Category: Special Articles

Priority Sector Lending

Introduction

Priority sector was first properly defined in 1972, after the National Credit Council emphasized that there should be a larger involvement of the commercial banks in the priority sector.

The sector was then defined by Dr. K S Krishnaswamy Committee.

Objective of Priority Sector Lending

To ensure that adequate institutional credit flows into some of the vulnerable sectors of the economy, which may not be attractive for the banks from the point of view of profitability.

Priority Sector Targets

  • 1. In 1974, the banks were given a target of 33.33 % as share of the priority sector in the total bank credit.
  • 2. On the basis of Dr. K S Krishnaswamy committee, the target was raised to 40%. The current Priority sector targets are as follows:

$It can be either ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.

Current Priority Sector Categories

As per the RBI circular dates July 7, 2016, there are eight broad categories of the Priority Sector Lending viz.

  • Agriculture
  • Micro, Small and Medium Enterprises
  • Export Credit
  • Education
  • Housing
  • Social Infrastructure
  • Renewable Energy
  • Others

1.Agriculture

The agriculture category includes three sub-categories viz. farm credit, agriculture infrastructure and ancillary activities.

1.1 Farm Credit

  • Loans to individual farmers, Self Help Groups and Joint Liability Groups for agriculture and allied activities viz. dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture. This includes loans for crops, purchase of farm inputs, loan for pre and post harvest activities, loan up to Rs. 50 Lakh against pledge of farm produce; Loans under Kisan Credit Card Scheme; Loan for purchase of farm land.
  • Loan to corporate farmers, farmers producer organizations and companies, Farm cooperatives up to Rs. 2 Crore.

1.2 Agriculture Infrastructure

  • Construction of storage facilities such as warehouses, market yards, godowns, silos, cold storage units and chains for farm produce.
  • Soil conservation and watershed development projects.
  • Plant tissue culture and agri-biotechnology, seed production, production of bio-pesticides, bio-fertilizer, and vermi composting.

1.3 Ancillary Activities

  • Loans up to ₹5 crore to co-operative societies of farmers for disposing of the produce of members.
  • Loans for setting up of Agriclinics and Agribusiness Centres.
  • Loans for Food and Agro-processing up to an aggregate sanctioned limit of 100 crore per borrower from the banking system.
  • Loans to Custom Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.
  • Bank loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi-Purpose Societies (LAMPS) for on-lending to agriculture.
  • Loans sanctioned by banks to MFIs for on-lending to agriculture sector as per the conditions specified in paragraph 19 of these Master Directions.
  • Outstanding deposits under RIDF and other eligible funds with NABARD on account of priority sector shortfall.

2. MSME

Any loan to MSME industries for their business purposes comes under priority sector. MSMEs have been defined by Ministry of Micro, Small and Medium Enterprises in 2006 as per investment limit in plant & machinery as follows:

For service sector the Bank loans up to Rs. 5 crore per unit to Micro and Small Enterprises and Rs. 10 crore to Medium Enterprises engaged in providing or rendering of services are eligible. This includes all types of services including restaurants, hotels, travel agents, software companies etc.

Further, the following loans are also counted as priority sector loans under MSME:

  • Loans to Khadi and Village Industries Sector (KVI)
  • Loans to entities which provide inputs to artisans / village / cottage industries and their cooperatives
  • Loans to Micro-finance Institutions, which in turn use this loan to disburse to MSME
  • Loans under various schemes related to MSME scheme
  • Overdraft under Pradhan Mantri Jan-dhan Yojana up to Rs. 5000.
  • Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector shortfall.

3. Export Credit

Export credit is a part of priority sector loan subject to 2% cap for domestic banks and foreign banks with >20 branches. However, for foreign banks with <20 branches, the export credit limit is up to 32% of the ANBC.

4. Education

This includes loans to individuals for educational purposes including vocational courses up to Rs. 10 lakh irrespective of the sanctioned amount will be considered as eligible for priority sector.

5. Housing

  • For housing loans to individuals, limit to be counted as priority sector loans is Rs. 28 Lakh in Metros and Rs. 20 Lakh in other cities, towns and villages.
  • For repairing of house, limit is Rs. 5 Lakh in metros and Rs. 2 lakh in others.
  • Loans to any government agency for construction of houses subject to ceiling of Rs. 10 Lakh per house / dwelling unit for weaker sections or slum clearing.
  • Outstanding deposits with NHB on account of priority sector shortfall.

6. Social Infrastructure

  • This includes loans up to 5 crore per borrower for building social infrastructure for activities viz. schools, health care facilities, drinking water facilities and sanitation facilities including construction/ refurbishment of household toilets and household level water improvements in Tier II to Tier VI centres.
  • It also includes loan to Micro-finance Institutions (MFIs) for on-lending to SHGs and JLGs for water and sanitation facilities.

7. Renewable Energy

  • This includes loan up to Rs. 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities Viz. Street lighting systems, and remote village electrification.
  • For individual households, the loan limit will be 10 lakh per borrower.

8. Others

  • Personal loans to weaker sections up to Rs. 50,000 per borrower.
  • Loans to distressed persons with a limit to Rs. 1,00,000/- per borrower to prepay their debt to non-institutional lenders
  • Loans to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.

Small / marginal farmer

For computation of targets, RBI defines marginal farmer as one with less than 1 hectare of land {1 hectare=11959 Yards}, and small farmers as one with 1-2 hectare of land.

Weaker sections

Priority sector loans to the following borrowers will be considered under Weaker Sections category:

In States, where one of the minority communities notified is, in fact, in majority, item (xii) will cover only the other notified minorities. These States/ Union Territories are Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and Lakshadweep.

How Priority Sector Lending is linked to so called Double Financial Repression?

  • Priority Sector lending in India has been made a salient feature of the banking in India mainly due to the social and economic objectives that underlie PSL.
  • However, banks are also required to keep certain amount to maintain Statutory Liquidity Ratio (SLR) and from the remaining disposable amount, 40 per cent is dedicated for the priority sector.
  • Thus, large fraction of banks’ resources cause the so called “Double Repression” on the banking system.
  • The economic survey has brought this issue to the forefront and has recommended the government to re-structure SLR and Priority Sector Lending.

Public Distribution System (PDS): Challenges and Reforms

The Public Distribution System (PDS)

  1. The Public Distribution System (PDS) evolved as a system for distribution of foodgrains at affordable prices and management of emergency situations.
  2. Over the years, the term PDS has become synonymous with the term ‘food security’ and also an important part of Government’s policy for management of food economy in the country.
  3. PDS comes under Ministry of Consumer Affairs, Food, and Public Distribution.

History of PDS

  1. Till 1992, PDS was a general entitlement scheme for all consumers without any specific target.
  2. But in 1992, PDS became RPDS (Revamped PDS) focussing the poor families, especially in the far-flung, hilly, remote and inaccessible areas.
  3. In 1997 RPDS became TPDS (Targeted PDS) which established Fair Price Shops for the distribution of food grains at subsidized rates.

Significance of TPDS

  1. In People’s Union for Civil Liberties v. Union of India case, Supreme Court contended that the “right to food” is essential to the right to life as provided in Article 21 of the Constitution.
  2. In line with this Parliament passed the National Food Security Act (NFSA) in 2013.
  3. The NFSA seeks to make the right to food a legal entitlement by providing subsidized food grains to almost two-thirds of the population.
  4. It relies on the existing Targeted Public Distribution System (TPDS) mechanism to deliver these entitlements

Importance of PDS

  1. Food grains to the poor, at prices lower than the price of food grains at private shops.
  2. Food grains are directly purchased from farmers, assuring farmers with a greater price.

Functioning of TPDS

  1. Procurement of foodgrains
  2. Storage of food grains
  3. Allocation for families
  4. Transportation of food grains.

Procurement of foodgrains

  1. The center is responsible for procuring the food grains from farmers at a Minimum Support Price (MSP).
  2. The MSP is the price at which the FCI purchases the crop directly from farmers; generally, the MSP is higher than the market price.
  3. This is intended to provide price support to farmers and incentivize the production.
  4. Who sets MSP: Commission for Agricultural Costs and Prices (CACP).
  5. Procurement: Two types of procurement, Centralised Procurement, and decentralized procurement.
  6. Centralized procurement is carried out by the FCI(Food corporation of India) where FCI buys crops directly from farmers.
  7. Decentralized procurement is a central scheme under which 10 states/Union Territories procure food grains for the central pool at MSP on behalf of FCI.
  8. Why decentralized procurement? The purpose is to encourage local procurement of food grains and minimize expenditure incurred when transporting grains from surplus to deficit states over long distances.

Issues with procurement

1] Open-ended Procurement:

  • All incoming grains accepted even if buffer stock is filled creating a shortage in the open market.
  • The recent implementation of Nation food security act would only increase the quantum of procurement resulting in higher prices for grains.
  • The gap between required and existing storage capacity.

2] Storage of food grains

  • According to the storage guidelines of the FCI, food grains are normally stored in covered godowns and silos.
  • In case if FCI has insufficient storage space, it hires space from various agencies such as the central and state warehousing corporations (CWC, SWC), state government agencies and private parties.

Issues with storage:

  • Inadequate storage capacity with FCI.
  • Food grains rotting or damaging on the CAP or Cover & Plinth storage.

3] Allocation of foodgrains

  • The central government allocates food grains from the central pool to the state governments at uniform Central Issue Price (CIP) for the distribution through PDS.
  • Identification of poor people- The onus is on the state Government to identify the eligible households in each state. Apart from that allocation of food grains within State, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc. rest with the State Governments.
  • Allocation for BPL and AAY(Antyodaya Anna Yojana –poorest among the BPL families) families is done on the basis of the number of identified households.

However, allocation for APL families is made on the basis of

  1. The availability of food grains stocks in the central pool
  2. The past lifting of food grains by a state from the central pool.

Issues with allocation of food grains

  1. Inaccurate identification of beneficiaries.
  2. Illicit Fair Price shops: The shop owners have created a large number of bogus cards or ghost cards (cards for nonexistent people) to sell food grains in the open market.

Transportation of food grains to FPSs

  1. The responsibility of distributing food grains is shared between the center and states.
  2. The center, specifically FCI, is responsible for the interstate transport of food grains from procuring to consuming states, as well as delivering grains to the state godowns.
  3. Once FCI transports grains to the state depots, distribution of food grains to end consumers is the responsibility of state governments

Issues with Transportation:

Leakage and diversion of food grains during transportation.

PDS reforms

Technology Based reforms: End to end computerization would bring in transparency in the whole process. It would help to prevent leakages and diversion of food grains to a great extent.

The different types reforms undertaken by different states are:

  1. Adhaar Linked and digitized ration cards: This allows online entry and verification of beneficiary data. It also enables online tracking of monthly entitlements and off-take of foodgrains by beneficiaries.
  2. Computerized Fair Price Shops: FPS automated by installing ‘Point of Sale’device to swap the ration card. It authenticates the beneficiaries and records the quantity of subsidized grains given to a family.
  3. DBT: Under the Direct Benefit Transfer scheme, cash is transferred to the beneficiaries’ account in lieu of foodgrains subsidy component. They will be free to buy food grains from anywhere in the market. For taking up this model, pre-requisites for the States/UTs would be to complete digitization of beneficiary data and seed Aadhaar and bank account details of beneficiaries. It is estimated that cash transfers alone could save the exchequer Rs.30,000 crore every year.
  4. Use of GPS technology: Use of Global Positioning System (GPS) technology to track the movement of trucks carrying foodgrains from state depots to FPS which can help to prevent diversion.
  5. SMS-based monitoring: Allows monitoring by citizens so they can register their mobile numbers and send/receive SMS alerts during dispatch and arrival of TPDS commodities
  6. Use of web-based citizens portal: Public Grievance Redressal Machineries, such as a toll-free number for call centers to register complaints or suggestions.

Way Forward

  1. The government has achieved significant milestones in the PDS reforms.
  2. As part of the implementation of NFSA, almost all states have undertaken PDS reforms.
  3. Over 42 % cards are linked with Point of sale devices which have been installed in over 77000 ration shops. 100% digitization of cards are not too far.
  4. In the nutshell, the much-needed PDS reforms are moving in the right direction and one can hope that the inefficiency in the system would be removed to ensure the food security millions of people in our country.

 

Poverty Line in India

Introduction

  • 1. India is home to over one-third of poor people in the world.
  • 2. If we add the poor of Pakistan and Bangladesh into it, we find that almost half of world poverty exists just these three nations.
  • 3. The next big concentration of poverty is in the sub-Saharan Africa.
  • 4. However, estimation of poverty has been a contentious issue in India.
  • 5. Historically, first estimation of a poverty line was done by Dadabhai Naoroji in 19th century, though he himself did not use the word “poverty line”.

Dadabhai Naoroji

  • 1. The history of poverty estimation in India goes back to 19th century when Dadabhai Naoroji’s efforts and careful study led him to conclude subsistence based poverty line at 1867-68 prices, though he never used the word “poverty line”.
  • 2. It was based on the cost of a subsistence diet consisting of ‘rice or flour, dhal, mutton, vegetables, ghee, vegetable oil and salt’.
  • 3. According to him, subsistence was what is necessary for the bare wants of a human being, to keep him in ordinary good health and decency.
  • 4. His studies included the scale of diet and he came to a conclusion on the subsistence costs based poverty line that varied from Rs.16 to Rs.35 per capita per year in various regions of India. At that time, per capita income of England was at Rs. 450.
  • 5. However, since necessities in India cost only about one-third as compared to England at that time, the real difference in terms of purchasing power parity was not fifteen times but only five times.

National Planning Committee

  • 1. In 1938, Congress president Subhash Chandra Bose set up the National Planning Committee (NPC) with Jawaharlal Nehru as chairman and Professor K. T. Shah as secretary for the purpose of drawing up an economic plan with the fundamental aim to ensure an adequate standard of living for the masses.
  • 2. The Committee regarded the irreducible minimum income between Rs. 15 to Rs. 25 per capita per month at Pre-war prices.
  • 3. However, this was also not tagged something as a poverty line of the country.

First Planning Commission working group

  • 1. The concept of the poverty line was first introduced by a working group of the Planning Commission in 1962 and subsequently expanded in 1979 by a task force.
  • 2. The 1962 working group recommended that the national minimum for each household of five persons should be not less than Rs 100 per month for rural and Rs. 125 for urban at 1960-61 prices.
  • 3. These estimates excluded the expenditure on health and education, which both were expected to be provided by the state.

Y K Alagh Committee

  • 1. Till 1979, the approach to estimate poverty was traditional i.e. lack of income.
  • 2. It was later decided to measure poverty precisely as starvation i.e. in terms of how much people eat.
  • 3. This approach was first of all adopted by the YK Alagh Committee’s recommendation in 1979 whereby, the people consuming less than 2100 calories in the urban areas or less than 2400 calories in the rural areas are poor.
  • 4. The logic behind the discrimination between rural and urban areas was that the rural people do more physical work.
  • 5. Moreover, an implicit assumption was that the states would take care of the health and education of the people.
  • 6. Thus, YK Alagh eventually defined the first poverty line in India.

Lakdawala Formula

  • 1. Till as recently as 2011, the official poverty lines were based entirely on the recommendations of the Lakdawala Committee of 1993.
  • 2. This poverty line was set such that anyone above them would be able to afford 2400 and 2100 calories worth of consumption in rural and urban areas respectively in addition to clothing and shelter.
  • 3. These calorie consumptions were derived from YK Alagh committee only.
  • 4. According to the Lakdawala Committee, a poor is one who cannot meet these average energy requirements.
  • 5. However, Lakdawala formula was different in the following respects in comparison to the previous models.
  • 6. In the earlier estimates, both health and education were excluded because they were expected to be provided by the states.
  • 7. This committee defined poverty line on the basis of household per capita consumption expenditure.
  • 8. The committee used CPI-IL (Consumer Price Index for Industrial Laborers) and CPI- AL (Consumer Price Index for Agricultural Laborers) for estimation of the poverty line.
  • 9. The method of calculating poverty included first estimating the per capita household expenditure at which the average energy norm is met, and then, with that expenditure as the poverty line, defining as poor as all persons who live in households with per capita expenditures below the estimated value.
  • 10. The fallout of the Lakdawala formula was that number of people below the poverty line got almost double.
  • 11. The number of people below the poverty line was 16 per cent of the population in 1993-94. Under the Lakdawala calculation, it became 36.3 per cent.

Suresh Tendulkar Committee

  • 1. In 2005, Suresh Tendulkar committee was constituted by the Planning Commission.
  • 2. The current estimations of poverty are based upon the recommendations of this committee.
  • 3. This committee recommended to shift away from the calorie based model and made the poverty line somewhat broad based by considering monthly spending on education, health, electricity and transport also.
  • 4. It strongly recommended target nutritional outcomes i.e. instead of calories; intake nutrition support should be counted.
  • 5. It suggested that a uniform Poverty Basket Line be used for rural and urban region.
  • 6. It recommended a change in the way prices are adjusted and demanded for an explicit provision in the Poverty Basket Line to account for private expenditure in health and education.
  • 7. Tendulkar adopted the cost of living as the basis for identifying poverty.

The Tendulkar panel stipulated a benchmark daily per capita expenditure of Rs. 27 and Rs. 33 in rural and urban areas, respectively, and arrived at a cut-off of about 22% of the population below poverty line.

However, this amount was such low that it immediately faced a backlash from all section of media and society.

Since the numbers were unrealistic and too low, the government appointed another committee under Prime Minister’s Economic Advisory Council Chairman C. Rangarajan to review the poverty estimation methodology.

Brushing aside the Tendulkar Committee Rangarajan committee raised these limits to Rs. 32 and Rs. 47, respectively, and worked out poverty line at close to 30%.

With estimates of Rangarajan committee, Poverty stood at around 30% in 2011-12. The number of poor in India was estimated at 36.3 crore in 2011-12.

Current Status: Arvind Panagariya Task Force

  • 1. The discussion about Lakdawala Formula, Suresh Tendulkar Committee and Rangarajan Committee make it clear that defining a poverty line in India has been a controversial issue since 1970s.
  • 2. The latest poverty line defined was by Rangarajan Formula. However, this report also did not assuage the critics. The new NDA Government turned down this report also.
  • 3. To define the poverty line, The NDA Government had constituted a 14-member task force under NITI Aayog’s vice-chairman Arvind Panagariya to come out with recommendations for a realistic poverty line.
  • 4. After one and half years work, this task force also failed to reach a consensus on poverty line.
  • 5. In September 2016, it suggested to the government that another panel of specialists should be asked to do this job {if defining poverty line}.
  • 6. Informally, this committee supported the poverty line as suggested by Tendulkar Committee.

Why defining poverty line is a controversial issue?

  • 1. Most of the governments have mothballed the reports of commmittees and panels because this issue is not only politically sensitive but also has deeper fiscal ramifications.
  • 2. If the poverty threshhold is high, it may leave out many needed people; while if it is low, then it would be bad for fiscal health of the government. Third, there is a lack of consensus among states too.
  • 3. We note that some states such as Odisha and West Bengal supported the Tendulkar Poverty Line while others such as Delhi, Jharkhand, Mizoram etc. supported Rangrajan Line.
  • 4. Thus, no one, including NITI aayog wants to bell the cat when it comes to count number of poor in the country.

How poverty is measured in other countries?

  • 1. In most of European countries, a family with net income of less than 60% of a median net disposable income is counted as poor.
  • 2. In United States, poverty line represents the basic cost of food for a family multiplied by three.
  • 3. A family is counted as poor if its pre-tax income is below this threshold

School education in India

According to the 2011 census, literacy rate in India was found to be 74.04 per cent. Among the states, Kerala leads the literacy rate followed by Goa, Tripura, Mizoram, Himachal Pradesh, Maharashtra, and Sikkim. The lowest literacy rate in India is seen in the state of Bihar.
India has made phenomenal progress since independence in the field of education. Following the Millennium Development framework, by the measure of the Net Enrolment Ratio (NER), India had crossed the cut-off target of 95 per cent, regarded as the marker value for achieving 2015 target of universal primary education for all children aged 6-10 years in 2007-08.
The present education system in India is guided by different objectives and goals but is based around the policies of yesteryears.

  • 1. August 29, 1947 – Department of Education under the Ministry of Human Resource Development.
  • 2. 1968 – National Policy on Education was formulated – Focus on quality of education.
  • 3. Over subsequent years, several policies have been formulated by the Indian government to ensure that the literacy level is gradually increased with a close monitoring of the quality of education as well.
  • 4. Retention of children in schools was of paramount importance in the years that followed.
  • 5. With several educational reforms, school drop-out rates have registered a decline with the gender gap of education also showing a dipping.
  • 6. More recently, two prominent policies of the Indian government—the Sarva Shiksha Abhiyan (SSA) in 2001 and the Right of Children to Free and Compulsory Education (RTE) Act, 2009 have seen education priorities rise amongst households and catalysed improvements in educational performance.
  • 7. Education continues to remain a top priority for the Government of India with rising budgetary allocations.

Major Challenges:

  • Steep dropout rates after the elementary level and also at the middle school level and the increasing enrolment gap from elementary to higher secondary are matters of great concern.
  • Disadvantaged groups are worse off with the dropout rates for Scheduled Castes and Scheduled Tribes higher than the national average.
  • High pupil–teacher ratio, lack of professionally trained teachers, and poor level of student learning resulting in weak learning outcomes at each stage of education are major challenges faced by the Indian school education system today.

Some of the Initiatives of Government of India on School Education

  • The budget has special focus on education of the girl child with the Beti Bachao Beti Padhao scheme and the resolution of providing girls toilets and drinking water facilities in schools targeted to benefit millions of girls hoping to reduce dropouts in the process.
  • Modernisation of the madrasas
  • School Assessment Programmes
  • Pandit Madan Mohan Malviya’s Teacher Training Programme which will benefit nearly 20,000 teacher trainees studying in Teacher Education Institutions.
  • Setting up of virtual classrooms as Communication Linked Interface for Cultivating Knowledge (CLICK) and Massive Open Online Courses (MOOC) and a national e-library.
  • The Twelfth Five-Year Plan (2012–2017) targeted to increase the mean years of schooling to seven years and to eliminate gender and social gaps in school enrolment.
  • Mid-Day Meal programme to provide free lunch on working days for children in Primary and Upper Primary Classes. The primary objective of the scheme is to improve the nutritional status of children, encouraging poor children, belonging to disadvantaged sections, to attend school more regularly and help them concentrate on classroom activities, thereby increasing the enrolment, retention and attendance rates.
  • Under 86th Constitutional Amendment Right to Education was added to the Indian Constitution (Article 21A).
  • National Scheme for Incentive to Girls for Secondary Education (NSIGSE) to reduce the drop-outs and to promote the enrolment of girl child belonging mainly to SC/ST communities in secondary schools.
  • Scheme for setting up of 6000 Model Schools at Block Level as benchmark of excellence.
  • National Means Cum-Merit Scholarship Scheme(NMMSS)
  • Rashtriya Madhyamik Shiksha Abhiyan (RMSA) to achieve a Gross Enrolment Ratio (GER) of 75 per cent at secondary stage and universal retention by 2020.

Right to Education Act:

The RTE Act is a game-changer in that it establishes that the onus to ensure free and compulsory education lies on the state. However, there are several challenges existing in our education system.
A focus on below three of these provisions can result in an immediate and noticeable impact.

1.Focus on retention

Tracking dropouts and preparing and mainstreaming them into age-appropriate classes has been subsumed into existing scheme activities. Even seven years after its enactment, there are still children on the streets, in fields and in homes.
Strategies to ensure retention need to change from the earlier approach of enrolling the un-enrolled. As children out of the fold of schooling are the most hard to reach, such as girls, the disabled, orphans and those from single parent families, the solutions have to be localised and contextualised.

2. Pupil-teacher ratio

The most critical requirement, which has also got the least public attention, is the pupil-teacher ratio (PTR). It is impractical to expect quality education without this.

  • According to the Education Department’s data, under the Unified District Information System for Education (U-DISE) database 2015-16, 33% of the schools in the country did not have the requisite number of teachers, as prescribed in the RTE norms, for PTR at the school level.
  • The percentage of schools that were PTR-compliant varied from 100% in Lakshadweep to 16.67% in Bihar.
  • All other forward-looking provisions of the Act such as continuous assessment, a child learning at her own pace, and ‘no detention’ policies are contingent on a school with an adequate number of teachers.
  • No meaningful teaching-learning is possible unless trained teachers are physically present at school.
  • States shy away from recruiting or posting more teachers keeping in mind higher salaries and finances, but PTR at the school level is the most critical of all inputs.
  • Teacher provisioning should be the first option to fund as no educationally developed country has built up a sound schooling foundation without a professionally-motivated teaching cadre in place.

3. Think decentralization

The third provision is that the academic calendar will be decided by the local authority, which, for most States and Union Territories, is the panchayat.

  • This provision recognises the vast cultural and regional diversities within the country such as local festivals, sowing and harvesting seasons, and even natural calamities as a result of which schools do not function academically.
  • It is socially acceptable that priority will be given to such a local event.
  • Not all festivals and State holidays declared by the State headquarters may be locally relevant.
  • So if panchayats, perhaps at the district level, decide the working days and holidays, this would not only exponentially increase attendance and teaching-learning but also strengthen local panchayats, being closest to the field, to take ownership of their schools.
  • They would be responsible in ensuring the functioning of the prescribed instruction days.
    For inexplicable reasons, the educational bureaucracy has not allowed the decentralisation of academic schedules even in districts.
  • Open-minded adoption of these provisions, keeping the child in mind, can go a long way in radically transforming our school education sector.

Public Debt Management Agency

Introduction

  • In an effort to streamline the borrowings of the government and achieve better cash management, the Finance Ministry in 2016 established the Public Debt Management Cell which is to become Public Debt Management Agency in two years time.
  • It is an interim arrangement in the RBI itself but it is to be given a separate statutory status from that of the RBI.
  • The aim is to segregate the debt management function of the RBI and allot it to an independent agency.

Composition of PDMC

  • The PDMC is to be headed by the Joint Secretary (Budget) of the Department of Economic Affairs.
  • In order to ensure that the transition takes place from the PDMC to PDMA, a Joint Implementation Committee has been appointed.
  • It is supervised by the Monitoring Group on Cash and Debt Management.
  • There are 15 debt managers on staff from various units like RBI, Budget Division, current Middle Office and some other government units.

Functions

  • To prepare plans for the government borrowings both under the categories of market borrowings and other borrowings.
  • To manage the liabilities of the government
  • To monitor the cash balances
  • To improve the forecasting of cash
  • Enhancing the liquidity and efficiency of the market to make it ready for floating of government securities.
  • To advise the government on capital market operations, investment, administration of the rates of interest on small savings.
  • To develop an Integrated Debt Database System which shall act as a centralized database of all the liabilities of the government on the basis of real time.

How is the Separation of Functions to be done?

  • The PDMA has to develop in a gradual manner to get some time to coordinate with the RBI to avoid clashing of responsibilities.
  • The circular which introduced it has also emphasized that the PDMC’s functions should be limited to be advisory in nature in order to avoid conflict with the statutory functions of the RBI.

Need to Separate Functions of RBI from PDMA

  • The need for an independent body for the purpose of public debt management had been emphasized since 1997 with the Committee on Capital Account Convertibility (an in-house Committee of RBI) mentioning its requirement for the first time.
  • Since then, the need has been emphasized upon in several reports until the FSLRC Report of 2013 wherein the need was expressed due to the following reasons:
  • The act of debt management has to be conducted on an integrated basis, referring to both the onshore and offshore liabilities of the Government.
  • But at present, these two liabilities are managed separately by the Ministry of Finance and RBI. A unified way of dealing can ensure a more focused approach on the debts.
  • The central bank which has the objective of both selling the government bonds & obtaining low cost financing, can be biased towards low rates of interest which has the capacity to affect price stability.

Some of the general reasons are:

1. Institutional reforms

The introduction of PDMA can pave the way for an institutional reform for building an efficient government securities market and transparency in public debt in India.

2. Internationally accepted practice

Separation of public debt management from the activities of central bank is also an internationally recognized practice for debt management. It is prevalent in most of the advance economies and developing economies like Colombia, South Africa and Brazil.

3. Omission of certain debt management functions

The RBI being involved in several functions, ignored certain incidental debt management functions like cash and investment management and there was no consolidation of the information relating to the contingent and other liabilities.

4. Conflict of interests

  • One obvious conflict of interest is with respect to the selling of government bonds as has been pointed out by Justice SN Balakrishna in the FSLRC Report.
  • The biasness is further aggravated by the power of RBI to regulate all the banks in India.
  • It has an incentive in making a mandate for the banks to hold a large amount of government paper.
  • So, it may have flaws with respect to supervision and regulation of the banks, so that banks get induced to buy the long term government bonds.
  • This definitely affects the liquidity of the government securities market as there is only a group of captive buyers.
  • It can also lead to speculations in their prices.
  • Further, the role of owner and administrator being vested on one institution can create a huge conflict of goals.

5. Consolidation

Consolidating all the debt management functions can result in a holistic and more focused approach towards these debts-both internal and external liabilities.

Non-Performing Assets

What is a Non-Performing Asset

When the borrower stops paying interest or principal on a loan, the lender will lose money. Such a loan is known as Non-Performing Asset (NPA).

The loans given by the bank is considered as its assets. So if the principle or the interest or both the components of a loan is not being serviced to the lender (bank), then it would be considered as a Non-Performing Asset (NPA).

Any asset which stops giving returns to its investors for a specified period of time is known as Non-Performing Asset (NPA).

Generally, that specified period of time is 90 days in most of the countries and across the various lending institutions. However, it is not a thumb rule and it may vary with the terms and conditions agreed upon by the financial institution and the borrower.

An example of NPA:

Suppose State Bank of India (SBI) gives a loan of Rs. 10 crore to a company (Eg: Kingfisher Airlines). Consider that they agreed upon for an interest rate of say 10% per annum. Now suppose that initially everything was good and the market forces were working in support to the airline industry, therefore, Kingfisher was able to service the interest amount. Later, due to administrative, technical or corporate reasons suppose the company is not able to pay the interest rates for 90 days. In that case, a loan given to the Kingfisher Airlines is a good case for the consideration as NPA.

NPAs definition by Reserve Bank of India (RBI)

An asset, including a leased asset, becomes non­performing when it ceases to generate income for the bank.

Technical definition by RBI on NPA on different cases

NPA is a loan or an advance where,

  • Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.
  • The account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
  • The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.
  • The installment of principal or interest thereon remains overdue for two crop seasons for short duration crops.
  • The installment of principal or interest thereon remains overdue for one crop season for long duration crops.
  • The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
  • In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Categories of Non-Performing Assets (NPAs)

Based upon the period to which a loan has remained as NPA, it is classified into 3 types

India’s NPA issue

  • More than Rs. 7 lakh crore worth loans are classified as Non-Performing Loans in India.
  • The figure roughly translates to near 10% of all loans given.
  • This means that about 10% of loans are never paid back, resulting in substantial loss of money to the banks.
  • When restructured and unrecognised assets are added the total stress would be 15-20% of total loans.
  • NPA crisis in India is set to worsen also restructuring norms are being misused.
  • This bad performance is not a good sign and can result in crashing of banks as happened in the sub-prime crisis of 2008 in the United States of America.
  • Also, the NPA problem in India is worst when comparing other emerging economies in BRICS.

Possible reasons for NPAs

  • Diversification of funds to unrelated business/fraud.
  • Lapses due to diligence.
  • Busines losses due to changes in business/regulatory environment.
  • Lack of morale, particularly after government schemes which had written off loans.
  • Global, regional or national financial crisis which results in erosion of margins and profits of companies, therefore, stressing their balance sheet which finally results into non-servicing of interest and loan payments. (For example, the 2008 global financial crisis).
  • The general slowdown of entire economy for example after 2011 there was a slowdown in the Indian economy which resulted in the faster growth of NPAs.
  • The slowdown in a specific industrial segment, therefore, companies in that area bear the heat and some may become NPAs.
  • Unplanned expansion of corporate houses during boom period and loan taken at low rates later being serviced at high rates, therefore, resulting into NPAs.
  • Due to mal-administration by the corporates, for example, willful defaulters.
  • Due to misgovernance and policy paralysis which hampers the timeline and speed of projects, therefore, loans become NPAs. For example Infrastructure Sector.
  • Severe competition in any particular market segment. For example Telecom sector in India.
  • Delay in land acquisition due to social, political, cultural and environmental reasons.
  • A bad lending practice which is a non-transparent way of giving loans.
  • Due to natural calamities such as floods, droughts, disease outbreak, earthquakes, tsunami etc.
  • Cheap import due to dumping leads to business loss of domestic companies. For example Steel sector in India.

Impact of NPAs

  • Lenders suffer lowering of profit margins.
  • Stress in banking sector causes less money available to fund other projects, therefore, negative impact on the larger national economy.
  • Higher interest rates by the banks to maintain the profit margin.
  • Redirecting funds from the good projects to the bad ones.
  • As investments got stuck, it may result in it may result in unemployment.
  • In the case of public sector banks, the bad health of banks means a bad return for a shareholder which means that government of India gets less money as a dividend. Therefore it may impact easy deployment of money for social and infrastructure development and results in social and political cost.
  • Investors do not get rightful returns.
  • Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have stressed balance sheet and causes halting of the investment-led development process.
  • NPAs related cases add more pressure to already pending cases with the judiciary.

Steps taken to tackle NPAs

NPAs story is not new in India and there have been several steps taken by the GOI on legal, financial, policy level reforms. In the year 1991, Narsimham committee recommended many reforms to tackle NPAs. Some of them were implemented.

1.The Debt Recovery Tribunals (DRTs) – 1993

To decrease the time required for settling cases.
They are governed by the provisions of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993.
However, their number is not sufficient therefore they also suffer from time lag and cases are pending for more than 2-3 years in many areas.

2. Credit Information Bureau – 2000

A good information system is required to prevent loan falling into bad hands and therefore prevention of NPAs.
It helps banks by maintaining and sharing data of individual defaulters and willful defaulters.

3. Lok Adalats – 2001

They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees loans only by the RBI guidelines issued in 2001.
They are positive in the sense that they avoid more cases into the legal system.

4. Compromise Settlement – 2001

It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores.
It covers lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are excluded.

5. SARFAESI Act – 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial Institutions to recover their NPAs without the involvement of the Court, through acquiring and disposing of the secured assets in NPA accounts with an outstanding amount of Rs. 1 lakh and above.
The banks have to first issue a notice. Then, on the borrower’s failure to repay, they can:
1. Take ownership of security and/or
2. Control over the management of the borrowing concern.
3. Appoint a person to manage the concern.
Further, this act has been amended last year to make its enforcement faster.

6. ARC (Asset Reconstruction Companies)

The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002.
These companies are created to unlock value from stressed loans.
Before this law came, lenders could enforce their security interests only through courts, which was a time-consuming process.

7. Corporate Debt Restructuring – 2005

It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.

8. 5:25 rule – 2014

Also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries.
It was proposed to maintain the cash flow of such companies since the project timeline is long and they do not get the money back into their books for a long time, therefore, the requirement of loans at every 5-7 years and thus refinancing for long term projects.

9. Joint Lenders Forum – 2014

It was created by the inclusion of all PSBs whose loans have become stressed.
It is present so as to avoid loan to same individual or company from different banks.
It is formulated to prevent the instances where one person takes a loan from one bank to give a loan of the other bank.

10. Mission Indradhanush – 2015

The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks (PSBs) and improve their overall performance by ABCDEFG.

A-Appointments: Based upon global best practices and as per the guidelines in the companies act, separate post of Chairman and Managing Director and the CEO will get the designation of MD & CEO and there would be another person who would be appointed as non-Executive Chairman of PSBs.
B-Bank Board Bureau: The BBB will be a body of eminent professionals and officials, which will replace the Appointments Board for appointment of Whole-time Directors as well as non-Executive Chairman of PSBs
C-Capitalization: As per finance ministry, the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore out of which 70000 crores will be provided by the GOI and the rest PSBs will have to raise from the market.

Financial Year Total Amount
FY15-16 25,000 Crore
FY16-17 25,000 Crore
FY17-18 10,000 Crore
FY18-19 10,000 Crore
Total 70,000 Crore

D-Destressing: PSBs and strengthening risk control measures and NPAs disclosure.
E-Employment: GOI has said there will be no interference from Government and Banks are encouraged to take independent decisions keeping in mind the commercial the organizational interests.
F-Framework of Accountability: New KPI(key performance indicators) which would be linked with performance and also the consideration of ESOPs for top management PSBs.
G-Governance Reforms: For Example, Gyan Sangam, a conclave of PSBs and financial institutions. Bank board Bureau for transparent and meritorious appointments in PSBs.

11. Strategic debt restructuring (SDR) – 2015

Under this scheme banks who have given loans to a corporate borrower gets the right to convert the complete or part of their loans into equity shares in the loan taken company.
Its basic purpose is to ensure that more stake of promoters in reviving stressed accounts and providing banks with enhanced capabilities for initiating a change of ownership in appropriate cases.

12. Asset Quality Review – 2015

Classify stressed assets and provisioning for them so as the secure the future of the banks and further early identification of the assets and prevent them from becoming stressed by appropriate action.

13. Sustainable structuring of stressed assets (S4A) – 2016

It has been formulated as an optional framework for the resolution of largely stressed accounts.

It involves the determination of sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.

14. Insolvency and Bankruptcy code Act-2016

It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey) of the exit problem in India.

The aim of this law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto.

15. Pubic ARC vs. Private ARC – 2017

This debate is recently in the news which is about the idea of a Public Asset Reconstruction Companies (ARC) fully funded and administered by the government as mooted by this year’s Economic Survey Vs. the private ARC as advocated by the deputy governor of RBI Mr. Viral Acharya.
Economic survey calls it as PARA (Public Asset Rehabilitation Agency) and the recommendation is based on the similar agency being used during the East Asian crisis of 1997 which was a success.

16. Bad Banks – 2017

Economic survey 16-17, also talks about the formation of a bad bank which will take all the stressed loans and it will tackle it according to flexible rules and mechanism.
It will ease the balance sheet of PSBs giving them the space to fund new projects and continue the funding of development projects.

Summary

  • The need of the hour to tackle NPAs is some urgent remedial measures. This should include:
  • Technology and data analytics to identify the early warning signals.
  • Mechanism to identify the hidden NPAs.
  • Development of internal skills for credit assessment.
  • Forensic audits to understand the intent of the borrower.

Poverty and Unemployment in India

Poverty

The UN Human Rights Council has defined poverty as “A human condition characterized by the sustained or chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic, political and social rights”.
Poverty manifests itself in the form of both absolute poverty as well as relative poverty.

Absolute Poverty:

  • 1. This concept is based on absolute needs of the people and people are defined as poor when some absolute needs are not sufficiently satisfied.
  • 2. It is also defined in terms of insufficiency of basic needs.
  • 3. In India, these basic needs are measured in terms of calorie intake of 2400 in rural areas per person per day and 2100 in urban areas.
  • 4. The corresponding monetary yardstick for calorie intake is based on per capita monthly household expenditure.

Relative Poverty:

  • 1. This concept is related to the general standard of living in a society.
  • 2. Thus, according to this concept health coach recovery program, people are poor because they are deprived of the opportunities, comforts and self-respect regarded as normal in the community to which they belong.
  • 3. In relative poverty, poor are defined as, a person or family whose incomes are less than the average income of the community.
  • 4. Thus relative poverty relates to inequalities in a society. India is characterised by both in extreme measures, i.e., absolute and relative poverty.

CAUSES OF POVERTY

The extent of poverty in an economy is due to a wide range of factors as follows:

  • (i) Underdeveloped nature of economy.
  • (ii) Rapid growth of population in an overpopulated country; even if the national income increases, the per capita income remains the same due to increase in population.
  • (iii) Large inequalities in the ownership of earning assets such as land, buildings, industry etc.
  • (iv) Low level of productivity in agriculture and industry.
  • (v) Large scale unemployment and under-employment.
  • (vi) Inequality of opportunity in acquiring education and skills.
  • (vii) State Policies.
  • (viii) Regional disparities

PROGRAMMES FOR POVERTY ALLEVIATION

Salient features of various employment generation of poverty alleviation programme are given below:

1. MGNREGA

  • 1. This flagship programme of the Government of India aims at enhancing livelihood security of households in rural areas of the country by providing at least 100 days of guaranteed wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.
  • 2. It also mandates 1/3rd participation for women.
  • 3. The primary objective of the scheme is to augment wage employment.
  • 4. This is to be done, while also focusing on strengthening natural resource management through works that address causes of chronic poverty like drought, deforestation, soil erosion and thus encourage sustainable development.

2. Deendayal Upadhyay Antyodaya Yojana (DAY)

  • 1. To reduce poverty and vulnerability of the urban poor households by enabling them to access gainful self employment and skilled wage employment opportunities, resulting in an appreciable improvement in their livelihoods on a sustainable basis, through building strong grassroots level institutions of the poor.
  • 2. The mission would aim at providing shelters equipped with essential services to the urban homeless in a phased manner.
  • 3. In addition, the mission would also address livelihood concerns of the urban street vendors by facilitating access to suitable spaces, Institutional credit, social security and skills to the urban street vendors for accessing emerging market opportunities.

3. National Health Mission

  • 1. The National Health Mission (NHM) with its two Sub-Missions, namely the National Urban Health Mission (NUHM) and National Rural Health Mission (NRHM) covering both the rural and urban areas came into effect with Cabinet approval of 1st May,2013.
  • 2. The main programmatic components of NHM include Health System Strengthening in both rural and urban areas, Reproductive-Maternal- Neonatal-Child and Adolescent Health (RMNCH+A) interventions, and control of Communicable and Non-Communicable Diseases.

4. Pradhan Mantri Suraksha Bima Yojna

  • 1. Pradhan Mantri Suraksha Bima Yojana is available to people between 18 and 70 years of age with bank accounts.
  • 2. It has an annual premium of Rs. 12 (18¢ US) excluding service tax, which is about 14% of the premium. The amount will be automatically debited from the account.
  • 3. In case of accidental death or full disability, the payment to the nominee will be Rs.2 lakh (US$3,000) and in case of partial Permanent disability Rs.1 lakh (US$1,500).
  • 4. Full disability has been defined as loss of use in both eyes, hands or feet. Partial Permanent disability has been defined as loss of use in one eye, hand or foot.
  • 5. This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme.
  • 6. Most of these account had zero balance initially. The government aims to reduce the number of such zero balance accounts by using this and related schemes

5. Atal Pension Yojana

  • 1. Under the Atal Pension Yojna Scheme (APY), the subscribers, under the age of 40, would receive the fixed monthly pension of Rs. 1000 to Rs. 5000 at the age of 60 years, depending on their contributions.
  • 2. To make the the pension scheme more attractive, government would co-contribute 50% of a subscriber’s contribution or Rs. 1,000 per annum, whichever is lower to each eligible subscriber account for a period of 5 years from 2015-16 to 2019-20.
  • 3. The benefit of government’s co-contribution can be availed by those who subscribe to the scheme before December 31, 2015.

6. Pradhan Mantri Jeevan Jyoti Bima Yojana

  • 1. Pradhan Mantri Jeevan Jyoti Bima Yojana is low cost life insurance policy provided by government of India.
  • 2. Maximum sum offered under this scheme is Rs. 2 Lakh Premium payable for this insurance scheme is Rs. 330 per year or less than 1 rupee per day.
  • 3. It is Available to people in the age group of 18 to 50 and having a bank account.
  • 4. People who join the scheme before completing 50 years can, however, continue to have the risk of life cover up to the age of 55 years subject to payment of premium.

7. Pradhan Matri Awaas Yojana

The Mission will be implemented during 2015-2022 and will provide central assistance to Urban Local Bodies (ULBs) and other implementing agencies through States/UTs for:

    • In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation
    • Credit Linked Subsidy
    • Affordable Housing in Partnership
    • Subsidy for Beneficiary-led individual house construction/enhancement.

Credit linked subsidy component will be implemented as a Central Sector Scheme while other three components will be implemented as Centrally Sponsored Scheme (CSS).

Unemployment

Unemployment is a situation when a capable and willing to do job workforce does not get work.

‘Types of Unemployment’

Cyclical Unemployment:

  • 1. It is caused due to business cycle.
  • 2. This kind of unemployment occurs when all those who want to work cannot be employed because there is not enough demand in the market for their work.
  • 3. It is called as, cyclical unemployment because it varies with the trade cycle.
  • For example, when the economy is doing well there would be greater demand for the goods, pressure on the forces of production and therefore greater demand for working hands but exactly the opposite is true for the years when the economy slows down.

Frictional Unemployment:

  • 1. This kind of unemployment occurs when a person leaves/loses a job and starts looking for another one.
  • 2. This search for a job may take a considerable amount of time resulting in frictional un-employment.
  • 3. Frictional unemployment tends to be on a high when an economy is not doing so well and low otherwise; because during good times it will be easier for people to find jobs that match their skills and requirements easily.
  • 4. This kind of unemployment may also be high in an economy if people change jobs frequently due to high level of dissatisfaction with the working conditions in the economy.

Seasonal Unemployment:

  • 1. This kind of unemployment is expected to occur at certain parts of the year.
  • 2. For example, the jobs at a hill station may experiences seasonal un-employment during the winter months because less people will visit these areas during this time.
  • 3. Another case could be the seasonal unemployment in agriculture depending upon the success of monsoon.
  • 4. Failure of monsoon may result in widespread unemployment in the agricultural sector of the economy.
  • 5. Getting laid off due to a recession is the classic case of cyclical unemployment. This is why the unemployment rate is a key economic indicator.

