023.
Syllabus: GS2- International relations
Relevance– Emerging global order and Implications for India.
News– The article explains the emergence of the Asian century and its implications for stability of global order. It also explains the dilemmas presented by emerging global order before Indian foreign policy establishment
What are important geopolitical developments taking place across Asia?
Emergence of the Asian century appears to be a certainty.
The geopolitical and economic rise of Asia coincides with several regional and global developments. These have potential to undermine the stability and prosperity India had hoped an Asian century would bring.
The withdrawal of the U.S. from much of continental Asia, aggressive rise of China and the Ukraine war appear to have ended the coexistence of Asia.
Today, Russia and China are trying to undermine the global balance of power. Several regional powers such as Iran, Turkey and Saudi Arabia are in tow.
What will be the shape of the Asian century and its impacts on the stability of global order?
There can be no meaningful Asian century in a unipolar world. One Alternative to a unipolar world is a multipolar world with Russia, China, Japan, India and other smaller powers asserting themselves on the global stage. The other alternative is a China-dominated Asia.
It is clear that a China-dominated Asia won’t serve India’s geopolitical interests. A multipolar world with new and shifting alliances; and competing coalitions for dominance will take away the relative ‘stability’ of the current world order.
What is the Indian version of multipolarity?
For India, multipolarity is premised on the rule of law or peaceful coexistence. India values respect for the sovereignty and territorial integrity of all countries, resolution of international disputes through peaceful negotiations, and free and open access for all to the global commons.
What can be the implication of multipolar South Asia for global financial order?
It would lead to sharpening of opposition against the current global financial order.
The weaponization of trade, sanctions against Russia will pose serious challenges to dollar-based trade and Western payment systems such as SWIFT.
The Ukraine war has led to a serious search in parts of Asia for alternative trading arrangements and payment mechanisms.
What is the dilemma created by multipolar Asia before Indian foreign policy establishment?
New Delhi has consistently campaigned for a multipolar world where key Asian powers have a major role in international politics. Yet it may hesitate to engage the emergent Asian century for various reasons.
The Indian establishment has a deeply status quoist view of the world order. It believes in a more democratic, orderly and rules-based world order. But, it recognises that major systemic changes could create chaos. Therefore, India likes peaceful and consensual transformation of the system. It is not happening today.
New Delhi’s biggest fear would be an Asian century without stable multipolarity. Even if it emerges, a multipolar world is most likely to be soon replaced by a bipolar world dominated by the U.S. and China. It would be a bad deal. In such a scenario, India will often be targeted by China.
If a bipolar world leads to great power accommodation between the U.S. and China, India’s situation could be worse off. It means the U.S. accepting China’s sphere of influence.
The Asian century dominated by China may lead to post-Indian South Asia that is under the Chinese sphere of influence, though not entirely inimical to Indian interests.
Equity in healthcare: Aim For More Than Just More AIIMS
Source: The post is based on the article “Aim For More Than Just More AIIMS” published in The Times of India on 2nd January 2022.
Syllabus: GS 2 – Issues relating to development and management of Social Sector/Services relating to Health.
Relevance: About achieving equity in healthcare.
News: India’s primary level can take care of almost 70-75% of the population’s healthcare needs. About 20-25% is addressed at the secondary level. Around 5-10% need tertiary-level care.
More AIIMS-like institutions are required to promote equity in India’s healthcare environment.
What is equity in healthcare means?
In healthcare, equity means two things a) People with the same health needs get the same care (horizontal equity) and b) People with an advantage take on a greater share of the responsibility for paying for health services (vertical equity).
A pursuit of excellence or equity is conditioned by one’s background and training. For example, as a general principle, clinicians are trained to support excellence and public health people advocate equity.
Excellence is a measure of the quality of care and equity is a measure of access to care. Both are important. For instance, equity has no meaning if excellence is not a part of it and, excellence is wasted if restricted to a few. So, neither equity nor excellence is achieved without effort.
