Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – RBI Monetary Policy

What is Monetary Policy?

  • Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.
  • In India, the central monetary authority is the Reserve Bank of India (RBI).RBI announces Monetary Policy every year in the Month of April. Earlier, it was  followed by three quarterly Reviews in July, October and January.
  • A panel headed by RBI deputy governor Urjit Patel had recommended that the central bank monetary policy committee meet every two months to review rates.
  • The Reserve Bank of India  shifted to a system of announcing its policy statement bi-monthly with the first such policy being announced on April 1, 2014.
  • Monetary policy of the RBI deals with almost all other vital topics such as financial stability, financial markets, interest rates, credit delivery, regulatory norms, financial inclusion and institutional developments etc.

Highlights of Monetary Policy Review of April:

1) Repo rate cut by 0.25% to 6.50% .

 

  • Repo rate is the rate at which RBI lends to commercial banks generally against government securities.
  • Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive

2) Reverse repo hiked by 0.25% to 6%

 

  • Reverse Repo rate is the rate at which RBI borrows money from the commercial banks.
  • The banks use this facility to deposit their short-term excess funds with the RBI and earn interest on it.

3) Cash reserve ratio or CRR unchanged at 4%

  • Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances.
  • Higher the CRR with the RBI lower will be the liquidity in the system and vice versa.

4) Minimum daily cash maintenance by banks with RBI cut by 5%

 

  • It is the portion of deposits that banks need to keep with the central bank

5) MSF rate cut by 0.75% to lower banks’ borrowing cost .

 

 

  • To curb the problem of volatility in inter-bank interest rates in the overnight rate, banks are allowed to borrow more funds against G-secs as collateral from the RBI at a rate 100 basis points above the Repo Rate. This is known as Marginal Standing Facility.

6)Policy to remain accommodative going forward

 

  • The RBI has pointed towards better transmission of cuts,and  the policy stance will remain “accommodative”.
  • In other words, more cuts can happen in the year because of following two factors

7) Pegs 2016-17 growth forecast at 7.6%

 

  • Consumer Confidence Survey  shows a marginal improvement in consumer sentiment and the manufacturing purchasing managers’ index reflects a continuing expansion.
  • Survey outcomes — both for industrial and services outlook for the first quarter of the new fiscal year — suggests that business expectations will  remain positive.
  • On the basis of these surveys.  RBI has forecasted 7.6 per cent in gross value added terms for 2016-17.

8) Expects inflation at around 5%

 

  • On the inflation front, the RBI has drawn reassurance from the fact that food inflation eased in the second half of the last financial year, notably as a result of a decline in prices and not as a result of the base effect.
  • The central bank expects retail inflation to continue to decelerate and remain around 5 per cent this year.

9) Cut in small savings rate, MCLR introduction to improve monetary policy transmission

 

  • The cut in the small savings rate in March will incentivise banks to bring down their deposit rates and, as a result, their lending rates.
  • The shift to the “Marginal Cost of Funds-based Lending Rate” mechanism for the banks since April 1 will allow them to charge less on loans since they can base it on the marginal cost of funds instead of the average cost.

10) Government adhering to fiscal consolidation path will help lower inflation

 

  • The lowering of the fiscal deficit target in the Union budget to 3.5% of GDP for fiscal 2017—compared with 3.9% last fiscal year— has had a constructive impact.
  • The RBI has also commended the government on the focus of the budget.
  • The government has also set out a comprehensive strategy for reinvigorating demand in the rural economy, enhancing the economy’s social and physical infrastructure, and improving the environment for doing business and deepening institutional reform.

11) 7th Pay Commission award to put upward pressure of up to 1.5% on inflation

 

  • There will be some pressure on prices once the Seventh Pay Commission and One Rank One Pension awards come through, but for the time being, the RBI does not find a reason to worry.

Aim of the RBI

 

  • RBI’s aim is to help give a monetary fillip to private investment, which is currently becalmed by low capacity utilisation.
  • RBI is convinced that improved monetary transmission holds the key to unlocking credit.
  • It has proposed custodian banks; banks focusing on wholesale and long term financing

Benefits

 

  • The benefits of this prudence will soon be felt in the form of cheaper loans and EMIs.

Second bi-monthly monetary policy on June 7.