Structural Unemployment:

  • 1. This kind of unemployment happens when the structure of an industry changes.
  • 2. For example, as the country is tending to move from use of bicycles to motorbikes and cars, the demand for labor in the cycle industry has continuously fallen in the country.
  • 3. It essentially occurs when the industry is unable to provide jobs for those who are seeking employment because there exists a mismatch of skills between the skills of the unemployed and the skills needed for the job.
  • 4. Changes in technology and changes in tastes are two big reasons for the occurring of structural unemployment in the economy.
  • 5. One of the reasons why 12th plan focuses on skill development is to address the problem of structural unemployment in the country.

Full Employment:

Employment would be full literally, when every able-bodied adult works the number of hours considered normal for a fully employed person.

Under Employment:

  • 1. This term can be used in multiple connotations but one of the primary usage is to showcase a situation where a person with high skills works in low wage and low skills job.
  • 2. It can also be used to reflect a situation when the people employed in a job are not giving their services fully or not putting in the man-hours which can be extracted from them.
  • 3. For example, if someone works for just 10 hours a week, it would be a case of under-employment.

Disguised Unemployment:

  • 1. Such type of unemployment is quite common in the agri-cultural sector in India.
  • 2. It occurs when people are employed in a job where their presence or absence does not make any difference to the output of the economy.
  • 3. Because of large families in the rural areas several people work on farms and at times the work of 2-3 people is done by 4-5 people because otherwise it would result in unemployment.
  • 4. But in reality this is nothing but a case of disguised unemployment.
  • 5. It refers to the situation of employing surplus labours whose marginal productivity is zero.

Different Approaches for Measuring Labour Force

In a country where majority of the workers are employed in the unorganized sector and pursuing multiple activities, no single measure is appropriate to estimate the labour force parameters precisely. Labour Force related parameters may be derived by the following 4 different approaches based on different reference periods.

Usual Principal Status (UPS) Approach

  • 1. The major time criterion based on the 365 days is used to determine the activity pursued by a person under the usual principal status approach.
  • 2. Accordingly, the major time spent by a person (183 days or more) is used to determine whether the person is in the labour force or out of labour force.
  • 3. A person found unemployed under this approach reflects the chronic unemployment.

Usual Principal & Subsidiary Status (UPSS) Approach

  • 1. This approach is a hybrid one which takes into consideration both the major time criterion and shorter time period (30 days or more in any economic activity).
  • 2. A person who has worked even for 30 days or more is considered as employed.

Current Weekly Activity Status (CWS)

  • 1. If a person is found employed or seeking/available for work even for 1 hr. during the reference week, he/she is considered to be part of labour force.
  • 2. It is used to determine the seasonal fluctuations in the labour force.
  • 3. In India, where majority of the labour force is engaged in the unorganised sector of the economy, current weekly and current daily status approaches may reflect the employment-unemployment situation in a more appropriate manner.

Current Daily Activity Status (CDS)

  • 1. In a day, if a person has worked for 4 hr. or more in any activity, he/she will be considered as employed for full day and a full intensity of 1.0 will be recorded.
  • 2. If a person has worked for less than four hour but more than 1 hr. in a day, he/she will be considered as employed for half day and an intensity of 0.5 will be recorded.

Schemes for Skill Development

Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

  • 1. Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is the flagship outcome-based skill training scheme of MSDE.
  • 2. It is also India’s largest skill certification scheme with the objective to enable and mobilize a large number of Indian youth to take up outcome-based skill training and become employable and earn their livelihood.
  • 3. Owing to its successful first year of implementation, the Union Cabinet has approved the scheme for another four years (2016-2020) to impart skill training to 10 million youth of the country with an outlay of Rs 12,000 crores.
  • 4. It is being implemented through the National Skill Development Corporation (NSDC).

National Apprentice Promotion Scheme

  • 1. National Apprenticeship Promotion Scheme (NAPS) is a new scheme of Government of India to promote apprenticeship training and increase the engagement of apprentices from present 2.3 lakh to 50 lakh cumulatively by 2020.
  • 2. The scheme focuses on sharing of 25% of prescribed stipend subject to a maximum of Rs. 1500/- per month per apprentice to all apprentices with the employers.
  • 3. Government supports Rs. 7500 for a maximum of 500 hours for basic training.
  • 4. The target under the scheme is 5 lakh, 10 lakh, 15 lakh and 20 lakh apprentices respectively in 2016-17, 2017-18, 2018-2019 and 2019-20.
  • 5. The engagement of fresher apprentices shall be 20% of total annual target. As on today, one lakh apprentices are undergoing training under NAPS.

USSTAD scheme

  • 1. Union Government has launched the Upgrading the Skills and Training in Traditional Arts/Crafts for Development (USTAAD) Scheme.
  • 2. The Scheme aims at upgrading Skills and Training of minority communities by preservation of traditional ancestral Arts and Crafts.
  • 3. It also envisages boosting the skill of craftsmen, weavers and artisans who are already engaged in the traditional ancestral work.
  • 4. Under the scheme, assistance will be provided to traditional artisans to sell their products in order to make them more compatible with modern markets.

Deen Dayal Upadhyay Grameen Kaushal Yojana

  • 1. The Yojana aims at training 10 lakh (1 million) rural youths for jobs in three years, that is, by 2017;
  • 2. The minimum age for entry under the Yojana is 15 years compared to 18 years under the Aajeevika Skills Programme;
  • 3. Skill development training centres to be launched so as to address the unemployment problem in the rural area;
  • 4. The skills imparted under the Yojana will now be benchmarked against international standards and will complement the Prime Minister’s Make In India campaign and The Kaushalya Yojana will also the address the need for imparting training to the differently-able persons and chip in private players including international players to impart the skills to the rural youths.
  • 5. A sum of Rs. 1500 crore has been allocated for this scheme, for which disbursement will be through a digital voucher directly into qualified student’s bank account.

Skill Development Initiative Scheme

  • 1. Implemented by Directorate General Training (DGT) under Ministry of Skill Development and Entrepreneurship, SDIS aims at providing skill training to early school leavers & existing workers.
  • 2. The certifications provided under this scheme are nationally and internationally recognized.
  • 3. SDIS focuses on providing vocational training on the basis of Modular Employable Skills (MES) to school drop outs, ITI graduates, existing workers etc.

Seekho aur Kamao

  • 1. Seekno Aur Kamao is a special scheme for Minorities under which it runs courses as per Modular Employable Skills (MES) as per the guidelines of National Council for Vocational Training (NCVT).
  • 2. Implemented by Ministry of Minorities affairs, the scheme focuses skilling and upskilling of youth from minorities so that that can earn their livelihood. The age of trainees should be between 14 to 35 years of age.

Hunar se Rozgar

  • 1. The Govt. of India, Ministry of Tourism has launched a Training Programme, christened Hunar Se Rozgar Tak, to create employable skills in the interested youth who are in the age group of 18-25 years and who are minimum 8th pass.
  • 2. The upper age limit has been raised to 28 with effect from 11th November, 2010.
  • 3. The HSRT initiative is being implemented through expert institutions including the Indian Institute of Tourism and Travel Management, Institutes of Hotel Management, Food Craft Institutes and India Tourism Development Corporation.
  • 4. The State Governments/Union Territory Administrations have also been authorised to implement the initiative through Institutes selected by them for purpose.
  • 5. It is also mandatory for certain star-classified hotels to train a prescribed minimum number of persons.

UDAAN

  • 1. Under the scheme, 40,000 youth will be trained in five years.
  • 2. Companies which show interest in the scheme and enter into the agreement with the National Skill Development Corporation (NSDC), will screen and select students from the State.
  • 3. After assessing the skill gap of the trainees, a training module, its duration and nature of training will be designed by the companies.
  • 4. Trainees will be relocated to the training facility. After completion of the training, they will be interviewed for a job with the company and will be placed as far as possible.
  • 5. The scheme targets youth who are educated, but do not have marketable skills. It includes graduates, postgraduates, three year engineering diploma holders and youth with professional degrees.

Himayat Scheme

  • 1. It is a training-cum-placement programme for unemployed youth in Jammu and Kashmir.
  • 2. Youth will be provided short-term training for at least 3 months, in a range of skills for which there is good demand.
  • 3. At the end of the training, the youth are assured of a job and there is one year post-placement tracking to see how they are faring.
  • 4. The scheme aims to target 1,00,000 youth in 5 years.

Reverse Charge Mechanism – Explained

Reverse charge is a mechanism where the recipient of the goods and/or services is liable to pay GST instead of the supplier.

1. What is Reverse Charge?

Normally, the supplier of goods or services pays the tax on supply. In the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.

2. When is Reverse Charge Applicable?

A. Supply from an Unregistered dealer to a Registered dealer

  • If a vendor who is not registered under GST, supplies goods to a person who is registered under GST, then Reverse Charge would apply. This means that the GST will have to be paid directly by the receiver to the Government instead of the supplier.
  • The registered dealer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.
    For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the purchaser.

B. Services through an e-commerce operator

  • If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay GST.
    For example, UrbanClap provides services of plumbers, electricians, teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.
  • If the e-commerce operator does not have a physical presence in the taxable territory, then a person representing such electronic commerce operator for any purpose will be liable to pay tax. If there is no representative, the operator will appoint a representative who will be held liable to pay GST.

C. Supply of certain goods and services specified by CBEC

  • CBEC has issued a list of goods and a list of services on which reverse charge is applicable.

3. Time of Supply under Reverse Charge

A. Time Of Supply in case of Goods

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • The date of receipt of goods
  • The date of payment*
  • The date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.
*This point is no more applicable based this Notification No. 66/2017 – Central Tax issued on 15.11.2017

Illustration:

1. Date of receipt of goods 15th May 2018
2. Date of invoice 1st June 2018
3. Date of entry in books of receiver 18th May 2018
The Time of supply of service, in this case, will be 15th May 2018

B. Time Of Supply in case of Services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

  • The date of payment
  • The date immediately after 60 days from the date of issue of invoice by the supplier
    If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Illustration:

1. Date of payment 15th July 2018
2. Date of invoice 15st May 2018
3. Date of entry in books of receiver 18th July 2018
The Time of supply of service, in this case, will be 15th May 2018

4. What is Self Invoicing?

Self-invoicing is to be done when you have purchased from an unregistered supplier and such purchase of goods or services falls under reverse charge.
This is due to the fact that your supplier cannot issue a GST-compliant invoice to you, and thus you become liable to pay taxes on their behalf. Hence, self-invoicing, in this case, becomes necessary.

National Policy on Electronics 2018

Context:

Union Ministry of Electronics and Information Technology (MeitY) has issued draft ‘National Policy on Electronics 2018’ (NPE 2018) for Electronics System Design and Manufacturing (ESDM) Sector of India.

About the Policy:

To promote domestic manufacturing in entire value-chain of ESDM sector for spur economic development in the country. It also aims to double the target of mobile phone production from 500 million units in 2019 to 1 billion by 2025 to meet objective.
Create $400 billion electronics manufacturing industry by 2025, with mobile phone devices segment accounting for three-fourths of production. It also includes targeted production of 1 billion mobile handsets by 2025, valued at $190 billion (approximately Rs. 13 lakh crore) and also 600 million mobile handsets valued at $110 billion (approximately Rs. 7 lakh crore) for export.
It replaces existing incentive schemes like Modified Special Incentive Package Scheme (M-SIPS), with schemes that are easier to implement such as interest subsidy and credit default guarantee etc. It also takes into consideration interest subsidy and credit default guarantee in order to encourage new units and in expansion of existing units in electronics manufacturing sector.
It also proposes to push development of core competencies in all sub-sectors of electronics including electronic components and semiconductors, automotive electronics, defence electronics, industrial electronics, strategic electronics etc. It also proposes to set up 20 greenfield and three brownfield electronic manufacturing cluster projects have been sanctioned with project outlay of Rs 3,898 crore, including Rs 1,577 crore from Central Government.
It proposes suitable direct tax benefits, including inter-alia investment-linked deduction under Income Tax (IT) Act for electronics manufacturing sector, for setting up of new manufacturing unit or expansion of an existing unit. The proposal includes increasing tax benefits on expenditure incurred on R&D, enhancing rate of duty drawback for electronics sector, reimbursement of state levies and other levies for which input tax credit is not available, allowing duty free import of second-hand capital goods for electronics hardware manufacturing etc. It also proposes cess on select electronic goods resources to promote certain critical sub-sectors of electronic manufacturing such as semiconductor wafer fabrication and display fabrication units.

National Income

NI is the total value of all final goods and services produced by the country in certain year. The growth of National Income helps to know the progress of the country.
The total amount of income accruing to a country from economic activities in a year’s time is known as national income. It includes payments made to all resources in the form of wages, interest, rent and profits.
From the modern point of view, national income is defined as “the net output of commodities and services flowing during the year from the country’s productive system in the hands of the ultimate consumers.”

National Income Accounting (NIA)

National Income Accounting is a method or technique used to measure the economic activity in the national economy as a whole and it is mainly done for,

Policy Formulation:

It helps in comparing the estimates of the past from the future and also forecast the growth rates in future. For example, if a country has a GDP of Rs. 103 Lakh which is 3 Lakh rupees higher than the last year, it has a growth rate of 3 per cent.

• Effective Decision Making:

To estimate the contribution of each of the sectors of the economy. It helps the business to plan for production.

• International Economic Comparison:

It helps in comparing the level of development of countries and provides useful insight into how well an economy is functioning, and where money is being generated and spent. One can compare the standard of living of different nations and its growth rate.

There are various terms associated with measuring of National Income.

Personal Income

  • It refers to all of the income collectively received by all of the individuals or households in a country.
  • It includes compensation from a number of sources including salaries, wages and bonuses received from employment or self employment; dividends and distributions received from investments; rental receipt from real estate investments and profit sharing from businesses.
  • In National Income Accounting, some income is attributed to individuals, which they do not actually receive. For Example: Undistributed Profits, Employees’ contribution for social security, corporate income taxes etc. which needs to be deducted from National Income to estimate the Personal Income.
  • PI = NI + Transfer Payments – Corporate Retained Earnings, Income Taxes, Social Security Taxes.

Disposable Personal Income

  • It is the amount left with the individuals after paying Personal Taxes such as Income Tax, Property Tax, and Professional Tax etc. to spend as they like.
  • DPI = PI – Taxes (Income Tax i.e. Personal Taxes)
  • DPI results into Savings and Expenditure i.e. (Spend and Save). This concept is very useful for studying and understanding the consumption and saving behaviour of the individuals.

GDP (GROSS DOMESTIC PRODUCT)

  • Here the catch word is ‘Domestic’ which refers to ‘Geographical Area’
  • The total value of all final goods and services produced within the boundary of the country during a given period of time (generally one year) is called as GDP.
  • In this case, the final produce of resident citizens as well as foreign nationals who reside within that geographical boundary is considered.

Types of GDP: Real GDP and Nominal GDP

  • Real GDP:

    Refers to the current year production of goods and services valued at base year prices. Such base year prices are Constant Prices.

  • Nominal GDP:

    Refers to current year production of final goods and services valued at current year prices.

Which one is a better measure?

  • Real GDP is a better measure to calculate the GDP because in a particular year GDP may be inflated because of high rate of inflation in the economy.
  • Real GDP therefore allows us to determine if production increased or decreased, regardless of changes in the inflation and purchasing power of the currency.

GROSS NATIONAL PRODUCT (GNP)

  • Here the catch word is ‘National’ which refers to all the citizens of a country.
  • GNP is the total value of the total production or final goods and services produced by the nationals of a country during a given period of time (generally one year).
  • In this case, the income of all the resident and non-resident citizens (who resides in abroad) of a country in included whereas, the income of foreigners who reside within India is excluded.
  • The GNP contains the income earned by Indian Nationals (both in Indian Territory and Abroad) only.

GDP and GNP are measured on the basis of Market Price and Factor Cost.

a) Market Price

It refers to the actual transacted price which includes indirect taxes such as custom duty, excise duty, sales tax, service tax etc. (impending Goods and Services Tax). These taxes tend to raise the prices of the goods in an economy.

b) Factor Cost

It is the cost of factors of production i.e. rent for land interest for capital, wages for labour and profit for entrepreneurship. This is equal to revenue price of the final goods and services sold by the producers.

Revenue Price (or Factor Cost) = Market Price – Net Indirect Taxes
Net Indirect Taxes = Indirect Taxes – Subsidies
Hence, Factor Cost = Market Price – Indirect Taxes + Subsidies.

Net National Product (NNP): NNP = GNP – Depreciation

• It is calculated by subtracting Depreciation from Gross National Product.

• Depreciation – Wear and Tear of goods produced.

• This deduction is done because a part of current produce goes to replace the depreciated parts of the products already produced. This part does not add value to current year’s total produce. It is used to keep the products already produced intact and hence it is deducted.

Net Domestic Product (NDP): NDP = GDP – Depreciation

• It is the calculated GDP after adjusting the value of depreciation. This is basically, Net form of GDP, i.e. GDP – total value of wear and tear.

• NDP of an economy is always lower than its GDP, since their depreciation can never be reduced to zero. The concept of NDP and NNP are not used to compare different economies because the method of calculating depreciation varies from country to country.

National Income at Factor Cost (NIFC):

• It is the sum of all factors of income earned by the residents of a country (Indian) both from within the country as well as abroad.

National Income at Factor Cost = NNP at Market Price – Indirect Taxes + Subsidies

• In India, and many developing countries across the world, National Income is measured at factor cost instead of market prices. Some of the reasons for the same are lack of uniformity in taxes, goods not being printed with their prices, etc.

WHAT ARE THE FACTORS THAT AFFECT NATIONAL INCOME?

Several factors affect the national income of a country. Some of them have been listed below:

1. Factors of Production

Normally, the more efficient and richer the resources, higher will be the level of National Income or GNP

(a) Land

Resources like coal, iron and timber are essential for heavy industries so that they must be available and accessible. In other words, the geographical location of these natural resources affects the level of GNP.

(b) Capital

Capital is generally determined by investment. Investment in turn depends on other factors like profitability, political stability etc.

(c) Labour

The quality or productivity of human resources is more important than quantity. Manpower planning and education affect the productivity and production capacity of an economy.

(d) Entrepreneur

(e) Technology

This factor is more important for Nations with fewer natural resources. The development in technology is affected by the level of invention and innovation in production.

(f) Government

Government can help to provide a favourable business environment for investment. It provides law and order, regulations.

(g) Political Stability

A stable economy and political system helps in appropriate allocation of resources. Wars, strikes and social unrests will discourage investment and business activities.

Methods of National Income Calculation

There are three approaches and methods of measuring National Income:

A. Income Method

  • By this National Income is calculated compiling income of factors of production viz., land, labour, capital and entrepreneur.
  • • National Income = Total Wage + Total Rent + Total Interest + Total Profit
  • In Indian context, since 1993 as per the System of National Accounts (SNA), National Income is total of the following:
  • GDP = Compensation of Employees + Consumption of Fixed Capital + (Other Taxes on Production – Subsidies of Production) + Gross Operating Surplus
  • Compensation of employees: (Wage) salaries paid in cash and kind and other benefits provided to employees.
  • Consumption of Fixed Capital: wear and tear of machinery which are replaced by new parts.
  • Other Taxes on Production minus Subsidies: Net tax on production.
  • There is a difference between tax on products and tax on production. Tax on products includes taxes like sales tax and excise duty. Tax on production is tax imposed irrespective of production like license fees and land tax.
  • Gross Operating Surplus: balance of value added after deducting the above three components. It goes to pay rent of land and interest of capital.

B. Product Method (or Value Added Method, Output Method)

  • It is used by economists to calculate GDP at market prices, which are the total values of outputs produced at different stages of production.
  • Some of the goods and services included in production are:

  • Goods and services actually sold in the market.
  • Goods and services not sold but supplied free of cost. (No Charge/Complementary)
  • Some of the goods and services not included in production are:

  • Second hand items and purchase and sale of the same. Sale and purchase of second cars, for example, are not a part of GDP calculation as no new production takes place in the economy.
  • Production due to unwarranted/ illegal activities.
  • Non-economic goods or natural goods such as air and water.
  • Transfer Payments such as scholarships, pensions etc. are excluded as there is income received, but no good or service is produced in return.
  • Imputed rental for owner-occupied housing is also excluded.
  • Here the Gross Value of final goods and services produced in a country in certain year is calculated.
  • GDP is a concept of value added; it is the sum of gross value added of all resident producer units (institutional sectors, or industries) plus that part of taxes (total) less subsidies, on products which is not included in the valuation of output.
  • Gross Value Added = Output of Final Goods and Services – Intermediate Consumption
  • National Income = Gross Value Added + Indirect Taxes – Subsidies
  • (C) Expenditure Method

    • It measures all spending on currently-produced final goods and services only in an economy.
    • In an economy, there are three main agencies which buy goods and services: Households, Firms and the Government.

    This final expenditure is made up of the sum of 4 expenditure items, namely;

    Consumption (C):

    Personal Consumption made by households, the payment of which is paid by households directly to the firms which produced the goods and services desired by the households.

    • Investment Expenditure (I):

    Investment is an addition to capital stock of an economy in a given time period. This includes investments by firms as well as governments sectors.

    • Government Expenditure (G):

    This category includes the value of goods and service purchased by Government. Government expenditure on pension schemes, scholarships, unemployment allowances etc. are not included in this as all of them come under transfer payments.

    • Net Exports (X-IM):

    Expenditures on foreign made products (Imports) are expenditure that escapes the system, and must be subtracted from total expenditures. In turn, goods produced by domestic firms which are demanded by foreign economies involve expenditure by other economies on our production (Exports), and are included in total expenditure. The combination of the two gives us Net Exports.

    National Income = Consumption (C) + Investment Expenditure (I) + Government Expenditure (G) + Net Exports (X-IM)

    Calculating GDP (National Income) is extremely important as the performance of the economy is fixed by means of this method. The results would help the country to forecast the economic progress, determine the demand and supply, understand the buying power of the people, the per capita income, the position of the economy in the global arena. The Indian GDP is calculated by the expenditure method.

    Insolvency and Bankruptcy Code

    Introduction

    1. India did not have a single bankruptcy code and we had were age-old laws which are in conflict with each other.

    2. Lack of an insolvency and bankruptcy code had proved costly for the creditors (mainly banks) in many cases like the recent Kingfisher Airlines case.

    3. The Insolvency and Bankruptcy Code seeks to create a unified framework to resolve insolvency and bankruptcy in India.

    4. The Code covers insolvency, liquidation, voluntary liquidation and bankruptcy.

    5. The bill makes it easier for weak companies to exit or restructure their businesses.

    6. The code seeks to amend 11 laws, including the Companies Act, 2013 and the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.

    Latest status

    The Insolvency and Bankruptcy Code 2016 was introduced in the Lok Sabha by Finance Minister Arun Jaitley in December 2015 and the JPC’s report is expected next week.

    The new Code is based on the report of the committee which studied the matter (Bankruptcy Law Reform Committee).

    Insolvency

    1. Insolvency is the situation where the debtor is not in a position to pay back the creditor.

    2. For a corporate firm, the signs of this could be a slow-down in sales, missing of payment deadlines etc.

    Bankruptcy

    1. Bankruptcy is the legal declaration of Insolvency.

    2. Bankruptcy – Financial Condition

    3. Insolvency – Legal Position

    4. All insolvencies need not lead to bankruptcy.

    The new code has a sequential procedure of Insolvency resolution, failing which, it leads to Bankruptcy (following liquidation of assets).

    Need for such a code

    1. Such a unified code is essential because currently the issue is handled under at least 13 different laws. This code seeks to replace the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920. In addition, it seeks to amend 11 laws, including the Companies Act, 2013, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003, among others.

    2. Earlier, if a company defaults, there were at least four different legal routes available to the debtors and creditors. This could lead to multiple negotiations, multiple penalties etc. for the debtor, compounding his plight.

    3. Such parallel proceedings had also given rise to numerous instances of conflict between the laws. Four different agencies, the high courts, the Company Law Board, the Board for Industrial and Financial Reconstruction (BIFR), and the Debt Recovery Tribunals (DRTs) have overlapping jurisdiction, giving rise to the potential of systemic delays and complexities in the process. This new bill addresses these issues, by bringing in a new uniform Code.

    4. Current insolvency proceedings take months, if not years (average time: 4 years). This delay can acutely devalue the assets involved, thus making the insolvency negotiations redundant.

    5. The current disposition involves the institution of official liquidator, which is prone to red-tapeism, chronic corruption, and nepotism. The new code seeks to keep the role of the adjudicator to the minimum.

    6. Currently, only 25% of the asset value is recovered by the creditors even after the liquidation process.

    7. All these compounded to the pitiable position our Public Sector Banks find themselves in. Rising NPAs and mounting Stressed Assets have also eroded their profits, as the recent SBI reports point out. The easing of liquidation process can help the banks recover a lot of bad debts.

    8. India fares poorly in the Ease of Doing Business index of World Bank. Easiness of Exit is an important parameter in this index. The present morass of laws doesn’t help in easing the exit of trouble-prone entities.

    9. According to World Bank data, it takes more than four years to wind up an ailing company in India, almost twice as long as it does in China.

    10. Just like the US Bankruptcy Code that provides for fairly quick liquidation or reorganisation of business, India too need a new code which will prevent the economy from tumbling southwards.

    Current insolvency mechanisms or laws

    • Securitisation and Enforcement of Security.
    • Corporate Debt Restructuring or CDR.
    • Sick Industrial Companies Act or SICA.

    Insolvency Proceedings: Companies vs Individuals

    1. The code will apply to all sort of business entities including corporate companies, partnerships, limited liability partnerships, individuals etc.
    2. Broadly the insolvency proceedings or the Insolvency Resolution Process (IRP) can be classified into two streams:

    1. Companies and Limited Liability Partnerships (LLP)

    1. The process can be initiated either by the debtor or the creditor(s).

    2. In this case, of companies and LLPs, the resolution process has to be completed in 180 days from the date of registration of the intent.

    3. That means once an application for insolvency resolution is accepted, an 180-day moratorium comes into place, during which no claims can be pursued against the debtor or its assets.

    4. This period of 180 days, can be extended by another 90 days if 75% of the financial creditors agree.

    5. The process enables the debtor and creditor to hold negotiations and finalise a draft resolution plan.

    6. The draft plan is to be agreed up on by a majority of the creditors.

    7. If they do agree, the plan is finalised and submitted to the adjudicating authority, which in this case is the National Company Law Tribunal.

    8. If the plan is not agreed up on by the majority of creditors, the company goes into liquidation.

    9. There will be a provision for hastening up the IRP, as far as companies with smaller operations are concerned.

    10. Here the process will have to be completed within 90 days, which may be extended only if 75% of the financial creditors agree to it.

    2. Individuals and Partnerships

    1. Here, there are steps to be followed even before the Insolvency Resolution Process, IRP starts.

    2. Before going for IRP, the debtor may apply for forgiveness of specified amount of debt, provided his total assets are below a limit set by the Central Govt.

    3. This initial pardoning has to be done within 6 months. After that, the formal IRP starts, just like the first stream of companies, mentioned above.

    4. The negotiations between the debtor and creditor will be supervised by an insolvency professional.

    5. If they negotiations succeed, the repayment plan is drafted.

    6. If the plan is agreed upon by the majority of the creditors, the plan is submitted to the adjudicator, which in this case is Debt Recovery Tribunal.

    7. If they fail, the matter will proceed to the bankruptcy resolution.

    Different parties associated with insolvency

    1.Insolvency professionals and agencies:

    As said earlier, the IRP will be managed and supervised by a licensed professional. The Insolvency Code also proposes to set up insolvency professional agencies, which can recruit the professionals and regulate them. The professionals will also have the power and duty to control the assets of the debtor during the process.

    2. Information Utilities:

    The code also proposes to establish information utilities which will maintain a range of financial information about firms. Their duty is to collect and disseminate the information to facilitate the insolvency resolution process.

    3. Insolvency Regulator:

    The Code establishes the insolvency regulator, the Insolvency and Bankruptcy Board of India, IBBI, which will have the mandate to oversee the insolvency resolution in the country. The Board will have a membership of 10 members, including those representing the Central Government & Reserve Bank of India. The board will also act as the apex regulator, registering and regulating the information utilities, insolvency professional agencies, insolvency professionals etc.

    4. Insolvency and Bankruptcy Fund, IBF:

    Deposits of the fund will include grants made by the central government, the amount deposited by the persons, interest earned on investments made from the fund etc. any person, who has contributed to the fund, may apply for withdrawal, in a case of proceedings against him.

    5. Bankruptcy and Insolvency Adjudicators:

    As noted earlier, there are two different adjudicators, proposed by the code, one each for the two streams for individuals and companies. The National Company Law Tribunal will have the jurisdiction over companies and Limited Liability Partnerships, whereas the Debt Recovery Tribunal will have the jurisdiction over the individuals and partnership firms. Appeals against the orders of these tribunals may be challenged before their respective Appellate Tribunals, and further before the Supreme Court.

    6. Credit Committee:

    It is to be composed of financial creditors. The primary aim of the committee is to ensure payments to operating creditors on a pre-scheduled priority order (the priority proposed is listed later in the article).

    7. Offences and Penalties:

    The offences committed by the debtor under the corporate insolvency (first stream) like concealing the property, defrauding creditors etc. will be punished with imprisonment up to 5 years, with a fine of up to one crore rupees. Whereas, the offences committed by an individual (second stream), like providing false information, the imprisonment will vary based on the evidence. For most of these offences, the fine will not exceed five lakh rupees.

    Advantages of the New Code

    1. The bill seeks to shift from revival/recovery to resolution. This will ensure maximum assets recovered from the debtor, thus helping the balance sheets of the creditor. This would go a long way in helping the NPA-situation of the banks.

    2. The new bill proposes to speed up both recoveries and restructuring procedures. There is significant a curb on the time involved, a maximum of 270 days. This will expedite the insolvency process. Time is important as the value of the assets corrodes very rapidly, when the firm is precariously placed.

    3. The bill aims at promoting investments, freeing up banks’ resources for other productive uses, boosting credit markets and improving ease of doing business in India, thus making a cumulative positive impact on the economy.

    4. The fixed time-period and predictable procedural methods will encourage creditors to join the collective insolvency resolution, rather than initiate individual actions.

    5. By keeping the role of the adjudicator to a minimum, the bill ensures that delays arising from the bottlenecks in court proceedings are also reduced to the minimum. The principal business decisions such as the economic viability of the debtor, will be determined through negotiations between the debtor and creditors – an exercise that will be facilitated by insolvency professionals. The role of the NCLT is primarily to ensure that the procedures are complied with and no illegality or fraud has taken place.

    6. The draft Bill also abolishes the institution of the official liquidator, which by all accounts has been a failure in non-viable businesses. Instead, the functions of the official liquidator are to be performed by insolvency professionals.

    7. Industry anticipates that the change will provide an easy exit option for insolvent and sick firms.

    8. The new code will matter to private sector employees too. The Bill, by forcing failed firms to shut shop, can lead to a survival of the fittest in the job market too.

    9. Make it easy for the budding entrepreneurs to start or exit from the start-up business. Commerce and Industry minister says it is going to make it easy to start up as much as to get out of the start-ups because if they are not doing well, there shouldn’t be a taboo. They would be able to get out faster, thus helping the Start-up India Stand-up India campaign.

    Concerns regarding the Bill

    1. The draft Bill needs careful review, particularly on how the new law would interact with existing laws in this space, including the SARFAESI Act and other debt recovery laws. Since it appears that the new Code doesn’t replace the existing laws (and only amends 11 laws), there must at least be a clear demarcation of when these laws would apply and of overriding provisions in cases of conflict with the code, if we are to avoid reverting to the old regime of chaos and uncertainty.

    2. The bill also provides for priority with regard to the distribution of proceeds following liquidation of the company (who gets the bounty first!). In the order of priority, the first charge will be insolvency resolution process cost and liquidation costs to be paid in full. Liquidation proceeds will then be used to clear debts owed to secured creditors, and then to pay workmen’s dues for 12 months, unpaid dues to employees other than workmen, and financial dues owed to unsecured creditors, in that order. Government taxes for two years, other debts, preference shareholders and equity shareholders will receive last priority for payment (waterfall provision). Since equity shareholders could include the employees’ PF, pensioners’ fund etc., giving the public money the least importance has raised some eye brows.

    3. The credit committee is to compose only of financial creditors. However, operation creditors is to be paid out first. This could lead to a conflict of interest.

    4. Only two year history is to be checked for diversion, to check for ascertaining malfeasance. There is a suggestion that earlier history also should be taken into account.

    5. The proposed Bill is also quite ambitious in the creation of a new institutional architecture to deal with insolvency. Among other things, it proposes the establishment of a new regulator, the creation of a new profession of insolvency professionals and the establishment of institutions known as information utilities that are designed to provide accurate information on defaults. These institutions and practices will take time to establish and there need to be well thought out transitional arrangements in the interim. Equally essential is significant training for insolvency professionals and judges if insolvency resolution and liquidation are to be the efficient and time-bound processes that the draft Bill envisages.

    6. Promoters will have the option to buy-back the company at a certain price, with certain debt restructuring. This has to be contemplated further to avoid bankruptcy tool from becoming an instrument to be exploited to reduce debt and increase equity value.

    7. There is also apprehension that the ease of exit, could lead to hire and fire, especially in the private firms and start-up companies.

    Conclusion

    1. The proposed Insolvency and Bankruptcy Bill is only a starting point for easing exits for debtors in distress, preserving value and providing creditors with greater certainty in outcomes.

    2. Yet, by providing for a linear, time-bound and collective process for insolvency resolution and liquidation, it is a step in the right direction.

    Inflation In India

    Inflation

    The simplest definition is Inflation is “a rise in the general level of prices”. By the term general, we mean if the price of one good has gone up it is not inflation, it is inflation only if the prices of most goods have gone up. The opposite of inflation is deflation which means a fall in the general level of prices.

    Types of inflation on the basis of rising prices or rate of inflation

    1. Creeping Inflation:

    When prices are gently rising, it is referred as Creeping Inflation. It is the mildest form of inflation and also known as a Mild Inflation or Low Inflation. When prices rise by not more than (upto) 3% per annum (year), it is called Creeping Inflation.

    2. Chronic Inflation:

    If creeping inflation persist (continues to increase) for a longer period of time then it is often called as Chronic or Secular Inflation. Chronic Creeping Inflation can be either Continuous (which remains consistent without any downward movement) or Intermittent (which occurs at regular intervals). It is called chronic because if an inflation rate continues to grow for a longer period without any downturn, then it possibly leads to Hyperinflation.

    3. Walking Inflation:

    When the rate of rising prices is more than the Creeping Inflation, it is known as Walking Inflation. When prices rise by more than 3% but less than 10% per annum (i.e between 3% and 10% per annum), it is called as Walking Inflation. According to some economists, walking inflation must be taken seriously as it gives a cautionary signal for the occurrence of running inflation. Furthermore, if walking inflation is not checked in due time it can eventually result in Galloping inflation.

    4. Moderate Inflation:

    Concept of Creeping and Walking inflation clubbed together are called Moderate Inflation. When prices rise by less than 10% per annum (single digit inflation rate), it is known as Moderate Inflation. It is a stable inflation and not a serious economic problem.

    5. Running Inflation:

    A rapid acceleration in the rate of rising prices is referred as Running Inflation. When prices rise by more than 10% per annum, running inflation occurs. Though economists have not suggested a fixed range for measuring running inflation, we may consider price rise between 10% to 20% per annum (double digit inflation rate) as a running inflation.

    6. Galloping Inflation:

    If prices rise by double or triple digit inflation rates like 30% or 400% or 999% per annum, then the situation can be termed as Galloping Inflation. When prices rise by more than 20% but less than 1000% per annum (i.e. between 20% to 1000% per annum), galloping inflation occurs. It is also referred as jumping inflation. India has been witnessing galloping inflation since the second five year plan period.

    7. Hyperinflation:

    Hyperinflation refers to a situation where the prices rise at an alarming high rate. The prices rise so fast that it becomes very difficult to measure its magnitude. However, in quantitative terms, when prices rise above 1000% per annum (quadruple or four digit inflation rate), it is termed as Hyperinflation.
    During a worst case scenario of hyperinflation, value of national currency (money) of an affected country reduces almost to zero. Paper money becomes worthless and people start trading either in gold and silver or sometimes even use the old barter system of commerce. Two worst examples of hyperinflation recorded in world history are of those experienced by Hungary in year 1946 and Zimbabwe during 2004-2009 under Robert Mugabe’s regime.

    Causes of Inflation

    There is not a single, agreed-upon factor, but there are a variety of variables, all of which play

    some role in inflation:

    1. Demand-Pull Effect

    The demand-pull effect states that as wages increase within an economic system (often the case in a growing economy with low unemployment), people will have more money to spend on consumer goods. This increase in liquidity and demand for consumer goods results in an increase in demand for products. As a result of the increased demand, companies will raise prices to the level the consumer will bear in order to balance supply and demand.
    The Money Supply: Inflation is primarily caused by an increase in the money supply that outpaces economic growth. Ever since industrialized nations moved away from the gold standard during the past century, the value of money is determined by the amount of currency that is in circulation and the public’s perception of the value of that money. When the Federal bank of a country decides to put more money into circulation at a rate higher than the economy’s growth rate, the value of money can fall because of the changing public perception of the value of the underlying currency. As a result, this devaluation will force prices to rise due to the fact that each unit of currency is now worth less.
    One way of looking at the money supply effect on inflation is the same way collectors value items. The rarer a specific item is the more valuable it must be. The same logic works for currency; the less currency there is in the money supply, the more valuable that currency will be. When a government decides to print new currency, they essentially water down the value of the money already in circulation. A more macroeconomic way of looking at the negative effects of an increased money supply is that there will be more dollars chasing the same amount of goods in an economy, which will inevitably lead to increased demand and therefore higher prices.
    A reduction in direct or indirect taxation: If direct taxes are reduced consumers have more disposable income causing demand to rise. A reduction in indirect taxes will mean that a given amount of income will now buy a greater real volume of goods and services. Both factors can take aggregate demand and real GDP higher and beyond potential GDP
    Rising consumer confidence and an increase in the rate of growth of house prices.

    2. Cost-Push Effect

    Another factor in driving up prices of consumer goods and services is explained by an economic theory known as the cost-push effect. Essentially, this theory states that when companies are faced with increased input costs like raw goods and materials or wages, they will preserve their profitability by passing this increased cost of production onto the consumer in the form of higher prices. Cost push inflation can be caused by many factors.
    Rising wages Rising wages are a key cause of cost push inflation because wages are the most significant cost for many firms. Higher wages may also contribute to rising demand.
    Import prices.

    Raw Material Prices.

    Profit Push Inflation:

    When firms push up prices to get higher rates of inflation. This is more likely to occur during strong economic growth.

    Declining productivity:

    If firms become less productive and allow costs to rise, this invariably leads to higher prices.
    An increase in world oil prices is a major contribution in cost push in oil importing countries.

    Higher taxes:

    If the government put up taxes, such as VAT and Excise duty, this will lead to higher prices, and therefore CPI will increase.

    3. Exchange Rates

    Inflation can be made worse by Country’s increasing exposure to foreign marketplaces. When the exchange rate suffers such that the Rupees has become less valuable relative to foreign currency, this makes foreign commodities and goods more expensive to Indian consumers while simultaneously making Indian. goods, services, and exports cheaper to consumers overseas.
    This exchange rate differential between a country’s economy and that of its trade partners can stimulate the sales and profitability of Indian corporations by increasing their profitability and competitiveness in overseas markets. But it also has the simultaneous effect of making imported goods, more expensive to consumers in the India.

    4. The National Debt

    A country in National debt has two options: they can either raise taxes or print more money to pay off the debt.
    A rise in taxes will cause businesses to react by raising their prices to offset the increased corporate tax rate. Alternatively, should the government choose the latter option, printing more money will lead directly to an increase in the money supply, which will in turn lead to the devaluation of the currency and increased prices.

    5. Other Reasons:

    These are mostly local factors

    • Lack of competition in the market between firms i.e monopoly power either being a single large firm or due to cartelization, will give price making ability. This will result in higher costs of other firms.
    • Trade Unions one of the major contributor increase costs by demanding a wage increase without increasing productivity. As a result costs of production increase which increase price level further and a wage price spiral starts.
    • During a boom too much profiteering by some large firms increase costs of production of other firms often referred as profit push inflation.
    • Sometimes artificial shortage (hoarding) or genuine shortage of an essential good can create a generalized increase in costs.
    • Demand pull inflation will lead to cost push inflation. If prices of factors of production increase due to demand pull it will push costs of the firms up.
    • Failure of Monsoon in country.

    Effects of Inflation :

    1. Impact of Inflation on Savers/Borrowers:

    •  Inflation encourages current consumption (buy goods and services now before prices rise) and discourages savings.
    • People with savings suffer in times of inflation as the purchasing power of their savings decreases as price levels rise.
    • The real rate of interest (nominal rate less the inflation rate) is reduced in times of inflation.
    • Real interest rates may be negative if inflation rate is greater than the interest rate. If so the purchasing power of savings declines. This discourages savings.
    • People who have borrowed money benefit as the real value of loans decreases as price levels rise (loans are easier to repay in the future as prices and income rise over time).

    • Borrowers benefit as inflation reduces the real value (the purchasing power) of the money they owe.
    • People who have borrowed money benefit as the real value of loans decreases as price levels rise (loans are easier to repay in the future as prices and income rise over time).

    2. Growth and Employment

    High levels of inflation reduce confidence and increase uncertainty (difficult to predict the future).
    This reduces investment, increases levels of imports, reduces exports, depreciates the value of the local currency, increases unemployment and reduces economic growth. (Increasing prices together with rising unemployment is referred to as “stagflation”.).

    3. Business Planning and Investment:

    Inflation can disrupt business planning. Budgeting becomes difficult because of the uncertainty created by rising inflation of both prices and costs – and this may reduce planned investment spending.

    4. Damage to export competitiveness:

    High rate of inflation will hit hard the export industry in the economy. The cost of production will rise and the exports will become less competitive in the international market. Thus, inflation has an adverse effect on the balance of payments.

    5. Social unrest:

    High rate of inflation leads to social unrest in the economy. There is increase dissatisfaction in among the workers as they demand higher wages to sustain their present living standard. Moreover, high rate of inflation leads to a general feeling of discomfort for the household as their purchasing power is consistently falling.

    6. Market efficiency:

    Inflation distorts the price signals to the market and causes inefficient allocation of resources.
    Resources are often allocated to speculative assets (precious metals, shares on the stock market, antiques etc) whose nominal value rises with inflation, but do not add to the levels of output and employment in a country.

    7. Interest rates:

    The Central Bank might use monetary tools to control high inflation rate by increasing interest rates. This will increase the cost of borrowing and will have a negative effect on both consumption and investment.
    8. Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.

    9. Inflation leads to balance of payments problems. When domestic prices rise faster than prices in foreign countries, exports tend to lag behind imports. The, rate of exchange also tends to depreciate both on account of falling purchasing power of currency within the country and adverse balance of payments. In some cases, there may also be an outflow of capital. A developed country may be able to handle the problem of adverse balance of payments through structural adjustment, but a developing country is not able to do so easily because they suffer from large institutional and other rigidities.
    10. Inflation distorts the financial system of the country. In its initial stages, the system is able to withstand its adverse effect because the financial institutions by their very nature tend to ignore the purchasing power of money and operate with reference to interest rates and maturity of financial instruments. However, when inflation gathers strength, the financial system cannot withstand it and collapses.

    11. Hidden tax:

    Inflation is a hidden tax as it leads to fall in purchasing power of money. It happens particularly when authorities resort to deficit spending when their tax receipts lag behind and their expenditure does not decrease. The taxpayers therefore lose on account of reduced purchasing power of their money incomes. In other words, the authorities are able to collect resources from the taxpayers without specifically levying additional taxes on them. When prices rise, the fixed income earners find that the purchasing power of their money incomes is falling while the real income of the profit earners is increasing. When inflation becomes still stronger, the holders of financial wealth also lose. This way, inflation is a hidden tax by entrepreneurs on consumers and on recipients of contractual incomes.

    12. The Good Aspects of Inflation:

    A healthy rate of inflation is considered to be approximately 2-3% per year. The goal is for inflation (which is measured by the Consumer Price Index, or CPI) to outpace the growth of the underlying economy (measured by Gross Domestic Product, or GDP) by a small amount per year.
    A healthy rate of inflation is considered a positive because it results in increasing wages and corporate profitability and keeps capital flowing in a presumably growing economy. As long as things are moving in relative unison, inflation will not be detrimental.
    Another way of looking at small amounts of inflation is that it encourages consumption. For example, if you wanted to buy a specific item, and knew that the price of it would rise by 2-3% in a year, you would be encouraged to buy it now. Thus, inflation can encourage consumption which can in turn further stimulate the economy and create more jobs

    Trend in Inflation

    Headline WPI inflation, which reflects prices of tradeables, has moderated in 2013-14 to 5.98 per cent, falling from between 7 and 9 per cent over the previous two years This is due to weak post-crisis global demand and lower international commodity prices, as well as a sharp seasonal correction in vegetable prices.
    5 Food inflation has remained a major driver of inflation since 2011. Seasonal factors accentuated food inflation which rose to double digits in early 2013-14, before moderating to an average of 6.22 per cent (WPI) and 9.22 per cent (CPI-NS) in the last quarter, because of high growth in the agricultural sector and a normal and well-distributed monsoon. The divergence in WPI and CPI inflation is primarily on account of higher weightage given to food articles in the consumer price indices.
    Retail inflation as reflected in consumer price index (CPI) inflation has remained persistently over 8 per cent since 2011, going up above 10 per cent in 2012-13. This trend is largely attributed to high and sustained food inflation, which has only moderated in Q4 2013-14 causing consumer inflation to fall marginally to between 9 and 10 per cent in late FY 2013-14.
    The largest contribution to headline WPI inflation in India has been from food and fuel.
    WPI food inflation has remained persistently high during 2013-14, reaching a peak of 11.95 per cent in Q3. This was led by high inflation in cereals, vegetables, and eggs, fish and meat. Spike in prices of fruits and vegetables was mainly owing to seasonal factors.
    Inflation in non-food manufactured (NFM) commodities, i.e core inflation, remained benign at around 2.5-3.5 per cent throughout the year on account of lower international prices and growth slowdown. Unlike the inflation in food and fuel, inflation in NFM inched up partly on account of wearing off of base effect and inflationary pressure within the chemicals, machinery and textile groups.
    Measures Taken and Proposed by the Government to Contain Price Rise :

    1. Fiscal Measures

    Import duties for wheat, onions, pulses, and crude palmolein were reduced to zero and 7.5 percent for refined vegetable & hydrogenated oils.
    Duty-free import of white/raw sugar was extended up to 30 June 2012; presently the import duty has been fixed at 10 per cent.

