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  • Lockdown with a human face: Immediate focus should be on alleviating hardships of poor, vulnerable groups

    The article deals with the policy response to the crisis. Reducing the pain inflicted on the poor and vulnerable section should be the priority. The size and nature of the stimulus package is also discussed in the article.

    The dilemma of lives Vs. livelihood

    • As the coronavirus spreads, severe dilemmas haunt policymakers.
    • Testing of lockdown? Even the scientific community is confused and does not seem to know whether the South Korean model of more intensive testing is preferable to the European model of a complete lockdown.
    • The economic crisis that we are facing today is very different from any crisis that we have encountered recently.
    • This is the first economic crisis in recent memory to have been triggered by a non-economic factor — a pandemic.
    • A lockdown essentially amounts to limited economic activity and this results in throwing temporary workers and daily wage earners out of employment.
    • Migrant labour falls in this category.
    • According to the 2011 census, the number of migrant workers under the category, “migrants for work/employment” was 41.42 million.
    • This number must have grown substantially by now.
    • The impact of the lockdown has fallen very heavily on the poor and vulnerable groups.
    • We need to bear this in mind while evolving the strategy to combat the virus.

    Expenditure during the pandemic

    • First, medical and healthcare expenditure, which includes the money spent on extension of hospital facilities, employment of additional medical and healthcare workers, costs of testing on a much wider scale and the purchase of accessories like personal protection equipment, ventilators and testing kits.
    • The expenditure under this category is a “must” and there can be no compromise on it.
    • The length of the battle will decide the cost.
    • Second, the expenditure involved in taking care of the people thrown out of employment, and other vulnerable sections of the population.
    • Third, stimulation expenditure aimed at restarting the economy. Here, the financial system presided over by the RBI will play an important role. But the government also has a role.

    Two issues to consider while deciding on the lockdown

    • The “life” versus “livelihood” dilemma pertains to the lockdown policy.
    • A tight lockdown over an extended period may save lives by curtailing the progress of the virus.
    • But at the same time, it places several segments of society under severe hardship.
    • With the lack of economic activity, many will go hungry.
    • In this context, the government must look at two issues.
    • First, it must consider to the extent to which the lockdown can be relaxed while keeping in mind the priority of restricting the spread of the virus.
    • The government has recently announced some relaxations.
    • This is a welcome step. However, it must keep this concern under continuous consideration. It must explore other options on the medical front as well.
    • For example, will more testing make it possible to reduce restrictions?
    • Second, if the lockdown is a “compulsion”, we need to pay adequate attention to the plight of people who have been affected adversely.
    • The government had earlier announced certain measures to help some segments of society.
    • With the lockdown being extended, it is necessary to raise the levels of relief, and also cover segments of society not covered earlier — migrant labour, for example.

    The following points about the stimulus package are appearing repeatedly in most of the article on economic damage to the economy. They are also relevant from the UPSC perspective. A question based on it,  like “What steps were taken by the government to revive the Indian economy in the aftermath of the corona crisis?” can be asked.

    What should be the nature of the stimulus package?

    • There is much talk about a “stimulation package” to revive the economy.
    • The financial system will have to lead the charge.
    • Additional expenditure: Expectations regarding additional expenditures by the government vary from 2 per cent of the GDP to 5 per cent of the GDP.
    • Normal sources of financing will not be adequate to meet this order of expenditure.
    • Many analysts felt that the figure of 3.5 per cent of the GDP as the fiscal deficit, indicated in the budget for 2020-21, would be exceeded.
    • The pandemic will necessitate an increase in expenditure.
    • Moreover, with the decline in economic activity, revenues will also go down.
    • The revenue projections were made on the assumption that the nominal income growth would be 10 per cent.
    • But this is unlikely to be achieved. The nominal income growth is likely to be 7 per cent, at best.
    • Given the increase in expenditures and the slowdown in revenue collection, the borrowing programme will exceed significantly over what was indicated in the budget.
    • The monetisation of debt is inevitable and it will have its own consequences.
    • Provisions for states: The brunt of the expenditures will be borne by the state governments and therefore, the Centre must allocate additional resources to them.
    • They may also be allowed additional borrowing above 3 per cent of the state domestic product.