 

  • We expect another 25 bps cut from RBI in its June monetary policy review as growth-inflation dynamics improve further.

Road ahead

 

  • The rate cuts of the past 15 months have had an asymmetric and limited impact. How the road ahead is would thus be a function of correcting this anomaly.
  • A  normal monsoon—which seems a likely scenario at this point—will kindle rural demand and balance growth in private consumption. Currently, the economy is firing on only one cylinder—urban demand.
  • Banks will also stoke consumption because of their bias for consumer loans over investments because of higher delinquencies in the latter.
  • That should help improve capacity utilization rates and pave the path for new investments.
  • The upshot is that India’s investment-to-GDP ratio, which has been falling over the past five years, will only mildly revive this fiscal year.

 

 

Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – The Panama Papers

The Panama papers
An international coalition of media outlets on Sunday published an extensive investigation on offshore financial dealings of the rich and famous, based on a vast trove of documents provided by an anonymous source.

International Consortium of Investigative Journalists (ICIJ) and Süddeutsche Zeitung (Munich) has revealed a list of names who are linked to offshore entities in tax havens around the world.

The Indian Express was part of this to investigate for Indian firms.

What are tax havens?

  • A tax haven is a country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities.

Who are ICIJ?

  • The International Consortium of Investigative Journalists, a non-profit organisation based in Washington
  • The International Consortium of Investigative Journalists is a global network of more than 190 investigative journalists in more than 65 countries who collaborate on in-depth investigative stories.

What is Money laundering?

  • Money laundering is the generic term used to describe the process by which criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source.

What is Round-tripping?

  • Round-tripping, also known as round-trip transactions or “Lazy Susans”, is defined by The Wall Street Journal, as a form of barter that involves a company selling “an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price.”

Salient Features about The Panama papers

  • Cache of 11.5 million records detailed the offshore holdings of a dozen current and former world leaders, as well as businessmen, criminals, celebrities and sports stars.
  • A Munich-based daily, Sueddeutsche Zeitung, was offered the data through an encrypted channel by an anonymous source who requested no monetary compensation and asked only for unspecified security measures.
  • The data concerned internal documents from a Panama—based law firm, Mossack Fonseca. Founded by German—born Juergen Mossack, the firm has offices across the globe and is among the world’s biggest creators of shell companies

What is a shell company?

  • A shell corporation is a company which serves as a vehicle for business transactions without itself having any significant assets or operations. Some shell companies may have had operations, but those may have shrunk due to unfavorable market conditions or company mismanagement. A shell corporation may also arise when a company’s operations have been wound up, for example following a takeover, but the “shell” of the original company continues to exist.
  • Shell corporations are not in themselves illegal, and they do have legitimate business purposes. However, they are a main component of the underground economy, especially those based in tax havens. They may also be known as international business companies, personal investment companies, front companies, or “mailbox” companies.
  • Shell companies can also be used for tax avoidance. A classic tax avoidance operation may utilize favorable transfer pricing among multiple corporate entities to lower tax liability in a certain country; e.g. Double Irish arrangement.
  • It’s important, however, to understand that the term “shell corporation” does not describe the purpose of a corporate entity. In general, it’s more informative to classify an entity according to its role in a particular corporate structure; e.g. holding company, general partner, or a limited partner.

Companies using offshore tax havens were accused of using these funds for bribery, arms deal, tax evasions, financial frauds, drug trafficking, human trafficking and many more like war crimes.

Syrian air force rained death over civilians from past three years, by exploding bombs dropped on homes, businesses, bus stops  and even hospitals. Companies using these off shore tax haven were accused to supplying fuel to Syrian air force.

In 2014 multiple govt. including USA, UK issued bans on doing business with these co’s.

It exposed the secret offshore dealings of aides to Russian president Vladimir Putin, world leaders and celebrities including Barcelona forward Lionel Messi and many more.

Panamanian President Juan Carlos Varela issued a statement saying his government would cooperate “vigorously” with any judicial investigation arising from the leak of the law firm’s documents. He said that the revelations shouldn’t detract from his government’s “zero tolerance” for any illicit activities in Panama’s finance industry.

Are global banks helped Mossack Fonseca?
According to the media group’s website, global banks including HSBC, UBS, Credit Suisse, Deutsche Bank and others have worked with Mossack Fonseca to create offshore accounts.