    2. Administrative Measures

    Ban on exports of onions was imposed for short periods of time whenever required. Exports of onions were calibrated through the mechanism of minimum export prices (MEP).
    Futures trading in rice, urad, tur, guar gum and guar seed was suspended.
    Exports of edible oils (except coconut oil and forest-based oil) and edible oils in blended consumer packs up to 5 kg with a capacity of 20,000 tons per annum and pulses (except Kabuli chana and organic pulses and lentils up to a maximum of 10,000 tonnes per annum) were banned.
    Stock limits were imposed from time to time in the case of select essential commodities such as pulses, edible oil, and edible oilseeds and in respect of paddy and rice up to 30 November 2013.

    3. Measures to Insulate the Vulnerable Sections

    The central issue prices (CIP) for rice (at Rs 5.65 per kg for below poverty line [BPL] and Rs 3 per kg for Antodaya Anna Yojana [AAY] families) and wheat (at Rs 4.15 per kg for BPL and Rs 2 per kg for AAY families) have been maintained since 2002.
    Under the targeted PDS (TPDS) allocation of foodgrains is being made to 6.52 crore AAY and BPL families at 35 kg per family per month at a highly CIP.
    The government has allocated rice and wheat under the Open Market Sales Scheme (OMSS).
    The scheme for imports of pulses which envisaged imports for distribution to BPL households through the PDS with a subsidy of Rs 10 per kg operated from November 2008 to June 2012. The government has decided to implement a varied form with a subsidy element of Rs 20 per kg per month for BPL cardholders for the residual part of the current year. The targeted BPL cardholders will be as estimated by the Department of Food and Public Distribution.
    The Scheme for Distribution of Subsidized Imported Edible Oils has been implemented since 2008-9 through state/union territory (UT) governments for distribution of 1 litre per ration card per month with a central subsidy of Rs 15 per kg. The scheme has been extended up to 30 September 2013.

    4. Budgetary and other Measures

    A number of measures were announced in Union Budget 2012-13 to augment supply and improve storage and warehousing facilities. The government launched a National Mission for Protein supplements in 2011-12 with an allocation of Rs 300 crore. To broaden the scope of production of fish to coastal aquaculture, apart from fresh water aquaculture, the outlay in 2012-13 was stepped up to Rs 500 crore. Recently the government permitted FDI in multibrand retail trading. This will help consumers and farmers as it will improve the selling and purchasing facilities.

    5. Monetary Measures

    The RBI had also taken suitable steps to contain inflation with 13 consecutive increases by 375 basis points (bps) in policy rates from March 2010 to October 2011.
    Priorities before Government to Contain Inflation:
    The strategy to control inflation has to take into account the following factors:
    1. Move to market prices: It is important to be cognizant of the fact that deregulation of diesel prices, power–sector reforms, and generally the move from administered to market-determined prices will release suppressed inflation in the short run. Nevertheless, the consequent reduction in subsidy and fiscal deficit will have the salutary effect of reducing inflation
    2. Improving efficiency of public programmes and breaking the wage-price spiral: The projects selected for schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) do not improve the productivity of the agricultural sector commensurately. The increasing wages under such schemes have reportedly created shortage of labour in the agricultural sector as well as caused a wage-price spiral. The solution lies in selection of productivity enhancing projects for ambitious public policy programmes like the MGNREGS.
    3. Rationalization of government support to farmers: If the policy of supporting farmers through MSP and procurement is to continue, the MSP should be scrupulously linked to the cost of production. Procurement should not be open-ended, and the practice of some state governments of charging as high as 14-15 per cent mandi fee/tax and paying high bonuses over and above the MSP must be discouraged. Experience has shown that the Food Corporation of India (FCI) has not been able to release enough stocks in the market to soften cereal prices while recovering its economic cost. While farmers can be incentivized by gradually removing restrictions on exports, the FCI can learn to procure stocks from markets more efficiently and manage risks through the futures market.
    4. Role of APMC Acts: The State Agricultural produce marketing committee (APMC) Acts have created monopolies and distributional inefficiencies. They constitute a major roadblock in the way of creating a national market for agricultural commodities. Apart from breaking the monopoly and dissuading state governments from treating the APMCs as liberal sources of revenue, substantive efforts have to be made to create alternative trading platforms in the private sector where it is possible to reduce the layers of intermediation. Since this may take time, fruits and vegetables should be taken out of the purview of the APMC Acts immediately. A processor should be able to buy directly from farmers without having to pay any mandi fee/tax to the APMC.
    5. Role of public deficits: Fiscal deficit should be brought down by setting stringent time-bound targets under the Fiscal Responsibility and Budget Management (FRBM) Act.

    Measurement of Inflation in India

    In India, inflation is measured on two price indices, viz, wholesale price index (WPI) and consumer price index (CPI). WPI measures price rise or inflation at the level of seller or retailer who buy commodities in bulk or ‘whole sale’. CPI is also called retail inflation since it measures inflation at the retail or consumer level. In India, WPI is the basis for determining the inflation of the economy.

    Wholesale Price Index (WPI)

    WPI is measured on weekly basis. The first index of wholesale prices commenced in India for the week January 10, 1942. The base year of WPI is revised periodically. Till date, 5 revisions have take place. The current WPI base year is 2004-05 based on prices of 670 commodities.
    For determining WPI, commodities are divided into three categories – Primary Articles (102 items), Fuel & Power (19 items), and Manufactured Products (555 items). As you can see, the weight assigned to manufacturing is highest at 82% followed by primary articles like fruits and vegetables.

    Consumer Price Index (CPI)

    Unlike WPI, there is not a single measure of CPI. In India, four CPI indices are used to determine inflation at the consumer level. These are: CPI-IW (Industrial Worker), CPI-UNME (Urban Non-Manual Employees), CPI-AL (Agricultural Labourers), and CPI-RL (Rural Labourers).
    Unlike the WPI, the new series of CPI based on recommendations of Abhijit Sen committee assigns the highest weight to primary articles like food, beverages and tobacco (49%).

    e-commerce policy

    Context:

    A task force of the Commerce Ministry has submitted its recommendations on a draft national e-commerce policy. The suggestions, if accepted by the government, could impact consumers’ online shopping experience in multiple ways, including how discounts are given, the availability of newer products, and the redressal of complaints.

    Why does India need an e-commerce policy to begin with?

    India’s e-commerce sector, currently estimated to be worth around $25 billion, is expected to grow to $200 billion over the next 10 years.

    Much of the growth in the sector is on account of cheaper smartphones and data tariffs, along with enhanced connectivity. Having covered the metros and large cities, the bigger e-commerce firms expect their next phase of growth to come from tier-II and tier-III towns, where the expansion of 3G and 4G networks have put consumers online. This is seen as resulting in job creation, productivity improvement, and increased consumer presence on online platforms.

    The task force has said that for India to fully benefit from these opportunities, it is important for policymakers to be cognizant also of the underlying challenges — which makes it imperative to have clearly laid-down rules for electronic commerce in the country.

    Many of these rules currently exist in some or the other form, and are enforced by a multiplicity of government departments and regulators.

    A national e-commerce policy will be an attempt at creating a one-stop shop for the norms and regulations under which online retailers will be covered.

    And what is this task force that has put forward recommendations for the new e-commerce policy?

    A 70-member “think tank” was set up in April this year, headed by Minister for Commerce and Industry and comprising the secretaries of ministries including Commerce, Information Technology, Communications, Consumer Affairs, etc., and various industry representatives.

    The think tank set up a task force under Commerce Secretary Rita Teaotia to suggest a framework for the national policy on e-commerce. Now that the task force has submitted its recommendations, the think tank will work on creating a draft policy, which will be taken up by the government.

    What does the task force say about the inventory model of marketplace operations?

    The government does not currently allow foreign direct investment (FDI) in e-commerce companies that hold their own inventories. Online retailers with foreign investments can only operate as marketplaces — letting sellers list their products on the platform. However, given that the lion’s share of investments in e-commerce firms came from abroad, the e-tailers found a way around the government’s norm by setting up seller entities that sold their products on the platforms.

    Later, in 2016, the government mandated that no platform should have more than 25% of its sales coming from a single seller. Due to the restrictions on the inventory-based model, e-commerce companies have not been able to offer their in-house brands extensively.

    The task force has recommended that FDI may be allowed in inventory-based e-commerce companies up to 49%, with the condition that the e-tailer sells 100% Made-in- India products. This will allow e-commerce firms to offer their own brands — as long as they are made in India.

    On the other hand, for online marketplaces, the task force has suggested imposing restrictions on group companies of such platforms to prevent them from directly or indirectly influencing the prices of goods and services. The marketplaces will not be able to offer deep discounts through their in-house companies listed as sellers.

    Why is a Central Consumer Protection Authority needed for e-commerce?

    There have been several incidents across the country of customers expressing dissatisfaction with products they purchased online. In some cases, bricks and soaps have been delivered instead of mobile phones. This is an inherent flaw of the marketplace model, where platforms do not have full control over the supply chain. Customers have also complained of prices being artificially jacked up higher than the maximum retail price (MRP), and of problems with the delivery of purchased products.

    The Consumer Affairs Ministry’s National Consumer Helpline is currently the only redressal mechanism available for such grievances. Between April and November last year, the National Consumer Helpline received 54,114 complaints related to the e-commerce sector. To provide a forum for consumers, the task force has suggested the setting up of a Central Consumer Protection Authority (CCPA), which, besides helping consumers, will also act as the nodal agency for intra-government coordination, and provide a platform for e-commerce operators regarding complaints of fraudulent activities.

    Will the ways in which payments are made for online purchases change?

    If the task force’s recommendations finally go through and become policy, e-commerce platforms will have to mandatorily provide the government’s RuPay payment option. The task force has also suggested that foreign e-commerce websites should be brought on a level playing field with their Indian counterparts by making them follow the same rules for payment systems such as two-factor authentication.

    With the aim to make online payments safer, the task force has also suggested creating a fraud intelligence mechanism, using artificial intelligence-based authentication systems, for early detection of frauds. Currently, a large chunk of payments for online purchases is made through the cash-on-delivery option.

    National Policy on Biofuels – 2018

    Context:

    Rajasthan has become the first State in the country to implement the national policy on biofuels unveiled by the Centre in May this year.

    The desert State will lay emphasis on increasing production of oilseeds and establish a Centre for Excellence in Udaipur to promote research in the fields of alternative fuels and energy resources.

    The policy on biofuels seeks to help farmers dispose of their surplus stock in an economic manner and reduce the country’s oil import dependence.

    It has expanded the scope of raw material for ethanol production by allowing the use of sugarcane juice, sugar-containing materials, starch-containing materials and damaged foodgrains like wheat, broken rice and rotten potatoes for ethanol production.

    The State Rural Livelihood Development Council would also encourage women’s self-help groups to explore the scope for additional income through the supply of biodiesel.

    About National Policy on Biofuels – 2018

    The Policy categorises biofuels as “Basic Biofuels” viz. First Generation (1G) bioethanol & biodiesel and “Advanced Biofuels” – Second Generation (2G) ethanol, Municipal Solid Waste (MSW) to drop-in fuels, Third Generation (3G) biofuels, bio-CNG etc. to enable the extension of appropriate financial and fiscal incentives under each category.

    It expands the scope of raw material for ethanol production by allowing the use of Sugarcane Juice, Sugar-containing materials like Sugar Beet, Sweet Sorghum, Starch-containing materials like Corn, Cassava, Damaged food grains like wheat, broken rice, Rotten Potatoes, unfit for human consumption for ethanol production.

    It seeks to help farmers dispose of their surplus stock in an economic manner and reduce country’s oil import dependence.

    INDIA’S FOREIGN POLICY

    Introduction

    From the time India first attained independence in 1947, its foreign policy during the Cold War period evolved from being pro-Soviet and antithetical to Western interests, to now becoming an important Western strategic partner and providing a counterweight to China. Over the last six-and-half decade India has massively expanded its influence worldwide, primarily through diplomacy and trade, which has seen it emerge as an influential power in global politics. There are many aspects that played important role in determining India’s foreign policy over period of time.
    Evolution of India’s Foreign Policy

    Panchsheel

    The guiding principles of India’s Foreign Policy have been founded on Panchsheel, pragmatism and pursuit of national interest. The five principles of peaceful coexistence or Panchsheel was evolved during talks between India and the People’s Republic of China in 1954. The five principles which formed the basis of the non aligned movement were laid down by Jawaharlal Nehru.
    The Five Principles are:
    • Mutual respect for each other’s territorial integrity and sovereignty
    • Mutual non-aggression against anyone
    • Mutual non-interference in each other’s internal affair
    • Equality and mutual benefit
    • Peaceful co-existence
    These five principles was believed to serve the need of the newly decolonized state which had more pressing needs to address rather than getting engaged in hostility with the neighbors. The underlying assumption for the five principles was the development of new and more principled approach to the International relations by the newly independent decolonized states.
    However, the history of the first major enunciation of the five principles is not wholly encouraging. China has often emphasized its close association with the five principles. It had put them forward as the five principles of peaceful co-existence, at the starting of negotiations that took place in Delhi from December 1953 to April 1954 between the delegation of PRC (People’s Republic of China) government and the delegation of the Indian government on the relations between the two countries with respect to the disputed territories of Aksai Chin and South Tibet. The 29 April 1954 agreement was set to last for eight years. When it lapsed the relations were already soaring, the provision for renewal of the agreement was not taken up and the Sino-Indian war broke out between the two sides.
    However, in the 1970s, the five principles again came to be seen as important in the Sino-Indian relations and more generally as norms of relations between states. They came to be widely recognized and accepted during the region.
    After 60 years of its origin and working Panchsheel still remains a mere paperwork for China which was a major party to the agreement and more than anxious to sign it. A great tragedy is that the agreement is remembered not for its content, which concerns the trade relations between India and Tibet, but for its preamble which directly caused the destruction of an ancient, spiritual ‘way of life’.
    Another misfortune is that the idealistic five principles were never been followed either in letter or in spirit by China, particularly, “non-interference in other’s affairs” and “respect for the neighbour’s territorial integrity”. Chinese intrusion into the Indian Territory after three months of the agreement was a testimony to this. Thus, in a way, the agreement opened the door to the China’s military control of the roof of the world by the People’s Liberation Army. This further translated into building a network of roads and airstrips heading towards the Indian frontiers in NEFA (North East Frontier Agency) and Ladakh. This was aggravated by the refusal of some of Nehru’s advisors to bargain for a proper delimitation of the border between Tibet and India, against the relinquishment of India’s right in Tibet (accrued from the Simla convention).
    The policy is remembered more as a basis for NAM (Non Aligned Movement), established in Belgrade, in 1961 and a diplomatic spoof for the country hitherto incapable of sorting out her border tangle. On a more positive note, it can be concluded that the agreement proved to be of lasting significance as it was the first of its kind where India and China agreed for mutual tolerance and peaceful co-existence so much so that the five principles today form the centre-piece of their current CSBMs (Confidence and Security Building Measures).

    NAM (Non-Aligned Movement)

    On 1 Sep 1961 the heads of 28 nations gathered in Belgrade to launch the Non-Alignment Movement. Fifty years on, NAM has grown to more than 120 nations and represents a majority voice in the United Nations.
    Members of NAM initially had disputes on some issues due to gap in the level of technological and economical development. The major difference was between Asian and African countries as the Asian countries rose and African countries went down. Also, the disputes between India and Pakistan questioned the very basic principle of NAM— peaceful coexistence. In the post cold war period NAM was considered as sleeping beauty.
    But in today’s world, NAM has got a great task of questioning the monopoly of America in UNO and world. Also, NAM has made significant discussions on several issues of world importance. The extent of its need, importance and fame of this movement can be approximated from the increase in its membership. It’s most important achievement include postponing of wars, reducing their intensity and in some cases disputes were completely solved. NAM can be said to have played a vital role in maintaining world peace in this nuclear age. This brought cold war to ceasefire. It beefed up the role of UNO in which all countries have equal representation. Non aligned countries have been successful in establishing a foundation of economic cooperation amongst underdeveloped countries. South—South dialogue has been summoned from the non aligned countries’ front.
    Another noteworthy fact is that it has transformed from a political movement to an economical movement whereby the developing and underdeveloped nations are demanding a New International Economic Order. It’s been increasingly argued that in order to control the situation, to protest against the monopoly of US in a monoaxial world, to induce forceful dialogue between developed and underdeveloped countries, protesting against neo-colonial exploitation, maintaining North-South dialogue, South-South dialogue, combating international terrorism, global economic crisis and bringing about NIEO (New International Economic Order), NAM and G-77 will have to work together

    Cold War Era in India

    During the cold war India’s policy was that of a neutral observer inclined towards self-interest rather than seeking alignment with any of the major power blocs. This attitude led her to sign two of the most important foreign policy agreements, i.e., Panchsheel and NAM (Non Alignment Movement) during this period.
    As was the case with many other countries U.S.-India relations during the cold war were colored by the bipolarity of the international system. Despite India being one of the main founding countries in the Non Alignment Movement it tended to, as did many post-colonial countries, lean towards more populist/socialist policies, creating tension with the United States.
    Since the early 1950s, New Delhi and Moscow had built friendly relations on the basis of real politick. India’s nonalignment enabled it to accept Soviet support in areas of strategic congruence, as in disputes with Pakistan and China, without subscribing to Soviet global policies or proposals for Asian collective security. From 1959 India had accepted Soviet offers of military sales. Indian acquisition of Soviet military equipment was important because purchases were made against deferred rupee payments, a major concession to India’s chronic shortage of foreign exchange. Simultaneous provisions were made for licensed manufacture and modification in India, one criterion of self-reliant defense on which India placed increasing emphasis. In addition, Soviet sales were made without any demands for restricted deployment, adjustments in Indian policies toward other countries, adherence to Soviet global policies, or acceptance of Soviet military advisers. In this way, Indian national autonomy was not compromised.
    Nehru obtained a Soviet commitment to neutrality on the India-China border dispute and war of 1962. During the India-Pakistan war of 1965, the Soviet Union acted with the United States in the UN Security Council to bring about a cease-fire. India benefited at the time because the Soviet Union came to support the Indian position on Bangladesh and because the treaty acted as a deterrent to China.
    The friendship treaty notwithstanding, Indira Gandhi did not alter important principles of Indian foreign policy. She made it clear that the Soviet Union would not receive any special privileges- much less naval base rights in Indian ports, despite the major Soviet contribution to the construction of shipbuilding and ship-repair facilities at Bombay on the west coast and at Vishakhapatnam on the east coast. India’s advocacy of the Indian Ocean as a zone of peace was directed against aggrandizement of the Soviet naval presence as much as that of other extra-regional powers. By repeatedly emphasizing the nonexclusive nature of its friendship with the Soviet Union, India kept open the way for normalizing relations with China and improving ties with the West.
    When the Soviet Union disintegrated, India was faced with the difficult task of reorienting its external affairs and forging relations with the fifteen Soviet successor states, of which Russia was the most important.

    Post 1990 Scenario

    The post-Cold War era spawned a dichotomy within the international system. The global system had to reckon with unimpeded power and authority centered around one superpower of which there was no comparison in terms of pure military might. Besides this there was also the emergence of multiple economic power centers that were beginning to and still assert themselves internationally with different perceptions and different goals.
    Globalization and the rapid emergence of market economies all over the world, from Southeast Asia to Latin America, resulted in the spectacular emergence of regional cooperation and integration. Closely connected with globalization was the widespread emergence of market economies. It was no longer possible for nations or national markets to operate as self-sufficient units.
    The four most important variables that guided the framing of India’s foreign policy after the cold war were:
    • India’ search for its due place in the international order which is largely dominated by the US;
    • An accommodation with the global nuclear order as the international system comes to terms with ‘nuclear’ India;
    • India’s balancing act of tackling the challenge of global terrorism without alienating its Islamic minority;
    • And India’s search for energy security to ensure its current rate of economic growth.
    Although a late-comer to liberalisation there was a growing integration of India’s economy with the rest of the world. Indo-US relations saw a new high with the latter acknowledging India as one of the emerging powers and boldly declaring to forge trade ties and engaging in mutual integration and co-operation owing to the shared interests in the global arena. However Indo-Russia relations were cut adrift after the Soviet disintegration but were later renewed.
    India was clearly aware of its responsibilities and of the key role it has to play in the development of regional cooperation as there was good reason to believe that economic and technical co-operation among the SAARC countries will lead to co-operation in other areas as well. Thus, Gujaral doctrine became a prominent phenomenon in India’s foreign policy whereby India adhered to its commitment for regional integration and co-operation in south and south-east Asia.
    There was a remarkable re-orientation of India’s policy towards the middle-east as there was increasing pressure on India to adopt a more visible role in Iraq and use its leverage on Iran to curtail the latter’s nuclear programme. While there was a new found convergence in the relations with Saudi-Arabia, Indo-Israeli relations took a difficult turn. Regarding central Asia, India tried its best to play a fairly positive role owing to the former’s increasing importance due to energy concerns. The expanding role of India in the East Asia has been evident in India’s look east policy. India’s relations with China remain volatile and friction-ridden because of past experience, war, territorial disputes, unparallel interests, conflicting world-views and divergent geopolitical interests.
    Overall the Look East policy should reinforce and demonstrate India’s commitment to this region which accounts for about one-third of India’s trade and this commitment will not be influenced in any way by the improving relations between India and the US and EU.
    The Gujral Doctrine
    This doctrine was an expression of the foreign policy initiated by Inder Kumar Gujral, the Foreign Minister in Deve Gowda Government which assumed office in June 1996. The Gujral Doctrine is a set of five principles to guide the conduct of foreign relations with India’s immediate neighbours as spelt out by I.K. Gujral, first as India’s External Affairs Minister and later as the Prime Minister.

    These Principles are:

    1. With neighbours like Bangladesh, Bhutan, Maldives, Nepal and Sri Lanka, India does not ask for reciprocity, but gives and accommodates what it can in good faith and trust.
    2. No South Asian country should allow its territory to be used against the interest of another country of the region. (Second Principle of Panchsheel- Mutual non-aggression)
    3. No country should interfere in the internal affairs of another. (Third Principle of Panchsheel- Mutual noninterference in each other’s internal affairs)
    4. All South Asian countries must respect each other’s territorial integrity and sovereignty. (First Principle of Panchsheel- Mutual respect for each other’s territorial integrity and sovereignty)
    5. They should settle all their disputes through peaceful bilateral negotiations. (Fourth and Fifth Principles of Panchsheel- Equality and mutual benefit & Peaceful co-existence)

    Positive Application

    1. Sharing of Ganga Water with Bangladesh: It is in pursuance of this policy that late in 1996 India concluded an agreement with Bangladesh on sharing of Ganga Waters. This agreement enabled Bangladesh to draw in lean season slightly more water than even the 1977 Agreement had provided.
    2. Freezing of Border Dispute with PRC: The confidence building measures agreed upon by India and China in November 1996 were also a part of efforts made by the two countries to improve bilateral relations, and freeze, for the time being, the border dispute.
    3. Increasing People to People Contact with Pakistan: Gujral advocated people to people contacts, particularly between India and Pakistan, to create an atmosphere that would enable the countries concerned to sort out their differences amicably. India unilaterally announced in 1997 several concessions to Pakistan tourists, particularly the elder citizens and cultural groups, in regard to visa fees and police reporting.
    4. “Confidence Building Measures” Talks with Pakistan: The Gujral Doctrine assumed significance when at Foreign Secretary level talks between India and Pakistan in June 1997, the two countries identified eight areas for negotiation so as to build confidence and seek friendly resolution of all disputes.

    Significance of the Doctrine:

    1. It, thus, recognises the supreme importance of friendly, cordial relations with neighbours.
    2. According to Gujral, these five principles, scrupulously adhered to, would achieve a fundamental recasting of South Asia’s regional relationships, including the difficult relationship between India and Pakistan.
    3. Further, the implementation of these principles would generate a climate of close and mutually benign cooperation in the region, where the weight and size of India is regarded positively and as an asset by these countries.
    4. The Gujral Doctrine was generally welcomed and appreciated not only within the country, but also by most of the neighbours and major powers.
    5. In the context of changed international environment in post-cold war world Gujral Doctrine become a new and important principle of India’s foreign policy.
    6. It can be implemented by different regional powers like USA, Russia, People Republic of China, Iran, Saudi Arabia, Brazil, Germany, etc.
    7. It had an heuristic impact.

    Nuclear Doctrine

    Since independence, global nuclear non-proliferation has been a dominant theme of India’s nuclear policy. India conducted first nuclear test in 1974 (Smiling Buddha) and then in 1998 and become a de facto nuclear power country. To alleviate the fear of the neighbour and show itself as a responsible nuclear power, New Delhi came out with its Nuclear Doctrine after Pokharan II. Since independence, global nuclear non-proliferation has been a dominant theme of India’s nuclear policy. India conducted first nuclear test in 1974 (Smiling Buddha) and then in 1998 and become a de facto nuclear power country. To alleviate the fear of the neighbour and show itself as a responsible nuclear power, New Delhi came out with its Nuclear Doctrine after Pokharan II.
    India’s nuclear doctrine was perhaps the first of its kind among the known nuclear weapon states. The two pressing theme of India’s Nuclear Doctrine are (i) No first use and (ii) Credible minimum deterrence.
    The document lays down that India will not use nuclear weapon unless and until nuked. It also says that India will not use nuclear weapon against any non-nuclear state, unlike any other nuclear power countries.
    To ensure nuclear deterrent, India has been engaged in developing credible retaliating power by developing triad of aircraft, mobile land-based missile and sea-based assets. To ensure nuclear deterrent, India has been engaged in developing credible retaliating power by developing triad of aircraft, mobile land-based missile and sea-based assets.
    In its Nuclear Doctrine, India has clearly laid down that the final decision to use nuclear weapon will lie with the civilian leader. It also laid down complete chain of command in this regard. In its Nuclear Doctrine, India has clearly laid dawn that the final decision to use nuclear weapon will lie with the civilian leader. It also laid down complete chain of command in this regard.

    Objectives

    (i) In the absence of global nuclear disarmament India’s strategic interest require effective, credible nuclear deterrence and adequate retaliatory capability. This is consistent with the UN Charter, which sanctions the right of self defence.
    (ii) India aims at convincing any potential aggressor that:
    (a) Any threat of use of nuclear weapons against India shall involve measures to counter the threat, and
    (b) Any nuclear attack on India and its forces shall result in retaliation with Nuclear Weapon.
    (iii) The fundamental purpose of Indian nuclear weapon is to deter the use and threat of use of nuclear weapons by any state or entity against India or Indian forces. Credibility and survivability are central to India’s nuclear deterrent.

    Energy Diplomacy

    According to India’s Planning Commission, the country faces formidable hurdles in meeting its current and future energy needs, if it wants to maintain its economic growth.
    One of the most important priority of the Indian government is the eradication of poverty. To get there, however, India will need to grow at a rate of 8 percent per year for the full quarter-century. There is a fear that this noble goal is going to generate huge energy shortages, as India has been less suceessful in securing energy supplies from its neighbours or from Central Asia than China has been. Over the next 25 years, the Indian government’s priority is the eradication of poverty. To get there, however, India will need to keep growing by 8 percent a year for the full quarter-century. There is a fear that this noble goal is going to generate huge energy shortages, as India has been less suceessful in securing energy supplies from its neighbours or from Central Asia than China has been.
    The troubles of the energy sector in India are compounded by state control over the import, production and distribution of oil and gas products, which are coordinated by 4 different ministries. More than half of India’s electricity is generated by burning poor-quality domestic coal, which is expected to run out in about 40 years.
    Furthermore, a third of India’s oil is imported from countries the US is at odds with, such as Sudan, Syria or Iran, whilst the gas is imported mainly from Iran, Bangladesh or Burma. India’s dependence on imported oil, which currently stands at 60 percent, is expected to grow to 90 percent by 2030. That lifts energy diplomacy to the top of India’s agenda, when it comes to dealing with countries from Central Asia, Middle East, Africa or Latin America.Furthermore, a third of India’s oil is imported from countries the US is at odds with, such as Sudan, Syria or Iran, whilst the gas is imported mainly from Iran, Bangladesh or Burma. India’s dependence on imported oil, which currently stands at 60 percent, is expected to grow to 90 percent by 2030. That lifts energy diplomacy to the top of India’s agenda, when it comes to dealing with countries from Central Asia, Middle East, Africa or Latin America.
    India is trying to build gas pipelines that are needed by its electricity generation sector in order to diversify away from coal. Its two projects are the IPI (Iran-Pakistan-India) pipeline, also dubbed “the peace pipeline”, and the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline.
    Due to practical difficulties (as pipe was supposed to pass through restive Baluchistan province of Pakistan) and US opposition to the project determined India to recently abandon IPI, of which only the Iran-Pakistan stretch, or about 1,100 km, is going ahead with construction. The failure of the IPI project has recently determined India to enter fresh negotiations with the Teheran regime for the construction of an undersea gas pipeline. This would have the advantage of bypassing Pakistan and doing away with transit fees.
    India’s ever-growing appetite for energy is quietly reshaping the way it operates in the world, changing relations with its neighbors, extending its reach to oil states as far flung as Sudan and Venezuela, and overcoming Washington’s resistance to its nuclear ambitions. Hovering over India’s energy quest is its biggest competitor: China, which is also scouring the globe to line up new energy sources. The combined appetite of the two Asian giants is raising oil prices and putting greater demands on world oil supplies.
    “Mutual dependencies” is the buzzword of the day, signaling the way oil and gas links among South Asian countries stand to rewrite the enmities of the past. The foreign policy of India will have a lot to do with energy. That vision is not without its challenges.
    On the one hand, India seeks to cast itself as the model of democratic pluralism, as in its bid for a permanent seat on the United Nations Security Council. On the other, its hunt for fuel is pushing it to reach out to authoritarian governments like those of Sudan and Myanmar, which the United States has sought to isolate. In both of those countries, China’s weight is also keenly felt. But India is quickly making inroads. It has persuaded a wary Bangladesh to agree, at least in principle, to a pipeline that would ship gas from Myanmar to India. Indian government has also sought to lure foreign investors to explore for reserves in the Bay of Bengal, off India’s eastern coast.
    India’s basic approach to energy diplomacy, both oil and gas, has been to develop as many potential supply arrangements with as many potential suppliers as it possibly can, and to try to neutralise its potential competitors, principally China, with cooperation agreements.
    To attain some amount of energy security, India has engaged itself in almost all regions in the world that are rich in oil and gas reserves, namely the Gulf, Central Asia, South America, Africa and even a few of the neighbours like Bangladesh and Myanmar.
    The rising energy security needs set the pace for India to leave no stone unturned to pursue a hard diplomacy for a very warm relationship with Central Asian states. As the Middle East appears to be in a state of permanent turmoil, attention of the world has certainly shifted towards Central Asia.

    Global Issues

    Some important global issues which have engaged the attention of foreign policy makers of India in the past twenty years:

    1.Disarmament

    India’s disarmament policy is directed at achieving a world free from weapons of mass destruction, including nuclear weapons; it advocates a universal, non-discriminatory disarmament in a time-bound, phased and verifiable manner; this approach is reflected in the Rajiv Gandhi Action Plan which India submitted at the UNGA in 1998.
    While continuing to work for global disarmament, India has kept its nuclear options open. India has declined to put its signatures on the NPT as it considers the Treaty discriminatory and an instrument which has divided the world into two parts: the P-5s (USA, Russia, China, France UK) codified as legitimate nuclear powers, and the rest of the world which has been denied the right to develop and possess nuclear weapons. India’s refusal to subscribe to the NPT resulted in decades of isolation in the international non-proliferation community.
    India’s impeccable record as a responsible nuclear power has, however, reversed the process and India now enjoys the confidence of major international players. In this context, the issues which had arisen out of India’s rejection of the NPT and development of its own nuclear weapons capabilities in defiance of international opinion, have more or less been relegated to background/resolved. Sanctions have been eased/lifted. The unflinching support from the USA and allies paved the way for the waiver by the Nuclear Suppliers Group (NSG) in 2008 which in turn has made it possible for India to conclude civil nuclear cooperation agreements with global nuclear powers.
    On its part, India has demonstrated its unequivocal commitment to non-proliferation through a series of steps and policy shifts. It has placed selected civil nuclear facilities under IAEA safeguards, signed an Additional Protocol with IAEA, brought export control laws in lines with those of the NSG and has taken many other steps which bring most Indian policies in line with the NPT spirit without formal signing. India today is a d’facto Nuclear Power; true this is not yet formally acknowledged by the international community. There is a widespread recognition, however, of India’ impeccable record in the field of non-proliferation, in recognition of which the international community is now ready to engage India in nuclear trade. No other non-NPT signatory country has been given this privilege. And this can be considered as an outstanding achievement in the foreign policy pursuits during the past two decades.
    The core element in India’s nuclear doctrine (revealed through a Government Press Release of 4th January 2003) is in building and maintaining a ‘credible minimum deterrent’. It also envisages inter-alia: (i) “No First Use,” i.e., nuclear weapons will only be used in retaliation against a nuclear attack on Indian territory or on Indian forces; (ii) Non-use of nuclear weapons against non-nuclear weapon states. However, in the event of a major attack against India, or Indian forces anywhere, by biological or chemical weapons, India will retain the option of retaliating with nuclear weapons.

    2. Climate Change

    India considers climate change as a global problem demanding global efforts and global solutions. India ratified the UN Framework Convention on Climate Change (1993) and Kyoto Protocol (2002). India’s well articulated position is that the current state of climate change and global warming is attributable to the excess emissions of harmful gases by the developed countries during the period of industrialisation; this is often referred to as the concept of ‘historical responsibility’. India further insists that the developing countries cannot be expected to forego its developmental efforts. India subscribes to the principle of equity and ‘common but differentiated responsibility’. India would like the developed world to assist the developing countries through financial assistance and transfer of technology to meet the challenges of climate change. India does not want to be seen as an obstacle but as a part of the solution. India has thus volunteered to cut its gas emissions though it has no such obligations under the international treaties.

    3. Terrorism

    India has been a victim of terrorism for decades; this issue has therefore engaged the attention of India’s foreign policy makers for past several decades. India has adopted a policy of zero tolerance to the scourge of terrorism and condemns it as well as religious extremism and fundamentalism in any form or manifestation. It underlines the challenge posed by terrorism to international security during bilateral meets and at regional and international fora. In 1996, India introduced at UN the Draft Comprehensive Convention on International Terrorism and is now advocating its early adoption. The progress unfortunately has been slow; meanwhile, India has accelerated its bilateral interaction and has signed extradition treaties with over 30 countries.

    4. Global Governance

    In India’s assessment the contemporary structures of global governance including UN and international financial institutions such as World Bank, IMF, etc., have proved inadequate in dealing with the political and economic crisis of present days and therefore the international community deserves new structures of global governance to confront cross-cutting and trans-national challenges. India seeks UN reform, including reform of UN Security Council. In recognition of India’s growing stature, several countries have explicitly endorsed India’s bid for a Permanent Seat in expanded Security Council; India’s election to Non-Permanent Seat of UNSC with overwhelming support speaks for itself. Objectively and realistically speaking it would be a long and difficult path to tread before the campaign for substantial reforms in the present structures of global governance could be attained.

    5. Indians Abroad

    There are more than 20mn Indians or persons of Indian origin living abroad all over the world. It has been the endeavour of successive Government to formulate such policies as would help derive economic and, where feasible, political benefits from their presence abroad. The welfare of overseas Indian community is now a very important element in India’s foreign policy approach. India’s oversees Missions and Posts have been adequately equipped to handle difficult situations impinging upon the safety and security of oversees Indians; the Government of India has never been shy of intervening at the highest levels whenever the situation has so demanded.
    The main objective of the foreign policy of a given country is to secure its national interests. India is no different in this regard. There is, however, a qualitative difference. It is noteworthy, that the foundations of India’s foreign policy are laid on certain core principles. These include for instance the five principles of peaceful co-existence (Panchsheel), independence of decision making, resolution of conflicts and disputes through dialogue and peaceful means, preference for constructive engagement over isolation of individual countries, support for multilateral approaches to global issues. India has followed these principles diligently and has scrupulously eschewed the philosophy of ‘ Sam Daam, Dand, Bhed’ in pursuing its foreign policy objectives. In the past two decades, these core principles have provided a great deal of continuity. While adhering to these core principles, India has continuously adapted to the changing external circumstances and shifting domestic needs. Economic dimensions are now an important element in India’s foreign policy. Currently as much as 50% of GDP is linked to foreign trade as compared to 20% in 1990s. Foreign investments, modern and advanced technology, critical raw materials, energy resources are required as important inputs for India’s economic development. An important objective of India’s foreign policy is thus to act as an enabler, and also to create an external environment which would be conducive for inclusive development within the country so that the benefits of growth can percolate to the poorest of the poor segments of the society.
    India’s international image and its stature as an important international player is indisputable. At the same time India is perceived by some as a soft power which prefers to punch below its weight. But India’s approach can be seen as non-intrusive, non-prescriptive, non-interfering but firm and adamant when it comes to safeguarding its national interests. Occasional failures are bound to occur but by and large the track record of India’s foreign policy mandarins can be rated as above board.
    India’s international image and its stature as an important international player is indisputable. At the same time India is perceived by some as a soft power which prefers to punch below its weight. But India’s approach can be seen as non-intrusive, non-prescriptive, non-interfering but firm and adamant when it comes to safeguarding its national interests. Occasional failures are bound to occur but by and large the track record of India’s foreign policy mandarins can be rated as above board.

    Look East Policy

    The Look East policy has emerged as a major thrust area of India’s foreign policy in the post-Cold War period. It was launched in 1991 by the then Narasimha Rao government to renew political contacts, increase economic integration and forge security cooperation with several countries of Southeast Asia as a means to strengthen political understanding. India’s Look East policy is aimed at greater economic alignment and an enhanced political role in the dynamic Asia–Pacific region in general and Southeast Asia in particular. The Look East policy is pursued to make India an inalienable part of Asia–Pacific’s strategic discourse. Hence, the Look East policy marks the beginning of a vibrant relationship on the economic, political and strategic fronts. The economic potential of this policy is also emphasised to link to the economic interests of the North-eastern region as a whole.
    The beginning of the early 1990s was marked by a transformation in the international political economy, contributed by the end of the Cold War and the resulting spread of globalisation. Globalisation of world economies intensified international competition and has given rise to a new wave of regionalism. During this time India, like many developing countries, faced many challenges—both internally and globally. Internally, the country was unsettled by social unrest, serious political instability and poor economic performance. After the disintegration of the Soviet Union, New Delhi lost a major economic partner and its closet strategic ally. India cannot look towards West Asia and Africa for intensive economic cooperation, as the countries of this region look up mainly to the West. During this period, India has got attracted to the high-performing economies of East Asia. Forced by the economic crisis and the dire need of Foreign Direct Investments (FDIs) for rapid economic development, India had enunciated the Look East policy in 1991 and was determined to work with the spirit of regional economic cooperation with her Eastern neighbours.
    The first phase of India’s Look East policy was ASEAN-centred, and focused primarily on trade and investment linkages. The second phase, which began in 2003, is more comprehensive in its coverage, extending from Australia to East Asia, with ASEAN as its core. The new phase marks a shift in focus from trade to wider economic and security cooperation, political partnerships, physical connectivity through road and rail links. In India’s effort to look East, the Northeastern region has become a significant region due to its geographical proximity to Southeast Asia and China. India’s search for new economic relationship with Southeast Asia is now driven by the domestic imperative of developing the Northeast by increasing its connectivity to the outside world. Instead of consciously trying to isolate the Northeast from external influences, as it had done in the past, New Delhi has now recognised the importance of opening it up for commercial linkages with Southeast Asia.
    Over the time, policy-makers, bureaucrats and intellectuals have attributed the numerous armed separatist struggles and political instability in the Northeastern states to the region’s underdevelopment and weak economic integration with mainland India. As part of the efforts to integrate the region with the rest of India, developmental funds were poured in and emphasis was laid on infrastructural development. However, the region still has the problem of underdevelopment and faces the problem of a growing and expanding security apparatus. Moreover, there is a relocation of factories and industries towards northern and western India, and hence the cost of transportation of goods to Northeast India has increased.Therefore, the existing policy of development of the Northeastern region needs to be reoriented if its stated objectives have to be fulfilled in due course.
    Look East policy, which identifies Northeast India as the gateway to the East, is a major initiative that promise a new way of development through political integration of this region with the rest of India and economic integration with the rest of Asia, particularly with East and Southeast Asia. Taking into account its geographical proximity, its historical and cultural linkage with Southeast Asia and China and the primary objective of the Look East policy, it is being widely stated that the Look East policy would result in the rapid development of the region as it promises increased trade contacts between the Northeastern region and Myanmar, China and Bangladesh. The policy also has the potential of solving the problem of insurgency, migration and drug trafficking in the region through regional cooperation.
    On the other side, there is pessimism that the policy of integrating Northeast India with its Eastern neighbours would lead to dumping of cheap foreign goods, and the region’s own industries being adversely affected by it. The region is also being perceived as just a transit region without bringing economic development to the region, as it has no adequate industrial infrastructure to produce goods which can be exported to these countries. There is also a concern that such integration will develop further the feeling of alienation of the people and the region itself would drift away from the mainstream Indian politics.

    ACT EAST

    Under the BJP government in Delhi, India’s Look East policy has morphed into a proactive Act East policy, which envisages accelerated across-the-board engagement between the two growth poles of a vibrant Asia. India’s growing relations with the 10-nation ASEAN grouping are at the heart of this Asian relationship. Prime Minister Narendra Modi in his maiden trip to Myanmar on November, 2014, to attend his first India-ASEAN summit and the 18-nation East Asia Summit, unveiled India’s new “Act East Policy”, and convinced his Southeast Asian counterparts that his government is serious about boosting ties with the region.
    Commerce, Culture and Connectivity (Three Cs) are the three pillars of India’s robust engagement with ASEAN. In the economic arena, the India-ASEAN relations are poised to scale new frontiers.The two sides have signed an India-ASEAN Free Trade Agreement (FTA) in services and investments recently. It includes specific recommendations to advance ASEAN-India economic relations over the next few years, including establishing a special purpose vehicle for project financing, building information highways, and inviting ASEAN countries to participate in India’s ongoing economic transformation.
    For the Northeast to serve as a bridgehead to the country’s eastern neighbourhood, there has to be a comprehensive connectivity strategy for the region. Such a strategy would have three interlinked components. The first would be to improve connectivity between the Northeast and the rest of India; the second would be to enhance connectivity within the Northeast and the third would be to improve existing and establish new cross-border transport and communication links with neighbouring countries. These three components need to be pursued in tandem if the full benefits of Act East policy are to be realised.
    In the first category, the existing highway and rail-link needs to be upgraded significantly to enable much higher load-carrying capacity and speedier transit. We need to construct modern expressways and a high-speed rail freight and passenger corridor to more closely integrate the Northeast with the rest of India. This will also enable Northeast produce to find ready markets in the country itself and to compete for exports.
    Intra-regional connectivity within the Northeast is sparse, poor in quality and over stretched.The existing branch rail lines and roads from the rail heads to various state capitals are unable to cope with the increase in both freight and passenger traffic. Currently, travel among state capitals of the Northeast is difficult and time consuming. There has to be a master plan for linking all the Northeastern states together with a network of road, rail and air links. One should also fully utilise the potential of inland water transport using the rivers which crisscross the region. Bangladesh is also increasingly open to reviving the old river navigation routes, which were the main transport links in undivided eastern India. Without these Act East policy would not bring economic benefits to the region as it would only bring heavy influx of imports from neighbouring countries without much encouragement to local resource based production and access to the larger Indian and export markets.
    Cross-border connectivity has been on the government’s agenda for several years, but has made only slow progress. There is an ambitious Trilateral Highway Project to link India, Myanmar and Thailand, with possible extensions to Laos and Vietnam. The multi-nodal transport corridor linking the Myanmar port of Sittwe with India’s Mizoram, using both river and road transport is under implementation. There are a number of road, river and rail projects in the pipeline with Bangladesh, Nepal and Bhutan. In addition to physical infrastructure, it is also important that we adopt the most modern processes to facilitate the smooth crossing of state and national borders by both goods and people. Only then would transaction costs be reduced significantly and raise the competitiveness of our products.
    It is important for India to invest in infrastructural development projects in the Northeast region and beyond its borders. At a strategic level, the proposed Bangladesh-China-India-Myanmar corridor (BCIM) is bound to bring India and Bangladesh closer and will enhance bilateral relations relating to trade and movement of goods. BCIM economic corridor is also very important as it places the North-East as a crucial link to achieve regional economic cooperation via land of the North-Eastern region. Complementing this, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) can also act as a good framework for regional integration. BIMSTEC can open up ample trade and economic opportunities between India’s neighbours like Nepal, Bhutan and Bangladesh and also with the countries of The Association of Southeast Asian Nations like Myanmar and Thailand. Were these intended projects to actually materialise, then a densely interconnected and economically vibrant sub-regional economic zone would emerge, with the Northeast as its hub.