    What will be the overall growth rate for India?

    • In the first quarter of 2020-21, the GDP growth rate will be negative.
    • Agricultural performance during the year could be the same as in 2019-20 as the rainfall is expected to be normal.
    • The developed world may go through a recession over the year.
    • Thus the external sector may not be of much help.
    • It is quite possible for the economy to have a V-type recovery from the second quarter of 2020-21.
    • On that assumption, the overall growth rate for the year can be 3 per cent. This is an optimistic estimate.

    Conclusion

    To return to the present, the focus of the government has to be two-fold. It must act vigorously to contain the virus, explore the possible alternatives to complete lockdown. Second, it must take all actions to provide adequate help to the poor and the needy including the migrant workers. Lockdown, as necessary, must be with a human face.

     

  • Public policy dilemma of choosing between lives and livelihood

    This article deals with how the different sections of a society assign different weightage to the various factors they are faced with in life. In the case of Covid-19, one section of society which is well-off might care more about the possible loss of life while other section might end up attaching more weightage to the loss of livelihood than to the possible loss of life due to infection. The article discusses this issue in detail.

    Difference between risk and uncertainty

    • Since the days of Frank Knight, economists have differentiated between the two.
    • Risk has a known probability distribution.
    • For uncertainty, the probability distribution is unknwon.
    • COVID-19 makes us confront uncertainty, not risk.
    • For uncertainty, there is a subjective probability distribution, which can, and does, vary from individual to individual.

    So, how the subjective probability distribution is devised by a person?

    • Through information and experience, one already possesses.
    • There are various rationality assumptions used by economists. They are often violated.
    • Otherwise, behavioural economics wouldn’t have come into existence.
    • Typically, given a situation, when your decision doesn’t agree with someone else, you say they are being irrational.
    • However, with uncertainty, the problem may not be with rationality assumptions, but with differences in subjective probability distributions.

    Lack of data for various factors

    • Because of COVID-19, there is a certain risk of getting infected. Let’s call this the infection rate — total infections divided by the total population.
    • We don’t know this infection rate for India or for any other country for that matter.
    • No country has done universal testing.
    • No testing for random sample: No country has done universal testing for a proper random sample either.
    • The ICMR has told us more than 75 per cent of Indian patients will be asymptomatic.
    • Who do we test? Those who show symptoms, those who have been in contact with confirmed patients and those who suffer from severe respiratory diseases.
    • Most countries do something similar.
    • Sampling bias: In other words, when we work out an infection rate based on those tested, there is a sampling bias.
    • This isn’t a proper infection rate.
    • The only country where we have had something like a random sample is Iceland.
    • There, the infection rate was 0.8 per cent.
    • Data for death rate: There are similar caveats about the death rate.
    • If we mechanically divide the number of deaths by the number of confirmed cases for India, we will get a death rate just over 3 per cent.
    • The global figure is a little less than 7 per cent.
    • But neither of these is a death rate for the total population since only those with severe symptoms are included in infection numbers.
    • Three per cent or seven per cent are over-estimates.
    • In a controlled environment like Diamond Princess, death rate as a ratio of total passengers, and not those infected, was less than 0.4 per cent.
    • The true infection rate and true death rate are not alarming numbers.

    How the lack of data is reflected in subjective probability distribution?

    • There are slices in India’s population pyramid with rural/urban and other spatial differences too.
    • Consider two extreme types-type A and type B.
    • Type A, who are globalised in information access and morbidity.
    • Life expectancy is 80 plus and there are lifestyle diseases like diabetes and high blood pressure.
    • This co-morbidity increases possible death rates and thanks to globalised access to information, certainly increases perceptions about death rates, making them out to be higher than they are.
    • Some of them have fixed incomes, regardless of what happens to lockdown.
    • The high probability assigned to loss of life: In terms of maximising expected payoffs with a subjective distribution, high probability is attached to loss of life and low probability to loss of livelihood.
    • How type B forms a subjective probability?
    • Type B, someone whose life expectancy is 60, without a fixed income stream and whose health concerns are tuberculosis and water-borne diseases, not COVID-19.
    • Nor is access to information that globalised.
    • The high probability assigned to loss of livelihood: High subjective probability will be attached to loss of livelihood and low probability to death from COVID.
    • Both types reflect subjective probabilities. Neither is “irrational”.
    • The tension between the two: Type A would like the lockdown to continue indefinitely, until the long tail of the infection curve tapers off, perhaps beyond September.
    • Type B would like lockdown to be eased soon, with necessary restrictions in hotspots.
    • There is indeed tension between lives and livelihood.
    • Even if health outcomes and information access are like Type A, but income is contingent on growth, preferences might mirror Type B.

