Category: Burning Issues

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Context

• The brief visit by the United States House Speaker, Nancy Pelosi, to Taiwan, against stern warnings issued by China, has the potential to increase the already deteriorating relationship between the U.S. and China.
• The move severely undermined China’s perception of sovereignty and territorial integrity.
• For the US, the visit was aimed at expressing that “America’s determination to preserve democracy in Taiwan and in the world remain iron-clad”
• This makes the topic important for the coming Mains Examination for GS-2 paper under international relations and also for Political science and international relations optional.

How did China respond to the visit?

• Increased military exercises around Taiwan: Military exercises around Taiwan have been expanded, with Chinese aircraft intruding more frequently across the informal median line which defines the zone of operations on each side.
• Increased naval presence: Chinese naval ships are cruising within the Taiwan Straits and around the island itself.
• Economic sanctions: have been announced, prohibiting imports of a whole range of foodstuffs from Taiwan.

What is the issue between China and Taiwan?

• Taiwan is an island about 160 km off the coast of south-eastern China, opposite the Chinese cities of Fuzhou, Quanzhou, and Xiamen.
• It was administered by the imperial Qing dynasty, but its control was passed to the Japanese in 1895.
• After the defeat of Japan in World War II, the island passed back into Chinese hands.
• After the communists led by Mao Zedong won the civil war in mainland China, Chiang Kai-shek, the leader of the nationalist Kuomintang party, fled to Taiwan in 1949.
• Chiang Kai-shek set up the government of the Republic of China on the island and remained President until 1975.
• Beijing has never recognized the existence of Taiwan as an independent political entity, arguing that it was always a Chinese province under its ‘One China Policy’
• The PRC considers the island as a renegade province awaiting reunification by peaceful means, if possible.
• This has generated strong opposition from the Taiwanese government and people. To protect its sovereignty, Taiwan remains closer to the US, buying weapons from it and thus irking China.
• This has become a major bone of contention between the two.

What is the ‘One China policy?

• It is the diplomatic acknowledgment of China’s position that there is only one Chinese government.
• Under the policy, a country should recognize and have formal ties with China rather than the island of Taiwan, which China sees as a breakaway province to be reunified with the mainland one day.
• The policy is also a fundamental bedrock of Chinese policy-making and diplomacy.
• However, it is distinct from the One China principle, whereby China insists Taiwan is an inalienable part of one China to be reunified one day.

How did it come about?

• The origin-The policy can be traced back to 1949 and the end of the Chinese civil war.
• The defeated Nationalists, also known as the Kuomintang, retreated to Taiwan and made it their seat of government while the victorious Communists began ruling the mainland as the People’s Republic of China.
• Both sides said they represented all of China.
• Since then China’s ruling Communist Party has threatened to use force if Taiwan ever formally declares independence, but it has also pursued a softer diplomatic track with the island in recent years.
• Taiwan’s government was set up by the Kuomintang, whose party logo is reflected in Taiwan’s flag
• Initially, many governments including the US recognised Taiwan as they shied away from Communist China.
• But the diplomatic winds shifted as China and the United States saw a mutual need to develop relations beginning in the 1970s, with the US and other countries cutting ties with Taipei in favour of Beijing.

US and One-China Principle

• PREVIOUS SITUATION– Officially, the US has subscribed to PRC’s “One China Policy” which means there is only one legitimate Chinese government.

• With the shifting geopolitics of the Cold War, the PRC and the U.S. were forced to come together in the 1970s to counter the growing influence of the USSR.
• This led to the US-China rapprochement demonstrated by the historic visit of then US President Richard Nixon to PRC in 1972.
• The same year, the PRC displaced ROC as the official representative of the Chinese nation at the UN.
• Diplomatic relations with the PRC became possible only if countries abided by its “One China Principle” — recognizing PRC and not the ROC as China.
• CURRENT SITUATION– But now, the US backs Taiwan’s independence, maintains ties with Taipei, and sells weapons to it. The policy saw a shift from Donald Trump’s presidentship.
• Taiwan is entirely dependent on the US for its defence against possible Chinese aggression.
• This is why every spike in military tensions between China and Taiwan injects more hostility into the already strained relationship between Washington and Beijing.

Importance of Taiwan for China

• TSMC (Taiwan Semiconductor Manufacturing Company) is the largest foundry in the world and holds around 65 percent of the global production of chips.
• Any potential conflict with China would completely disrupt the entire supply chain of TSMC and labor availability and could cause a major shortage of electronic chips.
• Additionally, China controls five percent of the global production of chips, which could also be affected.
• This could further impact the already existing supply-demand gap for electronic components.

Importance of Taiwan for the US

• Strategic importance– After Japan, Taiwan is the geographically closest friendly territory around China for US in the Indo-Pacific region.
• Economic importance– US-Taiwan have a bilateral trade of $105 billion with US high dependence on Taiwanese semiconductor chips.
• Gaining lost credibility– the current crisis is about re-establishing steadily diminishing American credibility in the eyes of friend and foes through Taiwan.

Importance of Taiwan for the world

• Leading semiconductor manufacturer- Taiwan is the world’s leading producer of semiconductors and other electronic components. The Taiwan Semiconductor Manufacturing Company (TSMC) has more than 55 per cent of the global market share.
• It might be more accurate to say that “semiconductors are the new oil” and their production is increasingly dominated by Taiwan and the TMSC.

Impact of the crisis on US-China relations

• Cancellation of 3 key military dialogues- the theatre command meet, defence policy coordination talks and the talks under the military maritime consultative agreement.
• Further degradation of ties– the crisis would lead to further degradation of bilateral ties two super powers of the world which will also lead to spilling of consequences to other regions, countries and sectors.

India Taiwan relations

• 25^th year– India and Taiwan are celebrating 25 years of their partnership.
• Mutual efforts– efforts between Delhi and Taipei have enabled a range of bilateral agreements covering agriculture, investment, customs cooperation, civil aviation, industrial cooperation and other areas.
• Creating political framework– Both partners have increasingly deepened mutual respect underpinned by openness, with democracy and diversity as the key principles for collective growth.
• Deepening economic ties– India’s huge market provides Taiwan with investment opportunities. The signing of a bilateral trade agreement in 2018 was an important milestone.

What should be India’s approach?

• Advantageous for India- In one sense, China’s preoccupation with its eastern ocean flank of the Yellow Sea, the Taiwan Strait and the South China Sea is good for India.
• Diminishes Chinese attention- toward the Indian Ocean, India’s primary security theatre.
• Adhere to One China Policy- Prudence demands that India hew closely to its consistent one China policy even while maintaining and even expanding non-official relations with Taiwan.
• QUAD factor– For the US, Japan and Australia, members of the Quad, Taiwan is a key component of the Indo-Pacific strategy.

What are the lessons for India in the crisis?

• Articulate red lines– The most important lesson from the Taiwan standoff for policymakers in New Delhi is the importance of articulating red lines and sovereign positions in an unambiguous manner.
• Avoid appeasement- Appeasement of China, Taiwan knows, is not the answer to Beijing’s aggression. India’s policy of meeting/hosting Chinese leaders while the Chinese People’s Liberation Army (PLA) continue(d) to violate established territorial norms on the LAC is a deeply flawed one.
• Economic relationship is a two-way process- India for sure should do business with China, but not on China’s own terms.

Way forward

• Avoiding any escalation- both sides should maintain a restraint from further escalation of tensions keeping diplomatic channels open and actively pursuing back channel diplomacy.
• Respecting each-others sensitivities– on important unclear matters like Taiwan and taking up the trust building process.

• More Realistic approach by India– also, New Delhi must begin to deal with Taiwan as a weighty entity in its own right that offers so much to advance India’s prosperity.
• Wide view– Delhi does not have to discard its “One-China policy” to recognise that Taiwan is once again becoming the lightning rod in US-China tensions.

Conclusion

• After implanting “democracy with Chinese characteristics” in Hong Kong, thus, strengthening ‘One China Policy’, Taiwan is the next target.
• As Taiwan becomes the world’s most dangerous flashpoint, the geopolitical consequences for Asia and the world are real. A restraint from all sides is thus a sine qua non.
• Although New Delhi has embraced the Indo-Pacific maritime construct, it is yet to come to terms with Taiwan’s critical role in shaping the strategic future of Asia’s waters.

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Context

• Recently, the United Nation’s World Population Prospects (WPP) Report 2022 was released which predicted that India is projected to surpass China as the world’s most populous country in 2023, much earlier than previously thought.
• The population and related topics have been in news for past one year which makes the population and associated topics important for the upcoming Mains Examination, 2022.

About the UN World Population Prospect Report

• World Population Prospects 2022 is the official estimate and projections of the global population that have been published by the United Nations since 1951.
• They form a comprehensive set of demographic data to assess population trends at the global, regional and national levels.
• This report provides an overview of global population trends focusing on the period from 1950 to 2050 and presents a summary of key demographic prospects during the second half of the present century.

Key highlights

• The world’s population is projected to reach 8 billion on 15 November 2022.
• The global population is still growing, albeit at a reduced rate. Some countries and regions continue to experience further population growth, while others have witnessed a stabilization or begun to decrease in population size.
• In 2021, the average fertility of the world’s population stood at 2.3 births per woman over a lifetime, having fallen from about 5 births per woman in 1950.
• The world population might peak at around 10.4 billion in 2086.

Indian Population trends

• The total population of India currently stands at 1.37 billion which is 17.5% of the world population.
• Between 1992 and 2015, India’s Total fertility rate (TFR) had fallen by 35% from 3.4 to 2.2.
• Young people (15-29 age years) form 27.2% of the population in 2021. This made India enter the Demographic dividend stage.
• The percentage of the elderly population has been increasing from 6.8% in 1991 to 9.2% in 2016.

Causes of Population growth

• Higher birth rate: We have been successful in declining the death rates but the same cannot be said for birth rates.
• Fertility rate: is much higher compared to other countries.
• Early Marriage and Universal Marriage System: Getting married at a young age prolongs the childbearing age. Also, in India, marriage is a sacred obligation and a universal practice, where almost every woman is married at reproductive age.