    CLMV IN INDIA’S ‘ACT EAST’ POLICY

    The 2015-2016 Indian budget included a proposal to set up manufacturing hubs in CLMV countries. The CLMV includes four Southeast Asian nations – Cambodia, Myanmar, Laos, and Vietnam, which are seeing the highest FDI growth in the region, especially in manufacturing. As India seeks to deepen economic partnerships with Southeast Asia under an “Act East” policy it has prioritized CLMV economies. There is a history of industrial cooperation between India and the CLMV countries. Major Indian investment in Vietnam includes large projects such as oil exploration, power generation, and chemical manufacturing. The bigger idea behind investing in CMLV is not only to tap these markets but also larger markets like the US with which the group has entered into trade pacts such as the TPP (Trans-Pacific Partnership).

    CHALLENGES IN REALIZING THESE AMBITIONS

    India’s ability to pursue a more ambitious role in the Asia-Pacific will also face domestic constraints. A prolonged period of lower growth, if happens, may reduce India’s capacity to commit resources to the region, it will also diminish its credibility in the eyes of regional partners. India is still in the early stages of developing its ability to project and sustain its naval presence beyond the Indian Ocean, and continued increases in the naval budget and improvements to India’s defence infrastructure will be necessary to achieve this. As a geographic outsider to the Asia-Pacific, India will continue to rely on its partners, particularly in Southeast Asia, to project power east of Malacca, located in the southern region of the Malay Peninsula, further reinforcing the need for it to prove itself a credible partner in the first place.
    India under Modi is likely to pursue a more ambitious role in East and Southeast Asia centred on practical partnerships with Japan, Vietnam, and Australia, and multilateral engagement with ASEAN. India’s partners in the region can expect greater Indian involvement in multilateral maritime security initiatives, particularly in the areas of humanitarian assistance and disaster relief, transnational crime, and joint bilateral naval exercises. However, India will be unlikely to engage in any security initiatives that could be perceived as threatening or containing China. In the near term, it would not be realistic to expect India to take an active position on East Asia’s maritime territorial disputes, beyond its declared support for principles such as freedom of navigation.
    In the past, India has neglected to articulate a clear vision for its strategic ambitions in East and Southeast Asia. Historically it has suffered from strategic timidity and poor defence planning that has impeded its ability to integrate itself into the Asia-Pacific. To establish the seriousness of India’s commitment to the region, the Modi Government must demonstrate that Act East is more than just a rebranding of an existing policy. Perseverance is a must here and is likely to pay off because of two positive factors. First, the likely emergence of India as the fastest growing major economy. Secondly, India already has some reliable partners, such as Singapore and Vietnam, among ASEAN countries. And there is a palpable unease about China’s claim on what it calls the South China Sea. In order to preclude further inertia, India will need to move quickly to outline a clear agenda for deepening economic, institutional, and defence links with the region that go beyond what has been pledged by previous governments. If the Modi Government is able to achieve this, then India has the potential to assume a role as a consequential strategic player across the wider Indo-Pacific.

    INDIAN OCEAN STRATEGY

    India, while emerging as a major economic player in the world, also possesses an ambitious maritime development plan. Its strategic interest in the Indian Ocean primarily derives from its historical sense of considering the Indian Ocean as India’s Ocean. The Indian maritime doctrine provides a guiding principle for increasing the capabilities, peace operations and rescue missions of the Indian Navy and a means for giving India a leadership role in the Indian Ocean region. Maritime strategy is a subset of a grand strategy; it is a long-term plan of action designed to attain a special maritime goal and a connection between military power and politico-economic intentions at sea. India’s presence in the Indian Ocean is changing with new Government at the centre. New polices under Modi asserts and expands India’s influence in the Indian Ocean littoral.

    HISTORICAL NEGLECT AND THE CHANGE

    India’s new maritime imperatives will not translate into a vigorous national strategy easily. India’s approach in the past was weighed down by a lack of coherence, political ambivalence, and above all, persistence of a ‘continentalist mind set’ in Delhi’s security establishment. Continentalism, marked by an obsession with land frontiers and a sea blindness, has deep roots in India’s political history. A number of factors like partition, territory conflicts with China and Pakistan, its inward economic orientation in the 1950s have made independent India even more vulnerable to the affliction. Despite a massive coastline and geographic primacy in the Indian Ocean, India had little time for its vast maritime frontiers. India’s economic footprint spread all across the Indian Ocean under the British Raj steadily diminished due to the policies of self-reliance and import substitution in the first decades after Independence.
    On the trade and investment front, India chose high-minded rhetoric at the United Nations on building a new international economic order rather than strengthen economic ties with the ocean neighbours. In the realm of security, India’s focus was on turning the Indian Ocean into a ‘zone of peace’. As Great Britain chose to withdraw from the east of Suez in the late 1960s after two centuries of dominating the Indian Ocean, India believed the UN would help replace British primacy with a system of collective security. While many littoral countries sought a major Indian security role, India was reluctant to exert itself.
    India’s approach began to change in the 1990s. As India embarked on globalisation and trade, economic connectivity with the Indian Ocean littoral began to come back on its agenda. India also inched away from the military isolationism of the non-aligned era. After decades of hectoring the great powers to get out of the Indian Ocean, Delhi began to engage all of them, including the United States. At the multilateral level, it started to de-emphasise the UN and focused on regional institutions. Over the last few years, India has sought to revive the Indian Ocean Rim Association, set up in the late 1990s to promote regional cooperation. India has expanded bilateral and multilateral naval exercises with many of its neighbours in the Indian Ocean. It launched the Indian Ocean Naval Symposium, which brings together the chiefs of the navies every two years to discuss naval cooperation. India has also set up a joint mechanism with Sri Lanka and the Maldives for shared maritime domain awareness. The Indian navy has also focused on maritime capacity building, especially in the island states that occupy critical locations in the Indian Ocean.

    CHALLENGES AND STRATEGIES

    To realise India’s full strategic potential in the Indian Ocean, India will need to focus on three things. One is to boost India’s own civilian maritime infrastructure, which has become terribly creaky and utterly inadequate for a country so dependent on the seas for its economic life.
    Second, India needs to ramp up its capabilities to take up major maritime projects in other countries. China is far ahead simply because of our inactivity and Beijing’s projects in the neighbourhood have given India a wake-up call, but Delhi does not have the capacity or a policy framework to bid for and execute major infrastructure projects in the Indian Ocean littoral.
    Third, India needs to lend some vigour to its defence diplomacy in the region. Although Delhi talks on being a “net security provider”, the ministry of defence is long way from developing the capabilities, systems and attitudes to make India a productive security partner for the countries of the region.
    Finally India needs a big idea to frame the government’s plans for a more purposeful maritime engagement in the Indian Ocean. One is the idea of “Project Mausam” to promote India’s soft power in the littoral. Other, the idea of a “spice route” to capture India’s interest in restoring its historic linkages in the littoral. Delhi has initiated ‘Sagar Mala Project’ to promote India’s connectivity in the Indian Ocean, in both economic and security domains. This concept was first unveiled by the Atal Bihari Vajpayee government in 2003, with the objective of rapid modernisation and expansion of India’s maritime sector like developing major and non-major ports and infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively.
    On his March 2015 trip to Seychelles and Mauritius, Narendra Modi outlined a bold new political approach that India had taken towards the Indian Ocean where he laid out five-fold framework for India’s maritime engagement with the Indian Ocean littoral.
    The first principle is that India will do whatever necessary to secure its mainland and island territories and defend its maritime interests. The 2008 Mumbai attack has made India acutely conscious of the potential terrorist attacks coming via the sea. At the same Delhi has been deeply aware of the growing strategic significance of the Indian Ocean in global politics. While the primary focus is on India’s own interests, it will work to ensure a safe, secure and stable Indian Ocean Region which is important for the prosperity of the region.
    The second dimension focuses on deepening security cooperation with regional partners. India has long had close security partnerships with both Seychelles and Mauritius and the new radar initiative is part of an ambitious project to build a maritime domain awareness network across the Indian Ocean. It calls for the establishment of eight surveillance radars in Mauritius, eight in Seychelles, six in Sri Lanka, and ten in Maldives. These are likely to strengthen the defence capabilities of the two republics and give India a valuable foothold at critical locations in South Western Indian Ocean.
    The third framework relates to building multilateral cooperative maritime security in the Indian Ocean. India will help strengthen regional mechanisms in combatting terrorism and piracy and responding to natural disasters. India hope that Mauritius, Seychelles and other countries will join the trilateral security initiative it already has with Maldives and Sri Lanka. This sets the stage for very productive multilateral maritime security cooperation in the littoral with India at the core. India’s access to strategic facilities in Seychelles and Mauritius marks a major departure from its traditional opposition to foreign military bases but calling these arrangements “bases” might be premature, they point to future possibilities for an expanded Indian strategic footprint in the littoral.
    The fourth element of this maritime policy is sustainable economic development. In Seychelles, Modi announced a joint working group to expand cooperation on the “blue economy” that will increase littoral states’ understanding of ecology, resources, and allow them to harness the ocean in a sustainable manner.
    Finally, India has discarded India’s longstanding reluctance to cooperate with other major powers in the Indian Ocean. India still insists that Indian Ocean states hold the primary responsibility for peace, stability and prosperity in those waters but is not hostile to the role that the United States plays in the region through dialogue, exercises, economic partnerships, and capacity building efforts. There is a decisive break from the ambivalence of the earlier governments which was evinced during the recent visit of U.S. President Barack Obama where both countries announced the renewal of their defence framework agreement and signed a broad framework for expanding cooperation in the Indian Ocean and Asia Pacific.

    PROJECT MAUSAM

    The Project Mausam is considered the Modi government’s most significant foreign policy initiative designed to counter China. It is inspired by India’s historical role as the focal point for trade in the Indian Ocean. In pre-modern times, sailors used seasonal monsoons to swiftly journey across the Indian Ocean. This trip usually involved starting from one of the edges of the ocean, around today’s Indonesia or east Africa, sailing to India and waiting for another monsoon to sail to the other edge of the Indian Ocean. As monsoon winds blew in different directions at different times of the year the crews would frequently winter for months in India waiting for another season of monsoons. This allowed for significant cultural exchanges as diverse people from different places would often spend months at a time living in foreign countries. More importantly shared knowledge systems and ideas spread along these routes and impacted both coastal centres, and also large parts of the environs.
    Project Mausam would allow India to re-establish its ties with its ancient trade partners and re-establish an “Indian Ocean world” along the littoral of the Indian Ocean. This world would stretch from east Africa, along the Arabian Peninsula, past southern Iran to the major countries of South Asia and thence to Sri Lanka and Southeast Asia. Re-connecting and re-establishing communications between countries of the Indian Ocean world would lead to an enhanced understanding of cultural values and concerns and understanding national cultures in their regional maritime milieu .The central themes that hold Project ‘Mausam’ together are those of cultural routes and maritime landscapes that not only linked different parts of the Indian Ocean littoral, but also connected the coastal centres to their hinterlands.
    It is clear that India’s government intends to expand its maritime presence, culturally, strategically and psychologically (in order to remind the region why the ocean is called the Indian Ocean). Despite the lack of details, Project Mausam seems like a positive step in that direction and one that will generally be well-received. It is to be hoped, however, that the project is meaningful and does not lack teeth, like many other Indian initiatives of the past.

    “LOOK WEST” POLICY

    The geographical conception of West Asia has significantly expanded since the collapse of the Soviet Union and is now called the “Greater Middle East”. It includes the far corners of northern Africa and the now independent republics of Central Asia and the Caucasus. Much like South East Asia, this region shares a long historical association with India. It is the source for India’s ever-expanding needs of energy. It is also a huge market for Indian goods, services, and skilled manpower. And, it is the arena for the unfolding confrontation between the impulse for political modernisation and religious extremism. This tension has naturally overflowed into the subcontinent destabilising India’s own security environment.
    While India’s engagement with the Greater Middle East has increased in the 1990s, there is as yet no coherent strategy. India has attempted, in a piecemeal manner, to improve relations with the Central Asian states, sought to promote its energy security partnerships in the Gulf and beyond, and reach out to markets there. It has sought to develop a special relationship with Iran and intensify its role in Afghanistan. All these efforts have not added up to much. Nor has India been able to reclaim its pre-independence primacy in the region. The inability of India to make a strategic breakthrough in the Greater Middle East lies in the unending political rivalry and military tension with Pakistan. The Partition in 1947 removed India’s physical access to the region. Pakistan, of course, is more than a geographic barrier between India and the Greater Middle East. It has effectively neutralised many of India’s initiatives through its own special links to the Greater Middle East.
    India’s ‘Look West Policy’ was unveiled in the India-UAE Joint statement when Modi visited United Arab Emirates in August, 2015. The Look East Policy succeeded because South-East Asia began to “look West” to India, seeking a balancer to China. Modi’s “Look West” Policy has the potential to succeed because West Asia is “looking East” worried about the emerging strategic instability in its own neighbourhood and the structural shift in the global energy market. The foundation for Modi’s successful outreach to West Asia was in fact laid by his predecessor when India invited the King of Saudi Arabia to be the chief guest at the Republic Day Parade, in 2006. This was followed by Prime Minister Manmohan Singh’s visit to Riyadh and the India-Saudi defence cooperation agreement signed in 2014. This had set the stage for wider engagement at a strategic level with the other states of the Gulf Cooperation Council (GCC).
    Mr. Modi’s visit to the UAE was preceded by significant visits to other GCC states by External Affairs Minister Sushma Swaraj. She made Bahrain her first stop in the region and was welcomed by Bahrain’s India-friendly leadership.Over the last year, the government has put forward a nuanced view of the region openly declaring friendship with Israel, seeking better relations with Iran and, at the same time, cementing a thriving relationship with the GCC states. The Joint Statement between the United Arab Emirates and India is an important articulation of a significant shift in the Arab world’s view of India. The statement is truly comprehensive and wide-ranging. It talks of historic ties of “commerce, culture and kinship”, drawing attention to the unique history of Arab interaction with Indian communities of the west coast, from Gujarat to Kerala.
    LOOK WEST POLICY: PRIMARY RATIONALES FOR INDUCTION
    Diaspora & remittances: The West Asian region is home to millions of non-resident Indians who are an important source to India in financial remittances. The introduction of the Nitaqat laws in many Gulf countries has resulted in several thousands of these workers having to return to India. While it is unfair to view the returnees as a liability, one cannot ignore the economic and social impact of this mass re-migration. India is not prepared to assimilate all these people into its own economy just yet. Already, unemployment rates are high and job creation will take a while, and until then, there will be some strain on the economy.

    Energy:

    India, being a growing economy, is perpetually energy-hungry. West Asian nations are among the primary suppliers of oil and gas that keep the Indian economy running. Stable and more improved relations between India and the region are key to securing and expanding on these sources.

    Maritime security:

    Be it trade or energy supply routes, or even national security, the significance of an effective maritime security infrastructure in the Indian Ocean – the maritime link connecting India with several of its key West Asian partners – is pivotal to ensuring safety, stability, and disaster-management for the region. Already, there is a constant threat of piracy in the western Indian Ocean. A concentrated policy will be needed to identify specific issues and areas of cooperation between India and West Asia, in order to ensure smooth and secure movement.
    Furthermore, in recent times, there have been many debates on the concept of the ‘Indo-Pacific’ to boost connectivity between the Indian Ocean and the Pacific Ocean. The two regions already have robust connectivity, but more can be done. However, if this concept of the Indo-Pacific has to become a reality, there is a need for enhanced cooperation in various areas among the key players in each region, before connecting the regions. Eventually, the Look West Policy and the Look East Policy can lay the foundations for the realisation of the ‘Indo-Pacific’.
    National and regional security: Any form of tumult in the West Asian region invariably has an impact on India and South Asia as a whole. For strategic reasons, India seeks peace and political stability and security in the West Asian region. So far, India has been pragmatic in its policies towards the West Asian region excellent examples of which are balancing its relationships with Palestine and Israel; and Saudi Arabia and Iran, among others.
    However, there is more that needs to be done, and for that, there needs to be better, more polished and astute understanding of the region in our country – especially in the light of the impending US withdrawal from Afghanistan; the thawing in the US-Iran bilateral; the ongoing civil war in Syria and its implications; implementation of the Nitaqat policies in the Gulf countries; and the rising fundamentalism, especially in the franchisee-ing nature of terror networks, among others.

    GCC LOOKS EAST

    What is significant about the new strategic partnership is the fact that it is defined not just by India’s “Look West” policy, based on its energy and financial needs, but that it is equally defined by the GCC’s “Look East” policy, soliciting greater Indian engagement with West Asia. Several factors have contributed to this fundamental shift in West Asian strategic thinking.
    First, the structural change in the global energy market with West Asian oil and gas increasingly heading to South and East Asian markets rather than to the Trans-Atlantic markets. Second, partly as a consequence of this change in flows and partly owing to the fiscal stress faced by the trans-Atlantic economies, West Asia is looking to India and other Asian powers to step in and offer security guarantees to the region. Many GCC states have welcomed defence cooperation agreements with India. Third, in the wake of the Arab Spring and the mess in Egypt and Iraq, the Gulf States find India and China to be more reliable interlocutors than many western states. Fourth, under pressure from radical and extremist political forces within West Asia, most states in the region have come to value the Indian principle of seeking and securing regional stability as an over-riding principle of regional security.
    This strategic engagement is the product of a mutual “look-at-each-other” policy. If China’s rise offered the backdrop for South-East Asia’s “look at India” policy, the West’s failures and weaknesses, and a weakening of the strategic trust between the West and West Asia may have contributed to the GCC’s “look at India” policy. Modi’s visit to Central Asian countries also adds to the success of the Look West policy.

    CONNECT CENTRAL ASIA POLICY

    India has now started think ways to exploit the energy rich region of Central Asia which would give boost to its foreign policy on energy. Irrespective of the difficulties like the presence of great powers in the region, limited trade and limited size of markets, Central Asia has gained valuable place in the foreign policy of India for more than a decade. The ‘Connect Central Asia Policy’ is a concrete testimony of this growing interest, which is based on proactive political economic and people to people connectivity with the region both individually and collectively. CCAP obviously add to its energy policy to tap the natural resources in the region.
    The ‘Connect Central Asia’ policy (CCAP) was first unveiled by UPA government as a Track II initiative in June 2012 in Bishkek, Kyrgyzstan to fast-track India’s relations with the Central Asian Republics (CAR) – Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Kazakhstan. It aimed at increasing India’s engagement with the region both bilaterally and multilaterally, which has been limited in the last two decades.
    This also offers chances for Central Asian countries to meet their desire to diversify hydropower and energy export routes, corresponding with India’s quest for diversifying energy imports. CCAP highlights the broader aspects of India-Central Asia cooperation on several subjects such as exchanges of high level visits to strengthen political relations both bilaterally and multilaterally, to gain strategic and security cooperation via military training, joint research, counterterrorism coordination and close consultation on Afghanistan.The policy is also looking at the region as a long term partner in energy and natural resources. Apart from this, setting up of civil hospitals and clinics in the medical field to ensure modern health care system in CARs, contributing to higher education system like setting up a Central Asian University in Bishkek to impart world class education in areas like IT, Management, Philosophy and languages, to work on Central Asian e-networking with its hub in India, to encourage construction sector, promote land connectivity through reactivating INSTC (International North-South Transport Corridor) route are some of its soft power initiatives in the region.
    In addition, through this policy India wants to expand viable banking infrastructure and policy environment which is absent in the region, a major impediment to trade and investment. Finally, to improve air connectivity to promote tourism and to enhance people to people connectivity through mutual exchanges of youth delegations, students, scholars, academics and future leaders of India to sustain our deep engagement are also India’s policy concerns. Such a comprehensive approach would be beneficial for India to strengthen its engagement in the energy sector of the region.
    Prime Minister’s Narendra Modi’s visit to the 5 states had a three-fold focus: energy, exports, and as a counterpoint to China’s inroads in the region.
    India is trying to develop connectivity with Central Asia which is a favourable energy option for India. Chabahar port of Iran in the Gulf of Oman and Bandar Abbas port near the Strait of Hormuz are likely to become as potential route for transporting into Afghanistan and through its territory to Central Asia which is part of INSTC route The policy outlines the role of India to promote INSTC trade route as it is involved in ongoing discussion with Iran to complete under-construction portion of this route which will result in shorter transit time for trade with

    Central Asia

    Exchanges of high level visits by leaderships from both sides as described in the policy can help in strengthening the cooperation in multiple areas. In addition, joint research programs and exchanges of ideas of scholars on energy, trade and geopolitical issues probably contribute to the research on India-Central Asia’s joint ventures in the energy sectors which would provide them a space for decision making regarding energy and security strategy.
    This policy further emphasizes on people to people connectivity and humanitarian concerns such as opening hospitals and education systems through which they can know about each other needs and win the governments favour. Thus, it is expected that India would increase its cooperation in the region both bilaterally and multilaterally through these soft power initiatives which would prove to be effective tools of its engagement in the region’s energy sector.
    No doubt, realization of this policy can spur the development of Indian engagement in the region. Indian government and business has already started to make contacts with their Central Asian counterparts for enhancing mutual cooperation through this policy framework. Its main focus on cooperation on developing transportation infrastructure linking India-Central Asia region to facilitate the increase of trade turnover and import of strategic natural resources still remains a needed component which is essential for the growth of Indian economy. It is thus expected that this policy would help to revitalize South and Central Asia trade links which can further give boost to energy imports of India from the region. Finally, it looks impossible to bring energy directly from Central Asia on the face of the current geopolitical realities in South Asia, but CCAP is going to be an effective tool for India in order to make strong footholds in the region, and slowly push its energy agenda effectively.

    CHALLENGES

    In fact, importance of Central Asia is a challenge in itself and there are several draw backs in speeding up the relationships and governmental interactions of India with the region under the present circumstances. In the present settings of South and Central Asia it seems to be very difficult to bring energy directly and easily from the region. Here are some of vibrant challenges to India and to establish connectivity with Central Asia to satisfy its energy needs in particular.
    First, lack of direct route connectivity. India has been lacking direct land route links since its partition. This forms the fundamental challenge in establishing easy and sustainable connection. This poses a great difficulty for India’s trade with Central Asia as it has to seek other options to connect with Central Asia. Land route connection plays a key role in developing trade and transport of energy materials.
    Second, India’s relations with neighbouring countries and weak border. This is the main geopolitical challenge and associated problem with the above stated point. India has hostile neighbours like Pakistan and China. China’s encirclement of India via Nepal, Bangladesh, Sri Lanka and Pakistan poses problems for its security. These types of relationships with neighbouring countries and weak borders made India an isolated land which has to struggle for making presence across the region.
    Third, Islamic extremism. This issue has been focal point of India’s concern on its national security. The terrorist activities such as Taliban insurgency on domestic soil of Afghanistan and Pakistan has been threatening.Due to the proximity of CARs to the Afghan border, Central Asian countries are also experiencing terrorist activities and drug trafficking which has become a big security concern for India too. Since there is always threat of disruption to India’s energy initiatives across the region it has become vital for India to ensure strategic and border security along with energy security.
    Finally, geopolitical competition between great powers in the energy sector. There is an intense competition in the region between great powers of the world such as the US, Russia and emerging power China, which are economically as well as politically involved in the region, in the energy sector. China is one of the major energy competitors for India in the Central Asian energy story. Russia wanted to maintain it soviet legacy over the region. Both China and Russia are members of SCO (Shanghai Cooperation Organization) and aiming at reducing the US influence in the region. On the other hand, the US is trying to exploit energy resources of the region and make this a strategic base to control Islamic terrorism. Hence India has to push its interests through the interplay of these powers and across their individual interests. Moreover, Pakistan, Iran and Turkey are trying to pursue their interests in the region and Pakistan continues not only to block India geographically but also politically.

    PROSPECTS

    Central Asian countries have shown their keen interest in allowing India to play a bigger role in the region. Russia has been a dominant force in the region and China has also made inroads into the region in recent years. But the five capitals want to diversify their foreign relations and believe that India’s presence will help them achieve their aim. And Mr Modi seems to have leveraged Central Asia’s quest for diversification to India’s advantage.
    Stability in Central Asian region is important as it have a significant impact on the internal security of Russia, India and other neighbouring states. There is a need to bring together the two regions South and Central Asia in the cooperative environments which will be great contribution to regional stability and lasting peace building programmes and will help the removing of drug smuggling and attacking terrorist groups in the region. For this India needs to boost sub-region groups between South and Central Asia as it has did in Southeast Asia context on the lines of following Look East policy.Tajikistan, Turkestan and Uzbekistan share borders with Afghanistan and fear that any instability in the neighbourhood will affect them. India can bolster her Afghan policy through CAR’s. Central Asian countries are also “nervous” about the growing influence of Islamic State militant group in the region. The PM has convinced the leaders of the five nations that India stands united in their fight against the jihadist group.
    India needs to change its approach to Central Asia and show greater pro-activity. We must shed piecemeal approach to Central Asia in favour of a holistic and long term approach. We must think big. This will require dealing with Central Asia not only at the bilateral level but also at a collective level. India could consider setting up an India-Central Asia Forum (on the lines of India-Africa Forum) to deal with the region in a holistic fashion, to engage with them periodically with regularity and to identify projects which are of common interests. Monitoring an implementation mechanism should also be set up. It would be desirable to set up a Central Asia fund (say $ 2 billion) to seed the various projects.
    The economic development of Central Asia, especially in Kazakhstan, Turkmenistan and Uzbekistan, has sparked a construction boom and development of sectors like IT, pharmaceuticals and tourism. India has expertise in these sectors and deeper cooperation will give a fresh impetus to trade relations with these countries. India’s trade ties with Central Asia have been performing well below their true potential. Poor connectivity has also contributed to the below-par trade between India and Central Asia.
    India has to work out a multipronged strategy to address the energy issue and overcome the crisis it is currently undergoing. Having realized the practical difficulties in transporting energy from Central Asia under the present geopolitical realities, India should adopt pragmatic strategies and should continue its political dialogues with CARs and other transit countries.Turkmenistan and Kazakhstan recently inaugurated a railway line connecting the two countries with Iran. India has invested in Iran’s Chabahar port and that will allow Indian products to reach Iran and then to Central Asia through the rail link.
    A strategy of cooperation rather competition/clash would best suit its interests. India needs to pursue its ‘Connect Central Asia Policy’ energetically, irrespective of its unimpressive gains so far, to achieve plausible breakthroughs in regional, economic, trade and energy cooperation with new states. The policy can play a role of anchor in increasing India’s hard and large period planned attention in view of its further relations with Central Asia.

    Fisherman‘s issue between India and Sri Lanka

    1. Sri Lanka’s legislative amendment to prohibit bottom trawling, a destructive fishing practice, is a welcome move despite its likely near-term consequence of deepening the fisheries conflict in the Palk Bay region.
    2. Bottom trawling in the island nation’s territorial waters will now attract a possible two year prison term and a fine of 50,000 Sri Lankan rupees.
    3. The practice involves trawlers dragging weighted nets along the sea floor, is known to cause great depletion of fishery resources, and curbing it is in the interest of sustainable fishing.
    4. The amendment is aimed at curbing local trawlers as well as deterring trawlers from Tamil Nadu.

    Trouble areas

    1. India and Sri Lanka are separated by the International Maritime Boundary Line (IMBL).
    2. Fishermen from both sides cross over to the other side for bottom trawling fishing expeditions and those results in arrests and, on many occasions, shootings.
    3. In 2013, Union Minister of State for Home Affairs Mullappally Ramachandran informed Rajya Sabha that no separate data is maintained in respect of fishermen who are reported missing while fishing in Indian waters and high seas.
    4. According to Joint Working Group on Fisheries (JWGF) data of December 2016, 111 boats of Tamil Nadu fishermen and 51 Indian fishermen were in arrest or detention in Sri Lanka’s Northern Province.
    5. One of the major reasons complicating the issue is of Katchatheevu Island. India ceded the uninhabited island to its southern neighbour in 1974 under a conditional accord.
    6. In 2009, the Sri Lankan government declared Katchatheevu Island as sacred land owing to a Catholic shrine’s presence on the piece of land.
    7. It is important point to note that despite the signing of maritime boundary agreements, fishermen communities of both the sides continued their fishing in the Palk Bay area peacefully until the Eelam war broke out in 1983.
    8. After the end of war in 2009, the Sri Lankan fishermen have been raising objection to Indian fishermen fishing in their waters.
    According to an estimate, more than 500 trawlers from Tamil Nadu cross the International Maritime Boundary Line.

    Present situation

    1. Fishermen from both countries have been in talks for a long time to resolve the conflict.
    2. Sri Lankan fisherman demand an immediate end to incursions by Indian trawlers, and those from Tamil Nadu insist on a three-year phase out period.
    3. Tamil Nadu fishermen are arrested from time to time by the Sri Lankan Navy, and their vessels seized.
    4. An appropriate response from Tamil Nadu would be to expedite the conversion of its trawlers to deep sea fishing vessels, and not merely condemn in Sri Lanka
    5. Political parties claim the amendment is draconian and it is targeted at the State’s fishermen who regularly use hundreds of trawlers in Sri Lankan territorial waters.

    Possible consequences of law amended by Sri Lanka

    1. If more fishermen are arrested and slapped with two-year jail terms after a summary trial, as the law now envisages, it may create new flashpoints
    2. In recent years, some fishermen in northern Sri Lanka have also adopted bottom trawling.
    3. If this practice of bottom trawling continues even among local fisherman, the long-term consequences on fishing resources in the contested Palk Bay region will be irremediable.
    4. It may deepen the fisheries conflict in the Palk Bay region.

    Reasons for Indian fishermen crossing boundaries

    1. Due to the dearth of multi-day fishing capability, Indian fishermen cannot shift their fishing effort from the Palk Bay area to the offshore areas of the Indian waters or beyond the continental shelf.
    2. Therefore, Indian fishermen have no other alternative but to fish into the Sri Lankan waters.
    3. However, this results into the large cases of arrest of Indian fishermen.

    Political developments

    1. Last year, Sri Lankan President met Prime Minister Narendra Modi to discuss the issue of arrest of fishermen in the high seas between India and Sri Lanka as well as the seizure of fishing vessels.
    2. In November 2016, an interministerial delegation of both countries discussed terms for a joint working group but the Sri Lankan delegation rejected India’s request for a three year grace period so that the government can assist fishermen to move from bottom trawling fishing method to another sustained and effective method.

    Solutions

    1. The solution lies in the transition from trawling to deep sea fishing, for which a beginning has been made.
    2. The Central and State governments plan to provide 500 deep sea fishing boats with long lines and gill nets this year, as part of a plan to replace 2,000 trawlers in three years.
    3. There is need for institutionalization of fishing in Indian waters by the government of India so that alternative means of livelihood are provided.
    4. The Government will have to mark up a comprehensive plan to reduce the dependence of Indian fishermen on catch from Palk Bay.
    5. Blue economy is an ignored issue in India and that seems to have led to the current crisis so there is need to address this issue also.
    6. The Ministry of Agriculture and the Department of Ocean Development are the nodal bodies responsible for giving technical assistance to states for the development of fisheries and blue economy.
    7. Extra deployment of Navy and Coast Guard.

    Conclusion

    1. Both the countries should ensure that the situation does not disrupt regular meetings of the Joint Working Groups.
    2. Besides the fisheries conflict, they need to discuss marine conservation, thus giving equal importance to protecting livelihoods and sustainable fishing.
    3. Both countries need to adopt peaceful amicable solution.

    Minimum Support Price

    Minimum Support Price

    Introduction

    1. The Minimum Support Prices were announced by the Government of India for the first time in 1966-67 for wheat in the wake of the Green Revolution and extended harvest, to save the farmers from depleting profits.

    2. Since then, the MSP regime has been expanded to many crops.

    3. Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops.

    Crops Covered

    The MSP is announced by the Government of India for 25 crops currently at the beginning of each season viz. Rabi and Kharif. Following are the 25 crops covered by MSP

    Rationale behind MSP

    If there is a fall in the prices of the crops, after a bumper harvest, the government purchases at the MSP and this is the reason that the priced cannot go below MSP. So this directly helps the farmers.

    How MSP is decided?

    The government decides the support prices for various agricultural commodities after taking into account the following:

    • Recommendations of Commission for Agricultural Costs and Prices
    • Views of State Governments
    • Views of Ministries
    • Other relevant factors.

    Various Issues around MSP

    1. The Crop production is still unviable despite of so many years of crop production

    1. Even after so many years of operation, the crop production is still increasingly unviable.

    2. The support prices that are being provided do not increase at par with increase in cost of production.

    3. A rating agency, CRISIL pointed out that the increase in MSP has indeed fallen in the years between 2014-17.

    4. While in the years 2009-13, the annual growth of MSP was around 19.3%, it has become only 3.6% in 2014-17.

    5. It has been observed that this decrease in MSP has contributed further to the acceleration of distress of farmers.

    6. This deceleration in rates especially at a time when agricultural prices in domestic market have become equivalent to the international prices, leading to rise in competition from low cost imports.

    2. Unequal access to MSPs

    1. This problem has been in existence since the creation of this scheme.

    2. The benefits of this scheme do not reach all farmers and for all crops.

    3. There are many regions of the country like the north-eastern region where the implementation is too weak.

    3. Effects of Inflation on MSP

    1. There are instances of procurement below MSP as procurement is tardy and trade and other policies sometimes reduce the market prices during good harvest years also.

    2. It has an impact on inflation.

    3. Lower the market price; lower the MSP and eventually market prices become dependent on MSP due to market intervention measure.

    4. Disadvantages of procurement

    1. Almost 2/3rd of the total cereal production is taken through the route of MSP, leaving only 1/3rd for open market.

    2. As a result, a farmer who chooses the MSP route cannot take advantage of beneficial market prices and has to depend solely on the MSP.

    3. It prevents earning of profit by producers. This has created shortage of crops in the open market also which has a serious impact on consumption pattern.

    4. It has shifted consumption towards non-cereal foods (that are available more in open market relatively), but production has not risen simultaneously, causing a production-demand gap.

    5. Excess storage

    1. This kind of procurement without sufficient storage has resulted in huge piling of stocks in the warehouses.

    2. The stock has now become double the requirements under the schemes of PDS, Buffer stock etc.

    3. So, many grains have rotten in the storages.

    6. Issues in WTO

    1. India’s MSP scheme for many crops has been challenged by many countries in the WTO.

    2. For example, Australia has complained of the MSP on wheat, US and EU complained of sugarcane and pulses MSP.

    3. They have been claimed to be highly trade-distorting by its method of calculation.

    4. If the current process continues, the country will face international criticism for breaching the 10 per cent norm for subsidy on farm production set by the WTO.

    Rectifying Measures

    1. Recent budget initiatives

    1. In latest budget, states have been allowed to intervene in the agricultural markets to ensure that the prices do not fall sharply.

    2. The Centre will be bearing 40% of the losses that the states suffer and in case of northeastern states the Centre will bear the loss upto a limit of 50%.

    3. The coverage will be of every commodity except rice and wheat. This scheme has been named as ‘Market Assurance Scheme’.

    2. WTO negotiations

    1. India has been able to gain some time by pushing for inclusion of a peace clause in the 2013 Bali Conference wherein every country agreed not to charge another country for its subsidy scheme until a permanent solution is drawn.

    2. Although the solution is yet to be drawn, the deadline for its activities are nearing, requiring immediate efforts.

    3. Priority based procurement

    1. The procurement must be done on priority basis for the states or farmers who are more in distress and require immediate assistance.

    2. It should be ensured that the MSP does not cause fall in prices due to the interventionist measures.

    3. Even after so much of criticism, it is undoubted that the scheme is a necessity in times of distress.

    4. There is a need to consolidate and relook into the scheme and ensure that it is properly implemented.

    4. MSPs and Budget 2018-19

    1. In the recent budget, the government has declared that the MSP for kharif will be above the production cost.

    2. However the production cost is calculated in three different manners by the CACP which creates huge difference in the final MSP calculated.

    3. Three production costs are:

    • A2 which is the actual paid out cost. It includes expenditure done on seeds, fertilizers, hired laborers, leased land, hired machinery etc.
    • A2+FL which is actual paid cost plus the value of family labor.
    • C2 which is the comprehensive cost which includes rent of own land and interest on own capital.

    4. So, it is called as misleading announcement as there is no clarification regarding which production cost will be taken.

    5. Speculations are rife that the government has done announced it above A2 and A2+FL.

    6. Whereas it has been a long demand of the farmers to consider the cost of production-C2.

    7. The same has been recommended by National Commission on Farmers in 2006 headed by M.S Swaminanthan.

    8. Further, there are other concerns of the farmers as follows:

    • For the last 10 years MSP for kharif crops is already above A2 and A2+FL. But MSP declared currently does not give them enough or reasonable returns over the cost incurred by the farmers. At the same time experts are of the view that it is unlikely that the government will consider C2 as the cost of production because of increase burden of money that the government will have to shelved out of the their pockets.
    • Cost of factors of production has been fixed and it does not take into account the changing cost due to inflation etc.
    • Ensuring high MSP is not the panacea for increasing farmer’s income. Apart from current 25 crops, MSP for fruits and vegetables should also be announced.
    • Procurement system of the government needs to be streamlined. This is because many times the government does not procure on time leading to distress selling by farmers.

    Minimum Support Price versus Price Deficit Financing scheme

    1. MSP scheme serves the purpose of protecting farmers from distress sale and procurement of food for Public distribution system.

    2. However, some states like MP have launched Price Deficit Financing schemes (Bhavantaran Bhugtan Yojana) in which the government pays the farmers the difference between modal rate (the average prices in major mandis) and the minimum support prices (MSPs).

    3. Thus, cash transfers to farmers who sell their produce below MSP is better alternative to procurement under MSP scheme because of following factors:

    • Under Bhavantar Bhugtan Yojana, primary agricultural co-operative societies are required to help farmers to register which already has huge presence among farmers unlike FCI.
    • Reduce the wastage of crops in transportation, storage and handling. Farmers will have to carry their produce only to Mandis
    • Increase the saving of exchequer as the government would pay only differential and also save on logistics cost.
    • More farmers would be covered under the scheme.
    • In line with government intention to use DBT for food benefit transfer.

    However, there are several challenges such as:

    • Digital connectivity and Aadhar-linked bank accounts are pre-requisites, putting remote regions to disadvantage.
    • Primary agricultural co-operative societies need to be upgraded to handle the registration process.
    • Farmers need to upload the details of crops and yield, this may become disadvantageous for small and marginal farmers as they would have to depend on others for this.
    • Transparency in the functioning of Mandis would need to be ensured.

    Price Support Scheme (PSS) for Oil seeds and Pulses

    • 1. The Department of Agriculture and Cooperation implements the Price Support Scheme for Oil Seeds and Pulses through the National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED).
    • 2. NAFED is the nodal procurement agency for Oilseeds and pulses, apart from the Cotton Corporation of India.
    • 3. So, when the prices of oilseeds, pulses and cotton fall below MSP, NAFED purchases them from the farmers.

    India’s Monetary Policy

    Monetary policy

    Monetary policy refers to the use of instruments under the control of the central bank to regulate the availability, cost and use of money and credit.

    Goals of Monetary Policy

    1. Price Stability along with growth

    2. The agreement on Monetary Policy Framework between the Government and the Reserve Bank of India in 2015 defines the price stability objective explicitly in terms of the target for i.e.,

    (a) below 6 per cent by January 2016

    (b) 4 per cent (+/-) 2 per cent for the financial year 2016-17 and all subsequent years.

    Instruments of Monetary Policy

    1. Cash Reserve Ratio (CRR)

    The share of net demand and time liabilities (deposits) that banks must maintain as cash balance with the Reserve Bank.

    2. Statutory Liquidity Ratio (SLR)

    The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as, government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.

    Refinance facilities

    Sector-specific refinance facilities aim at achieving sector specific objectives through provision of liquidity at a cost linked to the policy repo rate. The Reserve Bank has, however, been progressively de-emphasising sector specific policies as they interfere with the transmission mechanism.

    3. Liquidity Adjustment Facility (LAF)

    Consists of overnight and term repo/reverse repo auctions. Progressively, the Reserve Bank has increased the proportion of liquidity injected in the LAF through term-repos.

    4. Term Repos

    Since October 2013, the Reserve Bank has introduced term repos, to inject liquidity over a period that is longer than overnight. The aim of term repo is to help develop inter-bank money market, which in turn can set market based benchmarks for pricing of loans and deposits, and through that improve transmission of monetary policy.

    5. Marginal Standing Facility (MSF)

    A facility under which scheduled commercial banks can borrow additional amount of overnight money from the Reserve Bank by dipping into their SLR portfolio up to a limit (currently two per cent of their net demand and time liabilities deposits) at a penal rate of interest (currently 100 basis points above the repo rate). This provides a safety valve against unanticipated liquidity shocks to the banking system. MSF rate and reverse repo rate determine the corridor for the daily movement in short term money market interest rates.

    6. Open Market Operations (OMOs)

    These include both, outright purchase/sale of government securities (for injection/absorption of liquidity)

    7. Bank Rate

    It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.

    8. Market Stabilisation Scheme (MSS)

    This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The mobilised cash is held in a separate government account with the Reserve Bank. The instrument thus has features of both, SLR and CRR.

    INCLUSIVE GROWTH

    Introduction:

    The agenda of inclusivity and sustainability has become the focus of policy framework both at national and international level. The approach of development through “including” the general mass is directed towards a broad based growth, shared growth, and pro-poor growth. This is the central idea of the inclusive growth i.e. sharing of fruits of socio-economic development with all sections of the society. Elimination of the extreme forms of poverty and participation of the people is encouraged through the idea of inclusive growth.

    Approach paper of Eleventh five year plan of govt. of India has laid down the vision and strategies for inclusive growth. The vision underlines the target of the plan as not just faster growth but also inclusive growth. The inclusion inter alia means the equality of opportunity for all. The vision also enumerated the following factors which are interrelated components of the IG:

    • Poverty Reduction

    • Employment Generation

    • Access to essential services

    • Equality of opportunity

    • Skill building

    • Good governance

    • Women empowerment

    The concept and definition of the IG is not formally illustrated in the paper or anywhere in the govt. There have been some attempts to frame the subject matter related to IG. Economic Survey (2007-2008), for instance, presents some conceptual background of Inclusive Growth. International agencies like UNDP and World Bank have elaborated the understanding of IG. In-fact, the terms like inclusive growth, sustainability, good governance etc. are made popular by the international organizations. The parameters of IG are considered differently by different governments, organizations etc. UNDP’s definition of the IG underlines production and income as the components of IG:

    “IG is the process and the outcome where all groups of people have participated in the organization of growth and have benefited equitably from it. Thus inclusive growth
    represents an equation – with organization on the l efthand side and benefits on the right-hand side.”

    World Bank defines the IG as follows:

    “Inclusive Growth refers both to the pace and pattern of growth, which are interlinked and must be addressed together.”

    Thus, in broad sense, IG means the inclusion of all sections of society in the process of economic development and sharing of its benefit. Therefore, IG is not only an outcome or end but a process or a mean in itself.

    Theoretical Perspective:

    The IG is not formally defined in Indian Economic Planning literatures. It still lacks a sound theoretical background. The present planning adopts a hit and trial approach towards IG. On one side it leads to increase in economic growth rate and exclusion of the targeted beneficiary on other side. The term “incl usion” is ambiguous in Indian context; inclusion may be through impacting the majority of populace or by increasing the reach to select group of individuals or regions which are excluded. Therefore, crystal clarity in understanding the rubrics of IG through a conceptual and theoretical background is required.

    Trickle down:

    Trickle down theory argues that the benefits of growth would automatically trickle done to bottom. The theory also asserts that the trickle down is a process that must be left to its natural pace and path; and forcing it down nay be unproductive. The trickle down approach has failed in its desired effects in the socio-economic development of India. Re-distributive policy is suggested to be a part of inclusive growth development programs. On other side, trickle down theory in economics explains supply side of the economic growth. According to the theory, the top income earners should be taxed less, so that investment in the market in encouraged; and goods and prices can be made available to the consumers at low prices. In this way, trickle down theory assumes the top-to-bottom approach in economic development.

    Welfare Economics

    Welfare economics is the branch of economics that examines the resource allocation and the policy in terms of societal or individual costs or benefits. One of the objectives of welfare economics it to help society better decisions that maximize its wellbeing. By adopting the welfare economics approach, the following issues with respect to IG can be addressed:

    1) Allocation of the resource as per the economic efficiency.

    2) The equality of welfare gains.

    3) Viability and desirability of the policy framework.

    4) Effect of the resource allocation on select target beneficiaries.

    The thrust of welfare economics is on efficiency and distribution. Therefore, the welfare economics considers the system, standards and regulatory institutional mechanism as important elements of the IG policy framework.

    Bottom-up approach

    Bottom-up approach encourages participation of people in the development process. Decentralization, local-self government and rural development are some of the common practices under bottom-up approach. Rural governance attempts to establish whether decentralization of governance is effective for achieving inclusive and pro-poor growth. The inefficiencies in the flow of essential services hinder people’s access to opportunity and benefit of economic growth. Hence, ‘bottom-up’ approach is suggested where greater decentralization is expected to give preferences to the target population. In order to achieve a long-term sustainable economic growth, inclusive growth is required to be fuelled from the bottom-up instead of enforcing it from top to bottom.

    Public Relation Approach to IG:

    The vision of Public Relation Approach to IG is to build up People’s Participation and ensure People’s Partnership in Developmental process. Mobilization and integration of masses by way of effective communication, motivation strategies and human resource management are some of the strategies under the approach. Public relation approach tends to find out the socio-psychological factors that motivate or de-motivate people’s participation in the inclusive growth process. State merely acts as a catalyst and provides a platform. Encouraging micro-level entrepreneurship in agro-industries is one of the examples of the Public Relation Approach.