    The issues highlighted here can be broadly used in the various scenario where there is uncertainty involved and various stakeholders perceive the probable outcomes in entirely different ways. Various points here can be used to answer the question based on policy making.

    Balancing the differential individual preferences in public policy

    • One set of individuals imposes its choice on the rest.
    • Type A disproportionately influences policy.
    • This determination of aggregate preferences is a dynamic process.
    • Therefore, sooner or later, Type B contests this and as the lockdown is prolonged and livelihood costs mount, discontent surfaces, as it has across a range of countries.
    • There were also welfare economics notions that pre-dated social choice theory, such as compensation principles of Kaldor, Hicks and Scitovsky.
    • The point can be made using the two stereotypes. Specifically, Type A need to compensate Type B for their losses.
    • To state it starkly, livelihood losses suffered by Type B need to be compensated by the government through redistributive measures and this has to be financed by higher taxes imposed on Type-A.
    • The right question for the Type A is not whether they want the lockdown to continue, but whether they are willing to pay a COVID-tax to support lockdown extension.

    A question based on policy formation issues explained here can be framed, for ex. “Risk has a known probability distribution. For uncertainty, the probability distribution is unknown. COVID-19 makes us confront uncertainty, not risk. In this context, there is a debate between saving lives and saving livelihoods. In such a scenario, what can be the most probable solutions that public policy must delve into, in order to maintain the balance between this uncertainty and risk.”

    Conclusion

    Extending or ending the lockdown decision represent the public policy dilemma. Without a revival in growth, the tax-paying capacity of Type B is limited and with job losses, some Type As become Type Bs. The choice is starker.

  • Stress test of leadership in pandemic

    The article discusses the three stages involved in successfully dealing with the pandemic. In the next part, it goes on to explain the factors that determine the success or failure of the governments. In the last week, we read about the success story of Kerala and underlying reasons. This article is also written on similar lines.

    Stages in the pandemic response

    • Disease outbreaks, even global pandemics, are scarcely new. The playbook for dealing with them, therefore, is well understood and has been honed by practices and lessons gleaned from hard-fought battles.
    • A first stage is an early clear-eyed recognition of the incoming threat, and, in the case of COVID-19 at least, requires the unpalatable decision to lock down society.
    • Ideally, this is done with full consideration of how to support the most vulnerable members of society, especially in a country such as India, where so many survive hand-to-mouth.
    • This is a phase aimed at buying time, of flattening the epidemic curve, so that public health facilities are not overwhelmed.
    • And, for using this time, paid for by collective sacrifice, to secure the personal protective equipment (PPE) and medical supplies necessary to save lives.
    • The second phase of the pandemic response is slowly to ease the burden on the economy by permitting a measured return of business activity so that livelihoods and supply chains can be restored.
    • This stage can only be safely executed if accompanied by a war-footing expansion of testing capacity so that new infections can be identified and isolated at once, allowing contact tracing to be implemented by masses trained to do this crucial and painstaking work in communities across the country.
    • The final stage, which for COVID-19 seems a lifetime away, is a mass vaccination programme and then the full rebuilding of economic and social life.
    • None of this is easy, but, like an examination in a dreaded subject, one’s only hope is early and persistent preparation and, at crunch time, remembering the lessons learned.

    The above-mentioned stages are sort of a template that seems to have gained acceptance for dealing with the pandemic. A question based on it, like “What are the various stages involved in government’s response to deal with a pandemic?”