• Poverty and Illiteracy: Another factor for the rapid growth of the population is poverty. Impoverished families have this notion that more the members in the family, the more will be the numbers to earn income. Some feel that more children are needed to look after them in their old age. Also, hunger can be the cause of death of their children and hence the need for more children. Strange but true, Indian still lags behind the use of contraceptives and birth control methods. Many of them are not willing to discuss or are totally unaware of them. Illiteracy is thus another cause of overpopulation.
• Age old cultural norm: Sons are the bread earners of families in India. This age-old thought puts considerable pressure on the parents to produce children till a male child or the required number of male children are born (This is called Son Meta preference).
• Illegal migration: Last but not the least, we cannot ignore the fact that illegal migration is continuously taking place from Bangladesh and Nepal is leading to increased population density.
• Lack of awareness: about family planning and its benefits, government schemes related to family welfare like free birth control measures leading to unwanted pregnancies and ultimately population growth.

Implications of high population

A. Negative outcomes:

• Poor achievement of SDGs: Sustained high fertility and rapid population growth present challenges to the achievement of sustainable development. The necessity of educating growing numbers of children and young people, for example, draws resources away from efforts to improve the quality of education.
• Unemployment: Generating employment for a huge population in a country like India is very difficult. The number of illiterate persons increases every year. The unemployment rate is thus showing an increasing trend.

• Pressure on infrastructure: The development of infrastructural facilities is unfortunately not keeping pace with the growth of the population. The result is a lack of transportation, communication, housing, education, healthcare etc. There has been an increase in the number of slums, overcrowded houses, traffic congestion etc.
• Manpower utilization: The number of jobless people is on the rise in India due to economic depression and slow business development and expansion activities. It has also caused India to be the home of the largest force of Gig Workers in the world and large informal economy. This ultimately leads to poor or stagnant living standards, slow progress in Human Capital Development and Social Mobility for a large section of society.
• Faster and inefficient resource utilization: Land areas, water resources, forests are over exploited. There is also scarcity of resources.
• Decreased production and increased costs: Food production and distribution have not been able to catch up with the increasing population and hence the costs of production have increased. Inflation is the major consequence of overpopulation.
• Inequitable income distribution: In the face of an increasing population, unequal distribution of income and inequalities within the country widen.
• Increasing divergence in the representation of different states in Parliament of India: higher population growth in north Indian states as compared to southern states has led to the freezing of the number of seats in parliament till 2026. This has caused a political tussle between less developed northern and largely developed southern Indian states.

However, there are a few Positive outcomes also:

• Largest pool of consumers: an increase in population means an increase in consumers and expansion of the demand for raw materials as well as finished products leading to high consumption and thus higher economic activities. Thus, India has become the largest market in the world for companies around the world.
• According to the neo-classical growth model, the population is beneficial to an economy because population growth is correlated to technological advancement. The rising population promotes the need for some sort of technological change to meet the rising demands for certain goods and services.
• Demographic dividend in India: India’s unique population structure with around 66% population in the working age group (15-59 years) has brought her at the cusp of a major transition for the next two decades. This has made it one of the youngest countries in the world which may put India on the path of high development as happened in China between 1991 and 2011.

Population control measures that can be taken

• Social Measure: Population outburst is considered to be a social problem and it is intensely rooted in civilization. It is, therefore, necessary to make efforts to eliminate the social iniquities in the country. Minimum age of Marriage: As fertility depends on the age of marriage therefore the minimum age of marriage should be raised. In India minimum age for marriage is 21 years for men and 18 years for women fixed by law. This law should be strongly implemented and people should also be made aware of this through promotion.
• Raising the Status of Women: There are prevalent biases against women. They are restricted to houses. They are still confined to rearing and bearing of children. So women should be given opportunities to develop socially and economically. Free education should be given to them.
• Spread education: The spread of education changes the views of people. The educated men take mature decisions and prefer to delay marriage and adopt small family customs. Educated women are health mindful and avoid frequent pregnancies and thus help in lowering the birth rate.
• Adoption: is also an effective way to curb population. Some parents do not have any child, despite expensive medical treatment. It is recommended that they should adopt orphan children. It will be helpful to orphan children and children to couples.
• Economic Measures: It is necessary is to raise the employment opportunities in rural as well as urban areas. Another economic measure for population control is the development of Agriculture and Industry. If agriculture and industry are correctly developed, a huge number of people will get employment. When their income is increased they would enhance their standard of living and accept small family norms.
• Urbanization: process can reduce population increase. It is reported that people in urban areas have low birth rate than those living in rural areas. Urbanization should be encouraged.
• Strict birth control measures: are needed such as China has adopted the strategy to decrease the birth rate. But it is not possible to reduce technological advancements to decrease the death rate in India. In order to reduce the birth rate, several government-funded agencies like the Family Planning Association of India spend excessive funds to promote family planning as a basic human right and the norm of a two-child family voluntarily.
• Creating awareness about family planning: The family planning methods provided by the family planning program are vasectomy, tubectomy, IUD, conventional contraceptives (that is condoms, diaphragms, jelly/cream tubes, foam tables) and oral pills.

Steps taken for population control in India

• After independence, a Population Policy Committee was created in 1952 which suggested the appointment of a Family Planning Research and Programmes Committee in 1953.
• Central Family Planning Board was created in 1956 which emphasized sterilization. Up till the 1960s a rigid policy was not adopted to arrest the fast growth of the population. The policy framed in 1951-52 was ad hoc in nature, flexible, and based on a trial and error approach.

• The New Population Policy, 1977: The Government of India introduced first National Population Policy in 1976, which focussed on reducing birth rate, lowering infant mortality rate and improving the standard of life.
• The National Population Policy 2000: provided a comprehensive framework to provide the reproductive and health needs of the people of India for the next ten years.

• Mission Parivar Vikas (MPV), 2016: Under the scheme, innovative strategies like the distribution of Nayi Pehel kits, Saas Bahu Sammelan, and Saarthi vans are helping in reaching out to the community and initiating dialogues on family planning and healthy birth spacing, and the importance of small families.
• Raising the marriage age for girls: Recently, the Government proposed the Prohibition of Child Marriage (Amendment) Bill, 2021, which seeks to raise the age of legal marriage for women from 18 to 21, which would further help in reducing fertility rates.

Some green shoots

• There have been some encouraging trends in India’s population in the Sample Registration System (SRS) Statistical Report (2018) and global population projections made by the Institute of Health Metrics and Evaluation (IHME), US.
• SRS report estimated the Total Fertility Rate (TFR), the number of children a mother would have at the current pattern of fertility during her lifetime, as 2.2 in the year 2018.
• Also, the recently released 5^th National Family Health Survey report has shown that India’s TFR has currently reached below the replacement level of fertility of 2.1 children per woman.
• As fertility declines, so does the population growth rate.

Controversies around Population Growth

• Demand for coercive population control measure on the lines of china: several local political leaders have been demanding coercive implementation of the 2-child policy and steps like the exclusion of couples with more than 2 children from government programs and employment. For example,

Uttar Pradesh Population (Control, Stabilization and Welfare) Bill, 2021, seeks to provide a series of incentives as well as list several punishments to families that adhere and do not adhere to a two-child norm.

• However, opponents of such a demand argue that it is against the fundamental rights of people and the democratic credentials of the nation and may promote illegal abortions threatening women’s health and safety.
• Communal overtone: several politicians try to falsely portray the population data to blame a particular community for the rising population of India. Also, several religious leaders also keep demanding couples to produce multiple children in order to maintain population majority in nation.

Way forward

• There is an urgent need to implement population-related government policies and programme in letter and spirit.
• Taking benefits of a smaller family to the last locality possible so as to make smaller families a norm right up to the districts which are still witnessing high TFR rates.
• Bringing women at the centre of family planning decisions and thus giving them control over their bodies.

Conclusion

• Hence, from above it is clear that India has come a long way in population control and planning. The recent Demographic data suggest that a ‘Social Revolution’ is underway in India.
• But still, a lot needs to be done. The Health, education and skills development of the Indian population needs acceleration to fully reap the benefits of the Demographic Dividend and achieve the goals of Aatmanirbhar Bharat and UN’s Sustainable Development Goals.

Context

• Recently, India got Droupadi Murmu elected as her 15^th President.
• However, several opposition leaders negatively commented on the President’s post in India as a ‘rubber stamp’ and ‘ceremonial head’ only with no powers. This reignited the debate around the President’s powers and position in India.
• This also makes the post and the process of election of President of India important for the upcoming UPSC mains 2022 examination and Preliminary examination in 2023.

About the President Post in India

Former PM Jawaharlal Nehru on the post of President of India- “President is the “Head that neither reign nor governs” but holds a position of “authority or dignity” 

Why do we need a President in India?

• The Constitution of India has provided for a Parliamentary form of government that has two executive heads- nominal and real executive.
• Consequently, President has been made the Nominal head of the executive; the council of ministers headed by the prime minister is the real executive. The President has to exercise his powers and functions with the aid and advice of the council of ministers.
• The logic behind having a nominal head is to provide continuity to the government. The Parliamentary system of government is inherently unstable and the government may go if it loses the vote of confidence. So, President acts as the head of the state during this period.
• Another reason to have a President is to have a “neutral head” representing the views of all the parties. His institution is a symbol of a “nonpartisan” institution. (this is the reason we see opposition MP’s visiting President against ruling government actions and asking him to take appropriate action)

Dr. BR Ambedkar summed up the post of President in the following ways:

 “The title of the functionary(President) reminds of the President of United States. But beyond the identity of titles, there is nothing in common between the two. Under Indian Constitution, the President occupies the same position as the king under the English Constitution.

Election Procedure for President of India

Electing the President

• The provisions of the election of the President are laid down in Article 54 of the Constitution of India.
• The Presidential and Vice-Presidential Election Act 1952 led to the establishment of this Constitutional provision.

Qualifications to become the President of India

The qualification of be the President of India are given below:

• He/ She must be an Indian citizen
• A person must have completed the age of 35.
• A person must be qualified for election as a member of the House of the People.
• Must not hold a government (central or state) office of profit
• A person is eligible for election as President if he/she is holding the office of President or Vice-President.

Actual course of election

• The President of India is elected indirectly by an Electoral College following the system of proportional representation utilizing a single transferable vote system and secret ballots.
• MPs and MLAs vote based on parity and uniformity values.

Electoral College composition-

 Legislative Assemblies of the States:

• According to the provision of Article 333, every state’s Legislative Assembly must consist of not less than 60 members but not more than 500 members.

Council of States:

• 12 members are nominated by the President of India based on skills or knowledge in literature, arts, science, and social service to act as the members of the Council of States.
• In total, 238 represent act as representatives from both the States and Union Territories.