    Dimensions of IG

    These are the pillars of the building block of IG, or in simple terms, these are the ideals on which IG is based. Without these ideals, the IG remains superfluous in its merit.

    Equality:

    Equality of opportunity in terms of access to markets, resources, and unbiased regulatory environment are the ends to mean of equality. In-equalities exist in various manners which are social inequalities, rural-urban divide, regional disparities, digital divide etc. To realize the IG in its ultimate form, equality is the most fundamental criteria. IG and equality impact each other. Without equality, IG can’t be achieved and lack of IG may lead to in-equality in real or perceived forms. Thus, IG and equality are mutually reinforcing. In contemporary economic environment, gender equality has become a basic element of IG. Gender inequality is a pervasive problem in Indian social set-up which has adverse effect on women. Although Indian economy has progressed, the equality has retrograded at all levels whether social or economic. An OECD report has identified that inequality in India has been continuously rising which has posed policy challenges in promotion of inclusiveness.

    Good Governance:

    In simple words, governance means the regulatory, monitoring or controlling process which facilitates the devilry of the government services. Good governance results in effectiveness and efficiency, it upholds justice in the rule of law, and accountability and it encourages popular participation, consensus, and equality. Tenth plan defines governance in following way”

    “Governance relates to the management of all such p rocesses that, in any society, define the environment which permits and enables individuals to raise their capability levels, on
    one hand, and provide opportunities to realise their potential and enlarge the set of available choices, on the other”

    Good governance is an integrated effort of state, civil society and citizens. Governance here means not only state intervention; it is the responsibly of general mass and civil service organizations (CSOs). Good governance is the core of essential public services. It is the mechanism for integrating IG, public administration and accountability towards envisaged outcome; for example, problems in poor health infrastructure may be an impediment to IG and can often be traced back to poor governance of the Ministry of Health and Family Welfare. So, good governance provides a common platform for all actors and adapts to sustain the socio-economic transformation which is a pre-requisite of IG. As stated, governance is not only the forte of state; private governance has also a remarkable role to play in taking the IG ahead. The term, private governance here means the role of non-state actors in maintaining supply and demand equilibrium in market. Private governance also highlights the role of private sector in meeting the demand of capital, resource and skills required for IG.

    Decentralization

    A National Council of Applied Economic Research (NCAER) argues that the decentralization hampers inclusive growth. Empowering local self governing institutions is one of the delivery mechanisms of the IG. 73rd and 74th amendments of the constitutions are innovation in the field of Indian Polity. Centre and state govt. have to empower the PRIs to make them enabler of IG. In this regard, the eleventh plan has devised a Devolution Index to be called PRI-Empowerment Index. Without decentralization, it is a daunting task to implement the IG based policies. Therefore, govt. has to devolve, delegate and decentralize the administration. Decentralization is a bottom-up approach. Decentralization of rural governance is critical for achieving IG. The present level of decentralization, institutional structure is inadequate. In inadequacy of decentralization can be reduced by democratizing the institutions of local self government, adopting measures of fiscal decentralization i.e. by providing sufficient financial resources. Apart from that the following are the deficiencies in decentralization that limit the IG potential:

    1. Lack of finance, proper institutions and delegation of roles and responsibilities.

    2. Divergence in central and state approaches in programs and welfare schemes.

    3. Incoherence in organization at national and state level.

    4. Poor accountability, transparency and monitoring mechanism.

    Accountability and Transparency

    Accountability is answerability towards performance of service delivery. It sets in the responsibility towards the assigned tasks in terms of results and outcome. Accountability is specified both in vertically and horizontally. The former refers to the departmental hierarch in a govt. institutions and the latter refers to the autonomous agencies for check and balances on govt. activities e.g. CAG, PMO etc. Transparency is necessary for efficient delivery of essential public services; it acts as an enabler for citizens in accessing information on demand which helps them in reinstating their claims on government endowments and entitlements meant for them. Lack of accountability and transparency has earmarked the governance in India with red-tapism, bureaucracy and corruption. Govt. has put efforts in multifarious manners to curb the menace. Citizen Charter, Right To Information, Central Vigilance Commission etc. are revolutionary efforts, inasmuch the poor monitoring of their implementation has put a constraint of the efficacy of such ideas.

    Sustainability

    In long term, it has been identified that, there has been a gross mismatch between the outcomes of the Indian Economic Planning for IG with respect to environment. Although, Indian economy has witnessed a rapid growth, there has been a decline in the environment and standard of living of the poor. In the issues related to IG as discussed ahead, it has been elaborated that Liberalization, Privatization and Globalization (LPG) has put a sheer pressure on the environment and created a rural-urban divide. Sustainability and IG can’t be achieved in isolation and they supplement each other. Without adopting a sustainable practice in IG, the implementation of IG policies isbound to falter. Sustainability is required at the following levels when charting out the policy framework for IG:

    Financial Sustainability:

    The IG programs and projects of the govt. should be financially viable. It may be noticed that excess of subsidy and lack of outcome orientation is causing a problem of increasing fiscal deficit.

    Social Sustainability:

    Social sustainability means the need to maintain and sustain specific structure and culture. This type of problem is typically prevalent in tribal areas where the development programs for economic growth come in conflict with the cultural sentiments of the tribal population.

    Environment Sustainability:

    In long-term, the environment standards must not be jeopardized while in pursuit of IG. By excess use of fertilizer is a die hard need of the moment, at the same time it has lead to is unique problem of depletion of soil productivity and technology fatigue.

    Models of Inclusive Growth

    IG is not the sole responsibility of the state. The goals of IG can be realized if state and non-state actors work in tandem. There are some of the models of IG which are currently adopted by the govt, private agencies and non-govt organizations. Some of the models are discussed below:

    Financial Inclusion

    Deptt. of Financial Services, Ministry of Finance has taken an initiative to extend financial services to the large hitherto un-served population of the country to unlock its growth potential. Financial inclusion means to include the un-banked populace into formal banking system by providing financial services at very low cost. Rangarajan committee has defined the financial inclusion in following manner:

    “The process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.”

    The ministry therefore strives towards a more inclusive growth by making credit/capital available to the poor and disadvantaged section. Expansion of banking infrastructure, opening new braches, zero-frills bank accounts , banking correspondents(BCs) (use of services of intermediaries in providing financial and banking services through the use of Business Facilitators (BFs) and Business Correspondents (BCs), setting up of ultra small branches etc. are a few of the modalities under financial inclusion strategies of the govt. Swabhiman scheme is the running scheme under financial inclusion agenda through which banks have provided banking facilities to over 75,000 habitations having population in excess of 2000 using various models and technologies including branchless banking through Business Correspondents Agents (BCAs). The Business Correspondent models (“Branch-Free Banking”) besides schemes like Swabhiman have the potential to realize the financial inclusion in India in true sense of the term.

    Inclusive Marketing

    Market is instrumental in creating means and ends for inclusive growth. By proper marketing of various schemes for IG can be vital in challenging the issues associated with it. Inclusive marketing is required at all levels i.e. G2G, G2C, G2B, B2B or B2C etc. IEC (Information, education and communication) can be adopted by the government for inclusive marketing. While corporate social responsibility i.e. CSR can be one of the methods adopted by the private and public sector corporate e.g. ITC’s e-choupal wherein ITC (a private sector company) has taken an initiative for farmers through technological and financial assistance. If IG is seen as an end of inclusive marketing as a mean, then it becomes apparent that inclusive marketing is dedicated to add values to the livelihood of the poor, not merely treating them as a consumer of product and services. The disadvantaged sections of the society face the challenge of making both ends meet. Difficulty in accessing the markets, welfare schemes make them more vulnerable. Therefore, Inclusive marketing is a mode of integrating the have-nots to the mainframe of development process.

    Corporate Social Responsibility (CSR)

    CSR has a prominent role in complementing the quest for IG. The private sector has been playing a vital role in promoting IG and contributing with various initiatives. CSR has now become a part of the corporate policy of the Indian industries. This may be because govt. has provided the financial incentives to the industries which are contributing at least 2% of their profit towards CSR. Future Group, which runs the famous retail stores by the brand Big Bazaar have CSR a component of their company policy as the group affirms that CSR is at the heart of their ethos:

    “At Future Group, corporate social responsibility, inclusive growth and sustainability are at the core of our strategy and business practices. This reflects in our commitment to the community, environment and to every stakeholder in building a stronger foundation for our long-term, sustainable growth.”

    Hindustan Uniliver’s Project Shakti wherein woman groups are employed as distribution channels , Nanhi Kali, a CSR project by Mahindra and Mahindra to sponsor the education of an underprivileged girl child are some other examples of CSR as a mean of IG. Negative repercussions of CSR must also be closely observed. CSR some how has become a tool of Corporate Social Opportunity (CSO) for the private sector whose ultimate motive is profit.

    Strategies for Implementation

    Strategies for the implementation of IG are many. In most cases, developing a strategy is not a problem, but implementation and monitoring. Below mentioned are some flagship approaches towards implanting IG policies:

    Resource Allocation

    Without proper resource utilization, the issues of poverty, equity and development can not be addressed. Equitable sharing of the resources is one of the most important means to implement the inclusive growth based policy framework. The allocation of resources should be made in a way to benefit the general mass in short and long term. This may be through proper availability of consumer goods, facilitating access of people, opening avenues of employment and enhancing standards of livelihood. Public distribution system (PDS) is a classic example of reinforcing IG through proper resource allocation. PDS should be re-structured. It is important for food security. Govt. is re-working on the food security bill; poverty line is one of the criteria of resource allocation.

    Employment Generation

    Employment is the most vital of all strategies of inclusive growth. At the same time, employment generation is a real challenge to the govt. This is because of India is witnessing a demographic transition and burden of demographic dividend. Albeit, the latest consensus has showed that the population of India is decreasing but the population of young people entering the labour force is continuously increasing. A research study carried under the aegis of Planning Commission shows that employment in total in general and in nonagricultural sectors in particular has not been growing. Unemployment growth in recent years has been accompanied by growth in casualization and informalization. National Commission on Enterprises for the Unorganized Sector headed by Arjun Sengupta recommended several measures to resolve this problem of informalization in the employment.

    Organized and un-organized employment in major sectors (million)

    Major SectorsTotal EmploymentUn-organized
    employment

    Organized
    Employment

    Agriculture244.85(100%)242.11(99%)2.74(1%)
    Manufacturing50.74(100%)34.71(69%)16.03(31%)
    Non-Manufacturing48.28(100%)30.38(63%)17.90(37%)
    Services116.34(100%)80.17(69%)36.17(31%)
    Total450.22(100%)387.38(84%)72.84(16%)

    Source: National Sample Survey Organization(NSSO)

    A transition of increasing employment from unorganized to organized sector is an indication of socio-economic development. How-ever the condition of employment is contrary to this transition. Indian economy is marked by the disguised employment as a large chunk of the man force is employed in agriculture sector where the very low marginal productivity. The table above shows the similar trend. Employment in manufacturing, non manufacturing, and services is roughly one-third and large share of unorganized employment in the agricultural sector. For a sustaining inclusive growth, government is required to develop policy framework for employment generation as a top priority. MNREGS is a successful attempt in this regard. Poverty alleviation schemes through resource distribution may be panacea for short term but in long term employment generation is the only way out. This is because resource distribution through subsidization enlarges fiscal deficit and burden on exchequer while employment is productive in its tendency.

    Skill Building and Capacity Development

    Skill deficit is a major impediment in IG. Government has created a framework for entrepreneurship development. Employment generation may not fulfill the rising employment demand due to large share of the population lying in the informal sector. Skill and capacity development are therefore cornerstone. Indian govt. has set a target of providing skills to 500 million people by 2022. Key agencies involved are National Skill Development Council, National Council of Vocational Training and Directorate General of Employment and Training, other govt. and non-govt. agencies, business chambers etc. The govt. has also launched a skill development initiative scheme; Modular Employable Schemes (MES) and Vocational Training Provider (VTP) are examples of such initiatives by the govt. Besides, the govt in eleventh plan has also proposed to build a ‘ Virtual Skill Development Resource Network’, with a facility for trainees at 50000 Skill Development Centers, through information technology and communication intervention. A National Skills Inventory is also created which is a database for ‘Skills Deficiency Mapping’ for employment by providing a common platform for information exchange between employers and employment seekers.

    Agriculture

    Agriculture is the central pillar of inclusive growth. It provides employment to unskilled workforce and sustenance to the population. Average annual growth rate of agriculture and allied sector was 3.6% during XI Plan against 2.5% and 2.4% in IX and X plans respectively. Although the rate has increased but at the same time rural distress, farmers’ suicides and debt have also increased. Inflation, vulnerability to world commodity prices, regional disparities have been newly emerging challenges. The policy framework of the govt. is in-adequate. There is a gross miss-match on both supply side and demand side. Land issues, Subsidies and lack of investments, Land and Water management, Technology, Credit, Diversification and Marketing, Institutional set-up and prices are chronicle problem. Five factors which the govt. needs to work out and that may unblock the agriculture growth potential are: public investment, private investment, technology, diversification and fertilizer. Agriculture can be a mean to economic growth if the efforts are target oriented. Agriculture growth rate above 4% and investment in agriculture must be around 15%-20% of the GDP. Equitable sharing of the benefits of agriculture growth between various levels of the population pyramid is much needed. Environment friendly practices can provide the sustainability. In addition to the targets, govt. must check excess of subsidies. Subsidies over a limit are burden on exchequer and it leads to the degradation of environment. The choice of right technology is also a leading concern in Indian agriculture. Genetic Modified crops are widely debated and existing technology is showing a characteristic phenomenon called “technology fatigue” i.e. technology applied to the agriculture has failed to increase the agricultural productivity. Diversification of the land between farmers and between different crops has limited the growth prospect of agriculture. Small farmers are not able to make the most of increasing agriculture productivity. Crops like wheat and rice are most grown due to less risk in these commodities. Crops diversification is not practiced in Indian agriculture at a broad level because of lack of proper infrastructure.

    Issues related to IG

    Various issues are involved when it comes to IG. Some issues are quite basic which lack clarity in vision; some are related to the lack of willingness while others may be due to the constraints which can be overcome in short term. Some key issues associated with IG are following:

    Growth vs. Development

    Over a period since economic reforms, India’s economic growth has witnessed a mixed effect on the real development. GDP is considered the key parameter of economic growth. In reality, the increasing GDP growth rate has not trickled down to the bottom of pyramid. A research study carried by Indira Gandhi Institute of Development Research, an autonomous think-tank under Reserve Bank of India find out that economic growth has “trickled down” in both rural and urban areas; it has not been in favour of the poor. In urban areas, growth has been “anti-poor.” BPL and poor of the poor still remains marginalized. Such issues are quite fundamental in nature as they depict the lack of clarity in the vision and strategy of the policy. It is time, to put the IG as the central agenda of the economic growth.

    Defining Poor

    Who are poor and who should be the beneficiaries of the welfare schemes? Without a proper criterion of poverty, proper policy framework for inclusive growth can not be developed. Efforts have been put taking calorie values, wages etc. as criteria of defining poverty line. The lacuna of poverty definition also impacts the other associated areas such as employment schemes and subsidies for the poor. All this have repercussions on inclusive growth. Govt. is gung-ho on the observation the reducing rate of poverty which has come down to the level of 35% but the inequality has increased at the same time.

    Fiscal Deficit

    Development schemes run by the govt. have created a dilemma of expanding fiscal deficit. India’s current fiscal deficit situation has limited the prospect of development schemes. India has significantly high debt to GDP ratio, balance of trade (negative) and current account deficit (CAD). Last year’s estimates were: fiscal deficit: 5.2% of GDP; CAD: USD 92 bn; stimulus package: Rs. 1.84 lakh crore (3% of GDP). The govt. has set a target of reducing fiscal deficit to the level of 3 per cent by 2016-17. Fiscal deficit also creates the problem of inflation which in turn makes the poor even more vulnerable. Increasing CAD is comparatively more detrimental to IG than fiscal deficit.

    Ill-effects of LPG:

    Liberalization, privatization and globalization of Indian economy has ushered the poor to vulnerability and irony. Liberalization and privatization have particularly suited to the Indian private corporate, elites and rich. Globalization has created a question of existence in-front of small and medium enterprises (SMEs). Have a look at the plight of the women employed in the cotton fields of northern India. Now, India’s share of textile industries in world trade is remarkably low. All this have limited the growth potential and created the problem of unemployment. The malfunctioning of LPG in Indian scenario has surmounted new issues viz. gender inequality and threat to women empowerment.

    Social-injustice:

    Govt. is gung-ho on their efforts of reducing the poverty rate; even the UN’s MDG report
    affirms that India’s poverty rate is expected to fall to 22% by 2015 from 51% in 1990. At the same time, there are other chronicle issues which have magnified over a period e.g. child malnutrition. A Hunger and Malnutrition Survey 2011 revealed something shocking; in the 100 focus districts with the poorest child development indicators, over 40 per cent of children were underweight and almost 60 per cent stunted. Citing the report, the PM lamented: the problem of malnutrition a matter of national shame. Rich have become richer and poor have become poorer, marginalized are even more ignored, also, poverty has concentrated more in backward classes, minority, SCs and STs.

    Infrastructure:

    Infrastructure is fundamental to the economic and inclusive growth. In budgetary allocations, Infrastructure is assigned the highest expenditure. Major proportion of this allocation goes to large projects such as power generation, freight corridors, and airports etc

    while rural infrastructure is immensely neglected. In many areas, the lack of proper infrastructure is acute. Major thrust of the infrastructural development of the govt. has been from view of industrial development. Agriculture, for an instance, has always lacked the focus. Infrastructure to support and facilitate backward linkages in agriculture e.g. cold storage houses, processing facilities, rural transport is need of the hour. Apart from that, the rural-urban divide in infrastructure development has become prominent. For a case in point, Eleventh plan recognizes that: It is an irony that the phenomenal growth in the telecom sector has also created a digital divide in terms of mobile and land line connections and Internet and broadband connections between urban and rural India. The plan also highlights the dearth of rural electrification and observes that rural electrification an important instrument to bring about inclusive growth by making electricity available to farmers and in rural areas. 7.8 crore rural households still remains un-electrified.

    Low Technology and Innovation:

    Indian economy is suffering from a technology-lag vis-a-vis developed economies and other industrialized economies. Poor rate of technology and innovation creates a burden on capital and resource base. India’s agricultural productivity is far below to that of developed countries. Agriculture is mainstay of the economic growth and a source to unskilled work-force employment. The rapid technological development in primary activities such as agriculture creates a question of economic duality in front of the policy makers of the country. This means, if a high rate of technology is adopted in primary sector industry, then it may lead to high rate of unemployment, but at the same time, without technological progress, the productivity would be less to sustain the pressure on the economy. Considering this, there is an immediate requirement of technologies such as green technology, environmentally friendly technologies and renewable energy technology etc. so that the pressure on natural resources may be overcome. Policy makers have to address the economic duality judiciously. Apart from that, the innovation per se is required to be a harbinger of IG which is broad sense is termed as inclusive innovation. Inclusive innovation means the creation and absorption of product and services relevant to the poor. In this case, SMEs , MSMEs and grass root innovation enabling agencies such as National Innovation Foundation can play a decisive role. Finance, competency and infrastructure are the foundation for inclusive innovation and enabler for IG.

    Policy Approaches for Inclusive Growth:

    As far as the policy framework is concerned, the govt. lacks a suitable policy vis-a-vis IG. Nonetheless, the govt. has experimented with various models of IG. According to World Bank’s review of India’s Development Policy, IG policy implementation is facing a dilemma of improving the delivery of core public services, and maintaining rapid growth while spreading the benefits of this growth more widely. The strategy for the inclusive growth per needs to be an integrating strategy comprising state, market, civil societies and common man. Since independence, the govt. has practiced various types of policy measures, a few are discussed ahead:

    Growth oriented policy:

    India’s economic planning started with growth oriented policy. First plan (1951-56) was started with an objective of rapid and balanced growth. The second plan (1956-61) also put a thrust on rapid growth of industrialization. More recent, twelfth five year plan (2007-12) has blended economic growth with inclusion with an objective of Faster,

    Sustainable and More Inclusive Growth. Arvind Virmani, ex-chief economic advisor to govt. of India has divided the policy approaches for economic growth in following phases:

    Phase 1: 1950-1 to 1979-80 (two sub-phases: 1950 50-65 to 1966-79)

    Phase 2: 1980-81 to 1993-94 (change in policy regime, reform initiation and structural adjustment in the economic policy.)

    Phase 3: 1994-5 to onwards (Statistical significant growth break (1994-5) and rising growth trend)

    The rate of economic growth has increased with time, particularly in phase 3, which is a result of radical reforms during 1990s. However, it has failed to emphasize inclusive growth by creating more jobs for low and semi-skilled workers. Growth is not equally shared and in many parts of the country, people still remain poor and disadvantaged in significant proportion.

    Direct intervention:

    The direct intervention is facilitating the IG though legislation, regulation, credit facilitation and providing livelihood security are the forms of direct intervention by the govt. Now, the orientation of administrative machinery is transformed from regulator to facilitator. Govt. direct intervention from the perspective of IG now be seen in making available the requisite social investment, establishing independent regulatory institutional mechanism, drafting incentive based policy and encouraging entrepreneurial innovation. Safety nets or anti-poverty measures are the some other ways of direct intervention of the govt. towards IG.

    Capacity Building:

    Skill development is basically capacity development. However, capacity development is not only limited to skill building or entrepreneurial innovation. Capacity development through training of rural development functionaries is also a mean of capacity building. Now, creating job and market demand is not the only criteria of capacity development. Increasing efficiency, effectiveness, accountability and transparency are also considered the areas under capacity building initiatives of the govt. For example, if the objective of Deptt. of Rural Development is enhancing the livelihood security of households in rural areas though MNREGA then capacity building for enhancing effectiveness of Gram Sabha is one of the modalities to achieve the objective.

    Welfare schemes:

    Food subsidies, public distribution of essential commodities, nutrition programs, financial support though micro finance are examples of the ways in which welfare schemes are implemented. For different types of beneficiaries (women, Children, BPL etc.) central and state govt. have come with the customized welfare schemes. The approach in welfare schemes is to benefit the beneficiaries through optimal allocation of resources and access to essential services. Integrated Child Development Scheme is a type of welfare scheme with children and women as beneficiaries. It is India’s flagship scheme for the nutritional and developmental needs of children.

    Public Participation:

    Without public participation at different level of governance, IG remains a distant dream. Govt. is encouraging the public participation in multifarious ways towards which the common man must show an affirmative and pro-active response. SHGs promotion is a typical example of public participation for IG. Govt. can provide the supporting platform for citizen centric services, the responsibility to deliver still is of the common man. SHGs support and promotion programs have yielded good results in South Indian states, Kerala and Andrapradesh particularly. Kerala govt. supported Kudumbasree programme have been successful in women empowerment and reducing poverty. Similar initiative of Andhra Pradesh namely ‘Indira Kranti Pathakam’ is showing a good progress in social mobilization, gender empowerment and rural poverty reduction.

    Lastly, policy intervention takes place both at micro and macro level. Improving fiscal discipline, trade liberalization, promoting Foreign Direct Investment, privatization, deregulation, tax reforms, labour laws, social safety nets, public expenditure etc. are important for macro policy measures while at the micro level, reducing inequality in income, improving public/social infrastructure, healthcare, education, access to essential
    services, accountability and transparency, women empowerment, role of civil society organizations, etc are instrument of micro policy which needs to be re-worked.

    Summary:

    As discussed at the outset, the approach paper for 11th Five Year Plan acknowledges that the economic growth has failed to be inclusive enough. The failure is a question of willingness, not of capacity. There is no dearth of capacity to achieve the goals of IG but willingness and shortsightedness. With a lot of enthusiasm, policies are framed; proper mechanism of implementation, monitoring and accountability is the central issue of all policies directed towards IG. Strategies should be easy to implement and productive e.g. the employment generation should be made productive and result oriented. When it comes to the BPL or the poorest of the poor, the productivity should be outcome based and not target oriented because the targeted mass under the inclusive growth is disadvantaged and unskilled mass. SME’s and MSME’s are labour intensive industries. Due to LPG, their share in employment has decreased. Govt. must look for change in labour laws at domestic level and trade laws at international level to safeguard the domestic interests. The onus of IG must be shared by all channel partners state, civil society organization (CSOs) and citizens e.g. CSOs can work in tandem with the PRIs in rural areas to make the social development schemes more efficient. Finally, there is a lack of convergence in policy. The policy framework has to be transformed giving primacy to the common man.

    Middle Income Trap

      1. The Economic Survey 2018 (volume I) makes a theoretical examination of India facing a Late Convergence Stall and the risk of falling into the Middle-Income Trap.

      2. Middle income trap is a situation for Middle Income Countries where they are not able to move up to the Higher income status due to the operation of several adverse factors.

      3. To understand Middle Income Trap, classification of countries by the World Bank in terms of Per-Capita Income is to be understood.

      4. The World Bank is classifying countries in terms of per capita income.

    • Low income countries are those with a per capita income lower than $1005.
    • Second category is the middle-income group with a per capita income varying from $1006 to $ 12235, this group is the largest one with nearly 81 countries.
    • Countries with a PCI of $12236 and above are classified as higher income economies.

    Table: Categorisation of countries in terms of PCI by World Bank using its GNI Atlas method.

    Category Per-Capita Income* (2016)
    Low Income Countries (LICs)$1005 or less
    Lower Middle-Income Countries (LMICs)$1006 – $3955
    Upper Middle-Income Countries (UMICs)$3956 – $ 12235
    High Income Countries (HICs)$12236 and more

    What is Middle Income Trap?

      1. An irony about middle income countries is that many of them are not moving up to the higher income category where the per capita income is above $12736.

      2. This situation of falling at the middle-income level is called the middle-income trap by economists.

      3. The “middle-income trap” is the phenomenon of hitherto rapidly growing economies stagnating at middle-income levels (of per capita income) and failing to graduate into the ranks of high-income countries.

      4. At the same time, many other countries have made significant progress through industrialization.

      5. They were able to expand the national income and thus the per capita income.

      6. By accelerating structural changes and fastening industrialization, India should raise the per capita income in future so that it can attain a per capita income of upper middle income and later to higher income to escape from the trap.

      7. India has entered the middle-income position in 2008 and the per capita income is increasing slowly. The Per Capita Income of the country as per the World Bank’s 2016 estimate is $ 1670. China’s PCI is $ 8250 as per the same estimate. The Economic Survey 2018 examines different threats for India and several other Lower Middle-Income Countries to be trapped at the Middle-Income level.

      8. In terms of the World Bank’s atlas method India’s GDP has just crossed $2 trillion in 2014. According to the PPP method, India is the third largest economy, but according to dollar method, the country is in the seventh position. On the other hand, China has a GDP size of $10 trillion in terms of the atlas method.

    Farm Subsidies in India

    Definition

    • Subsidy has been defined as the “money granted by state, public body, etc., to keep down the prices of commodities, etc.”
    • A subsidy is a grant or other financial assistance given by one party for the support or development of another.
    • Subsidies affect the economy through the commodity market by lowering the relative price of the subsidized commodity, thereby generating an increase in its demand.
    • Taxes appear on the revenue side of government budgets, and subsidies appear on the expenditure side.
    • While taxes reduce disposable income, subsidies inject money into circulation.
    • Subsidies have been advocated for redistributive objectives, especially to ensure minimum level of food and nutrition to all sections of society.
    • Subsidies are justified in the presence of positive externalities (social benefits above private benefits), because in these cases consideration of social benefits would require higher level of consumption than what would be obtained on the basis of private benefits only.
    • Primary education, preventive health care, and research and development are prime examples of positive externalities. In these cases, private valuation of the benefits from such goods or services is less than their true value to society.

    Types of subsidies

    1. Direct Subsidies – Direct subsidies are given in terms of cash grants, interest-free loans and direct benefits.

    For example- Direct farm subsidies are the kinds of subsidies in which direct cash incentives are paid to the farmers in order to make their products more competitive in the global markets. Direct farm subsidies are helpful as they provide a purchasing power to the farmer and can significantly help in raising the standards of living of the rural poor.

    2. Indirect subsidies – Indirect subsidies are provided in terms of tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates.

    For example- Indirect farm subsidies: These are the farm subsidies which are provided in the form of cheaper credit facilities, farm loan waivers, reduction in irrigation and electricity bills, fertilizers, seeds and pesticides subsidy as well as the investments in agricultural research, environmental assistance, farmer training etc.

    The benefits of subsidy as a policy are:

    1. Inducing higher consumption/production.
    2. Achievement of social policy objectives including redistribution of income, population control etc.
    3. It helps in controlling the prices to maintain stability.
    4. Especially in case of agriculture where food is basic right of all, you cannot leave everything to market.
    5. Offsetting market imperfections including internalization of externalities.

    SUBSIDIES TO AGRICULTURE SECTOR

    1. Input Subsidies: Subsidies can be granted through distribution of inputs at prices that are less than the standard market price for these inputs. The magnitude of subsidies will therefore be equal to the difference between the two prices for per unit of input distributed. Naturally several varieties of subsidies can be named in this category

    2. a) Fertilizer Subsidy

    • It includes Distribution of cheap chemical or non-chemical fertilizers among the farmers. It amounts to the difference between price paid to manufacturer of fertilizer (domestic or foreign) and price, received from farmers.
    • This subsidy ensures:

    Cheap inputs to farmers,

    Reasonable returns to manufacturer,

    Stability in fertilizer prices, and

    Availability of fertilizers to farmers.

    • In some cases this kind of subsidies are granted through lifting the tariff on the import of fertilizers, which otherwise would have been imposed.

     

    • b) Irrigation Subsidy

    • Subsidies to the farmers which the government bears on account of providing proper irrigation facilities.
    • Irrigation subsidy is the difference between operating and maintenance cost of irrigation infrastructure in the state and irrigation charges recovered from farmers.
    • This may work through provisions of public goods such as canals, dams which the government constructs and charges low prices or no prices at all for their use from the farmers.
    • It may also be through cheap private irrigation equipment such as pump sets.

    c) Power Subsidy

    • The electricity subsidies imply that the government charges low rates for the electricity supplied to the farmers. Power is primarily used by the farmers for irrigation purposes. It is the difference between the cost of generating and distributing electricity to farmers and price received from farmers.

    d) Seed Subsidies

    • High yielding seeds can be provided by the government at low prices. The research and development activities needed to produce such productive seeds are also undertaken by the government, the expenditure on these is a sort of subsidy granted to the farmers.

     

    e) Credit Subsidy

    • It is the difference between interest charged from farmers, and actual cost of providing credit, plus other costs such as write-offs bad loans. Availability of credit is a major problem for poor farmers. They are cash strapped and cannot approach the credit market because they do not have the collateral needed for loans. To carry out production activities they approach the local money lenders.

    2) Price Subsidy

    • It is the difference between the price of food-grains at which FCI procures food-grains from farmers, and the price at which PCI sells either to traders or to the PDS.
    • The market price may be so low that the farmers will have to bear losses instead of making profits. In such a case the government may promise to buy the crop from the farmers at a price which is higher than the market price.
    • The difference between the two prices is the per unit subsidy granted to the farmers by the government. The price at which the government buys crops from the farmers is called the procurement price.
    • Such procurement by the government also has a long run impact. It encourages the farmers to grow crops which are regularly procured.

    3) Infrastructural Subsidy

    • Private efforts in many areas do not prove to be sufficient to improve agricultural production. Good roads, storage facilities, power, information about the market, transportation to the ports, etc. are vital for carrying out production and sale operations.
    • These facilities are in the domain of public goods, the costs of which are huge and whose benefits accrue to all the cultivators in an area.
    • The government takes the responsibility of providing the public goods and given the condition of Indian farmers a lower price can be charged from the poorer farmers.

    4) Export Subsidies

    • This type of subsidy is not different from others. But its purpose is special. When a farmer or exporter sells agricultural products in foreign market, he earns money for himself, as well as foreign exchange for the country. Therefore, agricultural exports are generally encouraged as long as these do not harm the domestic economy. Subsides provided to encourage exports are referred as export subsidies.

    Objectives of Agricultural Subsidy

    • Economic objectives:
    1. Stimulate agricultural production.
    2. Compensate for high costs of transport from port or factory to farms that raise costs of inputs.
    3. Improve soil quality and combat soil degradation (in the case of fertilizer).
    4. Make inputs affordable to farmers who cannot buy them, owing to poverty, lack of access to credit, and inability to insure against crop losses.
    5. Learning — to allow farmers to try novel inputs and become familiar with their advantages.
    • Social objectives:

    Social equity – to transfer income to farmers who are poor, live in remote disadvantaged areas, or both

    WTO and Agricultural Subsidies

    The WTO Agreement on Agriculture (AoA), 1995 permitted the developed countries to continue to provide farm subsidies, but under certain restrictions. In WTO terminology, agricultural subsidies have been segregated into various ‘boxes’:

    1. Green Box subsidies – It includes amounts spent on research, disease control, and infrastructure and food security. These also include direct payments made to farmers such as income support that do not stimulate production. These are not considered trade distorting and are encouraged.

    2. Blue Box subsidies– It includes direct payments to farmers to limit production and certain government assistance to encourage agriculture and rural development in developing countries. Blue Box subsidies are seen as being trade distorting.

    3. Amber Box subsidies – It includes all agricultural subsidies that do not fall into either blue or green boxes. These include government policies of Minimum support Prices (MSP) for agricultural products or any help directly related to production quantities (e.g. power, fertilizer, seeds, pesticides, irrigation, etc.). These are subject to reduction commitment to the de-minimus level of agricultural outputs- to 5% for developed and 10% for developing countries. India insisted that developed countries should first dismantle their agricultural subsidy structure before asking developing countries to open up their market for farm imports.

    FERTILIZER SUBSIDY

    • Urea is highly subsidized for Indian Farmers.
    • However, the skewed subsidy regime, resulting in farmers paying lesser for urea compared to phosphorus and potassium, had led to urea overuse.
    • India purchases about 50 lakh metric tonnes of excess urea, leading to farmers and the government wastefully spend Rs. 2,680 crore and Rs. 5,860 crore respectively, further putting constraint on government’s resources.
    • The distorted policy has also led to stagnation of private investment in the sector, especially in urea, and increased reliance on imports. The fertilizer subsidy hurts everyone — farmers, firms, taxpayers and consumers.

    FUEL SUBSIDIES IN INDIA

    • Selling fuel at less than market prices result in under-recoveries for Oil Marketing Companies (OMCs) like Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL).
    • Govt compensates these OMCs by directing upstream oil companies like Oil and Natural Gas Corporation Ltd (ONGC), Oil India Ltd (OIL), GAIL India Ltd to provide discount on crude oil purchases by these companies and issuing oil bonds. The government has over the years ensured that OMCs remain profitable and honour their financial obligations.
    • Subsidies on kerosene have increased from Rs. 12.92/litre to Rs. 34.80/litre and LPG cylinders from Rs. 175.04/cylinder to Rs. 522.10/cylinder during the same period. Diesel accounts for 45%, LPG 33% and kerosene 22% of the total under-recoveries. To rein in subsidies, petrol prices were de-controlled in June 2012. However, it did not have a significant impact on under recoveries because petrol accounts for only 10% of total petroleum product consumption in the country.

    FOOD SUBSIDY – NATIONAL FOOD SECURITY ACT

    • To ensure food security at the individual or household level, the Government of India implements various schemes in partnership with State Governments and Union Territory Administrations.
    • The Government is implementing the Targeted Public Distribution system (TPDS) under which food-grains at subsidized rates are provided to Below Poverty Line and Above Poverty Line Households through a network of more than 5 lakh fair price shops spread across the country.
    • Currently, allocations of subsidized food-grains is being made for about 6.5 crore BPL households.
    • Besides, Government is also implementing schemes to specifically address the concerns related to malnutrition, especially among women and children, through schemes like Integrated Child Development Services, Mid-Day Meal, Annapurna, etc.

    Some of the major highlights of the Food Security Bill are:

    • Up to 75% of the rural population (with at least 46% from priority category) and up to 50% of urban population (with at least 28% from priority category) are to be covered under Targeted Public Distribution System.
    • 7 kg of food-grains per person per month to be given to priority category households which include rice, wheat and coarse grains at Rs. 3, 2, and 1 per kg, respectively.
    • At least 3 kg of food-grains per person per month to be given to general category households, at prices not exceeding 50% of Minimum Support Price.
    • Women to be made head of the household for the purpose of issue of ration cards.
    • Maternity benefit to pregnant women and lactating mothers.
    • End-to-end computerization of Targeted Public Distribution System.
    • Three-tier independent grievance redressal mechanism.
    • Social audit by local bodies such as Gram Panchayats, Village Councils etc.
    • Meals for special groups such as destitute, homeless persons, emergency/disaster affected persons and persons on the verge of starvation.

    Targeted Public Distribution System (TPDS)

    • In June 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with focus on the poor.
    • India’s Public Distribution System (PDS) with a network of 4.78 Lakh Fair Price Shops (FPS) is perhaps the largest retail system of its type in the world.

    The objectives of PDS are:

    1. Providing food grains and other essential items to vulnerable sections of the society at reasonable (subsidized) prices
    2. To put an indirect check on the open market prices of various items and
    3. To attempt socialization in the matter of distribution of essential commodities
    • Under the TPDS, States are required to formulate and implement foolproof arrangements for identification of the poor for delivery of food grains and for its distribution in a transparent and accountable manner at the FPS level.
    • The TPDS system today supports over 40 Crore Indians below the poverty line with monthly supply of subsidized food grains. The system also provides gainful employment for 4.78 Lakh Fair Price Shops Owners, their employees and hired labour who work at the FCI and state ware housing godowns.
    • PDS also has become a cornerstone of government development policy and is tied to implementation of most rural development programs.
    • PDS is also a key driver of public sentiment and is an important and very visible metric of government performance.
    • Apart from supplying food grains under the TPDS, other welfare schemes related to food are also executed.

     

    • They are:
    • Mid-Day Meal Scheme
    • Wheat Based Nutrition Program (WBNP)
    • Scheme For Supply of Foodgrains to SC/ST/OBC Hostels/Welfare Institutions
    • Annapurna Scheme
    • Sampoorn Gramin Rozgar Yojna (SGRY)
    • National Food For Work Program (NFFWP)
    • Foodgrains To Adolescent Girls , Pregnant And Lactating Mothers ( AGPLM)
    • Village Grain Banks Scheme
    • World Food Program

    There are many systemic challenges that plague the PDS system today

     

    PDS Leakages

    a) A large number of families living below the poverty line have not been enrolled and therefore do not have access to ration cards

    b) A number of bogus ration cards which do not correspond to real families, exist in the BPL & AAY categories.

    c )A number of instances where benefits are being availed in the names of rightfully entitled families without their knowledge.

    d) Errors in categorization of families that lead to BPL families getting APL cards and vice versa.

    2) Scale and Quality of Issue – The scale of issue and the quality of food grains delivered to the beneficiary is rarely in conformity with the policy. Many FPS are open only for a few days in a month and beneficiaries who do not visit the FPS on these days are denied their right.

    3) System Transparency and Accountability –The most serious flaw plaguing the system at present is the lack of transparency and accountability in its functioning.

    4) Grievance Redressal Mechanisms – There are numerous entities like Vigilance Committee, Anti-Hoarding Cells constituted to ensure smooth functioning of the PDS system. Their impact is virtually non-existent on the ground and as a result, malpractices abound to the great discomfiture of the common man.

    DIRECT CASH TRANSFER

    • Recent studies by the Planning Commission have shown that the Public Distribution System has become so inefficient that 58% of the subsidized grains do not reach the targeted group and almost a third of it is siphoned off the supply chain. According to the Finance Ministry the inefficiencies of the PDS ensure that the Government is forced to spend Rs.3.65 for transferring of Rs. 1 to the poor.
    • The idea behind the Direct Cash Transfer is to cut down wastage, duplication and leakages and also to enhance efficiency. The idea is to move to a completely electronic cash transfer system for the entire population.

    Launch of the programme

    • The programme is now called direct benefit transfer (DBT).
    • On January 01, 2013, the government of India rolled out the DBT covering seven welfare schemes in 20 districts in 16 states.
    • The programme covers schemes like educational scholarship for the Scheduled Castes and the Scheduled Tribes and pensions to widows. Food, fertilizers, LPG, diesel and kerosene have been kept out for the present.
    • Among other objectives like better delivery, more accurate targeting, giving broader choice to the beneficiaries, reducing pilferage and corruption, the programme is also aimed at cutting the massive subsidy bill of Rs 1,64,000 crore .

    Scope of DBT

    • The DBT program aims that entitlements and benefits are transferred directly to the beneficiaries. The beneficiaries could include widows, students and pension takers. This would be done through biometric-based Aadhaar-linked bank accounts. This would reduce several layers of intermediaries and delays in the system.

    Advantages of DBT system

    • The use of Aadhaar or other biometric based systems would dissolve problems like duplicates or ghosts. Duplicates are when the name of the beneficiary is repeated and Ghosts is when the name of a nonexistent beneficiary is mentioned.
    • It helps in the quick and direct cash transfer to the intended beneficiary.
    • The cash transfer happens through a dense Business Correspondent system on the ground with micro ATM’s.
    • This ensures that the poor get the same level of service that the rich and the middle classes in the society receive.
    • The financial inclusion offered by the DBT infrastructure can also be used by internal migrants to send their remittances.
    • The Aadhaar-based micro-ATM network could ensure that remittances take place instantly and at much lower cost to migrants.

    Subsidies and Export Promotion

    • As a part of export promotion strategy, besides various other measures, various types of export incentives have been evolved. These have been altered and modified from time to time to meet varying conditions. Broadly, these incentives can be classified into three categories, viz.
    • Fiscal Incentives– Under fiscal incentives, the important measures that have been in vogue are income tax concessions, customs draw-backs, refund of excise duty,- exemption from sales tax, provision for export undertaken, and facility for manufacture under bond.

    • Financial Incentives – These incentives refer to the provision of cash assistance for specified export promotional efforts and export facilities.

    • Special Incentive Schemes– Besides the recent reforms in the export incentive structure, export profitability was sought to be improved through a variety of fiscal concessions, and explicit and implicit subsidies. These measures were considered necessary to neutralise the negative financial impact of high administered prices of inputs and differential tax incidence that exporters suffer vis-a-vis ‘across the border’ competitors.

     

     

     

     

    Doklam Dispute

    India-China Border Disputes – Doklam Issue

    The recent standoff between India and China at the Doklam plateau which lies at a tri-junction between the India, China, and Bhutan has gained much attention. It has turned into the biggest military stand-off between the two armies in years. There are many who even fear a war. In this article, we discuss in detail the India-China border disputes, the recent Doklam issue, various India-China border agreements and some other issues between the two countries.

    Border disputes between India and China

    The India-China borders can be broken down into three sectors

    Western Sector – DISPUTED – This comprises the Aksai Chin sector. This region which originally was a part of the state of Jammu and Kashmir is claimed by China as part of its autonomous Xinjiang region. After the 1962 war, it is administered by China. It is the second largest Indo-China border area covering over 38000 sq. km. However, it is an uninhabited land. While India claims the entire Aksai Chin territory as well as the Shaksgam valley (Indian territory gifted to China by Pakistan), China contests Indian control over Daulat Beg Oldi (a tehsil in Leh, south of Aksai China-it is believed to host the world’s highest airstrip)

    Central Sector – UNDISPUTED – Although China has recognised India’s sovereignty over Sikkim and had initiated the trade at Nathu La pass, the Doklam fiasco could mean trouble at all ends.

    Eastern Sector – DISPUTED – The Arunachal Pradesh border that China still claims to be its own territory is the largest disputed area, covering around 90000 sq. km. It was formally called North East Frontier Agency. During the 1962 war, the People’s Liberation Army occupied it but they announced a unilateral ceasefire and withdrew respecting the international boundary (Mcmahon Line). However, it has continued to assert its claim over the territory. Nowadays, almost the whole of Arunachal is claimed by China. (Note: This is the reason why the recent visit of Dalai Lama to Tawang monastery had become such a contentious bilateral issue)

    Johnson Line vs McDonald Line

     

    The two nations have held on to their own stands even on the Johnson line and McDonald line which demarcates the territories of the two.

    Johnson Line – India’s accepted demarcation – It marks Aksai Chin as an Indian territory

    McDonald Line – China’s stance – It marks Aksai Chin as Chinese territory.

    The India-China War of 1962

    1. The pretext of the war was a dispute over the sovereignty of the Aksai Chin and Arunachal Pradesh.
    2. But, in reality, there were many reasons and the prominent one was China’s perception of India as a threat to its rule of Tibet.
    3. The war was preceded by various conflicts and military incidents between India and China throughout the summer of 1962.
    4. Then on October 20, 1962, People’s Liberation Army (PLA) of China invaded India in Ladakh and across the Mcmahon line in the Arunachal Pradesh.
    5. Until the start of the war, India was confident that a war would not happen and made little preparations.
    6. After a month long War, China unilaterally declared a ceasefire on 19 November 1962. By then China has made significant advances on both the fronts. India suffered a huge setback and was badly defeated.
    7. China achieved its objective of acquiring control in the Aksai chin. In the eastern sector, their troops went back to the north of the Mcmahon line.

    India-China border conflicts after the war

    1. There have been several instances of Chinese troops entering the Indian side and Indian troops entering the Chinese side.
    2. Still, the Indo-China border has remained largely peaceful, except in 1967 when there were two incidents of armed conflict first at Nathu La and then at Cho La.
    3. It started when the PLA launched an attack on Indian posts at Nathu La. The conflict at Nathu La lasted 5 days and the one at Cho La ended the same day.
    4. The outcome was more pleasing to India as they were able to send back the Chinese military and therefore the 1967 conflicts are seen as a success for India.