    Following three factors make the difference between successful and failed response

    1. Leadership problems in global politics

    • The defensive finger-pointing, opportunistic politicking and xenophobic posturing are shown by some leaders amid pandemic.
    • This is not a crisis that can be tackled without robust and multidimensional international cooperation between nations.
    • We are watching in real-time the benefits of intellectual collaboration that does not stop at national borders.
    • From the epidemiologists to the medical community identifying more effective treatments, to the research scientists racing to find a vaccine, we are benefiting from collaboration.
    • But the nationalistic turn in global politics over the past two decades has reduced investment in and undermined the legitimacy of the very institutions that facilitate international partnership at the very time they are needed most.
    • Prime Minister Narendra Modi did well to convene the leaders of the South Asian Association for Regional Cooperation (SAARC) nations in mid-March to discuss the possibility of a regional response.
    • But that video-conference call also highlighted that there have been no summit-level meetings of SAARC since 2014.
    • Similarly, United States President Donald Trump demanded that the U.S. end funding of the World Health Organization (WHO).
    • This not only endangers American lives by cutting off his own administration’s access to vital international data.
    • But also directly affects India which receives significant funding and expertise from WHO with ~10% of its overall WHO financing in 2019 coming directly from the U.S.

    2. The whole-of-the-government strategy

    • Pandemic response requires a whole-of-government strategy, for which political will and legitimate leadership are vital to convene and maintain.
    • Germany and Kerala provide two powerful though different examples of this in action.
    • In Germany, in spite of a high level of federalism that gives its States (Länder) a lot of power, Chancellor Angela Merkel’s ability to mobilise the entire system has allowed Germany to emerge as a success story in Europe.
    • In Kerala, State Chief Minister Pinarayi Vijayan convened a State response team at the earliest possible moment and has provided the full weight of his office in support of a coordinated public health strategy that has been accepted by the State’s citizens who have learned to trust the government in such situations.
    • Yet these two examples stand out in part for how rare they are.
    • Consider again the cautionary tale of the U.S. where some State Governors have yet to issue stay-at-home orders.

    3. The robust public health system

    • We are seeing first hand the consequences of starving public health systems of necessary funds and resources.
    • The comparative advantage of the private sector is efficiency; the need of the hour in pandemic response is redundancy, or, more precisely, excess capacity.
    • Most hospitals do not need invasive ventilators normally, just as they do not need vast stocks of PPE and extra intensive care units beds, but these are essential goods right now as we brace ourselves for a flood of sick patients into hospitals.
    • Watching the advanced health-care system of northern Italy buckle under the unimaginable pressures to which it was exposed over the past six weeks should be a cautionary tale for all countries that thought turning health care over to private actors was responsible governance. It is not.
    • Again, consider Kerala, which has consistently ranked at the top of State rankings for health expenditures.
    • Kerala has, a well-functioning local public health system capable of implementing the test-isolate-trace protocols critical for fighting COVID-19.

    Conclusion

    With the central role of leadership and governance underlined in the successful dealing with the pandemic, leadership across the world need to come together to coordinate at all levels in dealing with the problems that are not bound by any border.

  • SWAMITVA Scheme to map rural inhabited lands

    The Prime Minister has launched the Swamitva Scheme and e-Gramswaraj Portal & mobile app as a portal to prepare and plan Gram Panchayat Development Plans.

    Swamitva Scheme

    • SWAMITVA stands for Survey of Villages and Mapping with Improvised Technology in Village Areas.
    • Under the scheme, the latest surveying technology such as drones will be used for measuring the inhabited land in villages and rural areas.
    • The mapping and survey will be conducted in collaboration with the Survey of India, State Revenue Department and State Panchayati Raj Department under the Ministry of Panchayati Raj.
    • The drones will draw the digital map of every property falling in the geographical limit of each Indian village.
    • Property Cards will be prepared and given to the respective owners.

    Benefits

    • The scheme will create records of land ownership in villages and these records will further facilitate tax collection, new building plan and issuance of permits.
    • It will enable the government to effectively plan for the infrastructural programs in villages.
    • It would help in reducing the disputes over property.

    What is e-Gramswaraj Portal?