House of the People:

• The composition of the House of People consists of 530 members (no exceeding) from the state territorial constituencies.
• They are elected through direct election.
• The President further elects 20 more members (no exceeding) from the Union Territories.
• Uniformity in the scale of representation of states
• To maintain the proportionality between the values of the votes, the following formula is used:

Value of vote of an MLA= total no. of the population of the particular state/ number of elected MLAs of that state divided by 1000.

Single vote system

• During the Presidential election, one voter can cast only one vote.
• While the MLAs vote may vary state to state, the MPs vote always remain constant.
• MPs and MLAs vote balance
• The number of the total value of the MPs votes must equal the total value of the MLAs to maintain the State and the Union balance.

Quotas:

• The candidate reaching the winning quota or exceeding it is the winner.
• The formula sued is ‘Winning quota total number of poll/ no.of seats + 1’.

Voters’ preference:

• During the Presidential election, the voter casts his vote in favor of his first preferred candidate.
• However, in case the first preference candidate does not touch the winning quota, the vote automatically goes to the second preference.
• The first preferred candidate with the lowest vote is eliminated and the votes in his/her favor are transferred to the remaining candidates.

Why need Proportional representation?

• The President of India is elected through proportional representation using the means of the single transferable vote (Article 55(3)).
• It allows the independent candidates and minority parties to have the chance of representation.
• It allows the practice of coalition with many voters under one government.
• This system ensures that candidates who are elected don’t represent the majority of the electorate’s opinion.

Why is President indirectly elected?

• If Presidents were to be elected directly, it would become very complicated.
• It would, in fact, be a disaster because the public doesn’t have absolute clarity of how the President-ship runs or if the candidate fits the profile of a President.
• Another reason why the direct election system isn’t favourable is that the candidate running for the President’s profile will have to campaign around the country with the aid of a political party.
• And, this will result in a massive political instability.
• Moreover, it would be difficult and impossible for the government to hand out election machinery (given the vast population of India).
• This will cost the government financially, and may end up affecting the economy as well.
• The indirect election system is a respectable system for the First Man of India (rightly deserving).
• The system/method of indirect electing of the President also allows the states to maintain neutrality and minimize hostility.

Impeachment of President of India

• Article 61 provides for the Impeachment of President on the grounds of violation of the Constitution. But the Constitution does not define the phrase ‘violation of the Constitution’. It is a quasi-judicial process.

• The President may be removed before the expiry of the term through impeachment for violating the Constitution of India by the Parliament of India.
• The process may start in either of the two houses of the parliament.
• The house initiates the process by levelling the charges against the President.
• The charges are contained in a notice that has to be signed by at least one-quarter of the total members of that house.
• The notice is sent up to the President and 14 days later, it is taken up for consideration.

Procedure

• A resolution to impeach the President has to be passed by a two-thirds majority of the total number of members of the originating house.
• It is then sent to the other house.
• The other house investigates the charges that have been made. During this process, the President has the right to defend oneself through an authorised counsel.
• If the second house also approves the charges made by special majority again, the President stands impeached and is deemed to have vacated their office from the date when such a resolution stands passed.
• No President has faced impeachment proceedings so the above provisions have never been used.

Powers and functions of the President of India

The powers and functions of President has been divided into several categories like:

Executive Powers

• Every executive action is taken in the name of President..
• He makes rules for the business transaction of executive.
• He appoints a number of important executive members like CAG, chairman UPSC, governors of states etc.

  Legislative Powers-

• He holds the powers to summons or prorogues and dissolve the Lok Sabha
• Joint sittings of both houses are called by President in case of a deadlock.
•  He addresses the Indian Parliament at the commencement of the first session after every general election
• Appointment of speaker, deputy speaker of Lok Sabha, and chairman/deputy chairman of Rajya Sabha are made by him.
• 12 members of the Rajya Sabha are nominated by him.
• Several bills such as money bills are introduced with his prior permissions.

Financial Powers of President

• He causes Union Budget to be laid before the Parliament
• Contingency Fund of India is controlled by President.
• Finance Commission is constituted by him every year.

Judicial Powers of President

• Appointment of Chief Justice and Supreme Court/High Court Judges are made by him.
• Under article 143, he can seek advice from supreme court on a matter of public importance.

Pardoning powers in India

• Under the Constitution of India (Article 72), the President of India can grant a pardon or reduce the sentence of a convicted person, particularly in cases involving capital punishment. There are five different types of pardoning that are mandated by law.

• Pardon: means completely absolving the person of the crime and letting him go free. The pardoned criminal will be like a normal citizen.
• Commutation: means changing the type of punishment given to the guilty into a less harsh one, for example, a death penalty commuted to a life sentence.
• Reprieve: means a delay allowed in the execution of a sentence, usually a death sentence, for a guilty person to allow him some time to apply for Presidential Pardon or some other legal remedy to prove his innocence or successful rehabilitation.
• Respite: means reducing the quantum or degree of the punishment to a criminal in view of some special circumstances, like pregnancy, mental condition etc.
• Remission: means changing the quantum of the punishment without changing its nature, for example reducing twenty year rigorous imprisonment to ten years.

Emergency Powers of President:

• On advice of PM, President declares national emergency under Article 352, President’s rule in state under article 356 and financial emergency under article 360.

Ordinance Making Power

• Article 123 deals with the ordinance-making power of the President. He promulgates an ordinance on the recommendation of the union cabinet when either of the houses of the parliament is not in session.

Veto Power of the President.

Article 111 in India’s Constitution governs the Veto powers of the President. Indian President has the following veto powers-

• Absolute Veto – Withholding of assent to the Bill passed by the legislature.
• Suspensive Veto – Which can be overridden by the legislature with an ordinary majority.
• Pocket Veto – Taking no action on the Bill passed by the legislature.

Discretionary powers of the President

Indian constitutions do not explicitly provide the President with any discretionary powers. However, he has few situational discretions under the below-mentioned situations:

• Selection of the prime minister when no party has a clear majority in the Lok Sabha or when there is vacancy in Prime Minister’s office due to sudden death of PM.
• Dismissing of the Council of Minister when it loses vote of confidence.
• Dissolution of the Lok Sabha if the council of minister has lost its majority vote.

Issues related to President of India

Despite sitting at the helm of the Constitution, the Presidential office has been the regular subject of criticism in the country because of the following reasons:

Being a Titular head only

• As per the mandate of Article 74 of the Constitution, the President is the Constitutional head of the Union Government and all executive actions are taken in his name.
• But in actual practice, it is the Prime Minister who makes the decisions and simply informs the President who is bound to act on his advice.

Being a Political Puppet/Rubber Stamp of Council of Minister

• President has been several times is termed as the rubber stamp of the government as he has to give approval to all executive decisions.
• For example, in 1975, the then President Fakhruddin Ali Ahmed, readily nodded to then PM Indira Gandhi’s demand for a declaration to impose a National Emergency.
• After 44^th constitutional amendment act, the scope of reconsideration of a bill passed by parliament by President was reduced to just once.
• BUT it does not mean that the President is merely a rubber stamp. A President with a  strong constitutional morality can make a difference. Under Article 78 of the Constitution the President has a Constitutional right to seek information from the Prime Minister. For example,

Former President K. R. Narayanan exercised his referral powers two times. He sent the advice of the Cabinet for its reconsideration related to the imposition of the President’s rule in the States of U.P. and Bihar during the Gujral and Vajpayee governments respectively and saved those governments.

• Eminent jurist Professor M. P. Jain: “The influence of the President depends on his personality. A man of character and ability can exert a potent influence on the affairs of the government with his advice, help, knowledge, and experience to arrive at decisions on matters affecting the well-being of the people”

Issue of Presidential activism

• It is a situation where the President asserts his discretionary powers and does not act according to the aid and advice of the council of ministers. India has a long history of activist Presidents.
• For example, Rajendra Prasad’s public criticism of government, returning of PEPSU bill in 1954. Similarly, KR Narayanan, APJ Abdul Kalam are also considered as activist Presidents.
• Many times, constitutional scholars have justified Presidential activism as it has helped in preserving federalism and preventing misuse of article 356.

• But from the perspective of legal experts, Presidential activism is not desirable in the parliamentary form of government. According to the author of the book “parliament in India” James Manor, the Constitution of India sanctions judicial activism but it doesn’t talks about Presidential activism. President is not an institution to hold the government accountable.

Misuse of Pardoning powers

• Under the Constitution of India (Article 72), the President of India can grant a pardon or reduce the sentence of a convicted person, particularly in cases involving capital punishment.
• This power is being widely abused by the President. Former President Pratibha Patil misused the power to great extent as evident form the fact that within 28 months of her Presidentship, she granted a record of 30 pardons which was equal to 90% of all pardons ever made by previous Presidents of India.

Choice of Presidential candidate:

• Many a times, the appointment of Presidential candidate is to appease particular community or section of the society. Also, he is not chosen directly by the people of the India.

Use of Office of President as reward for loyalty

• It is considered as office of reward for your life long allegiance to particular party or family.

Despite above criticisms, the President in India plays several crucial roles such as:

• Safeguard the foundation of parliamentary democracy in India.
• Involved in situation with no set precedent – appoint prime minister when no party has clear majority in lok sabha or when PM dies suddenly and there is no obvious successor.
• Custodian for safety of Constitution– He is a preserver, defender and protector of the Constitution of the country.
  
  In the words of former President of India R. Venkatraman, “the President in India is like an emergency lamp which comes to power only when the main switch is off”

Conclusion

• Thus, from above we can conclude that the post of President in India can be both ceremonial as well as active depending upon the nature of the person entering the office.
• All the Presidents in India by now has acted well according to their Constitutional mandates and helped protect the Constitution of India.

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Let’s talk about what’s happening in the aviation sector:

1. Quite a lot flights are not taking off
2. Staff are striking,
3. Luggage is not being loaded or are going missing,
4. Pilots don’t want to fly
5. Airports want airlines to cut capacity but airlines won’t oblige
6. Queues are long and passengers are suffering

India’s ailing Aviation Sector

• It is facing a unique crisis a crisis of credibility and safety.  Let me show you some recent headlines to start with.
• The windshield of a go air flight cracks mid-air, two go air flights suffer engine snags, a flight could not take off because of a dog on the runway.
• A bird was found in the cockpit of an Air India Express cruising at 37 000 feet.
• One flight suffered an engine snag another noticed smoke in the cabin.

