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Contents
Issues associated with Government’s Disinvestment proposal
Source: The Hindu
Syllabus: GS 3 – Indian Economy and issues relating to planning, mobilization, of resources
Synopsis: Some experts are expressing concern over the government’s disinvestment proposal. There is a need for adopting a cautious approach that augments rather than deteriorates public welfare.
Background:
- The government has set a target of 1.75 lakh crore rupees from the disinvestment of PSUs in the current financial year. Companies like Air India and BPCL will witness a strategic sale while an IPO (initial public offer) would be rolled out for LIC.
- Disinvestment of PSUs simply means withdrawal of government’s investment in public sector undertakings.
- Strategic Disinvestment involves a sale of 50% or more in a PSU along with transfer of management control.
- IPO means the offering of a company’s shares to the public which results in a change of ownership. Post-IPO a company gets listed on a stock exchange.
- The small industries and informal workers are already under severe stress post the demonization of 2016 and GST of 2017. The pandemic and rising oil prices have further worsened their position.
Why is the government disinvesting?
- First, it will help in the generation of additional revenue for the government.
- Second, it will enhance the efficiency of PSUs with more efficient private management taking the charge.
- Third, it will allow the government more time to do core and crucial tasks.
- Fourth, it will reduce the government’s burden to consistently support and fund the sick units.
However, some experts are saying that the disinvestment might further increase the hardships of companies and the masses.
Issues with Disinvestment of PSUs:
- First, the sale of profitable PSUs is just like selling the family’s silver to pay the grocer’s bill. This would give short-term results but long-term losses. Eg – a privatised LIC might be reluctant to meet long-term financing needs for infrastructure projects with long gestation periods.
- Second, the government sometimes undervalues the companies to favor some industrialists. This was seen in the sale of Videsh Sanchar Nigam Limited (VSNL) and is criticised for strengthening crony capitalism.
- Third, the government often fails to achieve huge disinvestment targets. Last year it received merely 32000 crores out of target sales of 2.1 lakh crore.
- Fourth, the spirit of disinvestment is undermined when one PSU is purchased by another. The Life Insurance Corporation (LIC) of India bailed out the Industrial Development Bank of India (IDBI).
- Fifth, disinvestment ignores social justice as private players are not bound to give reservations to vulnerable sections. Further, they fire large numbers of workers and are reluctant to invest in backward regions, unlike PSUs.
- Sixth, the privatization of Public sector banks may not yield desired results. However, Private banks are driven by profit motives, and they are also suffering from corruption as seen in the recent Yes Bank case. Further, private players may shut down loss-making rural branches unlike public banks who also work for social welfare.
- Lastly, privatisation is not always good if the economic situation is uncertain. This is seen by the lack of tangible results post heavy relaxation in corporate tax cuts since 2019.
Way Forward:
- The government must put the formula of valuing PSUs in the public domain to augment transparency.
- The promise of exiting from all the sectors except the 4 strategic sectors can be changed to selling only the non-strategic and non-core sectors.
- The public banks can be clubbed and recapitalized instead of outrightly selling them.
In a nutshell, the process should be carried on in such a way that it generates resources for the government, sets the right incentives for PSUs management, and rewards the investing public.
Solving the issue of Retrospective Taxation
Source: The hindu
Syllabus: GS 3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Synopsis:
The two cases of retrospective taxation related to Vodafone and Cairn energy can be solved. It is possible if the government and companies collectively decide to do mutual bargains. Filing more and more cases in international tribunals might not deliver optimum results.
Background:
- Both the companies individually filed a case in the Permanent Court of Arbitration against its retrospective taxation of 2012.
- Retrospective Taxation means the imposition of tax from a time behind the date on which the law is passed.
- The PCA has given the award in favour of both the companies in 2020. However, India has decided to challenge both of them.
About the Arbitration award:
- PCA in its September 2020 award ruled against the imposition of 27900 crore rupees retrospective tax on Vodafone. It said that taxation was against India-Netherlands BIT (Bilateral Investment Treaty). The court ordered India to pay 45000 crore rupees to Vodafone.
- Similarly, in December 2020, the court held India’s action of imposing 10247 crore tax liability on Cairn is a violation of the India-United Kingdom BIT. The court ordered India to pay 90000 to the company.
Post-award Scenario:
- Cairn has started enforcement proceedings in the US, UK, Netherlands, Singapore and Canada. The company refrained from initiating any enforcement in India due to uncertainty over public policy and poor track record of courts in enforcing foreign awards.
- India will now have to defend its position in foreign jurisdictions of enforcement, primarily on the grounds of sovereign immunity and public policy.
- Parallelly, the Indian Government has decided to challenge the award.