    • E Gram Swaraj portal is the official portal of central govt for the implementation of Swamitva scheme.
    • By visiting this portal people can check their Panchayat profile easily. It will also contain the details of ongoing development works and the fund allocated for them.
    • Any citizen can create his or her account on the portal and can know about the developmental works of villages.
    • The user of E Gram Swaraj portal can also access all work of the Ministry of Panchayati Raj.
    • This single interface will help speed-up the implementation of projects in rural areas from planning to completion.

  • Qissa Khwani Bazaar massacre and the Khudai Khidmatgars

    • Qissa Khwani Bazaar is a renowned market place in the city of Peshawar.
    • Before the Partition, the marketplace was also the site of a massacre perpetrated by British soldiers against non-violent protesters of the Khudai Khidmatgar movement on April 23, 1930.

    We can expect a possible mains question inspired from this newscard. The question could be like- “Discuss the role of Abdul Ghaffar Khan and his Khudai Khidmatgar in infusing the Gandhian principle of non-violence in the Frontiers of India “.

    The Red Shirts:  Khudai Khidmatgars

    • The Khudai Khidmatgar was a non-violent movement against the British occupation of the Indian subcontinent led by Abdul Ghaffar Khan, a Pashtuns freedom fighter, in the North-West Frontier Province.
    • Over time, the movement acquired a more political colour, leading to the British taking notice of its growing prominence in the region.
    • Following the arrest of Khan and other leaders in 1929, the movement formally joined the Indian National Congress after they failed to receive support from the All-India Muslim League.
    • Members of the Khudai Khidmatgar were organised and the men stood out because of the bright red shirts they wore as uniforms, while the women wore black garments.

    Why did the massacre happen?

    • Abdul Ghaffar Khan and other leaders of the Khudai Khidmatgar were arrested on April 23, 1930 by British police after he gave a speech at a gathering in the town of Utmanzai in the North-West Frontier Province.
    • A respected leader well-known for his non-violent ways, Khan’s arrest spurred protests in neighbouring towns, including Peshawar.
    • Protests spilled into the Qissa Khwani Bazaar in Peshawar on the day of Khan’s arrest. British soldiers entered the market area to disperse crowds that had refused to leave.
    • In response, British army vehicles drove into the crowds, killing several protesters and bystanders. British soldiers then opened fire on unarmed protestors, killing even more people.
    • Historical records suggest the British attempted to deploy the Garhwal Regiment against the civilians in the marketplace, but two platoons of this respected regiment refused to shoot at unarmed protesters.
    • In retaliation, British officials court-martialled the platoon members with upto eight years of imprisonment.

    Aftermath of the massacre

    • The British ramped up the crackdown on Khudai Khidmatgar leaders and members following the Qissa Khwani Bazaar massacre.
    • In response, the movement began involving young women in its struggle against the British, a decision in line with tactics adopted by revolutionaries across undivided India.
    • Women were able to move undetected with more ease than men.
    • According to accounts by Khudai Khidmatgar activists, the British subjected members of the movement to harassment, abuse and coercive tactics adopted elsewhere in the subcontinent.
    • This included physical violence and religious persecution. Following the recruitment of women in the movement, the British also engaged in violence, brutality and abuse of women members.

    Khudai Khidmatgars  gets wasted into history

    • British adopted their tactic of sowing divisions on religious grounds in the North-West Frontier Province as well, in an attempt to weaken the Khudai Khidmatgar.
    • In a move that surprised the British government, in August 1931, the Khudai Khidmatgar aligned themselves with the Congress party, forcing the British to reduce the violence they were perpetrated on the movement.
    • The Khudai Khidtmatgar opposed Partition, a stance that many interpreted as the movement not being in favour of the creation of the independent nation of Pakistan.
    • Post 1947, the Khudai Khidmatgar slowly found their political influence decreasing to such an extent that the movement and the massacre 90 years ago in the Bazaar has been wiped out from collective memory (of Pakistan).

  • [Burning Issue] India’s Amended FDI Norms amidst Hostile Takeover Efforts by China

     

     

    For India, the problem lies that, trade with China has often been viewed as a positive in a relationship without any positive sentiment.

    Post-Doklam, the Wuhan ‘reset’ with China was premised largely on India and China working towards a more robust economic relationship.