Read more: [Kurukshetra December Summary] e-Governance in Healthcare Services Delivery – Explained, pointwise |
How India can achieve equity in healthcare?
a) India needs to stop seeing excellence as an individual choice and pursuit, but rather as a health system goal. For this to happen, a sharing of a vision of excellence by all levels of leadership is needed.
b) India needs to change the work ethos at all levels to reinforce quality and rigour and ensure commensurate investment in infrastructure and human resources.
c) India needs newer AIIMS-like institutions to achieve the ‘excellence’ of AIIMS New Delhi will need time and effort.
d) Promoting equity requires a reconceptualisation of the health system itself, especially healthcare financing so that barriers to access are removed.
e) India needs smaller health and wellness centres near villages with appropriate size, each catering to the population subset that needs primary, secondary or tertiary care.
Overall, India should ensure providing equity in healthcare is a population-level outcome.
GS PAPER - 3
The path to decarbonisation in the wake of the Russia-Ukraine conflict
Source– The post is based on the article “The path to decarbonisation in the wake of the Russia-Ukraine conflict” published in The Indian Express on 2nd January 2023.
Syllabus: GS3- Infrastructure: Energy
Relevance– Issues related to energy markets
News– The article explains the major changes happening in international energy markets. It also explains the future strategy for the Indian energy market in the changing dynamics.
Energy market is fragmented and energy nationalism is the driving force behind policy.
The Iron curtain has come down. Russia will not be allowed access to western markets as long as Putin is holding the Presidency in Russia. It will lead to a tightening energy embrace between Russia and China.
OPEC plus one has stepped out of western influence. It is actually increasing the closeness between Russia and Saudi Arabia on energy matters. Saudi Arabia has made it clear that it wants to pursue a “Saudi first” non-aligned approach to international relations.
New centers of energy powers are emerging around the world that have a large share of metals, minerals required for clean energy. China is currently the dominant power.
What is the way forward for India?
Petroleum sector– Russian crude is not a sustainable option to meet the energy requirements for India. Government must increase the productivity of existing producing fields. There is a need to increase the country’s market potential to secure a long-term supply with Saudi Arabia and equity partnership with Iran.
Strategic petroleum reserves should be enhanced to cover at least 30 days of consumption. The construction of the pan-India national gas pipeline grid should be expedited.
Coal sector– Coal will remain an important component of India’s energy system for decades. Hundreds of people depend upon the coal ecosystem for livelihood. The government has to find an energy transition route that balances livelihoods and a green agenda.
Some steps in that direction are increased R&D expenditure for coal gasification and carbon capture technologies; carbon tax; establishment of regulatory and monitoring mechanisms for measuring carbon emissions from industry and closure of inefficient and old plants. NITI Aayog should determine the competitiveness of coal versus solar on a full-cost basis.
Demand side measures– The demand conservation and efficiency side is equally important. It is the cheapest, easiest and quickest way to reduce dependence on external sources.
Other measures– There is need for upgradation of transmission grid network to make it resilient for clean energy. The structural issues impacting the renewable actor should be addressed. The improvement in balance sheets of state distribution companies; easing the process for acquisition of land and removal of regulatory uncertainties are important.
Mineral and chip diplomacy is needed to diversify the source of supply of minerals for clean energy.
Creation of an enabling ecosystem for developing and commercializing third-generation clean energy technologies like hydrogen, biofuels and modular nuclear reactors should be pushed.
The International Year of Millets: how India’s govt can promote the cereals in 2023
Source: The post is based on an article “The International Year of Millets: how India’s govt can promote the cereals in 2023” published in The Indian Express on 2nd January 2023.
Syllabus: GS 3 – Food Security
Relevance: benefits and challenges associated millets
News: The effort of India has led the United Nations to declare 2023 as the International Year of Millets. India also accounts for a fifth of the world’s millets production.
What are the benefits of millets?
Millets are more nutritious than rice and wheat. However, their protein quality is poorer than that of rice.
The rotis from bajra makes one feel fuller for longer as they take more time to digest and do not raise blood sugar levels too fast. However, there are also challenges associated with millets.
Read More: Millet Production in India – Explained
What are the challenges with millets?
Unassured irrigation: Farmers get assured irrigation for rice, wheat, sugarcane, or cotton. Therefore, they would switch towards these corps.