Problems in challenging the Cairn award:
- The government’s action of retrospective taxation and subsequent inducement to pay is deemed as a wilful, unfair and inequitable measure. Such measures are not allowed under International Law.
- The act of government is also against the Bilateral Investment Treaties signed by it under International Law. The use of sovereign taxation powers to undermine BITs is not justified under international law.
Way Forward:
- India can definitely use defence of international public policy against tax avoidance. Similarly, the defence of sovereignty of a state can be used to determine what transactions can or cannot be taxable. This would help in challenging the awards.
- However, an amicable solution can be developed if both – companies and government are willing to do mutual bargains.
- The government gave an offer to Cairn under the ‘Vivad se Vishwas scheme’. The company should pay 50% of the principal amount and remaining other things like interest and penalty would be waived off.
- Re-computation of tax liability on a long term capital gains basis has also been offered.
- Further the companies should understand the huge potential of the Indian market that should induce them towards dialogue. This is proved by the fact that India comes to the list of top 12 FDI destinations of the world.
An expeditious solution is desired in order to sustain the investor’s trust. It will bring billions of investment in India and show respect towards bilateral commitments. Although the two awards have been challenged, the work on mutual settlement should be carried on in a parallel way.
An evaluation of India’s actions against Climate Change
Source: The Hindu
Syllabus: GS 3: Conservation, Environmental Pollution and Degradation
Synopsis: Events like Uttarakhand and Texas demand urgent climate action. However, the actions of India against climate change are not sufficient.
How Uttarakhand floods and extreme events in Texas are related to Global warming?
- Natural disasters such as Himalayan glacier flooding and extreme cold wave in Texas (USA) are the consequences of global warming.
- In 2013, glacial flooding caused over 6,000 deaths in Uttarakhand. Melting of the Himalayan glaciers due to increased global warming has caused floods and landslides in Uttarakhand.
- Further, the decrease in ice cover reduces the amount of light reflected back (Low Albedo) contributing to an additional rise in temperature.
- Similarly, the extreme cold weather in Texas and the double-digit negative temperatures in Germany this year, are consequences of global warming.
- The warming of the Arctic-peninsula at a rate almost twice the global average has damaged the Polar vortex. (The “vortex” refers to the counter-clockwise flow of air that helps keep the colder air near the Poles).
- As a result, the cold winds that are restricted to the north poles were able to move south, causing extreme cold weather in sub tropic countries.
Why India’s response to Global warming is not satisfactory?
India has taken many steps to mitigate climate risks. However, the measures taken are not proportional to the risk posed by climate change, particularly to India.
- India is the 3rd largest carbon emitter after China and the United States. Also, India is particularly vulnerable to global warming. For instance,
- HSBC ranks India at the top among 67 nations in climate vulnerability (2018)
- Whereas, Germanwatch ranks India fifth among 181 nations in terms of climate risks (2020).
- In spite of being highly vulnerable to climate risks, India hasn’t committed itself strongly to climate mitigation measures. For example, while China has announced carbon neutrality by 2060, India is yet to announce its target.
- Also, public spending in India to mitigate climate risks does not reflect the urgency to shift towards cleaner and renewable power sources.
- Further, instead of strengthening climate safeguards the governments both Center and State are diluting it. For example, unsustainable construction of hydroelectric and road projects in Uttarakhand.
- Similarly, Kerala ignored the Gadgil and Kasturirangan report on western ghats which called for regulation of mining, quarrying, and dam construction in ecologically sensitive places. The neglect contributed to the massive floods and landslides in 2018 and 2019.
What needs to be done?
- First, a significant step would be, including policies for climate mitigation explicitly in the government budget, along with energy, roads, health, and education. Moreover, specific growth targets including timelines for switching to cleaner energy will be required.
- Second, the government needs to launch a major campaign to mobilize climate finance.
- Third, India’s Central and State governments must increase allocations for risk reduction for building climate-resilient infrastructure. For example, agricultural innovations to resist droughts.
Sustainable growth depends on timely climate action. For that to happen, policymakers need to understand the connection between carbon emissions, atmospheric warming, melting glaciers, extreme floods, and storms.
India-EU trade relations
Source- The Hindu
Syllabus- GS 2- Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
Synopsis – After Brexit, India can strengthen bilateral trade and investment relations with the EU by signing a Free Trade Agreement(FTA). This will mutually benefit both India and the EU.
Introduction
- The EU is India’s largest trading partner. It accounts for 11 per cent of total Indian trade in 2019, making it more important than China.
- India has an export potential of $39.9 billion to the EU and Western Europe. Apparel, gems and jewellery, chemicals, pharmaceuticals, and plastic have high export potential.
- So, making stronger ties with the EU will help India to achieve Atmanirbhar Bharat.
- Further, the Generalized Scheme of Preferences in the EU also helps India to improve exports.