Indian reaction

  • over 500 Indians, including high-profile actors and businessmen, could have links to secret firms in overseas tax havens.
  • The BJP-led NDA government on Monday ordered the formation of a special agency to investigate Indians who figure in the ‘Panama papers’
  • Multi-agency group will consist of officers from the investigative units of the Central Board of Direct Taxes, the Financial Intelligence Union and Foreign Tax & Tax Research division and the Reserve Bank of India.
  • The Special Investigation Team on Black Money, appointed under the Supreme Court’s directions, had in its third report submitted last year to the court said that various departments were not prepared to share the information received in tax evasion cases.
  • Among those the newspaper named in its reports are actors Amitabh Bachchan and Aishwarya Rai Bachchan, real estate firm DLF’s promoter K.P. Singh and Vinod Adani, elder brother of Adani Group founder and chairman Gautam Adani. Several of those the newspaper named have denied any wrongdoing.

What India should do now?

  • India should make it clear what is the exact legal position for those who acquired already existing companies — such as the ones that Mossack Fonseca supplied off the shelf. The government as well as the RBI must now spell out rules that are lucid and explicit.
  • The second key issue framed by the Panama Papers is of propriety, or its absence, on the part of those on the list. It is this — the adherence to the law not just in letter but also in spirit — that separates tax planning from tax avoidance.
  • The finance minister has rightly said that those who did not take advantage of the compliance window last year to declare illegal assets abroad will find “such adventurism extremely costly”. It is time now for the government to do as it says.

 

Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – Stand UP India Scheme

Stand up India

Background

  • The Prime Minister on 15th August 2014 launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) for “Banking the Unbanked”.
  • Further, Pradhan Mantri MUDRA Yojana (PMMY) was launched by the PM for “Funding the Unfunded” by facilitating loans upto Rs. 10 lakh on 8th April, 2015.
  • To intensify this inclusive growth, the PM in his address to the nation on 15th Aug, 2015 had announced the “Start up India Stand up India” initiative.
  • Stand up India is among the various financial inclusion and social security schemes introduced by the government.

Introduction

  • The “Stand up India Scheme” is being launched now to promote entrepreneurship among Scheduled Caste/Schedule Tribe and Women for loans in the range of Rs. 10 Lakhs to Rs. 100 Lakhs.
  • The Scheme is expected to benefit large number of such entrepreneurs, as it is intended to facilitate at least two such projects per bank branch (Scheduled Commercial Bank) on an average one for each category of entrepreneur.
  • The Start-up India is different from the Stand-up India campaign. Former is related to new entrepreneurs while the later is a proposal restricted only to SC, ST, and Women entrepreneurs.
  • The Stand-up India is component of Start-up India, Stand up India slogan anchored by Department of Financial Services (DFS) to encourage greenfield enterprises by Women and SC/ST entrepreneurs.

Objective

  • The overall intent of the proposal is to leverage the institutional credit structure to reach out to these under-served sectors of the population by facilitating bank loans in the non-farm sector set up by such SC, ST and Women borrowers.
  • The initiative will also develop synergies with ongoing schemes of other Departments.

The broad features of the scheme are as under:-

  • Composite loan between Rs. 10 lakh and upto Rs.100 lakh, inclusive of working capital component for setting up any new enterprise.
  • Debit Card (RuPay) for drawal of working capital.
  • Credit history of borrower to be developed.
  • Refinance window through Small Industries Development Bank of India (SIDBI) with an initial amount of Rs.10,000 crore.
  • Creation of a corpus of Rs. 5,000 crore for credit guarantee through National Credit Guarantee Trustee Company  (NCGTC). It will be the operating agency for the loan.
  • Handholding support for borrowers with comprehensive support for pre loan training needs, facilitating loan, factoring, marketing etc.
  • Web Portal for online registration and support services.

Who will lead the process?

  • The process would be led by Small Industries Development Bank of India (SIDBI) with involvement of Dalit Indian Chamber of Commerce and Industry (DICCI) and various sector – specific institutions all over the country.
  • The offices of SIDBI and National Bank for Agriculture and Rural Development (NABARD) shall be designated Stand Up Connect Centres (SUCC).