Lack of MSP: Pusa – 1201, a hybrid bajra has been developed to raise the yields and withstand fungal diseases. However, the absence of the Minimum Support Price (MSP) by the government would make farmers hesitant to grow this variety.
Read More: Millet Production in India – Explained
What steps can be taken by the government to promote millet?
First, the two schemes of the government – Pradhan Mantri Poshan Shakti Nirman and Saksham Anganwadi & Poshan 2.0 can be leveraged making them more millets-focused.
Second, MSP procurement of millets should be part of a decentralized nutritional programme.
Third, millets could be served in the form of ready-to-eat foods.
Fourth, the Centre could fund states willing to procure millets, specific to their region and exclusively for distribution through schools and anganwadis.
Read More: Millet Production in India
The danger of deepfakes
Source: The post is based on an article “The danger of deepfakes” published in The Hindu on 2nd January 2023.
Syllabus: GS 3 – Science and Technology
Relevance: concerns associated with deepfake technology.
News: The article discusses the problems associated with deepfake technology and measures needed to tackle those.
What are deepfakes?
They are digital media-video, audio, and images edited and manipulated using Artificial Intelligence.
Cloud computing, public research AI algorithms, abundant data and availability of vast media have provided the option to manipulate the media. This synthetic media content is referred to as deepfakes.
Artificial Intelligence (AI)-Generated Synthetic media or deepfakes have benefits in certain areas such as accessibility, education, film production, criminal forensics, and artistic expression.
However, there are more problems associated with it than its benefits.
What are the problems with deepfakes?
Targeting Women: According to a report, 96% of deepfakes are pornographic videos. Deepfake pornography exclusively targets women. It reduces women to sexual objects causing emotional distress, financial loss and consequences like job loss.
Social harm: Deepfakes can also cause short-term and long-term social harm. For example, it can depict a person as indulging in antisocial behaviors and saying bad things that he never did.
Misuse by a nation-state: Deepfake could be used by a nation to harm public safety and create uncertainty and chaos in the target country. Deepfakes can undermine trust in institutions and diplomacy.
Misuse by non-state actors: Deepfakes can be used by non-state actors, such as insurgent groups and terrorist organisations, to show their provoking speeches or such actions to create anti-state sentiments among people.
Spread of unauthentic information: Deepfakes can be used to spread fake news, fake information. Thus, misleading the people.
What can be the course of action?
- a) There is a need to enhance media literacy amongst the people. It is the most effective tool to combat disinformation and deepfakes, b) A collaborative discussion with the technology industry, civil society, and policymakers is needed to create a proper law, c) there is a need for easy-to-use and accessible technology solutions to detect deepfakes, d) people should act responsibly and think before sharing any media and before coming to any conclusion.
Demand to exploration: Key warning signals for India’s gas industry in 2023
Source: The post is based on the article “Demand to exploration: Key warning signals for India’s gas industry in 2023” published in the Business Standard on 2nd January 2022.
Syllabus: GS 3 – Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
Relevance: About gas-based economy in India.
News: Indian natural gas business is key to the country achieving its net-zero targets in 2070.
Why does India need to focus on gas based economy?
-Unlike oil, where India has a cheap supply source in Russia, and other affordable sources in West Asia, there is no one to supply liquefied fuel to India at rates that consumers can afford.
-India’s fertiliser and domestic city gas businesses are heavily dependent on natural gas supplies.
-India’s 2070 net-zero climate change target is contingent on increasing gas as a fuel in the economy.
Read more: The Russia-Ukraine war has put the spotlight on the role of Liquefied Natural Gas (LNG) in the global energy futures. |
What are the key warning signals for India’s gas industry in 2023?
Reduction in demand: Demand for gas in India declined for the first time in eight years this fiscal (excluding a Covid-19-induced dip in 2020-21) after rising steadily until 2019-20.
India’s gas demand was still below 2011-12 levels when India’s dependence on imported LNG was at around half of the current levels.