India’s Aviation Industry: A backgrounder

• India is the world’s third largest aviation sector it is home to more than 150 million flyers every year.
• There are 15 airlines, two more will soon be operational and more than a million flights land and take off from India every year.
• The country has 137 airports and dreams of adding 100 more according to airbus.  India’s domestic air traffic will grow five times in the next two decades.
• Nearly 90% of the aviation traffic is domestic and low-cost carriers account for nearly 70% of the domestic seats.
• The average domestic fare has fallen by more than 70% since 2005.

Why are India’s airlines suffering so many technical glitches?

• Why are there so many emergency landings you must have heard of the DGCA or the directorate general of civil aviation it is the government body that’s responsible for airline safety issues the dgca is blaming these snags on staff shortage.
• Every flight is inspected and certified before take-off.
• Aircraft maintenance engineers they’re called AME aircraft maintenance engineers.
• This malfunction is happening because of a shortage of engineers.

Who’s responsible for the shortage?

• You see a lot of airlines have outsourced engineering to whom the likes of Air India engineering which is still owned by the government of India then there is Artworks Max Aerospace group gmr, spice jet technique.
• Some of these companies are short of staff and this staff shortage is risking lives.

Reasons behind the Crisis

• In the past years, aviation was one sector that was shining in terms of double-digit growth in passenger traffic for many years.
• However, that too is currently seeing complications, reflecting the adverse growth in the general economy.
• It should be noted that the aviation sector is a very high multiplier of both economic growth and employment and any downturn would affect the economy itself.
• However, airlines are currently in a financial mess.

(1) Pandemic incurred losses

• Indian airlines and airports incurred financial losses worth Rs 22,400 crore in the last financial year amid the coronavirus pandemic, according to official data.
• Besides, 75 per cent of Airports Authority of India-operated airports are incurring losses. Also, AAI’s revenue came down to Rs 889 crore during April-June this year.

(2) High fuel prices and taxes

• As far as the domestic sector is concerned, airlines work at a huge disadvantage as they are burdened by high taxes and levies at one end and high Air Turbine Fuel (ATF) prices on the other.
• The ideal cost of ATF should not exceed beyond 25% of the total operating cost.  
• A central excise imposition of 14% and sales tax levied by the state governments on ATF can be as high as 30%.
• Attempts to bring ATF under GST and cutting it down to 12% have not been accepted by the GST Council.

(3) Rupee depreciation

• Any deterioration of the exchange rate of rupees to the US dollar also causes adverse impacts on the profits of the airlines.
• Deterioration of international fuel prices also plays a role.
• Due to this toxic mix, the operational cost in the domestic sector remains high.

(4) Economics of tickets fare

• Due to the large order of planes, the total capacity of seats is increasing, leading to the increasing need to fill up the growing availability of seats.
• Thus, airline ticket prices are decided by algorithms that change fares based on several factors like past bookings, remaining capacity, average demand per route, probability of selling more seats later etc.
• This computer-based dynamic pricing system causes passengers acute distress during holidays/festivals or calamities when price sharply increase.

(5) Airport and aircraft maintenance

• The Airports Authority of India (AAI) is the custodian of all civil airports in India.
• While a dozen airports are profitable, the rest are cross-subsided by AAI.
• Airport improvement involves not just upgrading the terminals, but also the runway, navigational aid and equipment needed for the safety and security.
• The AAI is currently leasing out bigger airports on a long-term basis.
• However, the lessee company is selected based on the highest percentage of revenue it can share with the AAI.
• The Delhi International Airport share 46% of its revenue while Mumbai is a little less. The newly privatized airports are even higher.

(6) Skill shortage

• Although India has the world’s second-largest population, the aviation industry faces a severe shortage of skilled workforce.
• The low-quality training institutes are not training the necessary engineers, technicians and other professionals to meet the demand of this sector.
• These are the reasons behind aircraft maintenance engineers.

(7) Disproportionate workforce

• While some airlines like Air India have surplus manpower, some like IndiGo are suffering from manpower shortage.
• In fact, the surplus manpower of Air India is one of the major causes of its financial crisis.

(8) Congestions at airports

• India’s major airports suffer from congestion of passengers and limited runways.
• For instance, Mumbai Airport, which is a single runway airport handles over 900 flights each day on an average.
• That is approximately 38 to 40 flights each hour.
• Thus, congestion leads to delay in operations and a decrease in the operational efficiency of both airlines and airports.

Impact of such incidences

• These incidences are hurting India’s image in recent weeks.
• Several Indian flights had to make emergency landings abroad, even in Pakistan.
• Now India and Pakistan don’t have an aviation agreement the two countries, do not have direct flights and they don’t see eye to eye we know that.
• What about India, the world began questioning India’s aviation sector. The repeated technical snags are making headlines in West Asia in the UK.
• This raises concerns about flight safety in India and Indian carriers.

Another aspect: Ambitious UDAN Scheme

• The Ude Desh Ka Aam Nagrik (UDAN) scheme is a low-cost flying scheme launched with the aim of taking flying to the masses.
• The first flight under UDAN was launched by the PM in April 2017.
• It is also known as the regional connectivity scheme (RCS) as it seeks to improve air connectivity to tier-2 and tier-3 cities through revival of unused and underused airports.

Working of the Scheme

• Airlines are awarded routes under the programme through a bidding process and are required to offer airfares at the rate of ₹2,500 per hour of flight.
• At least 50% of the total seats on an aircraft have to be offered at cheaper rates.
• In order to enable airlines to offer affordable fares they are given a subsidy from the govt. for a period of three years.

Present status

• A total of nine rounds of bidding have taken place since January 2017.
• The Ministry of Civil Aviation has set a target of operationalizing as many as 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024.
• So far, the Airports Authority of India (AAI) has awarded 948 routes under UDAN, of which 403 routes have taken off that connect 65 airports.
• Out of the total 28 seaplane routes connecting 14 water aerodromes, only two have commenced.

Issues with the UDAN

• Discontinuance: In reality, some of the routes launched have been discontinued as most of the routes awarded under UDAN are not active.
• On-paper Ambitions: UDAN was expanded to provide improved connectivity to hilly regions and islands through helicopters and seaplanes. However, they mostly remain on paper.
• The reasons include:

1. Failure to set up airports or heliports due to lack of availability of land
2. Airlines unable to start flights on routes awarded to them or finding the routes difficult to sustain
3. Adverse impact of the COVID-19 pandemic

Various challenges

• Lack of funds: Many small airlines await infusion of funds, to be able to undertake maintenance of aircraft, pay rentals to lessors, give salaries to its staff, etc.
• Maintenance issue: Many players don’t have more than one or two planes and they are often poorly maintained. New planes are too expensive for these smaller players.
• Availability of pilots: Often, they also have problems with the availability of pilots and are forced to hire foreign pilots which costs them a lot of money and makes the business unviable.
• Competition: Only those routes that have been bagged by bigger domestic players such as IndiGo and SpiceJet have seen a better success rate.

Way forward

• Aviation is a critical component of the nation’s transportation sector and plays a pivotal role in economic growth and employment generation.
• Aviation could be a major growth engine to make India a $5 trillion economy by 2024.
• The government should look into the aviation sector holistically, as a part of the economy as it is going to play a crucial role in economic development and is no more a sector of the privileged class only.
• The current model of taxation of the civil aviation industry appears unsustainable.
• Therefore, fuel taxes should be brought under the GST to reduce the operation cost of the airlines.
• This sector has shown the indomitable spirit- never hesitant to be in the frontline by ensuring the safe movement of people and essential cargo during the nation’s fight against the pandemic.
• Some leeway at the right time will safeguard aviation to catch up the growth trajectory faster.

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Context

• China is witnessing one of the most challenging economic crisis in its history.
• The real estate market which accounts for nearly 30% of its GDP has come crashing down in the past 1 year.
• Property sales plummeted by 72%, 1000s of people are protesting in 86 cities, and now there is a banking crisis where banks have started freezing the accounts of the Depositors.
• In its heaviest crackdown on depositors, it has deployed tanks against the protesters. 

And in spite of all this trouble, experts say that this is the just beginning of one of the worst economic crises that is followed in China!!  The question is-

Chinese Evergrande Crisis: A backgrounder

What is Evergrande?

• Evergrande is a Real Estate company which currently owns more than 1,300 projects in more than 280 cities across China.
• The broader Evergrande Group now encompasses far more than just real estate development.
• Its businesses range from wealth management, making electric cars and food and drink manufacturing.
• It even owns one of country’s biggest football teams – Guangzhou FC.

What is the crisis?

• Chinese property giant Evergrande, whose liabilities exceed $300bn (£228bn), failed to meet interest payments to international investors.
• That prompted Fitch, an agency that rates companies’ financial risk, to declare Evergrande in default.
• The crisis has spooked investors who fear contagion across China’s property and banking sectors.
• Fitch, whose risk ratings are closely followed by major investors seeking to deploy billions of dollars, said it contacted Evergrande about the non-payment but received no response.

How did it land itself in trouble?

• Evergrande expanded aggressively to become one of China’s biggest companies by borrowing more than $300bn.
• Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
• The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.
• Now, it is struggling to meet the interest payments on its debts.
• This uncertainty has seen Evergrande’s share price tumble by almost 90% over the last year.

Why would it matter if Evergrande collapses?

There are several reasons why Evergrande’s problems are serious.

• Loss of public money: Many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.
• Loss to investors: There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.

Economic impact on China

• Huge dependence on a single company: Evergrande is an enormous company embedded across China’s financial system and economy, which relies heavily on the property for growth and jobs.
• Credit crunch in the economy: If Evergrande defaults, banks and other lenders may be forced to lend less. This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.
• Withdrawal of foreign investments: Companies that can’t borrow find it difficult to grow, and in some cases are unable to continue operating. This may also unnerve foreign investors, who could see China as a less attractive place.
• Snowball effect on debts: In theory, a collapse could chase investors away from other publicly traded developers, setting off a chain of defaults.
• Rise in unemployment: A collapse could also undermine the economic activity and jobs created by Evergrande and its downstream suppliers.
• Visible bankruptcy: Cash is so short the company this summer started paying some suppliers with unfinished apartments instead of money.  

Why Chinese people are fuming over the streets?

• Many investors have expressed concerns about the Chinese government’s lack of communication about its plans.  
• Continued absence of a clear message from Beijing is posing notable downside risk to growth.
• Given wide use of property as collateral for loans to companies and local governments, a deep and widespread drop in prices, however unlikely, could threaten the financial system.
• To head off further damage, the government faces the challenge of ensuring customers get the homes they bought.

What is China’s government doing to prevent a crisis?