Road Ahead:
It is expected that this scheme would benefit atleast 2.5 lakh borrowers and expected date of reaching the target of approvals is 36 months from the launch of the Scheme.

 

Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – The Pathankot Paradigm

The Pathankot paradigm

Background
The first ever visit of a Pakistani joint investigation team (JIT) to the site of a terror attack in India, to investigate the assault on the Pathankot airbase, is indicative of a new-found rhythm in the India-Pakistan relationship.

The domestic spaces of both countries have been restive: while India is reeling under a belligerent nationalistic onslaught, Pakistan hasn’t yet recovered from last week’s terror attack in Lahore and the siege of Islamabad by the supporters of a convicted, and hanged, terrorist.

Establishment of ground rules

  • Discreet conversations between the two National Security Advisers established the ground rules for the engagement
  • The two sides have skilfully managed to navigate the relationship out of the Pathankot mess.

History
Anti terror proposal between India and Pakistan in the past

New Delhi would always lay the blame at Pakistan’s door by charging the latter of either sponsoring the attack or not having done anything to stop it.

  • In September 2006, Pervez Musharraf and Manmohan Singh decided to set up an “India-Pakistan anti-terrorism institutional mechanism to identify and implement counter-terrorism initiatives and investigations.”
  • In March 2007 they held the first meeting in Islamabad and “discussed the parameters of the Anti-Terrorism Mechanism and agreed that specific information will be exchanged through the Mechanism for

(i) Helping investigations on either side related to terrorist acts and

(ii) Prevention of violence and terrorist acts in the two countries.”

They also agreed to meet “on a quarterly basis, any information which is required to be conveyed on priority basis would be immediately conveyed through the respective Heads of the Mechanism.”

How Indian strategy in changing

  • What is emerging today is a strategy of minimum engagement and entente cordiale, with focus on practical aspects, and a mutual de-emphasis of politically sensitive issues such as Kashmir.
  • Personally invested in the rapprochement, though the two Prime Ministers would walk the extra mile to ensure that a certain amount of sanity prevails between the two countries
  • Having been in government since mid-2014 and dealing with Pakistan ever since, the Bharatiya Janata Party has been forced to abandon its traditional insistence that “terror and talks can’t go together”. The Modi government seems to have realised that talk and terror do, and indeed should, go together: The more the terror, the more should be our engagement with Pakistan.

 

  • By keeping multiple lines of communication with Pakistan open, and inviting the JIT to Pathankot, the Modi government has just translated this newly, and correctly, learned lesson of pragmatic statecraft into practice.

Why include Pakistan

  • This new strategy to deal with Pakistan-based terror, state sponsored or not, will lead to demonstrable change in Pakistan towards Indian concerns and charges.
  • Pakistan provided intelligence warning about a possible terror strike in Gujarat by Lashkar-e-Toiba and Jaish-e-Mohammed (JeM) cadres in early March
  • In February, Pakistan lodged an FIR against unknown persons in the Pathankot terror attack case; and JeM chief Masood Azhar was placed under custody after the airbase attack.
  • The only post-26/11 attempt at intelligence cooperation was Pakistan considering the possibility of sending the Inter-Services Intelligence (ISI) chief to India to jointly investigate the Mumbai terror attack, never happened

What did JIT achieved

  • By sending its JIT to Pathankot, Islamabad has not only admitted that the perpetrators are Pakistani nationals (as opposed to completely denying it) who should be investigated,
  • Pakistan showed willingness to engage in a terror investigation at India’s demand without linking it with the resolution of the larger political issues such as Kashmir (as has been the practice earlier).

Conclusion

  • No Indian government can draw a sharp line separating foreign policy and domestic politics when it comes to dealing with Pakistan so to deal with Pakistan one has to be intelligent and pragmatic which can help achieve more rather than wasting time in unending debates
  • The government would find it difficult to pursue dialogue with Pakistan while riding high on hyper-nationalism domestically: the pursuit of hyper-nationalism at home and peace-building with Pakistan won’t go together.
  • Another domestic complicating factor for Mr. Modi’s Pakistan policy is the complete lack of political support at home.
  • Moreover, in contrast to Pakistan, there is no national consensus in India on building peace with Pakistan.
  • What the BJP-led government in New Delhi seems to have realised is that using compellence or looking for quick solutions in dealing with Pakistan, and terrorism emanating from there, are both costly and self-defeating.
  • Dealing patiently and incrementally with Pakistan, then, is clearly the optimal strategy.