    Agreements and initiatives to resolve the border disputes

     

    1. Shimla agreement of 1914: To demarcate the boundary between Tibet and North East India, a convention was held at Shimla in 1914, representatives of all three i.e. Tibet, China and British India. After the discussion, the agreement was signed by British India and Tibet but not by the Chinese officials. Presently India recognises the Mcmahon line, as agreed by the Shimla convention, as the legal boundary between India and China. However, China rejects the Shimla agreement and the Mcmahon line, contending that Tibet was not a sovereign state and therefore did not have the power to conclude treaties.

    2. Panchsheel Agreement of 1954:The Panchsheel doctrine clearly indicated the willingness to ‘Respect each other’s sovereignty and territorial integrity’. Although we have come a long way since, from 1962 war to the cold peace era of 1962-1989, to the revived tensions of the present, the intent of the doctrine was well directed. It must have acted as a safeguard against any such disputes arising at the first place.

    3. In 1989, India-China formed a Joint Working Group for Confidence building measures (CBMs) and agreed to mutually settle all border disputes.
    4. India-China Agreements regarding the Line of Actual Control (LAC):

      The LAC is the effective military border which separates Indian controlled areas of Jammu and Kashmir from Aksai Chin. It is to be noted that this border is not a legally recognised international boundary, but rather it is the practical boundary. Conventionally, India considers the Johnson line of 1865, marked by a civil servant W.H. Johnson, which put Aksai Chin in Jammu and Kashmir. On the other hand, China recognises the Macartney-Macdonald Line as the actual boundary which puts Aksai Chin in Xinjiang region of China. In 1993, when the then Prime Minister Narasimha Rao visited China, ‘The Agreement for Maintenance of Peace and Tranquillity along the LAC‘ has been signed between India and China. In 1996 an agreement took place on Confidence Building Measures in the military field along the LAC.

    5. In 2003 India and China signed a Declaration on Principles for Relations and Comprehensive Cooperation and also mutually decided to appoint Special Representatives to explore the framework of a boundary settlement from the political perspective. The India-China relations received a major boost in 2003. China recognised India’s sovereignty over Sikkim. This was also followed by a framework of Guiding principles and political parameters to improve bilateral ties. It proposed a three-step resolution to the border disputes:
    6. A bilateral agreement on the laid down principles.
    7. This was to be followed by an exchange of maps between the two countries.
    8. Once satisfied with the markings, the final demarcation of borders was to take place.
    9. In 2005 a protocol was agreed on Modalities for the implementation of Confidence Building Measures in the Military field along the LAC.
    10. In 2012 India and China agreed on the establishment of a working mechanism for Consultation and Coordination on India China borders.

    Clearly, the policies have not sufficed in realising a solution to the long-standing disputes. A status-quo exists owing to the face-off between differential aspirations of the two nations. While China’s support for resolution of border disputes stands subservient to Tibet issue, India would continue to hold on to the Tibet card unless the border-disputes are resolved. Besides, the changing global and regional picture – from China’s move towards ‘assertive regionalism’, its strengthening ties with Pakistan and its complete disregard for counter-opinions on contentious issues like South-China sea – has only worsened the chances of a quick resolution.

    Doklam issue

    1. The offensive stand of China on Doko La (Doklam) and India’s strong warning in return, is the latest addition to the worries that spoil Indo-China relations.
    2. It started when India (Indian Army) objected a road construction by the People’s Liberation Army (PLA) of China in the Doklam plateau which China claims to be a part of its Donglang region. However, India and Bhutan recognise it as Doklam, a Bhutan territory.
    3. Later, China accused Indian troops of entering in its territory and India accused the Chinese of destroying its bunkers (People’s Liberation Army bulldozed an old bunker of the Indian army stationed in Doklam).

    Thereafter China stopped the passage pilgrims heading toward Kailash-Mansarovar through the Nathu La pass, Sikkim. The route is a better alternative to Lepu Lekh route via Uttarakhand and had been opened for pilgrims in 2015.

     

    Hereafter, both India and China increased the presence of their troops and since then there has been a war of words especially from the Chinese state media.

    Although a military standoff was averted, diplomatic negotiations have not yielded many results to cool-off the passions across the border.

    Why is Doklam so critical?

     

    1. Doklam (Zhoglam or Droklam or Donglang) is a narrow plateau lying in the tri-junction of India, China and Bhutan.
    2. China believes Doklam to be a disputed territory between Bhutan and China.
    3. It, therefore, contests the presence of Indian army in the region as a transgression.
    4. The disputed region is very close to India’s Siliguri Corridor which connects the seven north eastern states to the Indian mainland.

    India supporting Bhutan in the Doklam issue

    1. Bhutan and India have a very cordial relationship were as Bhutan and China do not have formal relations.
    2. Bhutan has a very strategic position considering India’s geography.
    3. To foster the relationship, India and Bhutan signed a ‘Friendship Treaty’ in 2007 that commits India to protect Bhutan’s interests and the close coordination between the two militaries.
    4. Also, India is worried that if the road is completed, it will give China greater access to India’s strategically vulnerable “chicken’s neck” (Siliguri Corridor) that links the seven north eastern states to the Indian mainland.

    Is Indian border ready to face challenges?

    1. India clearly is far ahead of what it was in 1962, both militarily as well as infra-structurally. However, to undermine China would be to relive the fallacies that led to the 1962 war.
    2. The ‘Theory of asymmetry’ does not hold ground when dealing with China, therefore a rational policy of dialogue is essential.
    3. Along with that, seeking gains on the works which have already done must be the target.

    (Note: Theory of Asymmetry is an approach of capitalising on the huge asymmetry in resources by the major party, followed by a show of magnanimity and conciliation. While this approach is a possibility when dealing with Pakistan, it can’t be the way forward in case of China)

    Negatives

    1. Contrasting the border readiness of the two, for instance, we see stark distinctions, more often, revealing a Chinese upper-hand.
    2. As of now, only 21 of the proposed 73 roads have been developed by India for the Indo-China border (Also the revised target is now 2020 instead of the original target, 2012).
    3. China, on the other hand, developed and still developing their borders in the pretext of CPEC, OBOR or even otherwise (as in the case of Doklam). This exposes how we are lagging behind in connectivity of our border posts.
    4. The ‘Mountain Strike Corps’ of India, specifically proposed to be raised to check the Chinese influence, has a strength which is much less than the proposed strength. Along with that, the force is not yet equipped with advanced armouries that were envisioned for them.

    Positives

    1. The recent initiatives including Dhola-Sadiya bridge (Bhupen Hazarika Setu-9.2km-Connects Assam with Arunachal Pradesh) are a welcome step as they help bring down the travel time and as such, a military response time as well.
    2. A Brahmos cruise missile regiment is being deployed in Arunachal Pradesh. This clearly signals Indian intentions to China, that finds every opportunity to reiterate its sanction over the territory.
    3. Many abandoned airstrips in India are also being reactivated. Though thought-provoking, it is a step towards the right direction.

    Other issues between India and China

    The recent standoff is seen as a culmination of a number of disagreements between India and China and the relations between the two sides has soured in the last 2-3 years. Few of them are:

    1 India’s entry into the UNSC and the NSG

    China has been opposing India’s entry into the United Nations Security Council (UNSC) and in the Nuclear Supplier’s Group (NSG).

    2 India’s opposition to the OBOR

    India has been opposing China’s flagship ‘One Belt One Road’ (OBOR) initiative‘, as the ‘China Pakistan Economic Corridor (CPEC)‘, a part of OBOR, passes through the Pakistan Occupied Kashmir (POK) and acceding to OBOR would mean undermining India’s sovereignty.

    3 Strengthening of India-USA relations

    China is critical of India-USA relations and it is not merely a coincidence that the escalation at the tri-junction coincided with the Indian Prime Minister’s visit to the United States. India supports the US and other countries in reaffirming the freedom of navigation in international waters, which includes the South China Sea. Along with this, the ‘MALABAR Naval exercise’ between India, Japan and USA is also a matter to worry for China.

    4 Issue of Tibet and Dalai Lama

    The fact that Tibet’s spiritual leader Dalai Lama lives in India is a tension area in India-China relations. The recent visit of Dalai Lama to Arunachal Pradesh has been a matter of conflict between the two sides.

    5 Issue of Masood Azhar

    India’s bid to get Jaish-e-Mohammad chief Masood Azhar be declared as a UN- designated terrorist has been blocked by China again and again. In fact, China is the only country in the 15 members UNSC to have opposed to the ban. China is of the view that India is trying to pursue political gains in the name of counter-terrorism.

    Way forward

    From the recent incidents, although the possibility of an India-China armed conflict cannot be ruled out, any kind of military conflict is not in the interest of any country. The need of the hour is realising that our ‘strategic partnership’ could serve us both and help see Asia emerge as the core of world economy. This dream of ‘India-China Millennium of Exceptional Synergies’ that our Prime Minister envisions, however, needs magnanimity and willingness on part of both the nations.

     

    Decoding the DNA Bill

    Decoding the DNA Bill

    Context:

    The DNA Technology (Use and Application) Regulation Bill, 2018 has been introduced in India’s Parliament this week, with a view to creating a national DNA database for use by the police in solving crimes and identifying missing persons.

     

    DNA uses:

    Although DNA can be an important tool here, in solving crimes, it is important that there are safeguards to protect human rights and prevent miscarriages of justice.

    Further, creating large databases is often not a cost-effective way to solve more crimes, and limited resources must be targeted effectively.

    The Forensic Genetics Policy Initiative published its report, “Establishing Best Practice for Forensic DNA Databases”, last year after extensive consultation and a review of policies worldwide.

    A comparison with the DNA Bill reveals a number of important issues:

    First, using DNA effectively during criminal investigations requires proper crime scene examination, trained and reliable policing, a trusted chain of custody of samples, reliable analysis, and proper use of expert evidence in court. Without these prerequisites, a DNA database will exacerbate rather than solve problems in the criminal justice system: for example, by leading to miscarriages of justice through (false matches or misinterpretation or planting of evidence, and diverting resources) from more important priorities.

    The Home Ministry circulated a set of guidelines to States in July on how to search crime scenes and collect, store and transport DNA samples in criminal cases.

    However, it is not yet clear whether these guidelines will be effective. Because many errors occur before samples get to the laboratory, the requirement for laboratory accreditation in the Bill should include quality assurance for crime scene examination.

    Consideration should be given to an independent forensic science regulator to ensure oversight of both laboratory quality assurance and crime scene examination.

    There is also a need for elimination databases for police, crime scene examiners and laboratory workers, whose DNA may contaminate the evidence they touch.

    DNA Regulatory Board:

    The Bill’s proposed DNA Regulatory Board is still too powerful and insufficiently transparent or accountable.

    Conflicts-of-interest should be published for each board member when appointed and updated on an ongoing basis and board proceedings should also be published.

    The Board’s need to review the ethics of its own behaviour may conflict with its other roles: an independent ethics board should be set up. To advise it, and the ethics board’s opinions should be published.

    Provisions which give the government or the board the power to amend aspects of the safeguards in the Bill, and to avoid accountability in court, should be deleted.

    The Board’s responsibilities for privacy protections need an independent regulator: the easiest way to achieve this would be prior adoption of a privacy or data protection bill (which includes a role for a data protection officer).

    This would allow individuals some recourse if their rights were not protected. This is particularly important, especially following the Supreme Court’s Right to Privacy judgment.

    A number of other privacy protections are also missing from the Bill:

    These include the need to restrict DNA profiling so that it uses only non-coding DNA, a commonly used international standard for one, which prevents the use of parts of the DNA which code for personal characteristics, including medical conditions.

    Rightly, the Bill includes provisions for the destruction of DNA samples and removal of innocent people’s DNA profiles from the database.

    However, these provisions are currently inadequate because it is unclear how they will operate in practice: currently, the removal of innocent people’s records is not automatic, and some samples will be retained by the police.

    Any international sharing of DNA profiles should also be covered by a privacy or data protection law, and meet international human rights standards.

    Database separation

    Further, it is a best practice to separate the databases for missing persons and for criminals set up by the Bill, so that people who volunteer their DNA to help find their missing relatives are not treated as suspects for criminal offences.

    Provisions allowing the use of these databases for civil cases, for example to test paternity, should be deleted from the Bill.

    To maintain trust in the system, people should not be concerned that non-paternity might be revealed if they offer to assist a criminal investigation, or are accused (perhaps falsely) of a crime.

    This does not prevent DNA being used for such purposes, but this should be done case by case and not included in the system for a criminal database. More detail is also needed to specify that volunteers must be fully informed about future storage and uses of their genetic information before they give consent.

    The Bill allows two categories of persons to have their DNA collected without consent and their DNA profiles added to the database. These are persons suspected of any offence, where an order is made by a magistrate, and persons suspected of more serious offences, where an order from a magistrate is not required. Who should be included in the database, and whether a court should always have a say, is an important matter for national debate. However, there is no attempt to assess the cost effectiveness of these provisions or to estimate the database’s likely size.

    The financial memorandum to the Bill estimates that there will be a one-off cost of 20 crore to set up the database, with annual costs of 5 crore to maintain it. This is completely unrealistic: for comparison, the U.K. National DNA database cost £3.7 million to run in 2015-16. International evidence shows that the success of a DNA database is driven primarily by the number of crime scene DNA profiles loaded on to it, not by the number of DNA profiles from individuals, so proper crime scene analysis should be the top priority.

    Way Forward:

    In short, important safeguards and a cost-benefit analysis are still lacking for this Bill. The Bill needs further improvement, and full parliamentary scrutiny should be utilised to achieve that end.

     

     

     

    DAM SAFETY BILL

    Dam Safety Bill: its objective, the objections

    Context:

    The Bill provides for “surveillance, inspection, operation and maintenance of specified dams for prevention of dam failure related disasters and to provide for institutional mechanism to ensure their safe functioning”.

    Need for Dam Safety

    Of India’s 5,254 large dams, some 75% are over 25 years old, and 164 more than 100 years old. There have been 36 dam failures. There has been a lack of a uniform law and an administrative regime for dam safety.

    While the Central Water Commission (CWC) has made efforts through National Committee on Dam Safety, Central Dam Safety Organisation and State Dam Safety Organisations, these agencies do not have statutory powers and can only make recommendations.

     The Bill

    The Dam Safety Bill was first introduced in LokSabha in 2010. It sought to mandate the Centre, state governments and individual owners of dams to establish a mechanism for safety.

    It was to be initially applicable only to Andhra Pradesh, West Bengal and the Union Territories; the two states had passed resolutions under Article 252(1) of the Constitution requesting Parliament to make a law.

    The Speaker referred the Bill to a Parliamentary Standing Committee, which submitted its report in 2011.

    It suggested that provisions be added for punishing the owner in case of dam failure and fixing liability for compensating affected people, and that an independent regulatory authority on safety measures and a national-level early warning system be set up.

    On June 13, 2018, the Cabinet approved the draft of the Dam Safety Bill, 2018.

    With most recommendations of the standing committee incorporated, it was introduced in LokSabha on December 12.

     

    Regulatory structure

    The legislation provides for a National Committee on Dam Safety, to be headed by the CWC chairperson and with members nominated by the Centre; there will be representatives of the Centre and states (through rotation) as well as dam safety experts.

    The committee will formulate policies and regulations, which are to be implemented by a centrally appointed National Dam Safety Authority, headed by an officer of at least Additional Secretary rank.

    The authority will also resolve issues between State Dam Safety Organisations (SDSOs) or between a SDSO and any individual dam owner, lay down regulations for dam inspection and for accreditation to construction and designing agencies.

    The Bill provides for a safety unit in each dam to be set up by individual dam owners.

    For violation of directives under the Bill, punishment is imprisonment up to one year or a fine, or both; if an offence leads to loss of life, imprisonment may be up to two years.

    Grounds for opposition

    In cases where a dam is owned by one state and located in another, or extends over multiple states, or is owned by a central public sector undertaking, the Bill provides that the National Dam Safety Authority will act as the SDSO. This provision is the primary reason for opposition from Tamil Nadu.

    Tamil Nadu’s Mullaiperiyar, Parambikulam, Thunakkadavu and Peruvaripallam dams are owned, operated and maintained by the Government of Tamil Nadu by virtue of Inter-state Agreements, but are located in a neighbouring state (Kerala)

    A 2014 Supreme Court verdict that “upheld the rights of Tamil Nadu” on the Mullaperiyar dam in increasing its height to 142 feet and ultimately 152 feet. “Therefore, to deny Tamil Nadu the right to be the Dam Safety Authority with regard to these four dams and vesting the powers to the National Dam Safety Authority would be tantamount to encroaching on the rights of Tamil Nadu, which is unconstitutional,” he wrote, urging the PM to withdraw the Bill.

    In LokSabha, Minister of State for Water Resources Arjun Meghwal, who tabled the Bill, argued that Article 252 empowered the Centre to legislate for two or more states by consent.

    Water is listed as a state subject. “As regulation of the safety of dams has not yet been declared by Parliament to be expedient in public interest, it would be prudent to believe that Parliament has no powers to make law for the state or for that matter by the Union Government at this juncture. The issue, he maintained, needed to be deliberated in the Standing Committee. “Parliament should not do anything that would not stand scrutiny of law.”

    Cyber Security in India

    CYBER SECURITY

    Cyber security is the body of technologies, processes and practices designed to protect networks, computers, programs and data from attack, damage or unauthorized access. In a computing context, security includes both cyber security and physical security.

    Currently, almost 70 categories of cyber security products have been identified. These include products used for data loss prevention, security analytics, big data analytics, web security, antivirus, mobile payments, mobile data protection, cloud security, spam free email solutions, among others.

    NEED TO REGULATE CYBERSPACE

    1. There has been a rapid increase in the use of the online environment where millions of users have access to internet resources and are providing contents on a daily basis.
    2. The use of internet particularly for the distribution of obscene, indecent and pornographic content. The use of internet for child pornography and child sexual abuse and the relative ease with which the same may be accessed calls for strict regulation.
    3. The increasing business transaction from tangible assets to intangible assets like Intellectual Property has converted Cyberspace from being a mere info space into important commercial space. The attempt to extend and then protect intellectual property rights online will drive much of the regulatory agenda and produce many technical methods of enforcement.
    4. The major area of concern where some sort of regulation is desirable is data protection and data privacy so that industry, public administrators, netizens, and academics can have confidence as on-line user.
    5. Internet has emerged as the ‘media of the people’ as the internet spreads fast there were changes in the press environment that was centered on mass media. Unlike as in the established press, there is no editor in the Internet. People themselves produce and circulate what they want to say and this direct way of communication on internet has caused many social debates. Therefore the future of Cyberspace content demands the reconciliation of the two views of freedom of expression and concern for community standards.
    6. Another concern is that, money laundering, be ‘serious crime’ becomes much simpler through the use of net. The person may use a name and an electronic address, but there are no mechanisms toProve the association of a person with an identity so that a person can be restricted to a single identity or identity can be restricted to a single person. Therefore Cyberspace needs to be regulated to curb this phenomenon.

     

    CYBER TERRORISM

    ‘Cyber terrorism is the convergence of terrorism and cyber space. It is generally understood to mean unlawful attacks and threats of attacks against computers, networks, and information stored therein when done to intimidate or coerce a government or its people in furtherance of political or social objectives.

    Further, to qualify as cyber terrorism, an attack should result in violence against persons or property or at least cause enough harm to generate fear. Attacks that lead to death or bodily injury, explosions, plane crashes, water contamination or severe economic loss would be examples. Serious attacks against critical infrastructures could be acts of cyber terrorism depending upon their impact. Attacks that disrupt nonessential services or that are mainly a costly nuisance would not.

    Cyber-terrorism can also be understood as “the use of computer network tools to shut down critical national infrastructures (such as energy, transportation, government operations) or to coerce or intimidate a government or civilian population.” A hostile nation or group could exploit these vulnerabilities to penetrate a poorly secured computer network and disrupt or even shut down critical functions.

    NEED OF “DOMESTIC PROCUREMENT” BEING EMPHASIZED

    With a view to promoting domestic technology and preventing data theft by foreign entities, the government will soon announce a policy that accords preference in official procurement to ‘Made in India’ antivirus and cyber security solutions.

    The Ministry of Electronics and Information Technology (MeitY) has issued a draft notification which states “preference shall be provided by all procuring entities to domestically manufactured/ produced cyber security products.”

    The possibility of foreign vendors retaining some backdoor access and the risk of a third party gaining access was a key factor spurring the policy, said an official, who did not wish to be named. “So, you have to have your own solutions.”

    Related facts:

    1. India witnessed more than 27,000 cyber security threat incidents in the first half of 2017. Example: WannacryRansomware.
    2. The number of cyber crime cases registered under IT Act 2000 in India has risen by 300 percent in the period from 2011 to 2014, according to a joint study by PwC and Assocham.
    3. The study also revealed that in the past, the attacks have been mostly initiated by countries like the US, Turkey, China, Brazil, Pakistan, Algeria, Turkey, Europe, and the UAE.
    4. Internet user base of India is said to be around 450 million.
    5. Growing number of internet and Smartphone users has increased the vulnerability for cybercrimes.
    6. The threats could also be to critical infrastructure systems like nuclear plants, railways, hospitals, as they use outdated technologies and weaker protocols.
    7. The governments at the Centre and states are the main targets of cyber-attacks, driven by motives ranging from theft, espionage and data extraction to counterfeiting.
    8. In 2015 and 2016, the government sector accounted for 27% and 29% of all cyber-attacks.
    9. Major victims of cyber crimes are women. This affects their safety, dignity, and empowerment.

     

    CYBER LAWS in INDIA

     Information Technology Act, 2000

    1. The Information Technology Act, 2000 intends to give legal recognition to e-commerce and e-governance and facilitate its development as an alternate to paper based traditional methods.
    2. The Act has adopted a functional equivalents approach in which paper based requirements such as documents, records and signatures are replaced with their electronic counterparts.
    3. The Act seeks to protect this advancement in technology by defining crimes, prescribing punishments, laying down procedures for investigation and forming regulatory authorities.
    4. Many electronic crimes have been bought within the definition of traditional crimes too by means of amendment to the Indian Penal Code, 1860.
    5. The Evidence Act, 1872 and the Banker’s Book Evidence Act, 1891 too have been suitably amended in order to facilitate collection of evidence in fighting electronic crimes.

    National Cyber security Policy, 2013

    1. In light of the growth of IT sector in the country, the National Cyber Security Policy of India 2013 was announced by Indian Government in 2013 yet its actual implementation is still missing. As a result fields like e-governance and e-commerce are still risky and may require cyber insurance in the near future.

    Its important features include:

    1. To build secure and resilient cyber space.
    2. Creating a secure cyber ecosystem, generate trust in IT transactions.
    3. 24 x 7 NATIONAL CRITICAL INFORMATION INFRASCTRUCTURE PROTECTION CENTER (NCIIPC)
    4. Indigenous technological solutions (Chinese products and reliance on foreign software)
    5. Testing of ICT products and certifying them. Validated products
    6. Creating workforce of 500,000 professionals in the field
    7. Fiscal Benefits for businessman who accepts standard IT practices, etc.

     

    STAKEHOLDER AGENCIES IN INDIA

    Countering cyber crimes is a coordinated effort on the part of several agencies in the Ministry of Home Affairs and in the Ministry of Communications and Information Technology.

    The law enforcement agencies such as the Central Bureau of Investigation, The Intelligence Bureau, state police organizations and other specialised organizations such as the National Police Academy and the Indian Computer Emergency Response Team (CERT-In) are the prominent ones who tackle cyber crimes.

    1.National Information Board (NIB)

    National Information Board is an apex agency with representatives from relevant Departments and agencies that form part of the critical minimum information infrastructure in the country.

    2.National Crisis Management Committee (NCMC)

    The National Crisis Management Committee (NCMC) is an apex body of Government of India for dealing with major crisis incidents that have serious or national ramifications. It will also deal with national crisis arising out of focused cyber-attacks.

    3.National Security Council Secretariat (NSCS)

    National Security Council Secretariat (NSCS) is the apex agency looking into the political, economic, energy and strategic security concerns of India and acts as the secretariat to the NIB

    4.Department of Information Technology (DIT)

    Department of Information Technology (DIT) is under the Ministry of Communications and Information Technology, Government of India. DIT strives to make India a global leading player in Information Technology and at the same time take the benefits of Information Technology to every walk of life for developing an empowered and inclusive society. It is mandated with the task of dealing with all issues related to promotion & policies in electronics & IT.

    5.Department of Telecommunications (DoT)

    Department of Telecommunications (DoT) under the Ministry of Communications and Information Technology, Government of India, is responsible to coordinate with all ISPs and service providers with respect to cyber security incidents and response actions as deemed necessary by CERT-In and other government agencies. DoT will provide guidelines regarding roles and responsibilities of Private Service Providers and ensure that these Service Providers are able to track the critical optical fiber networks for uninterrupted availability and have arrangements of alternate routing in case of physical attacks on these networks.

    6.National Cyber Response Centre – Indian Computer Emergency Response Team (CERTIn)

    CERT-In monitors Indian cyberspace and coordinates alerts and warning of imminent attacks and detection of malicious attacks among public and private cyber users and organizations in the country. It maintains 24×7 operations centre and has working relations/collaborations and contacts with CERTs, all over the world; and Sectoral CERTs, public, private, academia, Internet Service Providers and vendors of Information Technology products in the country

    7.National Information Infrastructure Protection Centre (NIIPC)

    NIIPC is a designated agency to protect the critical information infrastructure in the country. It gathers intelligence and keeps a watch on emerging and imminent cyber threats in strategic sectors including National Defence. They would prepare threat assessment reports and facilitate sharing of such information and analysis among members of the Intelligence, Defence and Law enforcement agencies with a view to protecting these agencies’ ability to collect, analyze and disseminate intelligence

    8..National Disaster Management of Authority (NDMA)

    The National Disaster Management Authority (NDMA) is the Apex Body for Disaster Management in India and is responsible for creation of an enabling environment for institutional mechanisms at the State and District levels.

    9.The Cyber Regulations Appellate Tribunal

    The Cyber Regulations Appellate Tribunal has power to entertain the cases of any person aggrieved by the Order made by the Controller of Certifying Authority or the Adjudicating Officer. It has been established by the Central Government in accordance with the provisions contained under Section 48(1) of the Information Technology Act, 2000.The body is quasi-judicial in nature.

     

    Challenges in Cyber security for India

    1. Lack of coordination among different agencies of the government.
    2. Government agencies are severely overburdened and understaffed.
    3. Many government websites have been hacked several times.
    4. National Information Centre which hosts government’s mail servers has been compromised several times in the past.
    5. Government is promoting Digital India through e-governance, e-Kranti, broadband highways, etc. With initiatives like demonetization, internet and Smartphone user base is only set to grow. Banks and other financial institutions are also promoting mobile banking and net banking. These increase the vulnerability to cybercrimes like data theft, espionage, etc.
    6. Frequent attacks erode the trust of customers on digital platforms and could hamper India’s dreams of becoming cash-less economy.
    7. New age companies like start-ups mainly work on the online platform. Hackers are exploiting this opportunity for attacks like Distributed Denial of Service.
    8. Poor investments in Cyber security by private companies.
    9. Private companies and banks do not report about the attack to the government organizations.
    10. Lack of awareness among the common people about Cyber security. Hence they fall prey to the attempts the hackers.
    11. Growth in online radicalization is another area of concern. Cyberspace has no physical boundaries for extremists and terrorists, unlike the traditional warfare. Cyber Terrorism is as big a threat as Cybercrimes.
    12. India is not a signatory to the Budapest Convention, which is the only international convention in the field of cyber security.

     

    Intergovernmental organisations and initiatives

    Intergovernmental organisations and initiatives. Here we will see in brief, an overview of intergovernmental bodies and initiatives currently addressing cyber security at the policy level

    1.Council of Europe

    The Council of Europe helps protect societies worldwide from the threat of cybercrime through the Budapest Convention on Cybercrime, the Cybercrime Convention Committee (T-CY) and the technical co-operation Programme on Cybercrime. The Budapest Convention on Cybercrime was adopted on 8 November 2001 as the first international treaty addressing crimes committed using or against network and information systems (computers). It entered into force on 1 July 2004.

    2. Internet Governance Forum (IGF)

    The IGF was established by the World Summit on the Information Society in 2006 to bring people together from various stakeholder groups in discussions on public policy issues relating to the Internet. While there is no negotiated outcome, the IGF informs and inspires those with policy making power in both the public and private sectors.

    The IGF facilitates a common understanding of how to maximise Internet opportunities and address risks and challenges. It is convened under the auspices of the Secretary-General of the United Nations.

    Its mandate includes the discussion of public policy issues related to key elements of Internet governance in order to foster the sustainability, robustness, security, stability and development of the Internet.

    3. United Nations (UN)

    The International Telecommunication Union (ITU) is the specialized agency of the United Nations which is responsible for Information and Communication Technologies.

    ITU deals also with adopting international standards to ensure seamless global communications and interoperability for next generation networks; building confidence and security in the use of ICTs; emergency communications to develop early warning systems and to provide access to communications during and after disasters, etc

    Way Forward:

    1. There is a need for coordination among national and international agencies working on cybersecurity.

    2. India could thus learn from the best practices of other countries and streamline the processes and protocols.

    3. The Government has made it mandatory for organizations to report in case of an attack.

    4. Organisations should also be pro-active in doing keeping in interest the larger good of the society instead of worrying about their reputation and brand value.

    5. There is an urgent need to build a Digital Armed Force of trained IT professionals to carry on both defensive and offensive operations.

    6. The proposed project NETRA for internet surveillance should be taken up. Concerns about privacy and freedom of expression have to be taken care of.

    National Cyber Security Policy should be amended according to the changing times and need.
    State Governments should also be taken up operations for Cybersecurity.

    Example SHE Team of Telangana Government has been successful in protecting women from online harassment and cybercrimes. Similar initiatives could be taken up by other states as well.

    7. Cybersecurity Help Desks need to be set up to provide guidance and support to first level users.

    8. Indian Cyber Crime Coordination Centre” (I-4C) which will help in monitoring and capacity building of the cyber crimes needs to be established. This will also help the Law Enforcement Agencies in curtailing the crimes.

    With growing adaptation to technology, cyber attacks, cyber crimes and cyber terrorism are growing at a faster pace. India needs to be proactive and diligent in handling these attacks. Steps should be taken to protect public, private organizations and individuals. A holistic approach is needed to the address the issue, with no loose ends left. Cybersecurity is also key to success in initiatives like Make in India, Digital India, Smart cities program.

     

    HIV – AIDS Act 2017

    Context:

    The Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act, 2017, came into force on September 10, 2018.

    It aims to prevent and control the spread of HIV and AIDS in the country and provides for penalties for discrimination against those affected by the virus.  Introduced by senior Congress leader GhulamNabi Azad in 2014, the Bill was passed by the RajyaSabha on March 22, 2017, and a month later by the LokSabha on April 12. It received the assent of the President on April 20, 2017.

    India has the third largest HIV-infected population with an estimated 2 million people. The country aims to decrease new infections by 75 per cent between 2010 and 2020 and eliminate AIDS by 2030.

    HIV/AIDS Act:

     

    The Act prohibits discrimination or unfair treatment of HIV-infected people on any grounds. It prohibits denial or discontinuation of healthcare services, right of movement, right to reside, purchase, rent or occupy property and hold public or private office etc.

    It prohibits isolation of segregation of an HIV-positive person. Every HIV-positive person has the right to reside in a shared household and use facilities in a non-discriminatory manner.

    The Act reads: “No person shall, by words, either spoken or written, publish, propagate, advocate or communicate by signs or by visible representation or otherwise the feelings of hatred against any protected persons or group of protected person.”

    Under the law, no HIV-affected person can be subject to medical treatment, medical interventions or research without informed consent. Further, no HIV positive woman, who is pregnant, can be subjected to sterilisation or abortion without her consent.

    No person is compelled to disclose his HIV status except by an order of the court. A breach of violation attracts a jail sentence of up to two years or a fine of up to Rs 1 lakh, or both.

    Every establishment is obligated to keep HIV-related information protected. Every HIV-positive person is compelled to take reasonable precautions to prevent the transmission of HIV to other persons.

    The state and Centre must make diagnostic facilities, anti-retroviral therapy and opportunistic infection management available to all HIV-infected people, and ensure wide dissemination of the same.

    Every state has to appoint one or more Ombudsmen to inquire into violations of the provisions of the Act. Within 30 days of receiving a complaint, the Ombudsman is required to pass an order as he deems fit. Failing to comply with the orders of the Ombudsman attracts a penalty of up to Rs 10,000.

     

    GST – Explained

    Goods and Services Tax

    Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. GST would replace respective taxes levied by the central and state governments.

    What is GST?

    1. It is a destination-based taxation system, established by the 101st Constitutional Amendment Act.
    2. It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
    3. It is a single tax on supply of Goods and Services in its entire product cycle or life cycle i.e. from manufacturer to the consumer.
    4. It is calculated only in the “Value addition” at any stage of a goods or services.
    5. The final consumer will pay only his part of the tax and not the entire supply chain which was the case earlier.
    6. There is a provision of GST Council to decide upon any matter related to GST whose chairman in the finance minister of India.
    7. Taxes at center and state level are incorporated into the GST

    At the State Level

    • State Value Added Tax/Sales Tax
    • Entertainment Tax (Other than the tax levied by the local bodies)
    • Octroi and Entry Tax
    • Purchase Tax
    • Luxury Tax
    • Taxes on lottery, betting, and gambling

    At the Central level

    • Central Excise Duty
    • Additional Excise Duty
    • Service Tax
    • Additional Customs Duty (Countervailing Duty)
    • Special Additional Duty of Customs

    History of GST

    1.1986: VishwanathPratap Singh, Finance Minister in Rajiv Gandhi’s government, proposed in the Budget a major overhaul of the excise taxation structure. This was similar to GST in a theoretical sense.

    1. 2000: Initiating discussions on GST, Vajpayee government appoints an Empowered Committee headed by the then finance minister of West Bengal Asim Gupta.
    2. 2004: Vijay Kelkar, then advisor to the Finance Ministry, recommends GST to replace the existing tax regime.
    3. Feb 28, 2006: GST appears in the Budget speech for the first time. Finance Minister Chidambaram sets an ambitious task of implementing GST by April 1, 2010.
    4. Feb 28, 2007: Chidambaram said in his Budget speech that the Empowered Committee of finance ministers will prepare a road map for GST.
    5. April 30, 2008: The Empowered Committee submits a report titled ‘A Model and Roadmap Goods and Services Tax (GST) in India’ to the government.
    6. Nov 10, 2009: Empowered Committee submits a discussion paper in the public domain on GST welcoming debate.
    7. Feb 2010: Government launches project for computerisation of commercial taxes. Finance Minister Pranab Mukherjee defers GST to April 1, 2011.
    8. March 22, 2011: Constitution Amendment Bill (115th) to GST introduced in the LokSabha
    9. March 29, 2011: Bill referred to Standing Committee on Finance.
    10. Nov 2012: Finance minister and state ministers decide to resolve all issues by Dec 31, 2012.
    11. Feb 2013: Declaring government’s resolve to introduce GST, the finance minister makes provisions for compensation to states in the Budget.
    12. Aug 2013: The standing committee submits a report to Parliament suggesting improvements. But the bill lapsed as the 15th LokSabha was dissolved.
    13. Dec 18, 2014: Cabinet approval for the Constitution Amendment Bill (122nd) to GST.
    14. Dec 19, 2014: The Amendment Bill (122nd) in the LokSabha
    15. May 6, 2015: The Amendment Bill (122nd) passed by the LokSabha.
    16. May 12, 2015: The Amendment Bill presented in the RajyaSabha
    17. May 14, 2015: The Bill forwarded to joint committee of RajyaSabha and LokSabha
    18. Aug 2015: Government fails to win the support of Opposition to pass the bill in the RajyaSabha where it lacks sufficient number.
    19. Aug 3, 2016: RajyaSabha passes the Constitution Amendment Bill by a two-thirds majority. Note: GST constitutional amendment bill needs to passed by at least 50% of state legislatures to be implemented. Assam is 1st State to pass GST bill.
    20. 1 July 2017: GST to be applicable across India.

    Benefits of GST

    1.For Central and State Governments

    Simple and Easy to administer: Because multiple indirect taxes at the central and state levels are being replaced by a single tax “GST”. Moreover, backed with a robust end to end IT system, it would be easier to administer.

    Better control on leakage: Because of better tax compliance, reduction of rent seeking, transparency in taxation due to IT use, an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.

    Higher revenue efficiency: Since the cost of collection will decrease along with an increase in the ease of compliance, it will lead to higher tax revenue.

    2 . For the Consumer

    • The single and transparent tax will provide a lowering of inflation.
    • Relief in overall tax burden.
    • Tax democracy that is luxury items will be taxed more and basic goods will be tax-free.

    3 .For the Business Class

    • Ease of doing business will increase due to easy tax compliance.
    • Uniformity of tax rate and structure, therefore, better future business decision making and investments by the corporates.
    • Removal of cascading effects of taxes.
    • Reduction in transactional cost will lead to improved competitiveness.
    • Gain to the manufacturer and exporters.
    • It is expected to raise the country GDP by 2% points.

    GST Council

    • It is the 1st Federal Institution of India, as per the Finance minister.
    • It will approve all decision related to taxation in the country.
    • It consists of Centre, 29 states, Delhi and Puducherry.
    • Centre has 1/3rd voting rights and states have 2/3rd voting rights.
    • Decisions are taken after a majority in the council.

    Supporting Laws to implement GST

    For the implementation of GST, apart from the Constitution Amendment Act, some other statutes are also necessary. Recently 5 supporting laws to the GST were recommended by the council. 4 for the bills should be passed by the parliament, while the 5th one should be passed by respective state legislatures. The details are,

    • The Central Goods and Services Tax Bill 2017 (The CGST Bill).
    • The Integrated Goods and Services Tax Bill 2017 (The IGST Bill).
    • The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill).
    • The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill).
    • And a state GST will be passed by the respective state legislative assemblies.

     

    1. Tax slabs are decided as 0%, 5%, 12%, 18%, 28%along with categories of exempted and zero rated goods for different types of goods and services.
    2. Further, a cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the rate of 28% for payment of compensation to the States.
    3. However, which goods and services fall into which bracket is still an enormous task to be completed by the GST council.
    4. Highest tax slab is pegged at 40%.

    Principle of GST

    1. The Centre will levy and collect the Central GST.
    2. States will levy and collect the State GST on the supply of goods and services within a state.
    3. The Centre will levy the Integrated GST (IGST) on the interstate supply of goods and services, and apportion the state’s share of tax to the state where the good or service is consumed.
    4. The 2016 Act requires Parliament to compensate states for any revenue loss owing to the implementation of GST.

    Issues Arisen OR Unresolved

    1.Not all items are covered

    Taxation for certain items such as Alcohol, Tobacco etc. are still not under the GST domain. States argue that including them would hamper their revenue and they would suffer a huge resource. However, some experts say that the real reason is the nexus of politicians with some business class and high profile lobbying. Further, the Finance minister of India has said in the parliament that the consensus to include alcohol and tobacco under GST regime is possible in foreseeable future.

    2.Decision criteria for the tax bracket

    There are apprehensions that how to decide about the items and the criteria that which item will fall into which tax bracket. It may lead to lobbying. To this, the Finance minister has said that the decision will be taken by the GST Council only and after due diligence and most probably by the consensus.

    3.Multiple tax rates and brackets:

    The philosophical idea that GST means “One Nation one Tax” is currently diluted due to multiple tax rates and brackets. To this, the Finance minister has said that since the target consumer of goods and services have different capabilities and therefore there must be a system similar to the democratic lines where higher value consumer pays more taxes.

    4.Power to impose tax taken away by Central Government from the Parliament:

    The Central GST Bill, 2017 allows the central government to notify CGST rates, subject to a cap. This implies that the government may change rates subject to a cap of 20%, without requiring the approval of Parliament. Under the Constitution, the power to levy taxes is vested in Parliament and state legislatures. Though the proposal to set the rates through delegated legislation meets this requirement, the question is whether it is appropriate to do so without prior parliamentary scrutiny and approval.

    5.Confusion regarding the location of consumption:

    Under GST, both state and Centre can tax the services based on their location of consumption. Now the confusion arises since the general rule to determine the location of the recipient is his location or address on record; there are specific rules for various services such as telecom, property, transportation, etc. This means that while a service may be consumed across multiple states, the tax revenue would be attributed to the state where the recipient is registered or his office is located.  This could lead to higher tax attributed to states that have more registered offices. For example, suppose a company is located in Bangalore and advertises its products in the Kolkata edition of a newspaper, which has its registered office in Delhi. In this case, one may argue that the service is being finally consumed in Kolkata. However, as the recipient of services is in Bangalore, the tax would accrue to Karnataka.

      6.Anti-Profiteering Clause:

    The government is planning to set up an authority to see if any reduction in tax rates after GST is passed on to the consumer by companies or not. The industry and businesses are not taking this idea kindly and they see it as a backdoor entry of inspector raj. Experts say that prices should be market determined and no government authority has the business of deciding prices for goods and services.

    7.Confusion regarding the control over taxation:

    To avoid dual control, the GST council has reached a compromised formula. 90 percent of tax assesses with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with a turnover of over Rs 1.5 crore, the states and the Centre will share it equally. However, this ‘solution’ has its own set of issues. For example, if an entity with a turnover of less than Rs 1.5 crore in one year, posts a turnover of Rs 1.5 crore in the following financial year, who would be the new authority to take over the assessment? And, how will the existing investigations, if any, against the entity be addressed, and by whom? “There are a lot of procedural issues, and if these issues are not addressed properly, they would lead to litigations.

    8.The issue of casual taxable person:

    If a person registered in one state moves to another state for a short period for some business transaction – say to participate in a fair or exhibition, then that person would have to get himself registered in that state for that period.

    GSTN

    1. GSTN is registered as a not-for-profit company under the companies Act.
    2. It has been formed to set up and operate the information technology backbone of the GST.
    3. While the Central (24.5%) and the state (24.5%) governments hold a combined stake of 49%, the remaining 51% stake is divided among five financial institutions—LIC Housing Finance with 11% stake and ICICI Bank, HDFC, HDFC Bank and NSE Strategic Investment Corporation Ltd with 10% stake each.
    4. GSTN had awarded Infosys Ltd the contract to develop the hardware and software for GST.
    5. The idea behind GSTN was to set up an entity that is equidistant from both the Central government and the state governments, as it will advise both the Centre and the states on the information technology network.

    Controversy around GSTN

    It is argued by some as a private company therefore not under government control. It may lead to a breach of tax data into private hands and manipulation of the same for the advantage of some corporates.

    To this allegation, the Finance minister replied in the parliament that this arrangement was decided by the empowered committee of the previous government and the present government has endorsed it by considering the fact that private professionals are required to such high octane system. Further, he said that if in future there seem to be any problem with the current structure then it can be changed through the GST Council debate and discussion.

    Further, GSTN website clarifies that the strategic control over GSTN is with the government given the sensitivity of the role of GSTN and the information that would be available to it. The strategic control of the government over GSTN is ensured through measures such as the composition of the board, mechanism of special resolution and shareholders agreement, induction of government officers on deputation and agreements between GSTN and governments.

     

    Govt plans to run registry of sex offenders

    Context:

    India recently launched a National Database on Sexual Offenders (NDSO), the ninth country to do so. A look at the objectives of and criticism against the idea, and how other countries run their registries:

    Broad objective

     

    The Criminal Law Act, 2018, provides for a national registry of sexual offenders. Accessible only to law enforcement agencies, the database will include offenders convicted of rape, gang-rape, under the POCSO (Protection of Children from Sexual Offences) Act, and of “eve teasing”. It will be maintained by the National Crime Records Bureau (NCRB). At present the database contains 4.4 lakh entries. State police forces have been asked to regularly update the database from 2005 onwards; this will help keep track of released convicts who have moved from one place to another.

    There are two reasons for starting the database from 2005. At most prisons, records before 2005 have not been digitised. Second, in many cases, the maximum punishment is life imprisonment which is calculated as 14 years, so many convicted prior to 2005 will have served their sentences. (In 2012, the Supreme Court clarified that life imprisonment would mean an entire lifetime.)

    Data to be stored

    The database will include names and aliases, identifiers including PAN and Aadhaar, information of date of birth, criminal history, fingerprints and palm prints, and various other details. It will only have details of persons who are aged 18 or more. Whenever the details of a convict are entered into a prison database anywhere in the country, the name will be uploaded to the registry. Appeals against a conviction will have to be updated by state prisons; an accused can be tracked until an acquittal on appeal.

    Other countries

    Similar databases of sexual offenders are maintained in the US, the UK, Australia, Canada, Ireland, New Zealand, South Africa and Trinidad & Tobago. While the registry in the US is available to the public and communities, except data on juveniles, other countries limit access only to law-enforcement agencies. Everywhere, only convicted persons are entered.

    The US law owes its genesis to a case involving Jesse Timmendequas, a convicted sex offender who, on being released after serving the maximum sentence, raped and murdered a 7-year-old. Community members successfully lobbied for the enactment of a law requiring registration and public notification that a sex offender is living in the community, in the belief that this would allow citizens to take protective measures. Since then, all US states have passed similar legislation, collectively referred to as “Megan’s Law”.

    Criticism

    In some western countries, there have been demands for a review of the decision to maintain a registry amid a view that it does not serve as a deterrent or help people who have survived sexual violence. In India, critics have pointed out most sex crimes are committed by a person known to the victim; NCRB data of 2015 states that out of 34,651 reported rape cases, 33,098 were committed by people known to the victim. “Once such a registry comes into being, I am concerned that it might lead to people not reporting rapes or sexual offences, because most of them are by people known to the victims,” PTI quoted Bharti Ali of HAQ Centre for Child Rights as saying.