What is the EU’s Generalized Scheme of Preferences?
The EU’s Generalized Scheme of Preferences (GSP) helps developing countries by reducing the tariffs. This makes it easier for countries to export their products to the region.
Benefits EU’s GSP for India:
- Reduction in tariffs– The scheme removes import tariffs from the products coming into the EU market.
- Economic growth- The lower tariffs will increase exports. This export revenue encourages growth in income, economic growth, and job creation for India.
What is the meaning of graduation under the EU’s GSP?
- A developing country can export its products and gain an advantage from the GSP. But there is a limit provided for attaining maximum benefits. Once this limit is reached then that particular product will lose the benefits of GSP. That is called Graduation.
- So, Graduation means that imports of certain particular groups of products in a given GSP will lose the preferences of GSP.
- Graduation applies when the average imports from a country exceed 17.5% of GSP imports of the same products from all GSP beneficiary countries during three years (For textiles and clothing this limit is 14.5%).
Challenges for India in FTA:
- Many products of India have already graduated or about to graduate under the EU’s GSP.
- Graduated Indian products- textiles products, inorganic and organic chemicals, gems and jewelry, iron, steel and their articles, base metals, and automotive.
- Products that about to graduate – Apparel, rubber, electronic items, sports goods and toys.
- Lack of agreeing to the terms in fields such as automotive, dairy, and marine goods by both the EU and India. So, the Broad-based Trade and Investment Agreement [BTIA] commenced in 2007 is yet to take final shape.
- After 2013, the Free Trade Agreement(FTA) negotiations were suspended between India and the EU. Both India and the EU were not ready to lose some privileges to gain more.
- Agreement on investment: China has negotiated a comprehensive agreement on Investment with the EU. But India didn’t. So, there is a huge possibility that the EU companies will start investing in China. The delaying of investment provisions will affect India.
- Non-tariff measures (NTMs): India faces 414 cases against NTMs in the EU. This is covering a wide spectrum of industries. This will also hamper India and EU FTA.
Suggestions to fast pace India-EU FTA:
- India needs to negotiate with the EU on investment-related issues. Further India also has to negotiate the provisions to improve value chains, especially in technology-intensive sectors.
- FTAs often have several institutional arrangements for Non-Tariff Measures(NTMs). India should explore such arrangements to remove the NTMs. This will increase bilateral trade.
In the post-Covid recovery, India needs to increase its exports and increase its manufacturing capability. Signing an FTA with the EU will help India to achieve this objective.
History and significance of Mars Missions
Source: The Hindu
Syllabus: Gs3: Awareness in the fields of Space.
Synopsis: Questions related to Mars are still unanswered. However, the hope of finding life on the planet excites humanity for further exploration of Mars.
Background:
- Recently, as a part of Mars mission 2020, NASA launched orbiter Perseverance into Mars.
- Mars 2020 is a Mars rover mission forming part of NASA’s Mars Exploration Program. It includes the rover Perseverance and the small robotic helicopter Ingenuity.
- The rover Perseverance will explore Jezero crater and look for carbonate rocks that might hosts Stromatolites.
- Stromatolites are layered sedimentary formations that are created by photosynthetic cyanobacteria. They signify the possibility of life on Mars.
- The predecessor of the Perseverance orbiter is the Curiosity rover. It is surveying and testing the Martian surface since 2012.
- The launch of Mars 2020 was the third of three space missions sent toward Mars during July 2020. Other missions include the Emirates Mars Mission with the orbiter Hope and China’s Tianwen-1 mission.
Why Mars missions are undertaken?
The possibility of life and water is high on Mars compared to other planets in the solar system. It can be inferred from the following findings:
- During the 19th century, astronomer Giovanni Schiaparelli reported that he had seen water channels on the red planet.
- Later, another astronomer Percival Lowell talked about hundreds of canals on the equatorial region of Mars. He claimed that he was able to notice that through his telescope set up in the desert of Arizona.
- After that, high-resolution cameras confirmed the networks of channels that might have been created by running water.
- Also, in 2005, the Mars Express satellite found evidence of clays that may have formed after solid rocks were exposed to water.
- In addition to this, the Curiosity rover detected carbon-containing compounds in Martian rocks and shifting levels of methane molecules in the planet’s atmosphere.
- Two papers published in the journal Science in 2018 concluded that these findings support the possibility of the existence of microbial life.
Owing to these developments Humans want to explore Mars for two reasons,
- One, the curiosity of humans to look for alien life forms in the solar system.
- Two, historically, Mars has always been viewed as a backup site for humanity to migrate. For example, entrepreneurs like Jeff Bezos and Elon Musk are proponents of this concept.
Yet, Mars has not delivered significant findings confirming the presence of life forms, and the quest for discovering potential life forms in Mars continues.