• The government of the province, where Evergrande is based, said that at the company’s request it would dispatch a working group to help Evergrande manage its risks and maintain normal operations.
• China’s central bank said it supported the decision to step in and would cooperate, while banking and securities regulators said they would work together to maintain the health of the broader property market.
• Chinese authorities had earlier asked local governments to prepare to step in—only at the last minute—if Evergrande fails to manage its affairs in an orderly fashion.
• This approach signals Beijing’s reluctance to bail out the debt-saddled property developer while bracing to cushion any economic or social fallout.

What exactly went wrong with the Real estate market in China?

There were two immediate triggers that precipitated the crisis at Evergrande.

• Chinese regulators, as part of a widespread crackdown on sectors such as the digital economy and education, kicked off probes into the high borrowings of property developers.
• To counter that, Evergrande tried selling off some of its business.
• But a progressive slowing down of China’s property market and tapering demand for new houses crimped cash flows.
• These two factors combined to precipitate the cash crunch at Evergrande.

Three red lines In August 2020, in an effort to better manage the heavily leveraged sector, Chinese regulators introduced rules dubbed the “three red lines” to limit borrowing of real estate firms. The three red lines mandate that developers maintain: 1. A debt-to-asset ratio of 70% or lower, 2. A 100% cap on net debt to equity, 3. Enough cash on hand to satisfy short-term borrowing, debts, and liabilities.

Why is the world worrying?

A collapsing property market in China has triggered alarm bells across the world.

(1) Future of manufacturing

• It is still the manufacturing hub of the world and if its economy falters, countries around the globe would suffer from slower and more expensive exports.
• Contract electronics and semiconductor manufacturing, where China is a global leader, had already stalled various sectors such as auto, consumer electronics and more due to Covid-induced supply bottlenecks.
• This would only go up further in an economic crisis.

(2) Future of BRI Projects

• China is also the global creditor of the developing world. Developing countries dependent on China for infrastructure projects, would be hard-hit.
• The Xi-government has sponsored numerous projects under the Belt and Road Initiative.
• Currently, BRI projects are valued at over $1 trillion across 139 countries around the globe. These building sites, highways, power generation plants and so on could be left unfinished.

(3) Disburse of finances

• China’s extended property boom that started in the mid-1990s has now ensured that nearly three quarters of the country’s household wealth is locked up in housing.
• An impending collapse at the biggest real estate company could have a serious knock-on effect on the entire economy.
• It could drag down growth and potentially setting off a cascading impact that could singe the global commodities and financial markets.

Impact on India

• India’s buoyant iron ore exports, much of which is headed to China, could also see an impact if the twin crises in China triggers an extended slowdown in the Chinese real estate market.
• In India’s stock markets, the metals segment, which has been surging since the start of the year and appeared to show signs of overheating.
• Analysts view this more as a short-term correction, but there could be an extended impact if the crisis in China were to remain unresolved.
• And there could potentially be a sustained impact on global growth prospects, dampening the nascent recovery that is underway in markets such as India.

Why global sentiments now are against China?

• Aggressive expansion: In recent years, China has expanded its diplomatic and economic relationships through aggressive means.
• Covertness of BRI: It has been positioning itself as a donor of much-needed public goods through it’s the Belt and Road Initiative.
• As China’s influence has grown, so have the number of countries concerned with its:
• Lack of economic reciprocity
• Dominant technological policies
• Coercive foreign policy practices, and
• Regional military ambitions
• In Asia, where strong economic ties with China are critical to development, Beijing has still managed to drum up resentment for its unyielding position on territorial claims in the South China Sea.
• Criticism of Chinese policies, both at home and abroad, has revealed the grittier side of Beijing’s diplomacy.
• The coronavirus has only further highlighted this dynamic.

Will China collapse?

What do incidences say?

• Freezing of bank accounts: Some Chinese banks have responded by seizing purchasers’ savings deposits, claiming they are really ‘mortgage investment products.’
• Putting tanks over protestors: This has sparked open protests outside some banks, leading to the government surrounding the banks with tanks.

However, there is not going to be a financial crash in China. Why?

That’s because the government controls the financial levers of power:

1. The central bank,
2. The big four state-owned commercial banks which are the largest banks in the world (who lends Pakistan always)
3. The so-called ‘bad banks,’ which absorb bad loans
4. Big asset managers

Hence we can say that China is too big to collapse.

How can China achieve this?

Ans. Socialistic Autocracy

• The government can order the big four banks to exchange defaulted loans for equity stakes and forget them.
• It can tell the central bank, the People’s Bank of China, to do whatever it takes.
• It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies.
• It can tell the state bad banks to buy bad debt from commercial banks.
• It can get local governments to take up the property projects to completion.
• So a financial crisis is ruled out because the state controls the banking system.

What are the lessons India needs to learn from the Chinese economic Crisis?

• What we need to learn from this Chinese crisis is that investment instruments driven by mindless social norms will often cost both the people and the economy heavily.
• In this case the Chinese definition of a well-seeded person got a ton of debt piled up for the Chinese people in spite of the sky high prices.
• In our case in India the same thing happened with fixed deposits (FDs) because we outright considered FDs to be safe because of the social norm without understanding inflation.
• Similarly the mindless purchase of gold is now hindering our economy so take a step back and assess whether your instruments are backed by calculated strategy or just mindless social norms.
• The Indian real-estate sector has been stagnant.
• If companies in the sector are to be believed, this has primarily been because of high interest rates. But what is basically holding back people are high home prices.
• We need homes in a price range of ₹10-15 lakh for real estate to become a major contributor to economic growth, like it has been in the Chinese case.

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One should not be surprised that the democratic system of administration was not new to India. Ever since ancient times, India had it and she lost it. We all have read about “Kingdoms, Kings and Early Republic” through NCERT since our preparation began.

Context

• In Maharashtra, recently splits in the ruling party led to the fall of a tripartite government which had acclaimed dynast and popular leaders.
• Most political parties in India were no doubt dynastic, i.e. the future leader is almost always a family member of the present party leader (no doubt they are anyhow ousted with the present regime in India).
• This however highlights huge vacuum in intra-party discipline and coherence of ideologies.
• Thus the character of any India’s political institution or party system is a result of its political culture.

Today’s debate is – Is India being held back due to a lack of democracy in its political parties? Or does the freedom to start a new political party compensate for this defect?

Point of discussion

• In India, there is no real movement toward the democratization of parties.
• The selection of candidates, Chief Ministers and office-bearers of party units is usually left to the discretion of a handful of leaders who take decisions behind closed doors.

“It is not that India did not know what is Democracy,” Dr.B.R.Ambedkar, the Chairman of the Drafting Committee told the Constituent Assembly while presenting the final draft of the Constitution, “There was a time when India was studded with republics, and even where there were Mahajanpada monarchies, they were either elected or limited. They were never absolute. It is not that India did not know Parliaments or Parliamentary procedures. A study of the Buddhist Bhikshu Sanghas discloses that not only there were Parliaments- for the Sanghas were nothing but Parliaments- but the Sanghas knew and observed all the rules of Parliamentary Procedure known to modern times.”

Constituent Assembly Debates

Political Parties in India: A Backgrounder

• A party system is a concept in comparative political science concerning the system of government by political parties in a democratic country.
• In India, there is a multi-party system in place, with the number of parties at the national level fluctuating.
• Furthermore, India has a diverse range of political parties, including left, centrist, and right-wing parties, as well as communal and non-communal parties.

Features of Political Parties in India

The key features of the Indian Party system are:

1. Ideology base
2. Multi-Party System
3. Pre-poll Alliances
4. Coalition System
5. Opposition’s Multi-Party Character

Issues with Political Parties in India

• Lack of proper organisation: Another feature of the Indian party system is its lack of structure. Political parties live and die by their organization.
• Groupism inside India’s party structure: In India, groupism is a major problem for every political party. This shatters a party’s cohesiveness, causing it to split into several factions. Ex. INC, NCP, TMC.
• Extra-constitutional ways of gaining power: Political parties do not hesitate to utilize uncertain measures to gain political power in addition to legitimate means. Ex. Resort Politics
• Populist tendencies: In India, it is well noticed that political parties turn to populist politics in order to gain power. They take unfair advantage of people’s emotions and compulsions, promote populist slogans, and mislead the public. Ex. Temple reconstruction movements
• Lack of discipline among party members:  It has been observed that members of various political parties are unconcerned about party discipline, preferring instead to sling dirt at one another. Ex. Undue political statements
• Communal characteristics: The people of India are influenced by caste and religion, and they have a strong sense of allegiance to their caste and religion. Ex. Political party in Hyderabad.
• Criminalization of politics: Leaders are valued for their capacity to attract crowds and raise funds as elections become more and more expensive.

Why are tainted candidates inducted by political parties?

• Innocent until proven guilty maxim: The other reason offered by political parties is summarised by the maxim of Indian law, which is that any accused is innocent until proven guilty.
• Popularity: Such candidates with serious records seem to do well despite their public image, largely due to their ability to finance their own elections and bring substantive resources to their respective parties.
• Prospected victory: The logic of a candidate with criminal charges doing better for the cause of people of is another flawed argument.
• Destabilizing other electors: Others do not seek to punish these candidates in instances where they are in contest with other candidates with similar records.
• Vested interests: Some voters tend to view such candidates through a narrow prism: of being able to represent their interests by hook or by crook.

Why voice for democracy within?

• Dynastic politics: Many political parties in India has charges of dynastic politics irrespective of the political insights of the person who inherits the legacy.
• Opaque appointments:  Although election of the party president cannot be the sole criteria for judging intraparty democracy, political parties view the matter only through the procedure of electing the chiefs.
• Dominants: The party head positions are mostly influenced by some external forces which have larger say in finance and caste (or) religion.
• Personality cult: There is a tendency of hero worship in people and many times a leader takes over the party and builds his own coterie, ending all forms of intra-party democracy.
• Centralised power: Most parties are subservient to one supreme leader or a charismatic personality.   Such leaders are valued for their capacity to attract crowds and raise funds as elections become more and more expensive.
• Lack of institutionalization: Most of political parties still refuse to lay down settled and predictable procedures for almost everything they do, from the selection of candidates to the framing of a manifesto.

How this impacted election has mandates?