     

    Fugitive Economic Offenders Bill

    The Fugitive Economic Offenders Bill (FEOB) 2018

     

    Context:

    The Fugitive Economic Offenders Bill (FEOB) 2018 was cleared at the ongoing monsoon session of Parliament. It is a comprehensive legislation aimed at deterring fugitive economic offenders from evading the process of law in India, and for preserving the sanctity of rule of law. This is a significant initiative by the government towards preserving and promoting transparency, openness and accountability in the Indian economy.

    Features of the Bill:

     

    FEOB, among other things, provides for the declaration of an individual as a fugitive economic offender and the consequent confiscation and disposal of his properties.

    Authorities are also empowered to attach his properties during the pendency of proceedings. Action may be taken against properties that are proceeds of crime, as well as other owned or benami properties, irrespective of whether they are situated in India or abroad.

    The Bill also empowers the authorities to carry out survey, search of places and persons and seizure of records, property and proceeds of crime.

    The Bill was deemed necessary because the existing laws were inadequate to effectively and expeditiously deal with the non-performing assets (NPAs) crisis.

     

    Several persons who have borrowed huge sums of money, from both public sector and private banks, have become wilful defaulters and moved abroad to evade prosecution in India. The absence of such offenders from Indian courts has several detrimental consequences, which include unnecessary hurdles and inordinate delays in the investigation and judicial process. It also adversely affects the recovery process of banks and financial institutions.

    FEOB allows for an individual to be declared a fugitive economic offender if an arrest warrant has been issued against him for any scheduled offences where the value involved is over Rs 100 crore, and he has left the country and refuses to return to face prosecution. This monetary threshold ensures that cases involving huge amounts of money are fast-tracked by the special court. Any case that falls below the threshold will still be adjudicated by ordinary criminal courts under existing criminal laws.

    Before conducting survey, search or seizure, the authorities have to record their reasons in writing and their decisions are solely based on the material on record. Therefore, there is no scope for abuse of power by any authority. Once an individual is declared a fugitive economic offender, his properties may be confiscated and disposed of within 90 days.

    India being a signatory to the UN Convention Against Corruption is authorised to adopt such a measure, since the convention itself provides for the permanent deprivation of assets when conviction is not possible due to the offender absconding. The confiscation and liquidation of assets is necessary to preserve the financial health of banks and to ensure that they do not have to go through unnecessary delay and hurdles to recover their dues. Further, assets may only be disposed of to the extent of the dues to be recovered. Hence, there is no scope for arbitrary action.

    Upon declaration as a fugitive economic offender, he or any company associated with him may also be barred from filing or defending civil claims. Such measures are necessary to pressurise the person into returning to India and facing prosecution in Indian courts. It is also pertinent to note that the bar on civil claims is not absolute. The bar will be lifted as soon as the fugitive economic offender returns to India to face prosecution. So, there is no denial of right to access justice or right to life under Article 21.

    The Bill also ensures that all procedures are carried out according to due process. Authorities have to state in the application the reasons for believing that an individual is a fugitive economic offender. The Special Court then applies its wisdom before declaring him as such. Sufficient notice and opportunity to reply are granted to the individual as well as persons interested in his properties to be confiscated. Proceedings are promptly dropped if the fugitive economic offender enters appearance and certain properties may be exempted from confiscation where other persons have legitimate interests in them. 

    Conclusion:

    Thus, FEOB lays down an effective mechanism for ensuring that the crooks who siphon off money from Indian coffers are penalised and put behind bars. This is a ground-breaking legislation that has the potential to transform the Indian economic landscape in the years to come.

    FPI and Related Industries in India

    Food Processing and Related Industries in India

    Definition

    Food processing is the transformation of raw ingredients into food, or of food into other forms (ie. food processing may denote direct manufacturing of food or value addition on existing food). Food processing typically takes harvested crops or butchered animal products and uses these to produce long shelf-life food products.

    Food processing dates back to the prehistoric ages when crude processing incorporated slaughtering, fermenting, sun drying, preserving with salt etc. Modern food processing adopts latest technologies and practices.

    Processes in a food processing industry

    There are two types of processes in a food processing industry :

    • Manufacturing: Raw materials → Food.
    • Value Addition: Increase shelf life and value of a manufactured food.

    Products in food processing industry

    We can divide the products in food processing industry into two:

    • Primary (Eg: Fruits and Vegetables).
    • Secondary or Value Added (Jams and Squashes)

    Significance of FPI

    1. India is a land famous for food production. More than 50% of Indian population work in Agriculture related activities. If there are good food processing industries in India, raw materials like grains or meat can be converted into food for domestic and foreign consumption.
    2. Food processing units acts as a link between agriculture and industries.
    3. Food processing industries can absorb a major share of workers from the agriculture sector, who face disguised unemployment. It can lead to better productivity and GDP growth.
    4. Food processing prevents food wastage and help in attaining food security.
    5. Processed food requires less space for storage.
    6. Processed food can be exported. This may help us in getting foreign exchange reserves.

     Scope and Significance of Food Processing Industries in India

    1. India’s position as a major food producer: India ranks 1st in the production of – milk, ginger, banana, guava, papaya, mango etc. It ranks 2nd in the production of rice, wheat, potato, sugarcane, cashew nut, tea etc. It is among the top 5 countries in the production of coffee, tobacco, spices, seeds etc. With such a huge raw material base, we can easily become the leading supplier of food items in the world.
    2. Resource advantage of India: Different soil types and different climate types for cultivation of diverse food crops, long coastal line suitable for fishing, huge resource of domestic animals etc.
    3. Increasing employment: Expected to create more than 10 lakh new jobs.
    4. Curbing Migration: Provides employment in rural areas, hence reduces migration from rural to urban. Resolves issues of urbanization.
    5. Curbing food inflation: Removes issues of wastage or middle man. Curbs food inflation. Indirect relief on non-food inflation too.
    6. Crop Diversification: Because of long shelf life, farmers can diversify their products.
    7. The demand potential: Expected to reach 250b$ turnout by 2015 and 350b$ by 2020. Youth population, middle class, rising income, nuclear families, media penetration etc cited as positive factors.
    8. Government initiatives to boost food processing: Various government initiatives like attracting FDI, reduction in excise duties etc have boosted food processing.
    9. Future driver of Indian growth: Food processing corresponds to around 10% of GDP in agriculture-manufacturing sector. It has potential for more.

    Major segments of food processing

    • Fruits and Vegetables.
    • Milk and Milk Products.
    • Meat and Poultry.
    • Marine Products.
    • Grain Processing.
    • Consumer Food.

    Upstream requirements

    • Accessibility to raw materials.
    • Modern extraction techniques.
    • Good linkages with farmers.
    • Storage facilities for raw materials like Grains, Meat, Fish etc.
    • Quality testing facilities.
    • Transport facilities.
    • Work force.

    Downstream requirements:

    • Latest processing techniques.
    • Latest processing machinery.
    • Quality testing facilities.
    • Organized retail stores for faster distribution.
    • Work force.

    Supply Chain Management

    Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, inventory and finished goods from point of origin to point of consumption.

    Role of SCM in FPI

    Raw materials like grains, raw meat, fish etc are collected by different sources. These sources may do preliminary processing of these to make components of a food product before passing over them to the main manufacturer through many middle men. The manufacturer does the final processing of these components to make the food product. This completes only the first stage of supply management.

    Now the finished product has to be delivered to the consumer. Here also there will be a number of middle men and stages. The manufacturer normally hands over the food product to a whole sale dealer. The wholesaler pass the product to a retailer from where the consumer buys the processed food item for his personal use.

    Thus, Supply Chain Management is the management of upstream and downstream value added flow of materials from suppliers→ company→ retailer→ final consumers.

    Importance of Supply Chain Management in Food Processing Industry

    If there are good Supply Chain Management practices in a country, then it will boost economy as a whole. Good supply chain links helps farmers, manufactures, wholesalers, retailers and consumers. Every one in the supply chain link will get inputs at a faster rate, at the right time and at a cheaper cost.

    Obstacles in the growth of food processing Industries

    1. Small size companies: Indian food processing companies are small and can’t compete with global giants which invest heavily on R & D.
    2. Lack of good laboratories in India : Food export to US and EU demands high quality standards. India lack good laboratories to check heavy metal and other toxic contamination in food.
    3. Lack of skilled work force. We have only a few graduates in Food Technology.
    4. Lack of right vision and support from the government at the right time.
    5. Lack of good transportation facilities. Roads are overburdened.
    6. Lack of storage facilities and good production techniques.
    7. Lack of organised retail.
    8. Limitations in supply chains.
    9. Limitations in the quality.
    10. Lack of modern regulations.

    Government Initiatives for Development of food processing Industry in India

    • 100% FDI in this sector.
    • Agri Export Zones.
    • National Mission on Agriculture.

    Major Schemes by Government include

    1.  Vision 2015 for food processing: The Ministry of Food Processing Industries (FPI) has sponsored a study to suggest a roadmap for the growth of food processing sector. M/S Rabo Bank has conducted a study and submitted a Vision Document suggesting strategy & action plan for food processing sector in India namely Vision 2015. Vision Document suggested strategy to ensure faster growth of the sector. The adopted Vision 2015 provides for enhancing the level of processing of perishable from 6% to 20%, enhancing value addition from 20% to 35% and increasing India’s share in global food trade from 1.5% to 3% by the year 2015. To achieve these targets, investment of Rs.100 thousand crores was estimated by year 2015, out of which Rs.10,000 crores was to come from the Government. Accordingly, Ministry of FPI formulated its 11th Plan schemes to attract the required investment in the sector.
    2. National Mission on Food Processing: Ministry of Food Processing Industries (MOFPI) launched a new Centrally Sponsored Scheme(CSS) – National Mission- on Food Processing (NMFP) on 1st April 2012 for implementation through States/UTs. The NMFP envisages establishment of a National Mission as well as corresponding Missions in the State and District level. The basic objective of NMFP is decentralization of implementation of food processing related schemes for ensuring substantial participation of State Governments/UTs. The mission is expected to improve the Ministry’s outreach significantly in terms of planning, supervision, monitoring of various schemes apart from playing a more meaningful role in policy formation.
    3. Mega food parks: The Scheme of Mega Food Park aims at providing a mechanism to link agricultural production to the market by bringing together farmers, processors and retailers so as to ensure maximizing value addition, minimizing wastages, increasing farmers’ income and creating employment opportunities particularly in rural sector. The Mega Food Park Scheme is based on “Cluster” approach and envisages a well-defined agri/ horticultural-processing zone containing state-of-the art processing facilities with support infrastructure and well-established supply chain.
    4. Modernization of abattoirs: The scheme aims at providing facilities for scientific and less painful slaughtering, chilling, effluent treatment plant, by-product utilization, water and power with required sanitary / phyto sanitary conditions for modernization of abattoirs. Modernization of abattoirs will also augment essential supply base of hygienic raw material to the meat processing industry, both for domestic consumption and exports, besides discouraging unauthorized slaughtering. Scheme of Setting up/ Modernization of Abattoirs provides for induction of private capital, better technology, backward and forward linkages. The scheme also provides for implementation of projects preferably under PPP mode with the involvement of local bodies and has the flexibility for involvement of private investors/exporters on a BOO/BOT/JV basis.
    5. Cold Chain Infrastructure: Scheme for Integrated Cold Chain, Value Addition and Preservation Infrastructure aims to encourage setting up of cold chain facilities to provide integrated cold chain and preservation infrastructure facilities without break from the farm gate to the consumer.
    6. R&D, QA, Codex and Promotion: Scheme for Quality Assurance, Codex, R&D and Other Promotional Activities is being implemented to create infrastructure of food testing laboratories in the country to establish quality monitoring system for food processing, implement HACCP/ISO22000, ISO14000/GHP/GMP and other quality management systems and to promote research and development for innovative products and process etc.

    Boards and Institutions

    • NIFTEM – National Institute of Food Technology and Entrepreneurial Management.
    • IGPB – Indian Grape Processing Board.
    • IICPT – Indian Insitute of Crop Processing Technology.
    • NMPPB – National Meat and Poultry Processing Board.

    The Present Status and Future of Food Processing Industries in India

    1. Estimated worth of Indian Food Processing Industry is 121 b dollars.
    2. India has already witnessed green and white revolution ie Agriculture and Milk.
    3. Now the focus is upon Pink Revolution : Meat and poultry sector.
    4. The packaged food sector in India is likely to double in 2015 to touch 30 b dollars.
    5. India is currently the world’s second largest producer of food (next only to China). We have the potential to become the No.1 player in this sector.

    Revolutions related to Food Production and Food Processing

    1. Pink Revolution – Meat and Poultry Production.
    2. Red Revolution – Meat & Tomato Production.
    3. Round Revolution – Potato Revolution.
    4. Silver Fiber Revolution – Cotton Revolution.
    5. Silver Revolution – Egg/Poultry Production.
    6. White Revolution – Milk/Dairy production (Operation Flood).
    7. Yellow Revolution – Oil Seeds production.
    8. Evergreen Revolution – Overall development of Agriculture.
    9. Blue Revolution – Fish Production.
    10. Brown Revolution – Leather /Cocoa production.
    11. Golden Fibre Revolution – Jute Production.
    12. Golden Revolution – Overall Horticulture development/Honey Production.
    13. Green Revolution – Agriculture in general.

     

    Corruption In India – Causes, Effects of Corruption in India and Types

    Introduction

    • Corruption in India is a consequence of the nexus between Bureaucracy, politics and criminals.
    • India is now no longer considered a soft state.
    • It has now become a consideration state where everything can be had for a consideration.
    • Today, the number of ministers with an honest image can be counted on fingers.
    • At one time, bribe was paid for getting wrong things done but now bribe is paid for getting right things done at right time.

    What is Corruption?

    1. Corruption is the misuse of public power (by elected politician or appointed civil servant) for private gain.
    2. In order to ensure that not only public corruption but also private corruption between individuals and businesses could be covered by multifamily investing basics the same simple definition
    3. Corruption is the misuse of entrusted power (by heritage, education, marriage, election, appointment or whatever else) for private gain.

    Causes of Corruption in India

    • Low Pay Scales And Wages
    • Lack of Stick And Fast Punishments
    • Lack of Unity in Public
    • Lack of Fundamental Rights Awareness in People of India
    • Lack of Transparency in Deals and Affairs
    • Lack of Independent detective agency
    • Lack of enough powers to the judicial system in India
    • Lack of Accountability
    • Unhealthy Competition Encouragement in India
    • Lack of Effective Management and Implementation
    • Lack of Economic Stability In India
    • Lack of Effective Leadership in India
    • Lack of Autonomy
    • Unemployment
    • Poverty And Hunger
    • Very Less Educational Institute and Medical Infrastructure .
    • Vast Size of Population in India Is Biggest Cause of Corruption In India .
    • Another Big Cause of Corruption In India Is nexus between political parties and Industrialist.
    • Emergence of political elite who believe in interest-oriented rather than nation-oriented programmes and policies is Another Big reason of Corruption in india .
    • Tolerance of People Towards Corruption is a Another big reason for Corruption In India.

    Consequences of Corruption

    • Rise in Unemployment
    • Rise in Hunger and poverty
    • Loss of Indian Economy Wealth
    • Fall in growth of Indian Economy
    • Power and Authority in Wrong hands
    • Brain Drain is Biggest Consequence for India
    • Psychological And Social Disorder
    • Corruption is also the main cause of Poverty as Rich are getting richer & poor are getting poorer. Not all the packages, compensation announced by government reach the minorities and backward communities.

    How can We Cure Corruption in India

    • Give Good salary to Government Employees
    • Bring transparency In Indian Economic System
    • Try To make Indian Society Cashless
    • More Number of Online transactions and provide bill For Every transactions
    • Bring Political parties Under RTI
    • Set Eligibility For Indian Politician
    • Increase in Digital And E Governance
    • Transparent tax structure by clean and clear enforcement
    • More Police reforms and Power Full Judiciary
    • Blacklist Corrupt Businessmen
    • Bring More Transparency In Govt Job Recruitment
    • Keep Inflation low
    • Speed up the judgement and increase the courts
    • Citizenship cancellation could be a highest level of punishment if their crime score reaches a certain extent.
    • Disrespecting the dishonest

    8 Effects of Corruption

    • Lack of quality in services
    • Lack of proper justice
    • Chances of Unemployment
    • Poor Health and hygiene
    • Low growth rate of Economy
    • Low Foreign Direct Investment
    • Low Development Rate
    • Low Standard of Living

    Steps taken by Indian government

    1. The biggest step is demonetization i.e. banning 500 and 1000 rs notes which is the route of all evil, be it Corruption, Black Money, Terrorism.
    2. Under “Right to Information Act (RTI)“, citizens can now ask government about how out ta money is spent.
    3. With “Jan Dhan yojana” & “Direct Benefit Transfer” schemes, bank accounts of millions of people were opened so that they can get subsidies and benefits directly into their account.
    4. E-Auctions for spectrums and natural resources is a good step towards a corruption less India.
    5. Government is focusing more on Digitizing, which will lead to more transparency in functioning of government.
    6. Government introduced self-attestation of certificates and has removed interviews from lower posts, so no one can bribe their way through interview to jobs.
    7. Another potent check on corruption is Central Vigilance Commission (CVC). It was setup by the Government to advise and guide Central Government agencies in the areas of vigilance.

    Anti-corruption laws in India

    1. Indian Penal Code, 1860
    2. Prosecution section of Income Tax Act, 1961
    3. The Prevention of Corruption Act, 1988
    4. The Benami Transactions (Prohibition) Act, 1988 to prohibit benami transactions.
    5. Prevention of Money Laundering Act, 2002.

    Shameful Statistics That Prove How India Is The Most Corrupt Country In Asia

    1.38% of land and property deals in India involve bribes

    • In India, 38% of land deals involve some form of bribes, mostly because for the buyer, that’s the only option left.
    • The entire nexus of government officials, politicians, judicial officers, real estate developers and law enforcement officials control the property trade, wherein they acquire and sell land illegally.

    More than 60 Percent Enforcement Officials takes Bribes

    • The police actually collect the highest amount of bribes. Passport verification make up 30% of the average bribe paid by a regular Indian in a year, while traffic violations make up 25%.
    • The methods are numerous and the amounts far-reaching, ranging from botched breathalyser tests charging Rs. 2500 to Rs. 500 for passport verification.

    60% of road stops for truckers are for extorting money

    • According to Transparency International, truckers pay ₹222 crore in bribes every year. Authorities such as government regulators, police, forest and sales and excise force stoppages on roads, and 60% of these are for extorting money https://aviator-game-india.in/.These delays lead to an egregious loss in productivity.
    • 60% of people who got their driving license from an agent haven’t taken the driving exam
    • 31% of members of parliament have criminal cases against them
    • Just about 40% of grain intended for the poor reaches them.

    Indradhanush Scheme – Basel III Norms

    Introduction

    1. The Public Sector Banks (PSBs) play a vital role in India’s economy.
    2. In the past few years, because of a variety of legacy issues including the delay caused in various approvals as well as land acquisition etc., and also because of low global and domestic demand, many large projects have stalled.
    3. Public Sector Banks which have got predominant share of infrastructure financing have been sorely affected.
    4. It has resulted in lower profitability for PSBs, mainly due to provisioning for the restructured projects as well as for gross NPAs.
    5. Thus to revive the fortunes of public sector banks, government unveiled a seven-point plan encompassing Rs 20,000 crore immediate fund infusion, creation of a single holding company and minimising political interference.
    6. The government has named this as ‘Indradhanush’ that also includes setting up of a Bank Board Bureau (BBB) for broad-level appointments and a performance-based monitoring mechanism.
    7. The strategy, Indradhanush (rainbow), focuses on systemic changes in state-run lenders, including a fresh look at hiring, a comprehensive plan to de-stress bloated lenders, capital infusion, accountability incentives with higher rewards including Stock Options and cleaning up governance.

    The 7 Elements includes:

    1. Appointments
    2. Bank of Board Bureau
    3. Capitalization
    4. De-Stressing Public Sector Banks
    5. Empowerment
    6. Framework of accountability
    7. Governance Reforms

    Recapitalization of Banks In India

    Introduction

    • The Indian Banking System has been under severe stress due to NPAs and has faced a capital crunch forcing it to curtail lending.
    • 2.Due to this, the Government of India has announced a 2.11 trillion bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to boost private investment.
    • 3.The plan has the following components,
    • 35 Lakh Crore – Through Bonds
    • 18 Lakh Crore – Budget Support
    • 58 Lakh Crore – Equity Capital from Market.

    Need for Recapitalization

    • The banks create loans based on the amount of capital in hand.
    • 2.Taking an example, let us say that a bank has forwarded loans of 100cr. To back this loan, the bank must have at least 10% of the loan amount as capital i.e. 10cr.
    • Now suppose, the bank loses 5cr on the loans due to a defaulter, it turns the loan into a non-performing asset (NPA) and this loss hits the capital.
    • Now, the bank has 5cr (10cr – 5cr loss) capital against a loan of 95cr which comes out to be nearly 5 %.
    • This is way below the required 10% ratio. So, the bank needs to increase its capital ratio and this can be achieved by the following methods:
    • Recall loans worth 45cr so that the remaining loans to capital ratio now increases to 10%.
    • Freeze disbursement of loans
    • The banks have resorted to the latter as loan recall is not a viable option.
    • This has adversely affected the economic growth of the country as a credit crunch has reduced private investment and stressed corporate balance sheets further.
    • The ‘twin-balance sheet’ problem has thus been exacerbated.

    Status of NPA’s in the country

    1. The banking sector in India has been significantly hit by stressed and non-performing assets.
    2. According to the figures released in June-end 2017, eight public sector banks have gross NPA ratios (GNPA) over 15%.
    3. Among the top 20 banks, 18 are PSBs and only two are private sector banks.
    4. SBI, Punjab National Bank, Bank of India, IDBI Bank, and Bank of Baroda accounted for 47.4 percent (3,93,154 crore) in the total NPAs.
    5. State Bank of India (SBI) itself accounted for the largest share of about 22.7 percent (1,88,068 crore) in the total NPAs of 38 banks (8,29,338 crore).
    6. SBI is also a domestic systemically important bank (D-SIB) as categorised by the Reserve Bank of India.
    7. Since the situation has reached crisis levels in the public sector banking system, it is imperative that the government inject capital to sustain the functioning of these banks.

    Reasons for growth in NPA’s

    Though the problem was identified two years ago, it continues to grow due to the following reasons:

    1. Due to over-leveraged balance sheets of corporates that borrowed liberally during the economic boom and are now unable to pay back.
    2. Delay in permissions and various clearances has led to stalling of projects. This is true for large infrastructure projects.
    3. Faulty reporting mechanisms of banks, this has led to the NPA problem worsening before the NPA accounts were verified accurately. This was rectified during a detailed Asset Quality Review (AQR) by the Reserve Bank.
    4. There have been instances of wilful defaulting and a nexus between bankers and corporates has increased this problem.

    Measures taken by the government to Recapitalize Banks

    1. Indradhanush Scheme – the Government had announced to infuse Rs70,000 crore in state-run banks over four years while they will have to raise a further Rs1.1 trillion from the markets to meet their capital requirement in line with global risk norms, known as Basel-III. In line with the plan, public sector banks were given Rs25,000 crore in 2015-16, and similar amount has been earmarked for the current fiscal. Besides, Rs10,000 crore each would be infused in 2017-18 and 2018-19.
    2. Recapitalization with Rs.2.11 trillion using recapitalisation bonds, budgetary allocation and funds raised from the market. This decision was taken after the Asset Quality Review conducted by the Reserve Bank.
    3. Using funds from the National Investment Fund. This fund is constituted from the sale of the stake in public sector enterprises I.e. disinvestment.

    Concerns regarding Recapitalization

    1. The increased budgetary allocation will cause the government to breach its fiscal deficit targets. Such a move will hurt economic growth and investor confidence in the Indian economy.
    2. There is a concern that recapitalisation only addresses the symptom and not the root of the problem of NPAs. Thus, without complementary measures (as suggested under Indradhanush scheme) it becomes a political tool like the farm loan waivers.
    3. The ethical concern that poor decisions of the public sector banks will be backed by the money of hardworking taxpayers is a cause of worry for the general public.
    4. There can be an increase in NPAs as companies will be more tempted to default due to writing off of loans by banks.
    5. Recapitalisation does not directly address the quality of lending and the cycle of bad lending could go on without other adequate measures such as reforms in the management of banks.

    Conclusion

    1. The decision of the Government to recapitalise banks is welcome as it will not only help in cleaning up of balance sheets but also help boost private investment in the economy.
    2. However, it also raises the issue of breaching the fiscal deficit target where the government may itself turn into the largest borrower and crowd out private borrowing as well as the bond market.
    3. Also, without other measures mentioned under the Indradhanush scheme, the recapitalisation of banks may turn out to be a temporary relief rather than a solution.
    4. Thus, it is required that all resolution measures be taken together promptly for an improvement in the Indian banking system.

     

     

    Important Terms

    Non-Performing Asset (NPA)

    A nonperforming asset (NPA) refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.

    Asset Quality Review (AQR)

    An asset qualityreview is the evaluation assessing the credit risk associated with a particular asset. These assets include loans and investment portfolios.

    Basel III Norms

    Basel guidelines refer to broad supervisory standards formulated by Basel Committee on Banking Supervision (BCBS). From this, three norms have come which are of voluntary nature. The Basel III norms specify a certain level of capital, leveraging, funding and liquidity for banks. These were released in the aftermath of the Global Financial crisis of 2008. These norms are to be implemented by 2019.

    Indradhanush Scheme

    Mission Indradhanush is a seven-pronged strategy of the Government of India to resolve various issues faced by Public Sector banks (PSBs). It aims to entirely reform their structure and functioning. The seven parts are -Appointments, Banks board bureau, Capitalisation, De-stressing, Empowerment, Framework of accountability and Governance reforms.

    Domestic Systemically Important Bank (D-SIB)

    D-SIB means that the bank is ‘too big to fail’(TBTF). According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered part of this group. If such a bank fails, there would be a significant impact on the overall economy.

    Bank Board Bureau

    Introduction

    1. With a view to improve the governance of public sector banks, the government had decided to set up an autonomous Bank Board Bureau.
    2. The bureau will recommend for selection the heads of public sector banks and financial institutions and help banks in developing strategies and capital raising plans.
    3. BBB is considered as the first step towards Bank Investment Company as recommended by P J Nayak committee.

    Structure of BBB

    1. The BBB will comprise of a Chairman and six members of which three will be officials and three experts (of which two would necessarily be from the banking sector).
    2. The Search Committee for members of the BBB would comprise of the RBI Governor, Fin. Secretary (FS) and Secretary (DoPT) as members.

    Functions of BBB:

    1. Give recommendations to Government for appointment of full-time Directors as well as non-Executive Chairman of PSBs.
    2. Give advice to PSBs in developing strategies for raising funds through innovative financial methods and instruments to deal with stressed assets.
    3. Guide banks on mergers and consolidations and also ways to address the bad loans problem and among other issues.

    Significance of BBB

    • The bureau has beenset up at a time when public sector banks are grappling with a huge problem of bad loans with their collective gross NPAs (Non-Performing Assets) approaching Rs. 4 lakh crore level.
    • Saddled with a large pile of bad assets, public sector banks need dollops of capital.
    • They also need to focus on sharpening efficiency and strengthening corporate governance.
    • The Bureau is mandated to play a critical role in reforming the troubled public sector banks.

    Cauvery Dispute: Background, Timeline, Recent Verdict, Issues

    Introduction

    • The river Cauvery is the third largest river of South India after Mahanadi and Godavari. Its water drains the states of Karnataka and Tamil Nadu. But the sharing of the water of this river has become an issue of conflict between the two states, with each referring to a British-era document for deciding their claim.

    Geographical Location of the River: 

    • The Cauvery River originates in Karnataka’s Kodagu district, flows into Tamil Nadu, and reaches the Bay of Bengal at Poompuhar.
    • Parts of three Indian states – Tamil Nadu, Kerala, and Karnataka – and the Union Territory of Pondicherry lie in the Cauvery basin.
    • The total catchment area is 81,155 square kilometres. Off the total area 34,273 kilometres is in Karnataka, 44,016 square km in Tamil Nadu and Puducherry and about 2,866 sq km is in Kerala.
    • The river’s upper hilly catchment lies in Karnataka and Kerala. Its lower part lies in the plains of Tamil Nadu.
    • Karnataka is the upper riparian statewhere the river originates; Tamil Nadu is a lower riparian state.

    Brief Background of the Dispute

    Pre- Independence

    • In mid-19thcentury, the government of Mysore wanted to build a number of new irrigation projects.
    • This caused anxiety to the state of Madras which was dependent on Cauvery waters for irrigation.
    • After several rounds of discussions between the two and the government of India, an agreement was signed in 1892
    • Another agreement was signed in 1924,relating to the use, distribution, and control of the Cauvery waters specifically.
    • Both agreements stated that existing irrigation should not be impeded by the construction of new works upstream, and downstream irrigation should not be reduced.
    • However, Karnataka did not implement these agreements
    • In 1910, the government of Mysore proposed a reservoir at Kannambadi, and sought the consent of the Madras government under the 1892 agreement.
    • As the Madras government did not agree, it was referred to arbitration.
    • The Madras government did not accept the reward of the arbitration panel and it appealed. When the government of India did not intervene, moves were initiated that led to the signing of the 1924 Agreement.

    Post-Independence

    • As Kerala and Puducherry also claimed share of Cauvery water after India attained Independence, a Fact Finding Committeewas set-up in 1970 to figure out the situation on ground.
    • After submission of the report, the states reached at an agreement in 1976.
    • However, later when Tamil Nadu got its new government, it refused to give consent to terms of agreement which led to fresh disputes.
    • In 1986, Tamil Nadu government appealed the Central government to constitute a tribunal for solving the issue under Inter-State Water Disputes Act, 1956.
    • The Centre constituted the Cauvery Water Disputes Tribunal (CWDT) finally in 1990 to resolve the dispute following a Supreme Court order.
    • The Tribunal announced its final order in 2007
    • The award made an annual allocation of 419 TMC to Tamil Nadu in the entire Cauvery basin, 270 TMC to Karnataka, 30 TMC to Kerala, and 7 TMC to Puducherry.
    • Karnataka had contested the final verdict of the dispute tribunals, arguing that a major share of the water will go to Tamil Nadu, leaving almost six Karnataka districts, including Bengaluru, without enough water for drinking and farming.
    • Over the years, the Supreme Court has passed a series of orders setting a limit to the amount of water to be released by Karnataka to Tamil Nadu.
    • In 2016, the Tamil Nadu government sought the Supreme Court’s intervention claiming that Karnataka had failed to fully comply with a series of orders passed by the court regarding timely release of water from the Cauvery River.
    • Karnataka argued that it was unfair to require the state to release a fixed amount of water irrespective of the availability of water. The state also made strong case on drinking water needs of Bengaluru

     

    Timeline of the Dispute:

    • The dispute arose after the Agreement of 1924 lapsed in the year 1974, putting an end to the obligations of the states under the document. After this, some of the important dates have been as follows:
    • 1990-After a constant demand by Tamil Nadu to constitute the Cauvery Water Dispute Tribunal, it was finally created in 1990 in the month of June by direction of Supreme Court.
    • 1991-The Tribunal rejected the plea for interim relief of the Tamil Nadu government against which the state went on an appeal to the Supreme Court. The Supreme Court then directed the tribunal to entertain the interim relief petition. The tribunal complied and passed an interim award which required Karnataka to release 205 tmcft of water. But in order to nullify the effects of the interim award the Karnataka government passed an ordinance that also became a matter of litigation and was struck down by the Supreme Court. But Karnataka still refused to obey which resulted in the publication of notification of the interim award in gazette of Government of India.
    • 1993-Some dramatic events took place as the then Chief Minister of Tamil Nadu Later Jayalalithaa went on a sudden fast demanding immediate release of the share of water stipulated in the interim award.
    • 1998-But the constant denial of the interim award finally led to the constitution of the Cauvery River Authority that would ensure implementation of the interim award.
    • 2002-This became another major eventful year which began with the Authority directing Karnataka to release only 0.8 tmcft of water, which angered Tamil Nadu and it again appealed to the Supreme Court. Meanwhile, a lot of political events unfurled with a Congress MP from Tamil Nadu blaming the AIADMK government for not sufficiently addressing the issue in the Parliament which led to a tussle between the two parties. In Karnataka a farmer jumped into the Kabini reservoir and died in protest against the release of water to Tamil Nadu. Then a Cauvery Monitoring Committee Panel was formed that visited the farmers of Karnataka seeking to know their distress.
    • 2003-Loopholes in functioning of the Cauvery River Authority was exposed.
    • 2005-A distress sharing formula was decided, but Karnataka still refused to implement this formula.
    • 2006-Talks held between farmers of both sides and compromise on water sharing was entered into.
    • 2007-The tribunal upheld the agreements of 1892 and 1924 and passed the award, which led to violent protests in Karnataka.

     

    Verdict of CWD Tribunal:

    • The Cauvery Water Disputes Tribunal passed an Interim order in 1991 directing the State of Karnataka to release Water from its reservoirs in Karnataka so as to ensure 205 Thousand Million Cubic Feet (TMC) of water into Mettur reservoir of Tamil Nadu in a water year (1st June to 31st May) with monthly and weekly stipulations. Karnataka government refused to obey the interim award.
    • After 16 years of hearing and an interim order, the Tribunal announced its final order in 2007 allocating 419 tmcft water to Tamil Nadu and 270 tmcft to Karnataka. Kerala was given 30 tmcft and Puducherry got 7 tmc ft. Both Karnataka and Tamil Nadu filed review petitions in Supreme Court.
    • Karnataka has not accepted the order and refused to release the water to Tamil Nadu. In 2013, Contempt of Court was issued against Karnataka.
    • 2013-Notification of final award by Centre and creation of Cauvery Water Management Board
    • 2016-But Karnataka had refused to follow the final award which led to another petition before the Supreme Court seeking execution of the final award. The Court after that kept pressurizing the Karnataka government for releasing 15,000 cusecs of water and to obey the award. Meanwhile the matter continued in the Court.

    Latest Supreme Court Verdict:

    • The judgment was passed on a batch of appeals by the states of Karnataka, Tamil Nadu and Kerala challenging the 2007 award passed by the Cauvery River Water Disputes Tribunal
    • Supreme Court curtailed Tamil Nadu’s share of Cauvery water by 14.75 tmcft and increased Karnataka’s share to meet Bengaluru’s drinking water needs.
    • Tamil Nadu will get 404.25 tmcft, which will be 14.75 tmcft less than what was allotted by the tribunal in 2007.
    • Karnataka will now release only 177.25 TMC ft Cauvery water from Billigundlu site to Mettur dam in Tamil Nadu.
    • The SC has given the Centre 6 weeks to frame a scheme to make sure the final decisions are implemented.
    • The SC has also directed the formation of the Cauvery Management Board (CMB)
    • The 2007 tribunal award of 30 TMC ft to Kerala and 7 TMC ft water to Puducherry will remain unchanged
    • Referring to river Cauvery as a “national asset”,the Supreme Court has further said that “no state can claim exclusive right to a river passing through different states”
    • The Court acknowledged Bengaluru’s need of water and based the supply of water to Bengaluru on the ground that both the National Water Policy and also courts of different countries hold that drinking water should be given “first priority.”

    Way Forward:

    • The outcome of the legal battle ranging over a decade has serve as a precedent on deciding water sharing disputes in the future.
    • The apex court has upheld the approach of the Cauvery Water Dispute Tribunal but has slightly modified it. The decision has boosted the prospects of a viable water-sharing arrangement among the riparian States.
    • The Court has significantly recognised the principle of equitable distribution of inter-State rivers by stating that no single State has primacy in accessing water resources and that rivers are national assets.

    Budget 2018-19

    Macroeconomic Situation

    • Indian economy has grown to a $ 2.5 trillion economy; reaching at seventh largest in the world.
    • India is expected to become the fifth largest economy very soon.
    • On Purchasing Power Parity (PPP) basis, the country is already the third largest economy.

    Sector wise Analysis of Budget

    Agriculture and the Rural Economy

    • The government is aiming to double farmers income by 2022.

    MSP approach

    1. The approach of the government is that farmers should realize at least 50 per cent more than the cost of their produce.
    2. Minimum support price (MSP) for the majority of rabi crops at least at one and a half times the cost involved. Now, this is to be extended to rest of the crops as well.
    3. For this, the Government has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost. This is an important step towards doubling the income of farmers.

    Gramin Agricultural Markets (GrAMs)

    • 1.Government will develop and upgrade existing 22,000 rural haats into Gramin Agricultural Markets (GrAMs).
    • In these GrAMs, physical infrastructure will be strengthened using MGNREGA and other Government Schemes.
    • These GrAMs, electronically linked to e-NAM and exempted from regulations of APMCs, will provide farmers facility to make direct sale to consumers and bulk purchasers.

    Operation Greens

    • 1.Seasonal and regional production of perishable commodities including tomato, onion, potato etc. pose a challenge in connecting farmers and consumers in a manner that satisfies both.
    • To overcome this problem, the government will launch an ‘‘Operation Greens’’ on the lines of ‘‘Operation Flood’ with an allocation of Rs 500 crores.
    • Operation Greens will promote Farmer Producers Organizations (FPOs), agri-logistics, processing facilities and professional management.

    Rejuvenation of Bamboo Mission

    • 1.Bamboo that is known as green gold is now not treated as trees when grown outside forest.
    • The budget proposes to launch a Restructured National Bamboo Mission with an outlay of Rs 1290 crore to promote bamboo sector in a holistic manner.

    Farm residue burning

    • Air pollution in the Delhi-NCR region has been a cause of concern.
    • A special Scheme will be implemented to support the efforts of the governments of Haryana, Punjab, Uttar Pradesh and the NCT of Delhi to address air pollution and to subsidize machinery required for insitu management of crop residue.

    Higher allocation for Saubhagya Yojana

    • 1.The Prime Minister Saubhagya Yojana was launched to provide electricity to all households of the country.
    • Under this scheme, four crores poor households are being provided with electricity connection free of charge.
    • The government is spending Rs 16000 crore under this scheme.
    • GOBAR DHAN (Galvanizing Organic Bio-Agro Resources Dhan)
    • The GOBAR DHAN programme is aimed for the management and conversion of cattle dung and solid waste in farms to compost, fertilizer, bio-gas and bio-CNG.

    KisanUrja Suraksha evamUtthaanMahaabhiyan (KUSUM) Scheme

    • It is a scheme for promoting decentralized solar power production of up to 28,250 MW to help farmers.
    • It would provide extra income to farmers, by giving them an option to sell additional power to the grid through solar power projects set up on their barren lands.
    • It would help in de-dieselising the sector as also the DISCOMS.

    Components of the scheme:

    1. The components of the scheme include building 10,000 MW solar plants on barren lands.
    2. To provide sops to DISCOMS to purchase the electricity produced.
    3. ‘Solarising’ existing pumps of 7250 MW as well as government tube wells with a capacity of 8250 MW and distributing 17.5 lakh solar pumps.
    4. The 60% subsidy on the solar pumps provided to farmers will be shared between the Centre and the States
    5. 30% would be provided through bank loans, the balance cost has to be borne by the farmers.

    Significance of the scheme:

    1. Expected positive outcomes of the scheme include promotion of decentralised solar power production, reduction of transmission losses as well as providing support to the financial health of DISCOMs by reducing the subsidy.
    2. The scheme would also promote energy efficiency and water conservation and provide water security to farmers.
    3. Education

    Education technology – blackboard to digital board

    1. Technology will be the biggest driver for improving the quality of education. The government to increase the digital intensity in education and move gradually from ‘‘black board’’ to ‘’digital board”.
    2. Technology will also be used to upgrade the skills of teachers through the recently launched digital portal “DIKSHA”.

    Quality education to tribal children – Ekalavya schools

    1. The Government is committed to provide the best quality education to the tribal children in their own environment.
    2. To realise this mission, every block with more than 50% ST population and at least 20,000 tribal persons, will have an Ekalavya Model Residential School by 2022.
    3. Ekalavya schools will be on par with NavodayaVidyalayas and will have special facilities for preserving local art and culture besides providing training in sports and skill development.

    RISE (‘‘Revitalising Infrastructure and Systems in Education (RISE) by 2022

    1. To step up investments in research and related infrastructure in premier educational institutions, including health institutions.
    2. With a total investment of Rs 1,00,000 crore in next four years.
    3. Higher Education Financing Agency (HEFA) would be suitably structured for funding this initiative.

    Institutes of Eminence

    1. Government has taken major initiative of setting up Institutes of Eminence.
    2. There has been tremendous response to this initiative by institutions both in public and private sectors.
    3. The government got more than 100 applications.
    4. A specialized Railways University will be created at Vadodara.

    Prime Minister’s Research Fellows Scheme

    1. Under this, the government would identify 1,000 best B.Tech students each year from premier institutions.
    2. To provide them facilities to do Ph.D in IITs and IISc, with a handsome fellowship.
    3. These young fellows would voluntarily commit few hours every week for teaching in higher educational institutions.
    4. Health & Social Sector

    Ayushman Bharat

    1. Two major initiatives will be launched under ‘‘Ayushman Bharat’’ to address health holistically, in primary, secondary and tertiary care system covering both prevention and health promotion.
    2. The initiatives are health and wellness centres and National Health Promotion Scheme.

    Health and wellness centres

    1. The National Health Policy, 2017 has envisioned Health and Wellness Centres as the foundation of India’s health system. These 1.5 lakh centres will bring health care system closer to the homes of people.
    2. They will provide comprehensive health care, including for noncommunicable diseases and maternal and child health services.
    3. These centres will also provide free essential drugs and diagnostic services

     

    National Health Protection Scheme

    1.For the poor and vulnerable families, the current RashtriyaSwasthyaBima Yojana (RSBY) provides annual coverage of Rs 30,000.

    1. Several State Governments have also implemented/supplemented health protection schemes providing varying coverage.
    2. The Government has now decided to take health protection to more aspirational level by launching a bigger health protection scheme.
    3. For this, a flagship National Health Protection Scheme will be launched to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries).
    4. To provide coverage upto 5 lakh rupees per family per year for secondary and tertiary care hospitalization.

    Model districts development

    1. To achieve vision of an inclusive society, the Government has identified 115 aspirational districts taking various indices of development in consideration.
    2. The government expect these 115 districts to become model of development.
    3. The objective is to improve the quality of life in these districts
    4. Investing in social services like health, education, nutrition, skill upgradation, financial inclusion and infrastructure.
    5. Irrigation, rural electrification, potable drinking water and access to toilets at an accelerated pace and in a time bound manner.
    6. MSMEs and Employment
    7. Medium, Small and Micro Enterprises (MSMEs) are a major engine of growth and employment in the country.
    8. Massive formalization of the businesses of MSMEs is taking place in the country after demonetization and introduction of GST.
    9. It is proposed to onboard public-sector banks and corporates on Trade Electronic Receivable Discounting System (TReDS) platform and link this with GSTN.
    10. Online loan sanctioning facility for MSMEs will be revamped for prompt decision making by the banks.

    Trade Electronic Receivable Discounting System (TReD) Platform

    • Digital Platform
    • MSME’s access to capital
    • Auctioning the trade receivables.
    • Bills discounting / discount rate.
    • Financier / factoring companies.

    Fintech, Startups and VCs

    1. Use of Fintech in financing space will help growth of MSMEs.
    2. A group in the Ministry of Finance is examining the policy and institutional development measures needed for creating right environment for Fintech companies to grow in India.
    3. The government has taken a number of policy measures including launching ‘‘Start-Up India’’ program.
    4. Building very robust alternative investment regime in the country .
    5. Rolling out a taxation regime designed for the special nature of the VCFs and the angel investors.
    6. The government will take additional measures to strengthen the environment for their growth and successful.
    7. Operation of alternative investment funds in India.

    Women employment in the formal sector

    1. To incentivize employment of more women in the formal sector and to enable higher takehome wages.
    2. An amendment in the Employees Provident Fund and Miscellaneous Provisions Act, 1952 will be made.
    3. There will be no change in employers’ contribution.
    4. The objective of the amendment is to reduce women employees’ contribution in EPF to 8% for first three years of their employment against existing rate of 12% or 10%.
    5. Infracture

    Tunnel construction for Sela and Zozila passes

    1. For supporting defence, development of connectivity infrastructure in border areas is important.
    2. Already, the Rohtang tunnel has been completed to provide all weather connectivity to the Ladakh region.
    3. Contract for construction of Zozila Pass tunnel of more than 14 kilometer is progressing well.
    4. The budget proposes to take up construction of tunnel under Sela pass.

    Urban infrastructure – Smart Cities, AMRUT and HRIDAY

    1. Smart Cities Mission aims at building 100 Smart Cities with state-of- the-art amenities and 99 Cities have been selected with an outlay of Rs 2.04 lakh crore.
    2. These Cities have started implementing various projects like
        • – Smart Command and Control Centre,
        • – Smart Roads,
        • -Solar Rooftops,
        • – Intelligent Transport Systems,
        • -Smart Parks.
    1. For promoting tourism in important centres, the budget proposes to develop ten prominent tourist sites into Iconic Tourism destinations by following a holistic approach.
    2. Involves infrastructure and skill development, development of technology, attracting private investment, branding and marketing.
    3. In addition, tourist amenities at 100 Adarsh monuments of the Archaeological Survey of India will be upgraded to enhance visitor experience.

    Road Sector

    1.The government is confident to complete National Highways exceeding 9000 kms length during 2017-18.

    1. Ambitious BharatmalaPariyojana has been approved for providing seamless connectivity of interior and backward areas and borders of the country to develop about 35000 kms in Phase-I at an estimated cost of Rs 5,35,000 crore.
    2. To raise equity from the market for its mature road assets, NHAI will consider organizing its road assets into
    • Special Purpose Vehicles
    • use innovative monetizing structures viz..,
    • Toll Operate and Transfer (TOT)
    • Infrastructure Investment Funds (InvITs).