 

Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – Future of Indian Pharma Industry

 

Issue
Reform of India’s drug regulatory framework.

Drug Regulation in India:
India is one of the largest manufacturers of drugs and exports pharmaceutical products to over 200 countries/economies.As India has a federal form of government, so the medical regulatory structure is divided between national and state authorities.
Medicines in India are regulated by CDSCO – Central Drugs Standard Control Organization under Ministry of Health and Family Welfare. Headed by Directorate General of Health Services CDSCO regulates the Pharmaceutical Products through DCGI – Drugs Controller General of India at Chair.

Functions of CDSCO:

  1.   Approval of new drugs and clinical trials
  2.   Import Registration and Licensing
  3.   Licensing of Blood Banks, LVP’s, Vaccines, r-DNA products & some Medical Devices
  4.   Amendment to D &C Act and Rules
  5.   Banning of drugs and cosmetics
  6.   Grant of Test License,
  7.   Personal License,
  8.   NOCs for Export
  9.   Testing of Drugs

Pharmaceutical Regulation

The term ‘pharmaceuticals regulation’ means the regulation of any aspect of the production, distribution, prescription or consumption of a pharmaceutical product or the raw materials that are used in its production.

Major Issues in Indian Regulatory System:

  •  The regulation of pharmaceutical products in India with apparently strong regulations but weak Implementation – is not a unique situation.
  • At the level of the consumer there is self – prescription of the drugs, with or without written prescription.
  • Issued are  observed in the license system which is needed to manufacturing, sale or distribution of the pharmaceutical products in the country.
  • Medicines cannot be introduced in the Indian market without the permission of DCGI of India, but the manufacturing license is provided by the State Licensing Authority.
  • The processes of removing dangerous or inefficacious medicines are very hard to implement, so it become quite hard to follow the circumstances.
  • As there is an act regarding the price of pharmaceutical products but practically the implementation of this act is very poor.
  • India is also listed by the Pharmaceuticals Security Institute [PSI] as one of the top five sources of counterfeit drugs about 20% of medicines in the country are fake or sub-standard.
  • Lack of regulatory expertise and testing facilities which are required to implement standards.
  • Lack of  clarity on patentability and conditions of pharmaceutical substances under which firms can apply for compulsory licenses which can prevent legal battles between local firms, MNCs and civil rights groups.
  • Lack of coordination, accountability and transparency in functioning  among different ministries concerned with drug regulation.

Most worrisome issue

  • The most worrisome issue is that India does the mandatory basic quality testing services for medicines which are meant for exports because countries like the U.S will not accept any drug formulation which is not proven bioequivalent.
  • But, when several  Expert Committees recommended bioequivalence studies for all generic drugs, it was rejected by the Drug Consultative Committee (DCC) rejected it on the grounds that India lack the infrastructure.!!
  • On top of that, European countries are selling medicines in India that are not approved in their home countries, or, for that matter, in any developed country.

Major Roadblock
The Pharmaceutical industry is politically very powerful and it has used all its influence in the past to block reforms initiated by the Government.

Effect of poor drug regulations

  • Substandard medicines are causing negative health outcomes.
  • Increased antibiotic resistance has been recorded in the past few years.
  • It is a waste of public money, as there is failure to cure diseases.
  • The long-term effects will be devastating to public health, especially to the poor and vulnerable.

Recent steps taken by the Government to Strengthen and Upgrade our drug regulatory system

  • Provision of additional equipment and manpower in existing drug testing laboratories.
  • Setting up of new laboratories for testing drugs, medical devices and cosmetics.
  • Making mobile drug testing laboratories available
  • Creation of additional manpower for regulatory structures.
  • Introduction of organisation wide e-Governance and Information Technology enabled/ online services.
  • Setting up a training academy for both the Central and State regulatory and drug testing officials.
  • Assistance to the States for strengthening their drug regulatory structures.

What else can be done?
We need to make centralised licensing because States lack the necessary resources to coordinate their activities among themselves, and this loophole  is exploited by the manufacturers.

Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – Future of Indian Defence Industry

India’s record

  • In the last five years, India has been the world’s top arms importer with a 15 per cent global share of imports.
  • Nearly 50 per cent of the capital acquisition budget is spent on imports. This excludes many “indigenous” items assembled by Ordnance Factories (OFs) and Defence Public Sector Units (DPSUs) where a high percentage of raw materials and sub-systems are imported.
  • India allocated 1.74 per cent of its GDP towards defence spending in FY16 and is among the top 10 countries in the world in terms of military expenditure.
  • Approximately 40 per cent of the defence budget is allocated for capital acquisitions, which mainly goes towards imports from foreign suppliers.

Characteristics of our defense industry

  • It is evolutionary in nature.
  • Defence production is a capital and technology intensive sector and requires foreign capital and technology to develop a domestic industrial base.
  • It demands continuous high levels of research and development (R&D) investment.

Focus of the Government

  • To gain technology transfer
  • To draw foreign defense manufacturers to India
  • To achieve 70 per cent indigenisation in defence products by 2027.

How to do it?

  • An enabling architecture that would guarantee the protection of their Intellectual Property Rights (IPR) and commercial interests should be made.
  • The FDI ceiling in defence should be revised upwards
  • Defence Procurement Procedure (DPP) has to be fine-tuned to integrate its various components with the liberalised investment regime.
  • We have all the prerequisites for Military Industrial Complex: (a) Growing Defense Budget  (b) A large base of engineering institutes (c) A diverse Private sector.

Strategies to achieve the objective

  1. Given the peculiarities of the sector, it would be pragmatic to permit even 100 per cent under the automatic route, subject to certain conditions.
  2. Use the mandatory offset (compensations that buyers obtain from sellers) to bolster the ‘Make in India’ programme.
  3. Complement the above strategy by employing multipliers (assigning higher value) where foreign companies manufacture defence wares identified to be of critical need for the services.
  4. Establish a separate Department of Overseas Acquisitions in the Ministry of Defence for establishing Special Purpose Vehicles with identified private sector entities to take over foreign companies.
  5. Finance and support R&D/production in the private sector as the U.S. does.
  6. Create a body in the Ministry of Deference consisting of civilian officers, defence personnel and industry leaders to evaluate FDI flows, steer these flows and offsets, identify foreign companies for acquisition, etc.

Key points of Defense Procurement Policy 2016

  • Objective is to increase the participation of India’s private sector in military manufacturing.
  • A new procurement class ‘Buy Indian-IDDM’ has been created to achieve the objective.
  • It lays stress on micro, small and medium enterprises (MSMEs), and on “Make in India”.

Make in India

  • Under ‘Make in India’, the government has to actively support the creation of a private defence industrial base.
  • The government will have to fund research and development, provide a low-interest regime to reduce capital costs, provision specific tax benefits, assure consistent sectoral policies, place firm orders and encourage exports to achieve economies of scale.

Conclusion

  • Development of the indigenous industry in the country would require multiple strategies, a synergic approach and unconventional thinking.With the present conducive political environment, it is a goal that is immensely achievable.
  • For policies to create synergies rather than controls, it is essential that the government creates internal capacity for defence acquisition and manufacturing.
  • Manufacturing within the country, through foreign capital, with full transfer of state-of-the-art technology is a far better option than importing the equipment from abroad.
Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – 100% FDI in e-commerce Retail

Centre gives nod for 100% FDI in Ecommerce retail
100 per cent foreign direct investment (FDI) through the automatic route in the marketplace model of e-commerce retailing

Foreign Direct Investment
It is the major monetary source for economic development in India. Foreign companies invest in India to take benefits of cheaper wages and changing business environment of India. Economic liberalization started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India.

There are two routes by which India gets FDI.

  • Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.
  • Government route: Prior approval by government is needed via this route. Foreign Investment Promotion Board is the responsible agency to oversee this route.

Government has approved 100% FDI in many sectors like:

  • Infrastructure

  • Automotive

  • Pharmaceuticals

  • Railways

  • Textile

Guidelines issued by the Department of Industrial Policy and Promotion (DIPP) on FDI

  • It has not been permitted in inventory-based model.

What is Inventory based model?

  • 100% is permitted in B2B (business-to-business) transactions under the automatic route.