• Weaker opposition: In India, strong and well-organized opposition is required for parliamentary democracy to succeed, yet it does not exist.
• Non-coherence: There are several national and regional political parties performing the role of opposition at the moment, both at the national and state levels, but they are not unified on many political topics and do not have a uniform agenda.
• Electoral autocracy: India is often accused to be a flawed democracy on accounts of its alleged far-right-wing political government. There has been increased pressure on human rights groups, intimidation of journalists and activists, and a spate of attacks, especially against Muslims.
• Against public aspirations: People vote for fulfilling their demands and put much effort with aspirations that a stable government would be at their behest to resolve their issues.
• Unstable government: This point needs no explanation. We have largely seen the perils of poor decision-making of politicians due to a lack of consensus among the allies.

Even Monarchies were either elected or limited but never absolute Bhakti or hero-worship sure road to dictatorship, says Dr.Ambedkar

A critical evaluation

• Political parties have become oligarchies: India’s success in consolidating a democratic system of government has paradoxically forestalled pressure for party reform.  .
• One person diktat rules the parties: Most parties are subservient to one supreme leader who can impose his/her offspring on the party, and even electoral defeat does not loosen their control or hold over the party.
• Election manifesto is nowhere relevant post-election: Political parties with the exception of the Left parties still refuse to lay down settled and predictable procedures for almost everything they do, from the selection of candidates to the framing of a manifesto.
• Party reform is a pressing one in India: While many argue that intraparty democracy is essential to sustain broader political democracy, this is not a panacea for the numerous problems facing parties.
• Vague system is the status-quo:  The biggest weakness of parties is that they are leader-centric and most leaders are unwilling to institutionalize the procedures.
• Diktat of the party high-command actually rules a govt.: As a rule, strong leaders rarely support institutionalization because it constrains their discretion and personal power.  
• Partisan mobilization of the left-liberals: There is a major challenge facing the party system by party activity driven by partisan mobilisation lies at the root of much of the schism and disruption of Indian politics today. Ex. Leftists frequently meeting the Chinese.
• Sake of electioneering and winning never ends: Another aspect is the reduction of party organisations into election-winning machines. This has become the only role a party envisages for itself.
• Lack of political will persists: If party funds are raised and controlled centrally, this weakens the State units and rank and file vis-à-vis the central leadership on a range of issues including leadership selection and nominations for elections.

Need for imbibing democracy

• Ensuring equal opportunity: The absence of intra-party democracy adversely impacts the constitutional right of all citizens to equal political opportunity to participate in politics and contest elections.
• Less factionalism: A leader with strong grassroot connection would not be side-lined. This will allow less factionalism and division of parties thereby ensuring a stable govt in power.
• Popular representation: A transparent party structure with transparent processes will allow proper ticket distribution and candidate selection.  The selection would not be based on the whims of a few powerful leaders in the party but will represent the choice of the larger party.
• Accountability of the legislators: A democratic party will be accountable to its party members, for they will lose elections in the next cycle for their shortcomings.
• Decentralising power: Every political party has State and local body units, an election at each level will allow creation of power centres at different levels. This will allow decentralisation of power and the decision making will take place at the ground level.
• Legal loopholes: Currently, there is no express provision for internal democratic regulation of political parties in India except political defection. The ECI’s power to require parties to hold regular internal elections for office bearers, and candidate selection is compromised in the absence of any penal provisions.

How to attain internal democracy within parties?

• Internal elections: It shall be the duty of the political party to take appropriate steps to ensure holding of elections at all levels. The political party shall hold elections in an unpartisan ways by their ‘karyakartas’.
• Strengthening Anti-defection Law: The Anti-Defection Act of 1985 requires the party legislators to act according to the party whip which is decided by the diktats of the highest party leadership. One way to democratise political parties is to promote intra-party dissent.
• Limited reservations: Seats can be reserved for women and members of the backward community including minorities.
• Empowering ECI: The ECI shall be competent to inquire into allegations of non-compliance of any of the provisions requiring elections.
• Social audit and penal provisions: ECI should have the penal power to deregister a party until free and fair elections in the party are conducted.
• Encouraging new generation of leaders: For long, there is a widespread impression created that lot of good people shy away from politics. It is therefore necessary that this impression be changed and efficient people brought into political arena.

Way forward

• The 170th report of the Law Commission of India on reform of electoral laws, dedicated an entire chapter on the necessity of providing laws relating to internal democracy within parties.
• It observed that a political party which does not respect democratic principles in its internal working cannot be expected to respect those principles in the governance of the country.
• The National Commission for Review of Working of Constitution states that there should be comprehensive legislation regulating the registration and functioning of political parties or alliances of parties in India.
• The Administrative Reforms Commission II (ARC), 2008 Ethics and Governance Report pointed out that corruption is caused by over-centralization.

Conclusion

• Politics is inseparable from political parties as they are the prime instruments for the execution of democracy in the country.
• We must emphasize our PM’s call for a debate on internal democracy in political parties.
• It is imperative that political parties open their eyes to growing calls for electoral political reforms and take steps towards bringing in intra-party democracy.

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Context

• The Reserve Bank of India has announced an arrangement for the country’s traders to settle imports and exports in rupees.
• This move is aimed at promoting growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian Rupee.

Background: Russia-Ukraine War

• India is a trade deficit country, meaning it imports more than it exports.
• This forces the country to maintain large forex reserves since world trade still occurs in US dollars.
• This is not the first time that the RBI has allowed international trade in rupees – the sanctions on Iran a few years ago resulted in the two countries trading in rupees instead of dollars.
• The Russia-Ukraine war and the subsequent sanctions have provided RBI with another opportunity to push for trading in rupees.

US Dollar: The Global Currency

• The U.S. dollar has been the world’s dominant currency since the end of World War II.
• Roughly half of the international trade, international loans, and global debt securities are denominated in USD.
• The USD became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
• Despite the challenges faced by the US economy due to fiscal and external deficits of the 1980s, the dollar’s share of global reserves remained steady and reserves even grew as time progressed.
• The dominance of the dollar is backed by strong and highly credible institutions, deep markets and the fact that it is freely convertible.
• Almost 40% of the world’s debt is issued in dollars. As a result, foreign banks need a lot of dollars to conduct business. This became evident during the 2008 financial crisis.

 What is the Rupee Settlement System?

• Banks acting as authorized dealers for such transactions would have to take prior approval from the regulator to facilitate this.
• All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
• Exchange rate between the currencies of the two trading partner countries may be market determined.
• Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
• These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
• Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

Nostro and Vostro Accounts: Nostro and vostro are terms used to describe the same bank account; the terms are used when one bank has another bank’s money on deposit.They are used to differentiate between the two sets of accounting records kept by each bank.Nostro comes from the Latin word for “ours,” as in “our money that is on deposit at your bank.”Vostro means “yours,” as in “your money that is on deposit at our bank.”

Why such a move?

• Trade facilitation: This will also facilitate trade with countries like Russia which are facing sanctions.
• FOREX savings: India imports more than it exports so the country will also save foreign currency under the new arrangement.
• Rupee appreciation: The rupee is at a historic low against the dollar. It will also help stabilize rupee.
• Mitigating war impact: Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
• Convertibility easing: We see this as a first step towards 100% convertibility of rupee.
• Energy security: It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.
• Export promotion: As such, the new mechanism will help India promote its exports.

Which countries would prefer this system?

• War mongering Russia: For now, it looks like trade settlements in rupee will be limited to countries like Russia and Iran who are facing sanctions from the West
• Bankrupt Sri Lanka: SL is going through economic turmoil and India has been consistently extending lines of credit to SL.
• Immediate neighbors: Other countries may include immediate neighbors of India.

Rupees over Dollars: Why countries would prefer Rupees?

• At a very simplistic level, this is like two Indians deciding to use an alternative mode of exchange that they have come up with, instead of using rupees.
• In other terms, this is similar to the barter system.
• The main reason for countries to want to trade with India in rupees is this:

1. USD has been going through a phase of strength against most currencies in the world
2. Strong USD performance has essentially made imports expensive for most countries
3. Sri Lanka, which is going through one of its worst economic crises in decades, is a glaring example of a country in which the economy has come to a halt due to a drastic fall in forex reserves

• While the Sri Lankan Rupee has declined over 83 percent against the US Dollar, its fall against the Indian Rupee has been lower at 70 percent.
• So instead of paying 83 percent more to make purchases in USD, Sri Lanka can pay in Indian Rupees and save some money.

Challenges

• Trade surplus countries’ preference: The question that RBI and the Indian government will have to answer is this – why would countries with a trade surplus with India want to trade in rupees?
• Negative trade balance: China had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
• Idle money lying useless: If China were to trade with India in rupees, it would have Indian rupees worth $73 billion (about ₹5.77 lakh crore) sitting idle in its Rupee Vostro accounts in an Indian bank.
• Few countries interested: Countries whose exports to India are more than imports, will not be too enthusiastic to trade in rupees, especially if the difference is huge as in the case of China.

Way forward

• In a multipolar world where Free Trade Agreements (FTAs) are frequent, undermining the dollar’s dominance seems prominent.
• This has been the dream of governments that have looked uneasily at US global primacy, and formed coalitions.
• It is predicted that the sanctions against Russia has foreshadowed the decline of the dollar as the reserve currency.

Conclusion

• No doubt! This move wouldn’t kill the dollar.
• A currency’s dominance depends on demand of the currency and India would need to export stuff to create that demand.
• If all the nations in the world stop using dollars only then it would fall.

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Context

• The RBI recently released a very important document about the economy of the States of India.
• Some of our Indian states have been managing their finances so bad that these states could be heading towards the same state as Sri Lanka’s economy!
• And we all know what’s happening in Sri Lanka right now!
• The worst part is that if this continues for a long time, the entire country of India will lose money and could face another economic crisis!

Questions raised:

• Why is this RBI document comparing Indian states to the economic crisis in Sri Lanka?
• How are these states doing the same mistakes as the Sri Lankan government?
• And most importantly as citizens of India what are pointers that you need to keep eye on before you cast your vote for the so-called leaders of India?

Crumbling state finances:

How can we arrive at this conclusion?

(1) Debt-GSDP Ratio

• Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana turn out to be the states with the highest debt burden.
• Highest debt-GSDP ratio in FY22 are Punjab (53.3%), Rajasthan (39.8%), West Bengal (38.8%), Kerala (38.3%) and Andhra Pradesh (37.6%).
• All these states receive revenue deficit grants from the Centre.
• What exacerbated the debt-GSDP ratio was that while numerator (liabilities) rose sharply, the denominator (nominal GDP) fell sharply.