Decline in gas prices: Russian state-run Gazprom’s sales to Europe and Turkey were at their lowest this century. The squeeze on European supplies increased benchmark gas prices at Dutch TTF to a record in August equivalent to $94 per mBtu (million British thermal units) LNG levels.
But TTF month-ahead prices now average $36 per mBtu, 5% below last year’s levels. This drastic decline in gas is due to mild weather and adequate inventories in Europe.
Volatility in gas rates for India: Europe will need around 75 million tonnes a year of LNG, equivalent to over three times what India consumes, to substitute 100 billion cubic metres of Russian gas this year.
But Qatar, the world’s biggest LNG producer, plans to increase output by only 33 million tonnes a year. This exposes countries like India to volatility in rates in the meantime.
Lack of storage facilities in India: There are almost no gas storage facilities, unlike in China, the US and Europe because the government did not focus on this aspect of the gas supply chain. This makes India even more vulnerable to global price swings.
Reduction in supply to India: Gazprom abruptly ceased 2.5 million-tonne-a-year shipment under a 20-year contract with GAIL.
Over a third of India’s annual LNG supplies comes from a single Qatari supply contract. This is set to expire in a few years. Now Indian importers must compete with Europe, which has the ability to pay steep premiums for term volumes.
India lacks gas exploration: India’s potential gas reserves lie in deep waters. So, gas exploration in India is expensive and high-risk to drill.
The government might accept the recommendations of the Kirit Parikh committee. The committee recommended capping rates at 24% less than the $8.57 per mBtu that explorer ONGC currently charges for supplies. India’s latest price caps on domestic gas supplies will threaten and deter exploration.
Read more: Bottlenecks slow progress of ‘one nation one gas grid’ |
What should be done to improve gas based economy in India?
The government must be nimble, creative, targeted and pragmatic in new global gas environment. For that, India must free fuel prices instead of meddling with them and regulators must implement the proposals in a faster manner.
Virtual Digital Assets (VDAs): Challenges in Regulation – Explained, pointwise
Contents
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Introduction
The first meeting of G20’s Finance Track was held recently in Bengaluru. Regulation of Virtual Digital Assets (VDAs) emerged as a top priority agenda in the meeting. VDAs are a new evolving technology and are at the intersection of finance, economy and technology. The concerns associated with the exploitation of VDAs as a medium of money laundering and terror financing has necessitated their regulation. The Government of India has been leading efforts at the global level to counter terrorism and its financing. In the recent ‘No Money for Terror’ Conference hosted by India, 93 participating countries agreed to end all financing of terror, including through the use of emerging technologies such as VDAs. The Government has pushed regulation of VDAs as an agenda of G20 in the year of its Presidency. There are several challenges in regulation of VDAs that requires a coordinated international effort.
What are Virtual Digital Assets (VDAs)?
The Financial Action Task Force (FATF) defines a virtual asset as “A digital representation of value that can be digitally traded, transferred and used for payment or investment purposes“. This definition is included in the FATF’s global recommendations on Combating Money Laundering and the Financing of Terrorism and Proliferation.
Read More: Countering Terror Financing – Explained, pointwise |
According to the US Department of the Treasury, a virtual currency is a “digital representation of value that functions as a: (a) Medium of exchange; (b) Unit of account; and/or (c) Store of value; and is neither issued nor guaranteed by any jurisdiction”. This description fits neatly into the FATF definition of a virtual asset and the idea of a digital representation of value.
The Finance Act, 2022 introduced a new taxation regime for income arising from transfer of Virtual Digital Asset (VDA) under Income-tax Act, 1961 (the Act). The term Virtual Digital Asset (VDA) has been defined under Section 2(47A) of the Income Tax Act to include the following: (a) Any information or code or number or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise, by whatever name called, which meets certain conditions; (b) Non-fungible token (NFT) or any other token of similar nature, by whatever name called. Further NFT is defined to mean such digital asset as the Central Government may, by notification in the Official Gazette, specify; (c) Any other digital asset, as the Government may specify by notification.
The Government may exclude any asset from the definition of Virtual Digital Asset by notification.