What is Business to Business marketing?
B2B (business-to-business) marketing is marketing of products to businesses or other organizations for use in production of goods, for use in general business operations (such as office supplies), or for resale to other consumers, such as a wholesaler selling to a retailer.

Department of Industrial Policy and Promotion (DIPP) defined marketplace model as:

  • “Information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.”

Aim

  • Guidelines are expected to bring in more FDI
  • E-commerce marketplace may provide support services to sellers in warehousing, and logistics., order fulfilment, call centre, payment collection and other services.
  • And Such entities will not exercise ownership over the inventory.

Service

FDI in service sector was increased by 46% in 2014–15. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49% in 2014

Question:
Q.1) Out of these sectors which of the following does not have of 100% FDI cap?

    1. Infrastructure
    2. Ecommerce
    3. Automotive
Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – Satluj Yamuna Link (SYL) Canal Dispute

Brinkmanship over a limited dispute

Issue?

It is about Satluj-Yamuna Link (SYL) canal dispute between Haryana and Punjab.

What is the Satluj-Yamuna Link (SYL) canal dispute?

  • On December 31,1981 Punjab, Haryana and Rajasthan agreed to share water of Ravi, Beas and Satluj between them. This agreement also mentioned that the water would be shared with Delhi and J&K.
  • It was agreed that Punjab would make the Satluj-Yamuna Link canal within the state within a time period of two years.
  • Majority portion of the SYL canal was complete in the 1990 but somehow the project did not get over with.
  • With the rise in terrorism in Punjab, the SYL canal became a debatable topic and the politicians started fighting about the water-sharing.
  • However, the Supreme Court, in January 2002, ordered Punjab to move along with the digging of the SYL canal and passed a judgment by which the canal should be completed within a year time.
  • In 2004, the Punjab assembly made the earlier agreement null and void through Punjab Termination of Agreements Act 2004 and declined to give any water to any other states, especially to Haryana.
  • On July 22, 2004, the Centre sought the Supreme Court’s opinion on the validity of the Punjab Termination of Agreements Act by making a Presidential reference under Article 143 of the Constitution.
  • The matter was eventually taken up for hearing by the Supreme Court thus Punjab assembly passed the Punjab Sutlej-Yamuna Link Canal Land (Transfer of Property Rights) Bill, 2016 and tried to cancel the land acquisition  for the SYL canal and return it to farmers if they paid back the compensation.
  • Supreme Court passed an order to maintain status quo.

What is Eradi Tribunal?

  • The Punjab Settlement was signed on July 24, 1985, in New Delhi between then Prime Minister Rajiv Gandhi and Shiromani Akali Dal (SAD) chief Sant Harcharan Singh Longowal. The accord included provisions related to the Ravi-Beas water sharing. It was agreed that the construction of the SYL Canal would be completed by August 15, 1986; claims of Punjab and Haryana regarding their shares in the remaining water would be referred for adjudication by a tribunal presided over by a Supreme Court judge. A tribunal under Justice V Balakrishna Eradi was set up that year.
  • Thus it was entrusted with the task to specify the quantum of Ravi-Beas waters to be distributed among Punjab, Haryana and Rajasthan.

Why is Punjab against the SYL canal?

  • Punjab states that the SYL share of water to Haryana was based on the 1920 figures and at present the figure presents an all together different picture.

What is Haryana’s argument?

  • The Haryana claims lies on the theory that it is a water-deficient state and has stated that for long it has been destitute for more than half of its legitimate share of 3.50 MAF which is in surplus in the Ravi-Beas water, which has lead to a reduction in the agriculture production.

Water use and requirement

  • we must acknowledge that water is a real issue for all the States but we must also acknowledge that the water requirement is overstated by all parties to the dispute. What is stated as “need” is not the minimum requirement for growing crops suited for this agro-climatic zone, but for water-intensive crops unknown to this region. Ecologists have long been warning us about unsustainable water-use practices in this region.
  • It is to be noted that there is no dispute about the use of Sutlej waters.
  • There is a real but fairly delimited dispute about water from the Ravi-Beas.
  • It was agreed upon right from the beginning that the pre-existing usage of water by Punjab and Rajasthan (2.3 and 1.1 MAF [million acre-feet], respectively) would not be touched. The dispute is about the quantum of extra water available for distribution and about the share of the respective States.