(2) Fiscal Deficit

• The Fiscal Responsibility and Budget Management (FRBM) Act, 2005 prescribes the ceiling for debt to GSDP ratio at 25 per cent.
• Eight out of the 15 states studied here, exceed the prescribed limit in FY22.
• Odisha was a clear outlier with a 15.79 per cent Debt-GSDP ratio.
• States like Tamil Nadu and Karnataka were marginally higher than the mandated limit. 

(3) Fiscal deficit to GSDP

• Large borrowing by some States is due to the sharp expansion in their fiscal deficits, much beyond the mandated level.
• Bihar recorded highest fiscal deficit to GSDP ratio at 11.30 per cent as per FY22 revised estimates followed by Rajasthan (5.2 per cent), Punjab (4.60 per cent) and Uttar Pradesh (4.27 per cent).

(4) Interest cover

• High borrowings or fiscal deficit-GDP ratio is not something to be worried about as long as the States have adequate revenue surplus to fund them.
• This can be gauged by looking at the interest cover as measured by the revenue receipts of the State divided by its interest payment.
• For instance, Bihar had the highest fiscal deficit as a percentage of GSDP, however, the state has adequate revenue receipts to cover its interest burden, with interest cover of 11.3.
• Odisha topped the list with highest interest coverage ratio since it has been diligently lowering its borrowing as well as the resultant interest burden.
• Punjab, Haryana, West Bengal, Tamil Nadu and Kerala appear weak going by this metric with interest cover under 6 times. 

(5) Increase in Market Borrowings

• Most States increased their market borrowing during the pandemic as their fiscal deficits expanded.
• Tamil Nadu topped the list of states with highest gross market borrowings in both FY21 and FY22.
• But not all states were on a borrowing spree.
• Odisha stayed away from market borrowing through state development loans (SDLs) in FY22.

(6) Revenue buoyancy

• Revenue buoyancy of States has already been affected since the Goods and Services Tax (GST) came in and states’ ability to raise taxes has come down.
• Interest payments, salaries and pensions fall under the committed expenditure of State governments.
• This committed expenditure of Kerala and Tamil Nadu accounts for 71 per cent and 67 per cent of their budgeted revenue receipts respectively in FY23. 
• A larger proportion of the budget allocated for committed expenditure items limits the state’s flexibility to decide on other expenditure priorities such as developmental schemes and capital outlay.

(7) Dependency on Centre

• Own tax revenue of Haryana, Kerala and Andhra Pradesh constitutes about half of their total revenue collections.
• The major source of revenue of other States is Central transfers.
• Within own tax revenue, States’ goods and services tax (SGST), States’ excise duties and sales tax are the major sources of revenue

(8) Poor capital outlay

• High revenue expenditure results in poor spending quality, as reflected in their high revenue spending to capital outlay ratios.
• Capital outlay is the money spent on acquiring assets while revenue expenditure indicates daily operations expenses like salaries and pensions.

What factors led to the financial vulnerabilities of Indian states?

(1) Pandemic

• The prolonged COVID crisis has worsened fiscal positions of governments around the world as reflected in mounting debt levels.
• The sustainability of public debt at national and sub-national levels has again assumed centre-stage as the dominant fiscal risk.
• In particular, the pandemic has taken a heavy toll on finances of states in India.

(2) Freebie Politics

(3) DISCOM sector distress and payment crisis

• The power sector accounts for much of the financial burden of state governments in India, both in terms of subsidies and contingent liabilities.
• Illustratively, many state governments provide subsidies, artificially depressing the cost of electricity for the farm sector and a section of the household sector.
• Despite various financial restructuring measures17, the performance of the DISCOMs has remained weak, with their losses surpassing the pre-UDAY level of 0.4 per cent of GDP.

(4) Pension expenditure

• The government’s fiscal burden in providing a safety net to the elderly could rise to as much as 4.1% of the GDP by 2030 from 2.2% at present, a report by global analytical company Crisil has said.
• Currently, the central government spends 3-3.4% of GDP on education and just over 1% of GDP on medical and public health, water supply and sanitation.
• This is an ever-increasing challenge, as the old live longer, and demographic transitions reduce the number of young to pay for the old.
• Many states are opting out of New Pension Scheme (NPS) to the old pension scheme which is a huge burden on the exchequer.

A rational analysis

(1) Certain necessary expenditures cannot be avoided

• States often try and provide some kind of relief to voters.
• We can certainly be in favour of expanding, for example, the MGNREGA type of spending and subsidy in the form of food ration schemes.
• These go a long way in increasing the productive capacity of the population. So, they’re not just freebies.
• They build a healthier and a stronger workforce, which is a necessary part of any growth strategy.
• That is similar to a State spending on education or health.

(2) Certain election promises create dysfunctions

• There are obviously cases where State governments have gone astray and have gone into providing all sorts of freebies or gifts.
• But when it comes to simply giving away loan waivers, we cannot go in favour of these because they have undesired consequences such as destroying the whole credit culture.
• It blurs the very basic question as to why is it that a large majority of the farming community is getting into a debt trap repeatedly.

(3) Non-essentiality of welfare expenditure

• We know about free electricity that is being given in various States to rural communities.
• This has sometimes led to disastrous consequences in terms of the declining water table, wastage of electricity and various other things.
• There are nuances to the issue, and one will have to get into those nuances to take a final call on whether a certain welfare spending is necessary or not.

(4) Necessary expenditures/ merit freebies

• Some people have been questioning subsidies going into education, such as for laptops and other things.
• Some of them have now become necessities for increasing productivity, knowledge, skills, and various other things.
• So, we need a more nuanced understanding of the issue.

Way forward

• Fiscal discipline: The state governments must restrict their revenue expenses by cutting down expenditure on non-merit goods in the near term.
• Stabilize debt levels: In the medium term, these states need to put efforts toward stabilising debt levels.
• Power sector reforms: Further, large-scale reforms in the power distribution sector would enable the DISCOMs to reduce losses and make them financially sustainable and operationally efficient.
• Focus on capital creation: In the long term, increasing the share of capital outlays in the total expenditure will help create long-term assets, generate revenue and boost operational efficiency.
• Risk testing: State governments need to conduct fiscal risk analyses and stress test their debt profiles regularly to be able to put in place provisioning to manage fiscal risks efficiently.

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Context

• The Enforcement Directorate (ED) is in the news now and often for summoning a range of personalities from politicians to celebrities as well as NGOs.
• Many states often accuse the agency of being a tool used by the Centre to coercively engage politicians for vested interests.
• The timing of the ED cases is making politicians see red. Opposition parties usually allege that raids by Central agencies like the ED and the CBI pick up the pace before crucial polls.

Is the ED a tool to investigate financial skulduggery or a stick to browbeat opposition leaders? Let’s check.

What is Enforcement Directorate (ED)?

• ED was formed in 1957 to look into cases of foreign exchange-related violations, a civil provision.
• It goes back to May 1, 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs.
• Now, the ED falls under the finance ministry’s Department of Revenue.
• But in 2002, after the introduction of the PMLA, it started taking up cases of financial fraud and money laundering, which were of criminal nature.
• It was then tasked for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act (FERA).
• Today, it is a multi-dimensional organisation investigating economic offences under the:

1. Prevention of Money Laundering Act (PMLA)
2. Fugitive Economic Offenders Act
3. Foreign Exchange Management Act
4. Foreign Exchange Regulation Act (FERA)

Its establishment

• When proceeds of crime (property/money) are generated, the best way to save that money is by parking it somewhere, so one is not answerable to anyone in the country.
• Therefore, there was a need to control and prevent the laundering of money.
• The PMLA was brought in for this exact reason in 2002, but was enacted only in 2005.
• The objective was to prevent parking of the money outside India and to trace out the layering and the trail of money.
• So as per the Act, the ED got its power to investigate under Sections 48 (authorities under act) and 49 (appointment and powers of authorities and other officers).

At what stage does the ED step in when a crime is committed?

• Whenever any offence is registered by a local police station, which has generated proceeds of crime over and above ₹1 crore, the investigating police officer forwards the details to the ED.
• Alternately, if the offence comes under the knowledge of the Central agency, they can then call for the First Information Report (FIR) or the chargesheet if it has been filed directly by police officials.
• This will be done to find out if any laundering has taken place.

What differentiates the probe between the local police and officers of the ED?

Case study:

• If a theft has been committed in a nationalised bank, the local police station will first investigate the crime.
• If it is learnt that the founder of the bank took all the money and kept it in his house, without being spent or used, then the crime is only theft and the ED won’t interfere because the amount has already been seized.
• But if the amount which has been stolen is used after four years to purchase some properties, then the ill-gotten money is brought back in the market.
• Or if the money is given to someone else to buy properties in different parts of the country, then there is ‘laundering’ of money.
• Hence the ED will need to step in and look into the layering and attachment of properties to recover the money.
• If jewellery costing ₹1 crore is stolen, police officers will investigate the theft. The ED, however, will attach assets of the accused to recover the amount of ₹1 crore.

Roles and functions of the ED

• Summon, Search and seizure: The ED carries out search (property) and seizure (money/documents) after it has decided that the money has been laundered, under Section 16 (power of survey) and Section 17 (search and seizure) of the PMLA.
• Arrest and detentions: On the basis of that, the authorities will decide if an arrest is needed as per Section 19 (power of arrest).
• Attachment of property: Under Section 50, the ED can also directly carry out search and seizure without calling the person for questioning. It is not necessary to summon the person first and then start with the search and seizure.
• Filing of chargesheet: If the person is arrested, the ED gets 60 days to file the prosecution complaint (chargesheet) as the punishment under PMLA doesn’t go beyond seven years.

Centrestage of our debate: Over-reach by Investigation Agencies

Why is ED comes to picture frequently?

Ans. Money laundering

• Money laundering is the process of making significant amounts of money obtained through criminal activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• As a result, it provides an incentive for money launderers to “legitimize” their ill-gotten gains through money laundering.
• The money generated is referred to as ‘dirty money,’ and money laundering is the act of converting ‘dirty money’ into ‘legitimate’ money.

Prevention of Money Laundering Act (PMLA) PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for the confiscation of property derived from money laundering. It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. The act was amended in the year 2005, 2009 and 2012.

Why ED mostly grips Politicians?

• Exposing rampant corruption: It is not always ironic to say that most politicians are never corrupt. We have a very inglorious past of political corruption.
• Selective witch-hunt: The ED has often been attacked for initiating investigations, raiding and questioning leaders of opposition parties, be it under the current regime or under past governments.