    Railway Safety

    1. A ‘Safety First’ policy, with allocation of adequate funds under Rashtriya Rail SanrakshaKosh is cornerstone of Railways’ focus on safety.
    2. Maintenance of track infrastructure is being given special attention. Over 3600 kms of track renewal is targeted during the current fiscal.
    3. Other major steps include increasing use of technology like ‘‘Fog Safe’’ and ‘‘Train Protection and Warning System’’.

    Aviation

    1. In the last three years, the domestic air passenger traffic grew at 18% per annum and India’s airline companies placed orders for more than 900 aircrafts.
    2. Operations have already started at 16 such airports.
    3. Regional connectivity scheme of UDAN (UdeDesh ka AamNagrik)
    4. Initiated by the Government last year, Connects 56 unserved airports and 31 unserved helipads across the country
    5. Financial Sector

    Reform on Stamp duty

    1.The government will make reform measures with respect to stamp duty regime on financial securities transactions in consultation with the States and make necessary amendments the Indian Stamp Act.

    International Financial Centre

    1. International Financial Service Centre (IFSC) at Gift City, which has become operational, needs a coherent and integrated regulatory framework.
    2. To fully develop and to compete with other offshore financial centres.
    3. The Government will establish a unified authority for regulating all financial services in IFSCs in India.
    4. Government initiatives on transformational technologies
    5. Global economy is transforming into a digital economy because of the development of cutting edge technologies in digital space – machine learning, artificial intelligence, internet of things, 3D printing.
    6. Initiatives such as Digital India, Start Up India, Make in India would help India establish itself as a knowledge and digital society.
    7. NITI Aayog will initiate a national program to direct efforts in the area of artificial intelligence, including research and development of its applications.

    Digital India

    1. Combining cyber and physical systems have great potential to transform not only innovation ecosystem but also the economy and the people.
    2. To invest in research, training and skilling in robotics, artificial intelligence, digital manufacturing, big data analysis, quantum communication and internet of things.
    3. Department of Science & Technology will launch a Mission on Cyber Physical Systems to support establishment of centres of excellence.

    BharatNet project

    1. The objective of the BharatNetprogramme is connecting one lakh gram panchayat through high speed optical fiber network.
    2. Phase I of the project has been completed. This has enabled broadband access to over 20 crore rural Indians in about two lakh fifty thousand villages.
    3. The Government also proposes to setup five lakh wi-fi hotspots which will provide broadband access to five crore rural citizens.

    Cryptocurrency regulation

    1. Distributed ledger system or the block chain technology allows organization of any chain of records or transactions without the need of intermediaries.
    2. The Government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these cryptoassets in financing illegitimate activities or as part of the payment system.
    3. The Government will explore use of block chain technology proactively for ushering in digital economy.
    4. Miscellaneous

    Defence sector policies

    1. The defence sector was opened up private investment in defence production including liberalizing foreign direct investment. The government will take measures to develop two defence industrial production corridors in the country
    2. For this, an industry friendly Defence Production Policy 2018 will be brought to promote domestic production by public sector, private sector and MSMEs.

    ID for individual enterprises

    Aadhar has provided an identity to every Indian. Aadhar has eased delivery of so many public services to the people. Every enterprise, major or small, also needs a unique ID. The Government will evolve a Scheme to assign every individual enterprise in India a unique ID.

    National Logistics Portal

    Department of Commerce will be developing a National Logistics Portal as a single window online market place to link all stakeholders.

    ETF for disinvestment

    1. The Government introduced Exchange Traded Fund Bharat-22 to raise Rs 14,500 crore, which was over-subscribed in all segments.
    2. DIPAM will come up with more ETF offers including debt ETF.

    Bank recapitalisation and EASE

    1. Bank recapitalization program has been launched with bonds of Rs 80,000 crore being issued this year.
    2. The programme has been integrated with an ambitious reform agenda, under the rubric of an Enhanced Access and Service Excellence (EASE) programme.
    3. This recapitalization will pave the way for the public-sector banks to lend additional credit of Rs 5 lakh crore.

    Gold asset policy

    1. The Government will formulate a comprehensive Gold Policy to develop gold as an asset class.
    2. The Government will also establish a system of consumer friendly and trade efficient system of regulated gold exchanges in the country.
    3. Gold Monetization Scheme will be revamped to enable people to open a hassle-free Gold Deposit Account.

    ODI Policy

    1. Outward Direct Investment (ODI) from India has grown to US$15 billion per annum.
    2. The Government will review existing guidelines and processes and bring out a coherent and integrated Outward Direct Investment (ODI) policy.
    3. Outward Direct Investment means direct investment by Indian entities in foreign countries.

    Bill For Death In Rape Cases Cleared

    Context:

    • A Bill awarding a maximum sentence of death to those convicted for raping girls below 12 years of age was passed by Parliament, with the RajyaSabha approving the proposed law by voice vote. The LokSabha had cleared it on July 30.
    • It replaces the Criminal Law (Amendment) Ordinance that was promulgated on April 21, following a public outrage over the rape and murder of a minor girl in Jammu and Kashmir’s Kathua and the rape of a minor from Unnao in Uttar Pradesh.
    • The amendments have been made to the Indian Penal Code, the Criminal Procedure Code, Evidence Act and the Protection of Children from Sexual Offences Act.
    • Accordingly, the minimum sentence in cases of rape of women has been increased from seven to 10 years of rigorous imprisonment.
    • In cases involving girls below 16 years, the minimum punishment has gone up from 10 to 20 years, which is extendable to life imprisonment.

    Trials expedited

    The law also provides for speedy investigations and trial. The probe has to be completed within two months.

    The deadline for completion of trial in all rape cases will also be two months, while a six-month limit has been set for disposal of appeals.

    There will be no provision for anticipatory bail for a person accused of rape or gang-rape of an under-16 girl.

    Basel Norms and Banking Stability

    Introduction

    1. Banking system is the backbone of any nation’s economy. For an economy to remain healthy and going, it is important that the banking system grows fast and yet be stable.
    2. This catches the biggest dilemma of policymakers, how to achieve both the objectives simultaneously?
    3. Over a period of time, several indicators have been developed which gauge the depth and stability of the banking system. Examples can be Non-performing assets, Capital adequacy ratio (CAR) etc.
    4. Similarly, mechanisms to ensure their stability have also been developed. Some of the examples can be CRR; SLR; Basel conventions; regular directions of the RBI; Financial Stability and Development Council etc.

    About Basel norms

    1.Basel is a city in Switzerland which is also the headquarters of Bureau of International Settlement (BIS). BIS fosters co-operation among central banks with a common goal of financial stability and common standards of banking regulations. Currently there are 27 member nations in the committee.

    1. Basel guidelines refer to broad supervisory standards formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS). The set of agreement by the BCBS, which mainly focuses on risks to banks and the financial system are called Basel accord.
    2. The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. India has accepted Basel accords for the banking system.

    So, if the Basel norms are banking standards, then who has the authority to make them? Are they mandatory for every country?

    1. As said earlier, the Basel Committee makes these norms. The Committee’s decisions have no legal force. Rather, the Committee formulates supervisory standards and guidelines and recommends statements of best practice in the expectation that individual national authorities will implement them. In this way, the Committee encourages convergence towards common standards and monitors their implementation, but without attempting detailed harmonisation of member countries’ supervisory approaches.
    2. So, India can either accept them or reject them depending on the kind of financial system it wants. So far, we have implemented or wished to implement all Basel norms.

    Basel I

    1. In 1988, BCBS introduced capital measurement system called Basel capital accord, also called as Basel 1. It focused almost entirely on credit risk. It defined capital and structure of risk weights for banks. Naturally if the capital with the banks is adequate to cover the risks ( e.g. a power plant) they have invested in, then the bank is safe.
    2. The minimum capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets with different risk profiles. For example, an asset backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999. The Basel norms are set up by the Basel committee on Banking supervision.
    3. It is important to understand that the Basel accords have been the result of cooperation by the countries over the years.

    Need for cooperation between member countries when banks operate within national boundaries

    1. It is because these banks lend not only to its country men but also other nations. Also, private investors and sovereign nations take loans from banks across other nations. Further, the financial system of the world is so interconnected that one incident of a banking collapse has its repercussions all over the world. There can be no better example that the 2008 Global recession.
    2. Therefore, global cooperation on banking matters is an absolute necessity in today’s world. And, not only cooperation but also adoption of some uniform standards is also important.

    Need for Uniform Standards

    1.Bankers and investors invest over the world preferably in markets where they get best returns. The markets will give returns only when the economy is stable. And, economy will be stable only when the banking system is stable. Hence, it is important for investors and agencies to measure the stability of the banking system. If all the nations adopt different standards, then calculating stability figures will be a big headache for investors.

    1. Also, suppose some nations run banks on better standards i.e. better risk management, better returns, lower exposure to volatile markets etc., then they have a better chance of getting foreign investment.
    2. But, if all nations adopt uniform standards, then at least the investors can be attracted by only the strength of the economy.
    3. Hence, it is important to have uniform standards especially when it comes to the banking system which is so complex and vast.
    4. The Basel norms try to achieve exactly the same. Till date three different Basel accords ( or norms) have come – each with a better safeguard than the next one.

    Basel II

    • In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord. The guidelines were based on three parameters.
    • Banks should maintain a minimum capital adequacy requirement of 8% of risk assets,
    • In India, such a practice is equivalent to maintaining a Capital Adequacy ratio (CAR).
    • Banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that is credit and increased disclosure requirements.
    • Increased disclosure requirements raise the confidence of investors and depositors in the bank. The more transparent a bank is, the more stable it is deemed to be.
    • Banks need to mandatorily disclose their risk exposure, etc to the central bank.
    • This is important so that the central bank (RBI in India) is aware of the risks that the banking system is going through.
    • There is a practice in India to publish bi-annual Financial Stability reports by the RBI. The latest report published recently is of June 2018.Basel II norms in India and overseas are yet to be fully implemented.

    Basel III

    1. In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008.
    2. A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding. Too much short-term funding makes the banks prone to risks. Banks generally rely on short-term funding because it is profitable.

    There were three broad objectives:

    • To increase disclosure and transparency in the system
    • Improve risk management strategies
    • Enhancing the ability of the banking sector to absorb any financial and economic stresses.
    1. Also the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk. This was because the banking system was growing. The world economy was growing too. Hence, what is sufficient earlier was not sufficient now.
    2. Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.

    Capital

    The capital requirement (as weighed for risky assets) for Banks was more than doubled. ( e.g. 4.5% from 2% in Basel-II accord for common equity)

    Leverage

    Leverage basically means buying assets with borrowed money to multiply the gain. The underlying belief is that the asset will return the investor more than the interest he has to pay on the loan.

    Obviously doing so is risky business. Thus the Basel III puts a limit on the banks for doing this.

    Funding and liquidity

    • Banks can be subjected to a lot of risk if all depositors come and ask all their money at the same time. This is a hypothetical situation but it has happened in real with Lehman Brothers – the bank whose collapse gave us the 2008 recession.
    • So, Basel III puts a requirement for the banks to maintain some liquid assets all the time. Liquid assets are those which can be easily converted to cash.
    • In India, this practice can be correlated with that of maintaining CRR and SLR.
    • Implementation of Basel III norms in India
    • The RBI has postponed the implementation of these norms to 2019.
    • It is important to note that it is not easy to implement these norms as it requires several changes in the present banking system.
    • There are several challenges in the successful implementation of Basel III norms.
    1. Higher capital requirement for banks – The private banks have the autonomy to raise capital from the markets. But the Public sector banks have to rely on the government mostly. The government has recently decided to infuse 12000 Cr. rupees in the PSBs. In the coming years even more will be required.
    2. More technology deployment – Implementing the norms would require much more sophisticated technology and management styles that the Indian banks are presently using. Upgrading both will impose huge cost on the banks and hurt their profitability in the coming years.
    3. Liquidity crunch – Banks would need to invest more on liquid assets. These assets do not give handsome returns usually which would reduce the bank’s operating profit margin. Further higher deployment of more funds in liquid assets may crowd out good private sector investments and also affect economic growth.

    The way ahead for the banks

    To address these issues and to protect their profitability margins, banks need to look beyond regulatory compliance and take proactive actions.

    In this regard the following strategies need to be adopted:

    1. Change in Business Mix – They will need to lend more to profitable yet safe sectors. For e.g. corporate loans. But even corporate loans in India have been under a lot of stress. Banks are facing increasing NPAs (we will talk about it in the next article). Still they are safer and more profitable than retail loans. Priority Sector lending (PSL) however limits their options.
    2. Low-Cost Funding – One of the most important factors to meet the new regulations is to have a stable low-cost deposit base. For this, banks need to focus more on having business correspondents/facilitators to reach customers as adding branches will increase costs and have an impact on the profit margin.The RBI is thinking of introducing UID based mobile wallets to increase the reach of the financial system. Perhaps the banks can tie up with wallet operators based on some innovative business model. There are many opportunities.
    3. Improvement in systems and procedures – Refining the systems and procedures may help banks economise their risk-weighted assets, which will help reduce capital requirements to some extent. It is possible that they would impose cost in the short-run, but they would yield great returns in the future.

    Conclusion

    It is clear that the banking system in the coming times will have to go through a lot of rough weather. Increasing operational complexities, global interconnectedness and high economic growth worldwide will present several challenges for the banks. While strategies like Basel III will of course address these challenges, what is even more important is their proper implementation. More than this, the banks will need to have a wider outlook. They must anticipate changes in the Indian economic system and react accordingly. Indian banking regulations are one of the most stringent and consequently one of the safest in the world.

    Insurgency in Jammu & Kashmir: History & Key Players

    Jammu and Kashmir was largest of the Indian Princely States. The Hindu maharaja of Kashmir ruled over a heterogeneous population of 4 million of which 77 percent was Muslim, but since his state bordered both dominions of Pakistan and India, Maharaja thought he could play off one country against the other, join neither of them, and make his state wholly independent.

    On 15 August 1947, Maharaja Hari Singh offered to sign a Standstill Agreement with Pakistan as well as India, which Pakistan signed but India did not. Pakistan wanted to merge Kashmir with itself. So, it sent raiders to back the Muslims in southwest Kashmir to revolt against the maharaja.

    Since Maharaja knew that he might need to turn to Nehru for help, on September 29, 1947, he released National Conference Party (NCP) leader Sheikh Abdullah, the nationalist Muslim leader from jail in order to gain popular support. In October 1947, thousands of Pathan tribesmen from northwest Pakistan, armed and guided by the Pakistani army, entered Kashmir; on October 24, when the raiders were well within the state and closing in on Srinagar, the Maharaja asked Delhi to provide military assistance; Abdullah also urged that Delhi do so.

    Nehru stated that unless some agreement is signed, India couldn’t send its army to a state where it has no legal standing. Accordingly, a treaty of accession was drafted with the promise of Article 370 in Indian Constitution to safeguard interests of the people of the state. According to the accession treaty, India was to look after only four subjects viz. defense, external affairs, communication and currency; while the local assembly was given powers to decide on all other matters. Similarly, the provisions of part VI of Indian constitution were not to be made applicable to Jammu & Kashmir and it was allowed to have its own Constitution. On the basis of such accession, around 100 fighter planes of Indian Air Force came into action to drive out the raiders. India was able to take back Srinagar as well as valley, however, by that time; Pakistan had already taken one third of Kashmir. The struggle continued for months and there was a fear of full-fledged war.

    Here, Nehru made a strategic mistake and on the basis of suggestion by Lord Mountbatten, he referred the Kashmir problem to United Nations Security Council on 30 December 1947, requesting the UNSC for vacation of aggression by Pakistan. This decision was a blunder because instead of taking note of aggression; the UNSC sided with Pakistan and rechristened the problem as India-Pakistan dispute.

    The UN passed some resolutions. On the basis of one such resolution; India and Pakistan accepted a ceasefire on 31 December 1948 which still prevails and the state was effectively divided along the ceasefire line. Nehru later blamed the dirty game played by Britain and US, behind the scene.

    Meanwhile, Sheikh Abdullah was installed as head of a reconstituted government of Kashmir. In 1951, the UN passed a resolution, which asked for a referendum under UN supervision so that the people of Kashmir could decide their own fate. But one of the conditions of the referendum was that Pakistan had to withdraw its troops from the part of Kashmir under its control. Pakistan refused to withdraw its forces and India refused to hold any referendum. Since then, India has successively amended its constitution to make Kashmir as its integral part.

    The Jammu & Kashmir council of ministers was to be headed by a Prime Minister (in place of Chief Minister of Indian states) and the constitutional head of the state was Sadar-i-Riyasat. In due course, the Prime minister was changed to Chief Minister and Sadar-e-Riyasat was changed to Governor and gradually the reach of Indian constitution was extended to Jammu & Kashmir. The Pakistan occupied Kashmir, though named Azad Kashmir, has remained dependent practically in all matters on Pakistan.

    A UN Military Observer Group in India andPakistan (UNMOGIP) still continues to supervise the ceasefire line and reportthe violation of ceasefire. After 1971 war, India and Pakistan had signed Shimla Agreement in 1972. The agreement had formalized the 1949 UN ceasefire line with minor changes as ‘Line of Control’.

    Insurgency in Kashmir

    After its humiliating defeat in 1971 war, Pakistan adopted the strategy of proxy war with India by promoting insurgency in Punjab and Jammu & Kashmir. Till 1987, the insurgency in Kashmir was low intensity warfare. In 1987 assembly elections, an eleven party oppositional alliance won only four seats despite its popular support, and a dispute started about rigging in the elections. This dispute had set the stage for birth of insurgency in the Kashmir valley in 1989. Within no time, it was escalated and the armed insurgent groups demanded sovereignty and freedom the Indian state.

    Key Players in Kashmir Insurgency

    In the beginning, two main groups of the armed insurgents were the Jammu and Kashmir Liberation Front (JKLF) and the Hizbul-Mujahideen.

    Jammu and Kashmir Liberation Front (JKLF)

    The JKLF (created in 1964) demanded for the unification of the Indian and Pakistani sides of Kashmir and independence for all of Kashmir. The JKLF was one of the main insurgent groups in Kashmir in 1990s. Despite its initial violence against Kashmiri Hindus, the JKLF claimed its movement as a secular. Later in 1995, the JKLF led by Yasin Malik renouncedthe use of violence and called for peaceful methods to resolve the issues. It also called for return of Kashmir Hindu pundits to the valley.

     

    Hizb-ul-Mujahideen

    After the end of Soviet-Afghan war in 1988, the victorious Afghan Mujahideen were infiltrated into Kashmir with the support of Pakistan. They demanded for an Islamic state and unification with Pakistan. Later to strengthen their movement and to unify several Islamic insurgent groups, an apex organization of more than thirty militant-nationalist groups, the Kul-Jammat-e-Hurriyat-e-Kashmir (All Kashmir Freedom Front), was formed in 1993. But the government counter-insurgency during initial years had taken heavy toll on insurgent’s morale and capacity. It was exacerbated by the disunity between the fighting insurgent groups. While the JKLF demands independent Kashmir, the Hizl-ul-Mujahideen demanded unification with Pakistan. By the mid-1990s, public disillusionment with the prospects of the uprising became widespread. The erstwhile members of JKLF started cooperating with counter-insurgency operations of the Indian security forces. The combination of public disillusionment and counter-insurgency brought a temporary close to the secession movement. But by the end of 2000s another phase the fidayeen attacks started.

    Lashkar-e-Taiba (LeT)

    The fidayeen attacks were carried out the LeT, an organisation of religious radicals founded and headquartered in Pakistan and led by Pakistanis. The LeT entered India during 1990s as part of an ISI strategy. The Lashkar-e-Taiba recruited local Kashmiris as a fidayeen cadre. But the large majority of those who executed these attacks were Pakistanis. Later LeT involved in the terror attacks of Mumbai in 2008. Fidayeen attacks fell off steeply after 2003, and the influx of insurgents from the Pakistani side of the LoC also declined sharply. The LeT and smaller groups of “jihadi” persuasion retained a presence in Kashmir.

    Jaish-e-Mohammed (JeM)

    It was launched in 1999 by Maulana Masood Azhar, a former militant commander released by India from prison for the 1999 hijacking of an airliner. JeM’s objective was to unite Kashmir with Pakistan. JeM was known to its involvement in several suicide attacks in J&K including the one on J&K Legislative Assembly in October 2001, the attack on Indian Parliament in December 2001 besides a few other terrorist attacks inside India during 2005-06. Despite the fact that this organisation was believed to have been implicated in two attacks on President Musharraf and was banned in Pakistan in 2002, it continues to operate fairly openly in parts of Pakistan. The other prominent terrorist organisations that have been operating in the valley are Lashker-e-Taiba, Al-Badr, Harkat-ul-Ansar, Harkat-ul-Jehad-e-Islami(HuJi).

     

    Moderate and Extremist Groups in Kashmir

    The insurgent groups had divided into two groups in Kashmir viz. moderates who want a peaceful solution; and extremists who continued violent means to promote their cause. Extremists include a small portion of the local Hizbul- Mujahideen cadres, who are largely dominated by violent Pakistan-based and sponsored groups such as Lashkar-e- Taiba, Harkat-ul-Mujahideen, and Jaish-e-Mohammed. By 2006, the insurgency in valley declined to a trickle of incidents, limited to the rare car bomb and an occasional ambush, and the frequent raids by Indian security forces on hideouts. But since last few years, stone-pelting by youths against Indian security forces started increasing.

     

    Government approach in Jammu & Kashmir Insurgency

    India’s present response to insurgency in Kashmir is multi-dimensional. It includes:

    1. Military response against violence and prevention of infiltration across border areas,
    2. Political dialogue and negotiations with those who have given up violence,
    3. Economic and social developmental measures to improve the living conditions and employment prospects of the local population,
    4. Encouraging the democratic activity in the Kashmir
    5. Diplomatic initiatives towards peace which include confidence building measures with Pakistan, and international counter-terrorism cooperation with friendly countries.

    Military response against insurgency in Kashmir

    1. Indian army’s Northern Command is prime responsible for tackling terrorism and insurgency in Kashmir.
    2. Operations of the Army, police, and the paramilitary forces in the region are coordinated by a Unified Headquarters.
    3. The Paramilitary forces include the Border Security Force, Central Reserve Police Force and Special Forces.
    4. The Rashtriya Rifles (RR) is a specially organized force to deal specifically with counter insurgency.
    5. The main aspect of Indian approach to counterinsurgency operations in Kashmir is to stop the infiltration of insurgents from launch pads and training camps in Pakistan across the LOC and the between gaps in the International Border.
    6. To plug the major infiltration routes, India fenced the LOC. The retired Army soldiers from the local villages have been organized into Village Defence Committees.
    7. India is continuously following up the modernization of its army with new equipment and training. Intelligence agencies have been organized to provide real-time information.

    Political dialogue and negotiations

    1. From 1997 onwards India is following a dual strategy of holding dialogues and negotiations with moderate groups.
    2. Till 9/11 attack, the negotiations with moderators were on slow pace but since then they have picked up.

    Developmental programmes

    1. In 2004, the union government had initiated a reconstruction plan with an outlay of Rs.24,000 crore.
    2. This was mainly in infrastructure, power and transport.
    3. The present NDA government has announced Rs. 80,000 crore developmental package.
    4. The developmental activities as part of the package include power, renewable energy, urban development, railways and roadways, health, tourism, Pashmina Promotion project welfare of displaced people, flood relief etc.

    Development of democratic practices

    1. In spite of turmoil and instability in the region, India is regularly conducting the assembly elections and parliament elections in state.
    2. And election by election, voter participation has risen consistently. The high voter turnoutwas seen as a sign that the people of Kashmir wanted peace and harmony.

    Diplomatic initiatives

    1. The 2002 attack on the J&K legislative Assembly and Indian Parliament by Pakistan-based militant groups have strengthened India’s position vis-à-vis Pakistan in convincing international public opinion that the Kashmir issue cannot be resolved without Pakistan’s action on terrorism emanating from its territory.
    2. India is also following several confidence-building measures to reactivate relations between the two countries, which had become severely strained after the Mumbai terror attack.
    3. Recently, India and Pakistan have started the process of dialogue on several issues, including Kashmir.
    4. Meanwhile, the Union government is holding talks with moderate groups in Kashmir for a peaceful resolution to the Kashmir issue.
    5. While it is difficult to convince Pakistan to abandon its claims over Kashmir, Indian government can create a positive attitude in the people of the state with increased constitutional autonomy for the state, which might satisfy the moderate groups within the valley.

    One Belt One Road (OBOR) by China – Should India Join It?

    Introduction

    1. Chinese President Xi Jinping announced one of China’s most ambitious foreign policy and economic initiatives at the end of 2013.
    2. He called for the building of aSilk Road Economic Beltand a 21st Century Maritime Silk Road, collectively referred to as One Belt One Road (OBOR).
    3. One Belt One Road (OBOR)is arguably one of the largest development plans in modern history.

    What is “One Belt, One Road” or OBOR?

    1. One Belt, One Road (OBOR) is China’s much-touted new foreign and economic policy.
    2. It is a development strategy to connect China with Central Asia, Europe, and Indo-Pacific littoral countries. This policy has two components:

    Belt– The “One Belt” refers to the land-based “Silk Road Economic Belt”. Here Beijing aims to connect the country’s underdeveloped hinterland to Europe through Central Asia.

    Road – The “One Road” references the ocean-going “Maritime Silk Road”. It is to connect the fast-growing South East Asian region to China’s southern provinces through ports and railways.

    1. The plan is to connect the Pacific Ocean and the Indian Ocean which will connect Chinese coastline with SE Asia, South Asia, Gulf and East coast of Africa.
    2. China will build hard and soft maritime infrastructure that includes custom co-ordination, the formation of SEZ, new ports, e-commerce, trade liberalisation and policy coordination.
    3. OBOR covers countries throughout the Asian continent from China to the rest of Eurasia.
    4. The geographical stretch makes it comparable with Silk Road or Silk Route, an ancient network of trade routes connecting the East and West around 120 BCE to 1450s CE that is famous for the profitable silk (and horses) trade.
    5. That is why it is also called as “New Silk Road” initiative.

    Objectives of China behind the One Belt One Road

    1. The OBOR strategy is often reported as China’s ambitious push to take a bigger role in global affairs and expand its friend circle.
    2. While China insists that the investment in OBOR is economically motivated and it will bring economic benefits to host countries but the project is multi-prolonged and is intended to serve diplomatic, economic and strategic purposes.
    3. It is also intended to address its domestic needs in economic transformation.
    4. The demand for industrial output will increase and thus will revitalise its economy.
    5. This project will build China’s soft power and some analysts call it a China’ Marshall Plan.
    6. This initiative will make Indo-Pacific region to be Sino-centric economic and security region.
    7. It is also an attempt to counter US propaganda that rising China is a threat to world peace.
    8. Thus it is to convince that rising China is not a threat rather creates a win-win situation for all.
    9. Maritime Silk Road, and especially Chinese infrastructure investment is implicitly intended to facilitate more frequent People’s Liberation Army Navy deployments in the Indian Ocean and beyond.

    Which countries are involved?

    1. The ‘Belt’ and ‘Road’ covers primarily Asia and Europe, encompassing around 60 countries.
    2. On China’s “One Belt, One Road” official website, it also says the initiative is open to all countries as well as international and regional organisations for cooperation.

    China-Pakistan Economic Corridor (CPEC)

    1. CPEC is expected to connect Kashgar in Xinjiang in China’s far west with the Port of Gwadar in the province of Baluchistan via a network of highways, railways, and pipelines.
    2. This project would allow China to transport energy resources such as petroleum from Middle Eastern countries to China via a land route through Pakistan.
    3. China signed 51 MoUs with Pakistan worth $46 billion as part of this project in April 2015.
    4. This corridor is an extension of China’s Silk Road initiative.
    5. This project will provide economic growth to Pakistan and will help in boosting infrastructure development with the help of China.

     

    Geostrategic aspect in CPEC

    1. Energy security is a key concern for China and oil pipelines through Pakistan would cut about 16,000 kilometers from the distance traveled by goods traded between China and the Middle East.
    2. China plans to build oil storage facilities and a refinery at Gwadar Port, with oil transported to its Xinjiang Uighur Autonomous Region via road and pipeline.
    3. This will let it move energy and goods to inland China without going through the Strait of Malacca, which could be blocked by US or India should hostilities break out in the region.
    4. This project will lead to development in Western China where tensions are simmering from activities by radical separatists due to closeness with Pakistan and Afghanistan.
    5. Ideally, this project would promote growth in Pakistan, weaken the extremists and encourage Pakistan army to support peace efforts in Afghanistan.

     

    Implications for India

    1. CPEC will provide Chinastrategic access to the Arabian Sea and enhance its presence in the region.
    2. It would enable China to wield much more powerful influence in the Indian Ocean. Once completed, CPEC project would mean that the Chinese presence in entire Pakistan including Pakistan Occupied Kashmir becomes all pervasive and powerful.
    3. The route of CPEC passes through POK and makes China an indirect stakeholder in Kashmir conflict between India and Pakistan.

     

    India’s position regarding One Belt One Road

    1. India is opposed to Chinese One Belt One Road (OBOR) initiative since the China-Pakistan Economic Corridor (CPEC) passes through the Indian territory.
    2. Indian government stated that the connectivity cannot undermine the sovereignty of other nations.
    3. India has also refused to attend the 1stBelt and Road Summit that happened in China in May 2017.

    Should India join One Belt One Road?

    Advantages of joining OBOR

     

    1. India will not be able to stop China in carrying on this initiative nor can it stop its neighbours from joining this initiative.
    2. So whether India joins this initiative or not, the project will take place and not join may harm India’s interests.
    3. India may become isolated in this region since all of its neighbours (except Bhutan) have joined One Belt One Road.
    4. Leaving any regional platform may hamper India’s credentials and may hasten the end of its regional hegemony.
    5. Some analysts say that this initiative will be a win-win situation for India since it will increase the connectivity of the region.
    6. There may emerge mutually beneficial swap where India protecting Chinese interests in the Indian Ocean and China securing India’s essential undertakings in their part of the waters.
    7. Regional transport, energy security, and blue economy are key to OBOR initiative which will be helpful for India.
    8. China has the financial capital, technology to accelerate the development of other countries and India also need resources and funds for its own development.
    9. Trade: The OBOR project will open more links of trade between India and other countries.
    10. Further, India does not enjoy much leverage to guide ocean trade markets despite having proximity to the sea and a strong navy.
    11. Through OBOR project India will get access to more business in an environment which promote friendly reforms.
    12. Some analysts feel that countries like Russia and others in SCO would want Indian participation in OBOR as a counterweight to Chinese influence.
    13. Regardless of economic interests, India cannot ignore the symbolic significance as it was along the Silk Route that Indian trade and philosophy (Buddhism) traveled to the rest of Asia.
    14. Thus China may gain cultural hegemony in the region which may prove counter-productive to India.

    Disadvantages of joining OBOR

     

    1. OBOR is a unilateral ideational of China and there is a lack of transparency in its working.
    2. The process is not participatory and collaborative in nature.
    3. Under Maritime Silk Route (MSR) China is developing ports in Bangladesh, Sri Lanka, and Pakistan and is trying to enlarge its influence using its economic might in the Bay of Bengal and the Arabian Sea.
    4. Thus MSR is nothing but an economic disguise to the “Strings of Pearls” Theory.
    5. China is investing a huge amount of money in India’s immediateneighbourhood and these countries tend to use the China card against India.
    6. OBOR seems to be primarily driven by broad geostrategic and geopolitical aim.
    7. For Example, China-Pakistan Economic Corridor gives de facto legitimization to Pakistan’s rights in Pakistan Occupied Kashmir which is against India’s interests.
    8. Since this port is closer to the Persian Gulf, it could be used as a transshipment point for China’s energy supplies obviating the needs to go through the Strait of Malacca in South East Asia.
    9. Apart from serving as a commercial port, Gwadar is also deep enough to accommodate submarines and aircraft carriers.
    10. Thus it may be used as a military port by People Liberation Army Navy in future.
    11. Through OBOR, China is countering the strategies of India in North East region and is promoting its greater presence in North East India, part of which China claims as its own territory.
    12. This may have a security impact on India.
    13. India has already refused to join this initiative due to geostrategic and geopolitical angle attached to this project. Instead, India has started initiatives for connectivity on its own. Following are some of the steps taken by India.

     

    Project Mausam:

    1. It is soft power diplomacy by India.
    2. The project is under Ministry of Culture and its purpose is to reconnect and re-establish communication links between countries of Indian Ocean and enhancing their cultural values.

     

    SagarMala:

    1. It is a port led direct and indirect development with a focus on infrastructure and connectivity.
    2. The project is to enhance the capacity of major and non-major ports and also to start their modernization process.

     

    Chabahar Port:

    1. Chabahar’s location give India access, besides Iran, to Afghanistan, central Asia, and Europe, bypassing Pakistan altogether and cutting down significantly current travel distances and time.
    2. International North South Transport Corridorinitiated by India, Russia, and Iran is another connectivity solution for India in Central Asia.

    Naval Ports:

    1. India is developing naval ports in Indian Ocean regions like at Madagascar, Seychelles, and Mauritius.

    IORARC:

    1. India is involved in the Indian Ocean Rim Association grouping whose first summit took place in Jakarta in 2017.

     

    Alliances:

    1. Alliance of India with like-minded countries like Japan.
    2. Japan has agreed to promote India’s “Act East” policy by developing and strengthening reliable, sustainable and resilient infra that augments connectivity within India and between India and other countries in the region aimed at advancing Asian industrial networks and regional value chains with open, fair and transparent business environment in the region.
    3. Japan and India can build rail and road connectivity across the Eurasian landmass running parallel to OBOR.

     

    Conclusion

    1. Theoretically, if India’s political and strategic concerns are met, the initiative could be seen as viable, particularly given that many of the projects envisaged under the BCIM (Bangladesh China India Myanmar) corridor and the Asian Highway project would dovetail into OBOR.
    2. Already all of India’s neighbours (with the exception of Bhutan) are a part of it, and India too is keen to increase connectivity with them.
    3. However, tense bilateral relations with China, deep mistrusts and India’s growing concerns over Chinese hegemonic intentions in South Asia and Indo-Pacific region make it practically unlikely that India will ever consider joining this project.

    The Indus Water Treaty

    Introduction

    The Indus Water Treaty (IWT) is a water-distribution treaty between India and Pakistan signed on September 19, 1960. The treaty was signed by the then Prime Minister Jawaharlal Nehru and Pakistan’s President Ayub Khan. It was brokered by the World Bank (International Bank for Reconstruction and Development).

    The Indus Waters Treaty (IWT) deals with river Indus and its five tributaries, which are classified in 2 categories:

    Eastern rivers:

    • Sutlej
    • Beas
    • Ravi

    Western rivers:

    • Jhelum
    • Chenab
    • Indus
    1. According to treaty, all the water of eastern riversshall be available for unrestricted use in India.
    2. India should let unrestricted flow of water from western riversto Pakistan.
    3. It doesn’t mean that India can’t use western river’s water. The treaty says that India can use the water in western rivers in “non-consumptive” needs. Here non consumptive means we can use it for irrigation, storage and even for electricity production. (But India has not fully utilized this provision so far).
    4. The treaty allocates 80% of water from the six-river Indus water system to Pakistan.
    5. Permanent Indus Commissionwas set up as a bilateral commission to implement and manage the Treaty.
    6. Though Indus originates from Tibet, China has been kept out of the Treaty.

    India-Pak Disputes Connecting Indus: Timeline

    1948: India cuts off supply in most canals that went to Pakistan. But restores it later.

    1951: Pakistan accuses India of cutting water to many of its villages.

    1954: Word Bank comes up with a water-sharing formula for two countries.

    1960: Indus Waters Treaty signed.

    1970’s: India starts building hydropower projects in Kashmir. Pakistan raises concern.

    1984: Pakistan objects over India building Tulbul barrage on Jhelum. India stops it unilaterally.

    2007: Pakistan raises concern over Kishanganga hydroelectric plant.

    2008: Lashkar-e-Taiba starts campaign against India. Its chief Hafiz Saeed accuses India of water terrorism.

    2010: Pakistan accuses India of choking water supply consistently.

    2016: India reviews working of Indus Waters Treaty linking it with cross-border terrorism (Uri attack).

    Why Indus Water Treaty in news?

    Indus Water Treaty is considered to be one of the most successful water-sharing endeavours in the world today. For 56 years, both India and Pakistan are peacefully sharing the water of Indus and its tributaries, thanks to The Indus Water Treaty (IWT).

    Because of the confrontations between India and Pakistan over other issues, the water treaty naturally comes into picture.

    After the Uri cross-border attack by Pakistan in 2016, Indian Prime Minister Narendra Modi had said “Blood and Water cannot flow simultaneously.”

    There are issues between India and Pakistan, but there has been no fight over water after the Treaty was ratified. Most disagreements and disputes have been settled via legal procedures, provided for within the framework of the treaty.

    Can India stop water flow to Pakistan? 

    No. Not as per the treaty.

    What India can do is to reduce the water flow to Pakistan by utilizing the provisions of the treaty.

    But any project which may affect water flow will take time for implementation, considering the cost and objections involved. Pakistan has reportedly objected to five Indian hydro power projects, and the Wullar Barrage (Tulbul Navigation Project) which must be settled before India can resume work on them.

    Can India walk out of the pact unilaterally?

    The treaty has no provision for either country unilaterally walking out of the pact. Article XII of the treaty says “The provisions of this Treaty, or, the provisions of this Treaty as modified under the provisions of Paragraph (3), shall continue in force until terminated by a duly ratified treaty concluded for that purpose between the two governments.” Still if India wants to go about abrogating it, the country should abide by the 1969 Vienna convention on the law of treaties.

    Tulbul Project: By India

    The Tulbul project is a “navigation lock-cum-control structure” at the mouth of the lake, located on the Jhelum river. It is a key intra-state channel to ferry state’s goods and people.

    The idea is to ensure year-round navigation along the 20-km stretch from Anantnag to Srinagar and Baramulla, and on the 22 km-stretch between Sopore and Baramulla that becomes non-navigable in winter with water depth of only 2.5 ft (to sustain navigation through the year a minimum depth of water in the lake is necessary).

    The project envisages water release from lake to maintain minimum draught of 4.5 feet in Jhelum.

    India had started constructing a 439 feet long barrage at the lake’s mouth.

    India unilaterally suspended the Tulbul project (Islamabad calls it Wullar Barrage) in 1987 after Pakistan objected.

    The decision to review the suspension signalled the Modi government’s intent to revive it irrespective of Pakistan’s protests.

    Implication: India gets to control Jhelum water, but that may impact Pakistan agriculture. The project can create problems for Pakistan’s triple-canal project that connects Jhelum-Chenab with Upper Bari Doab Canal. With a barrage, India controls release of water into Jhelum, which could trigger a flood or drought in POK and Pakistan.

     

    Left Bank Outfall Drain (LBOD) Project: by Pakistan

    Without taking consent from India, Pakistan has constructed Left Bank Outfall Drain (LBOD) project passing through the Great Rann of Kutch area (Gujarat, India) with the assistance from the World Bank. The purpose of LBOD is to bypass the saline and polluted water which is not fit for agriculture use to reach sea via Rann of Kutch area without passing through its Indus delta.

    The LBOD water is planned to join the sea via Sir Creek but LBOD water is entering Indian territory due to many breaches in its left bank caused by floods. Water released by the LBOD is enhancing the flooding in India and contaminating the quality of water bodies which are source of water to salt farms spread over vast area.

    Gujarat state of India being the lower most riparian part of Indus basin, Pakistan is bound to provide all the details of engineering works taken up by Pakistan to India as per the provisions of the treaty and shall not proceed with the project works till the disagreements are settled by arbitration process.

    China-Pakistan Economic Corridor (CPEC)

    Introduction

    1. TheChina-Pakistan Economic Corridor (CPEC)is a part of China’s ambitious One Belt One Road (OBOR) Initiative to link China with Europe.
    2. Started in 2013, the CPEC is a developmental project between Pakistan and its all-weather friend China.
    3. China-Pakistan Economic Corridoris a whopping 46 billion dollar project which will connectKashgar in Xinjiang province of China, with Gwadar port in Baluchistan which is the largest province in Pakistan.
    4. It is connected through a vast and complex network of roads as well as other infrastructure projects such as dams, hydropower projects, railways, and pipelines.

     

    Pakistan’s interest in CPEC

    1. Under the‘1+4’ cooperation frameworkof CPEC, ‘1’ represents ‘CPEC’ and the 4 includes Energy, Gwadar Port, Transport Infrastructure and Industrial cooperation.
    2. The Chinese investments are supposed to boost Pakistan’s 274 billion dollar GDP by over 15 percent.
    3. Energy needs of Pakistan: The large scale energy production has been termed as the biggest breakthrough of the project. Energy projects such as Karot Hydropower project, Karachi Nuclear power plant and World’s largest solar power plant in Pakistan’s Punjab Province etc are part of this initiative that can double Pakistan’s energy capacity.
    4. Infrastructure development: Like any other developing country Pakistan is also suffering due to lack of basic infrastructure facilities. With CPEC, Pakistan expects infrastructural enhancement which includes construction of a 2,000 km of road and rail network worth 10.63 billion dollars.
    5. Employment Opportunities: This corridor promises huge employment opportunities to all sections of the society.
    6. Away from Western Influence: CPEC provides Pakistan with an opportunity to work closely with a more reliable friend China independent of Western influence especially the US.

     

    China’s interest in CPEC

    1. Access to the Middle East and Europe: By materialising the CPEC project, China can save millions of dollars every year by shortening its route by about 12,000 km which is critical for energy imports.
    2. Gwadar Port: A fully operational Gwadar port in Pakistan provides the following benefits.
    3. It provides a link between Maritime Silk Road and the Arabian Sea.
    4. The port at the mouth of the Persian Gulf provides China with the shortest route to the oil-rich Middle East, Africa, and most of the Western hemisphere.
    5. Gwadar will have the estimated capacity to handle 19 million tonnes of crude oil per year, which will be sent to China after being refined at the port.
    6. At present, China transports 80% of its oil through the Strait of Malacca.
    7. Apart from these lucrative commercial benefits, China also has huge strategic and geopolitical advantages in the Indian Ocean region.

     

    Major concerns for Pakistan

    Despite the fact that CPEC provides Pakistan huge economic potential, there are apprehensions regarding the success of this project.

    The presence of Chinese army in Pakistan

    1. The Pakistani Army had set up a special division to provide security for Chinese workers in Pakistan involved in CPEC-related projects.
    2. In addition to this, thousands of Chinese security personnel are deployed in Pakistan to provide security to Chinese workers in Pakistan.
    3. This can create a threat to the sovereignty of Pakistan.

    Internal Conflicts

    1. The insurgent groups in Baluchistan are opposing CPEC as it disturbs the ethnic distribution of the region.
    2. This poses a threat to CPEC as Gwadar port which is situated in Baluchistan holds the key to the success of the corridor.
    3. Any further unrest in the area could completely destabilise Pakistan and its geopolitical interests.

    Terrorism

    1. The banned terrorist organisations in Pakistan poses a serious threat to the project.
    2. It may also hamper the relations with China in the long run.

    The role of India

    1. Pakistan believes that India is keen on sabotaging CPEC by funding and training insurgency elements in Baluchistan.

    Hambantota Project Experience

    1. The SriLankan Govt has taken billions of Dollars in loans from China for Hambantota projects which are also part of OBOR initiative.
    2. Now as we see, Sri Lanka is left at the mercy of IMF to pay back China’s hefty loans.
    3. In the same way, lack of transparency regarding the interest rates and other terms may leave Pakistan in the same situation.

    CPEC and its impact to India

    • 1.The planned CPEC route passes through POK and Gilgit-Baltistan, which India claims to be its own integral and indispensable territory, illegally held by CPEC also somewhat legitimises
    • Pakistan’s ownership over disputed PoK and it may lead to the internationalisation of Kashmir Issue which India doesn’t want.
    • Apart from this India feels that the high economic stakes in the project will push China to ally with Pakistan on the Kashmir dispute.
    • With the complete realisation of CPEC, China will get a free corridor to move its armour and mechanised weapons which are a threat to India in the plains of Punjab and Rajasthan.
    • In the guise of securing CPEC, China can permanently position troops on Pakistan soil not too far from the Indian
    • Despite clarifications from China and Pakistan that the port at Gwadar will be used only for economic purposes, India fears that China may establish a naval base at Gwadar to ensure Chinese maritime hegemony in the Indian Ocean.
    • India considers Gwadar Port as part of China’s String of Pearls” bases, that extends from its eastern coast to the Arabian Sea.

     

    Counter measures by India

    1. In order to counter Chinese dominance in Gwadar Port, India has invested in Iran’s Chabahar port which is very near to Gwadar.
    2. Also, India, Iran, and Afghanistan signed a trade corridor deal giving India the land access to Central Asia from Chabahar, bypassing Pakistan.
    3. India can work on improving the relationship with Pakistan as it can provide the shortest land route for us to access Central Asia.
    4. Therefore a good relationship with Pakistan can give a boost to our trade relations with central Asian countries.
    5. India should keep in mind that realisation of CPEC is important as a stable and economically strong Pakistan is necessary for the peace and prosperity in the region.

    Conclusion

    1. China-Pakistan Economic Corridor (CPEC) can act as a catalyst for economic connectivity and integration in Central Asia, South Asia, and West Asia.
    2. However, it should not jeopardise the India’s sovereignty through any channel. India should highlight its concerns via diplomatic initiatives to address it fears.
    3. India should be cautious while explicitly opposing the project as it would strain the relationship with China.
    4. Last but not the least a prosperous South Asia is possible only if India and Pakistan leave their political clout and work closely with each other to find an amicable solution to the bilateral Issues.

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