A Non-Fungible Token (NFT) is a digital asset that exists on a blockchain, allowing anyone to verify its authenticity and who owns it. Digital art, images, videos, text, music and even virtual real estate and in-game items can be bought and sold as NFTs.
While VDA includes cryptocurrencies, the definition can cover a wide variety of digital assets which is implied by the wording ‘or otherwise’ in the phrase “generated through cryptographic means or otherwise”. The definition is also made exhaustive with the words ‘information’, ‘code’, ‘number’.
Because of the broad definition, VDAs can potentially include vouchers, reward points issued by shopping sites or credit card companies, airline miles etc. Experts have sought clarifications from the Government. They fear the scope of VDA may impact digital assets created by companies.
The Central Board of Direct Taxes (CBDT) in Notification 74 has excluded certain items from the definition of VDAs. These include gift cards, vouchers (discounts), mileage/reward/loyalty points (promotional programmes) etc.
What steps have been taken to regulate Virtual Digital Assets (VDAs)?
First, The Financial Action Task Force has issued the Guidelines on Virtual Asset Transactions (FATF Guidelines) related to VDAs. The Guidelines have been adopted by various jurisdictions, including the EU, Japan and Singapore.
Second, The Finance Bill 2022 has promulgated a new taxation regime for the class of VDAs including cryptocurrencies and non-fungible tokens (NFTs). The gains arising from the transfer of VDAs are proposed to be taxed at the rate of 30%. However, the Act did not have any provision related to legalizing/banning the cryptocurrencies or any other Digital Asset.
Third, Under the presidency of India, G20 Finance Track discussion has put the regulation of VDAs to curb their use in money laundering and terror financing as a top priority.
What are the challenges in regulating Virtual Digital Assets (VDAs)?
First, the technologies behind blockchain and cryptocurrencies are complex. It is difficult to determine their governing structure.
Second, the blockchain technologies are decentralized by design. They transcend national jurisdictions in a digital domain. Hence it is difficult for Governments to regulate them.
Third, Digital Technologies including blockchain are evolving rapidly. It is difficult to regulate such technologies without fully comprehending their benefits and drawbacks. It is challenging to come up with a singular and concrete structure to apply to every known and unknown technological development and change in the financial sector.
Fourth, Lack of reliable data on VDA transactions allows bad actors to engage in unchecked transactions and defraud investors as happened in the case of FTX bankruptcy, which was the second largest Virtual Digital Asset (VDA) trading platform before its collapse.
Read More: Cryptocurrencies in India: Ban or Regulation? – Explained, pointwise |
What should be done going ahead?
First, A viable approach for India is in taking the industry and the investor into confidence by allowing anti-money laundering (AML) authorities visibility over VDA transactions, and the power to impose controls upon them and prosecute in the event of any misuse.
Second, The concerns around the misuse of VDAs for illicit activities require careful legislative responses and forward-looking regulatory mechanisms. The present concerns related to VDAs stem from lack of reporting and transparency norms, and an absence of international consensus on regulatory design. G20 provides a suitable platform to develop an understanding and consensus regarding regulation of VDAs. The Government has taken a positive approach by pushing this matter as a priority for G20 Finance track.
Third, The financial institutions, fintech, regulators, consumers, and government need to join forces to have a fair and comprehensive regulation benefitting every stakeholder.
Fourth, Development of adequate financial and technology literacy programs (e.g., through initiatives at different education levels, tailored communication, and outreach programs) should be considered.
Conclusion
The technology surrounding the financial sector (blockchains, cryptocurrencies, VDAs) has been evolving rapidly. While these technologies have several benefits, their misuse (money laundering, terror financing, financial frauds) pose a big threat. Complexity and ever evolving nature of technology makes their regulation a major challenge to the regulatory authorities. A coordinated effort at the global level is necessary for this purpose. India currently has two crypto unicorns operating domestically, and is home to major VDA players and a thriving community with 25+ million people, making it all more important to regulate the sector. In addition to the domestic efforts, the Government of India should take a lead in guiding the discourse on the global regulation of VDAs.
Syllabus: GS III, Indian Economy
Source: Indian Express, The Hindu BusinessLine, Financial Express, Mondaq, FATF
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