Solution?

  • Leaders and parties from Punjab must step back from the extra-constitutional path of unilateral action and instead negotiate on the share of Ravi-Beas water.
  • Leaders from Haryana must step back from their demands of a share of water; instead, they should focus on swift and assured implementation of whatever is agreed upon.
  • The Centre should step forward and bring both States to the negotiating table.
  • The resolution could take a legal route also.
Categories
Daily Editorials for UPSC IAS Exam Preparation

Editorial Today – No Zero Sums in This Great Game

 

Brief Historical Context

  • Nepal’s Prime Minister K.P. Sharma Oli is visiting China –  something that India is usually uncomfortable with. The good news is that after assuming PMship of Nepal, the Nepalese PM made the first visit to India ( Why? )
  • Those of you who are are aware of regional geopolitics of India should note that (a) India works closely with countries like Nepal, Bhutan, Bangladesh and Maldives etc to keep them under Indian influence. (b) India is not comfortable with either of these countries having close ties with China.

 

Objective of the visist

  1.       Consolidating the Oli regime’s support from the ‘nationalist’ constituency that stands for reducing dependence on India and keeping Madhes and Janjatis marginalised in Nepali polity.
  2.      Sending a strong message to India that Nepal has a viable option in mobilising support from China.

What has triggered this objective?

  • Because of India’s support to Madhesi agitation against a discriminatory constitution adopted in September 2015.
  • Resulted in restricted supply of essential goods to Nepal causing hardship to Nepal’s people and it generated strong anti-India sentiments among the country’s hill communities.
  • Is it first time that Nepal has played China Card? ( Playing China Card Means that – If India doesn’t agree to our terms and conditions, we can always go to China. In short , we dont need India.)
  • Now there is a set pattern of the Kathmandu regime flashing the China card whenever it runs into difficulties with its own people and India lends support to the Nepali people’s cause.

Outcome of the visit?

  • Mr. Oli concluded 10 important agreements and memoranda of understanding (MoU)s during this visit to China. They cover the fields of transit and trade, connectivity and infrastructure, energy exploration and storage, banking, scholarships and training.
  • Some of these agreements are projected as historic and unprecedented, particularly those related to transit through China and rail and road connectivity between Nepal and China.
  • These agreements appear to be higher on symbolism than on substantial commitments for delivery.  For Example China has agreed to provide the Tianjin seaport for transit of Nepali goods imported from third countries.(  Tianjin is located at a distance of 3,000 km from Nepal, as against 1,000 km from the Haldia port in India being currently used by Nepal).
  • But in principle, it breaks Nepal’s complete dependence on India for all its imports.
  • Moreover Nepal’s infrastructure in its northern region to connect with the proposed Tianjin transit facility is still not in place.
  • Similarly, the proposal on connectivity of Nepal with the Tibet rail network will also take time. Under the present MoU on rail connectivity, Chinese commitments are for feasibility studies and technical support only.
  • Rail connectivity between Tibet and Nepal is also a political issue for the Chinese authorities. They have to decide on the extent to which Tibet can be opened up to the outside world through land connection.

What Nepal has to give?

  1.       Nepal’s infrastructure and connectivity projects will have to be subjected to Chinese ‘One Belt, One Road’ (OBOR) priorities.
  2.      Nepal will also have to “facilitate” and “encourage” Chinese investment
  3.      Most of the Chinese commitments are loans, of which only 25 per cent will be interest free.
  4.      Nepal must also be aware of the unease and discomfort that countries like Sri Lanka and Myanmar experienced in their deepening economic engagement with China.

Roadblocks in effective implementation of this agreement

  1.    Beijing doubts whether the Oli government will last long enough to implement the agreements inked, in view of the rising calls for a national government in Nepal.
  2.    China would not like to antagonise India as India is a much bigger and promising market for Chinese products and services as compared to Nepal.

What India can do?

  1.    India has to sit up and take a serious note of the Chinese push into South Asia, which is not simply limited to Nepal but covers all other neighbours as well.
  2.    India has to deal with its immediate neighbours with prudence and sensitivity and ensure that they are not alienated.
  3.    India should explore the possibility of making calibrated use of the region’s infrastructure development under OBOR.