Issues with PMLA

• Misuse of central agencies: PMLA is being pulled into the investigation of even ordinary crimes by the Enforcement Directorate.
• Seizing of assets: Assets of genuine victims have been attached. The ED could just walk into anybody’s house.
• Politically motivated raids: In all this, the fundamental purpose of PMLA to investigate the conversion of “illegitimate money into legitimate money” was lost.
• Opacity of charges: Petitioners pointed out that even the Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
• Vagueness over evidence: The accused is called upon to make statements that are treated as admissible in evidence.
• Harassment: The ED begins to summon accused persons and seeks details of all their financial transactions and of their family members.
• Against individual liberty: The initiation of an investigation by the ED has consequences that have the potential of curtailing the liberty of an individual.

Allegations against ED

• Huge discretions: The ED is the only Central agency in the country that does not require permission from the government to summon or prosecute politicians or government functionaries for committing economic offences like money laundering.
• Used for petty crimes: PMLA is pulled into the investigation of even “ordinary” crimes and assets of genuine victims have been attached.
• Actual purpose denigrated: PMLA was a comprehensive penal statute to counter the threat of money laundering, specifically stemming from the trade in narcotics.
• Violations of Rights: PMLA was enacted in response to India’s global commitment to combat the menace of money laundering. Instead, rights have been “cribbed, cabined and confined”.
• Functional opacity: There is also a lack of clarity about ED’s selection of cases to investigate. We often see ED raiding houses of opposition parties suddenly.
• Poor rate of conviction: We have hardly read the conclusion of cases by ED. Meantime media-trial tears off the accused person’s credibility which is the most desired intent.
• Under-trials and slower prosecution: ED has been focusing on keeping the accused in custody rather than actually proving the charges against them.

Challenges to ED

• ED being dragged to court: The petitions against the ED had the effect of slowing down the investigations, as officers have to defend themselves in court.
• Foul crying politicians: There are attempts to cover up unexplained, high-value transactions that fall within the PMLA’s ambit
• Investigation of foreign transactions: Getting information on accounts and money stashed abroad to establish a trail is the biggest challenge they face.

Way forward

• The fight against corruption is intimately linked with the reform of the investigations.
• Therefore the adjudicating authorities must work in cooperation and ensure the highest standards of transparency and fairness.
• ED has been walking a tightrope to safeguard its integrity by speeding up investigations and court procedures.
• The need of the hour could be systemic fixes—and not shrill calls to throw the baby out with the bathwater.
• It is unlikely that corruption can be substantially reduced without modifying the way government agencies operate.

Conclusion

• What the ED is caught in is really an image crisis.
• The trust in premier investigating institutions, and their credibility, is at stake.

Context

• The ‘States’ Startup Ranking 2021’ was recently released.

‘States’ Startup Ranking 2021’: Key Highlights

• Gujarat and Karnataka are the top achievers in creating startup ecosystems for aspiring entrepreneurs.
• Gujarat was recognized as having the best performance for the third time in a row.
• The top performing states included Jammu and Kashmir, Kerala, Maharashtra, Odisha, and Telangana.
• The leaders’ category includes Punjab, Tamil Nadu, Uttarakhand, Uttar Pradesh, Andaman and Nicobar Islands, Arunachal Pradesh, and Goa.
• Chhattisgarh, Delhi, Madhya Pradesh, Rajasthan, Chandigarh, Puducherry, and Nagaland are among the states and UTs that fall under the category of aspiring leaders.
• Andhra Pradesh, Bihar, Mizoram, and Ladakh are among the states in the category of developing startup ecosystems, according to the study.

What are Startups?

• A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable economic model.
• While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder.
• At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them does go on to be successful and influential.  Some startups become unicorns.

Why do we need start-ups?

Start-ups make an indispensable contribution in the economic growth of a nation.

(1) Employment Generation

Entrepreneurship creates more avenues for new job in the economy. This would help harness the readily available employment in our country. This mission will reduce the burden from service and agricultural sector and enables condition of balance in economy.

(2) Creation of Wealth

Since entrepreneurs are attracting investors by investing their own resources, the people of the nation would get benefit when startups grow. Since the money is sharing with the society, wealth is creating within the nation.

(3) Better standard of living

Startups can implement innovations and technologies to improve the living of people. There are many startups who are working for rural areas to develop the community.

(4) Economic growth

GDP plays a vital role in enhancing the economic growth of a country. By supporting and encouraging more startups, it is possible to generate more revenue domestically and consumer’s capital will also flow around the Indian economy.

(5) Source for FDI

It has been noted that in recent years, the volume of foreign investments made in the Indian startup is quite huge. The foreign investments in the startups act as an easy capital raise and technological investment for the startups which makes them readily accept the investments coming towards them.

(6) Culture of Entrepreneurship

Startups encourage a culture of entrepreneurship and innovation which leads to create new job opportunities and provide support to the economy. Success stories motivate talented youth to start their own ventures and help them to become a job provider instead of a job seeker.

(7) Advancement in technology

Startups are more focused on new technologies and cutting-edge innovation. Free from a multilayered corporate bureaucracy, startups are more agile and able to build an idea into a product and improve it upon consumer demand with faster decision-making communications.

About Startup India Scheme

• Startup India is an initiative of the Government of India.
• The campaign was first announced by PM Modi during his speech on 15 August 2015 address from the Red Fort.
• The action plan for this initiative is focusing on three areas:

1. Simplification and Handholding.
2. Funding Support and Incentives.
3. Industry-Academia Partnership and Incubation.

• An additional area relating to this initiative is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
• It was organized by the Department for promotion of industry and internal trade (DPI&IT).

An evaluation of the Scheme

(A) Successes

• Investment: $63 Bn has been invested in Indian startups in the last five years.  
• Growth: Between 2016 and August 2020, Startup India programme has recognised over 34.8K startups. 
• Rise of Unicorns: Unicorns are privately held, venture-capital-backed startups that have reached a value of $1 billion. From 17 Unicorns in 2018 the number went up to 38 in 2020 and it’s 71 and counting in 2021.
• IPRs: Among these, 8.3K startups received intellectual property rights (IPR) fee benefits, while over 2.6 lakh people enrolled in the entrepreneurship-focused learning courses.
• Gender inclusion: In terms of gender diversity across workspaces in India, just 9% of the board members of the top 20 unicorn startups in India are women.

(B) Failures

• Clearances: The Startup India scheme had received around 1368 applications by mid-December last year out of which DPIIT has only accepted 502 application forms and recognized them as ‘startups’.
• Delay: The delay and lack of efficiency is a cause for the startup plan to fail in some cases.
• Funding: The concerns of domestic angel and VCs on capital gains tax remain largely unaddressed.
• EODB issues: Venture capital firms and angel investors are more cautious while investing in Indian startups. It is because the conditions, the ease of capital flow and doing business are not stable enough.

Some lacunae of the scheme

• Definitional issues: The scheme is criticized by professionals because of the definition of Start-up provided in the scheme. The definition states that a mere act of developing products or services that do not have the potential for commercialization or have no or limited incremental value for customers would not be a start-up.
• Test of ‘Innovation’: Each startup is scrutinized by an Inter-Ministerial Board (IMB) to see if the startup is ‘innovative’ – i.e. if it is unique or a world first. Most of start-ups would lie outside the purview of this definition.
• Red tapism: Further eligibility of start-up, lies under definition or not, shall be approved or certified by an inter-ministerial board which is a retrograde step and against the government policy of ‘Min Government Max Governance’.
• Taxation mirage: A tax break of three years has been given in the scheme. Anyone who has business sense knows that only a few of start-ups will be profitable in the first three years and so this handful can avail them of the tax break.
• Patenting terms: The other option for startups to get tax benefits is to get a patent. And we all know that it takes several years to register a patent in India, and if royalty profits accrue before then, the tax benefits will be denied.
• Heavy concentration in megacities:  Entrepreneurship continues to be “highly concentrated” in three megacities, namely, Mumbai, Bengaluru and Delhi NCR. Such concentration can lead to increased economic inequality and hinder the emergence of entrepreneurs from industries other than those belonging to the clusters.

Inherent challenges to Start-ups in India

• Financial scarcity: Availability of finance is critical for startups and is always a problem to get sufficient amounts.
• Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks, business development centers etc.
• Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge to register a company and exiting it.
• Compliance hurdles: For example earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies as it takes the focus of entrepreneurs away from building a product or service to responding to tax notices and filing appeals.
• Low success rate: Several startups fail due to poor revenue generation as the business grows. As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business.
• Lack of an Innovative Business Model: To be successful a startup must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere. Many Indian startups don’t have an original business idea that is disruptive and by which consumers will be provided with better service.
• Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India. The majority of Indians who live in rural areas and small towns remain untouched by most startups.

Recent challenge: Downtime for Edu-techs

• Pandemic accelerated edtech’s ascent:

1. Massive funding
2. High rates of enrollment and
3. Positive word of mouth

• However, the metric that the tech companies are using to show their growth is the number of paid enrollments that they achieve by their army of salesmen and NOT the results or true learning outcomes.
• They never cared to track learning outcomes through some randomized control trial which would take a lot of money and time.
• Edtech companies sell their products without putting a thought if a particular student really needs them.
• Their one-size-fits-all sales strategy is now backfiring. It helped them boost their revenue, but without results.

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups,

• MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
• SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
• E-Biz Portal: Government launched e-biz portal, India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.
• Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
• Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under Small Industries Development Bank of India (SIDBI) for extending support to Start-ups.
• Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.

Way Forward

The best of the Indian startup ecosystem still lies ahead.

• There is a need for policies and progressive strategies from governments to encourage startups and provide access and assistance in key areas including tax clarity, incubation, affordability and licensing.
• In any case, governments should be well prepared and dedicated to creating a culture of startups to impact the entrepreneurial ecosystem in their cities, countries and citizens.
• Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
• It is critical, therefore, that nations set out to develop entrepreneurial skills, attitudes and behaviour in the school systems at all levels as a part of the lifelong learning process.
• To produce effective entrepreneurs who can initiate change, governments need to cut ‘red tape’ and streamline regulations.
• Funding, another daunting and difficult challenge, has to be resolved at earliest with liberal funding mechanisms.
• Apart from all these concerns, Start-up India has potential to solve India’s problems and create jobs. Nonetheless, the challenges and changes are not to be dreaded but defeated.

Conclusion

• The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
• The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm of centre to imbibe reforms.
• With the government going full hog on Startups, it could arrest the brain drain.
• Efforts are being made by diverse stakeholders in the Indian startup ecosystem to elevate domestic policies in concurrence with global trends.

Also read:

Unicorn boom in India