    Yet, China’s reluctance to adequately address Indian concerns and the challenges posed by sectors like trade and health also emerging as traditional national security threats in the Sino-Indian matrix meant that New Delhi had had to finally bite the bullet.

    FDI is an all-season hot topic for both prelims as well as mains. Reading the Burning Issue will make you aware of its scope. We can expect a mains question like –  Recent amendment in the FDI Policy aims for curbing opportunistic takeovers/acquisitions of Indian companies. Elucidate.

    Context

    • The Government of India has reviewed the extant Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19.
    • The Indian policy revision is meant for sectors and enterprises other than defence, space, atomic energy and sectors and activities “prohibited for foreign investment”.
    • It was understood that the Indian decision was a response to the news of an incremental purchase of shares in HDFC by the People’s Bank of China.

    Background

    What is Foreign Direct Investment (FDI)?

    An FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It means where a foreign company, generally an MNC, may invest in a country in any of the following 3 forms:

    1) Set up a plant or project to manufacture a commodity- consumer goods, capital goods, automobile, aircraft, ships etc. It may also engage itself in construction activity- highways, roads, bridges, ports, airports, real estate etc.

    2) Setup a network for providing services- banking, insurance, shipping, telecom, software, civil aviation etc.

    3) Only provide technology by way of Technology Transfer through any company of the country. It can provide technology only or provide technology along with #1 & #2 above

    Why Foreign Investors go for FDI?

    • To take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive
    • To gain tariff-free access to the markets of the country
    • To acquire a lasting interest in enterprises operating in the target country

    What attracts FDI?

    • The growth rate of the source economy is an important determinant
    • The political and economic stability of the target region
    • How ‘open’ the economy is towards foreign trade (both imports and exports)
    • The policies, rules, regulations and loopholes incidental thereto
    • For example, Mauritius has been the top FDI source for India due to the later (loophole) reasons

    FDI in India

    • Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then FM Manmohan Singh.
    • There are two routes by which India gets FDI.

    1) Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.

    2) Government route: Prior approval by the government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate the single-window clearance of FDI application under Approval Route.

    • India imposes a cap on equity holding by foreign investors in various sectors, current FDI in aviation and insurance sectors is limited to a maximum of 49%.
    • In 2015 India overtook China and the US as the top destination for the Foreign Direct Investment.

    Chinese contribution

    • Almost 18 of India’s 23 unicorns have investments from China.
    • According to a report, China has remarkable investments in the tech sector in India.
    • “TikTok, the video app, has 200 million subscribers and has overtaken YouTube in India.
    • Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India.
    • Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72 per cent share, leaving Samsung and Apple behind.

    What is the recent amendment all about?

    • The govt. has amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017.
    • In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership, such subsequent change in beneficial ownership will also require Government approval.

    The present position and revised position in the matters will be as under:

    Earlier Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.
    • However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    Revised Position

    • A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited.

    [spot the difference]

    • However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
    • Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    What do these restrictions mean?

    • FDI from rest of the countries could come in through the automatic route in sectors where it is allowed such as automobiles, auto parts, construction, asset reconstruction, agriculture, single-brand retail, manufacturing, coal, gems & jewellery, and textiles, capital goods, pharmaceuticals, electronic systems and ports and shipping etc.
    • If FDI is made from investors in China and six other neighbouring countries it will need to have prior government approval.
    • Earlier, these restrictions were applicable only on Pakistan and Bangladesh.

    What led India to change the FDI norms?

    • Chinese investments sometimes do follow a pattern. At the peak of the debt crisis, there was a massive inflow of Chinese direct investment into the European Union.
    • In 2010, the total stock of Chinese direct investment in the EU was just over €6.1bn, less than what was held by India, Iceland or Nigeria.
    • By the end of 2012, Chinese investment stock had quadrupled, to nearly €27bn. This was partly opportunistic buying because assets were cheap.
    • It was a structural secular shift in Chinese outbound investment, from securing natural resources in developing countries to acquiring brands and technology in developed countries.
    • Chinese firms are quite ready for discount deals, where domestic companies are reeling under an economic crisis spurred on by the coronavirus pandemic.

    Impact on investments

    • The amended policy brings every kind of Chinese investors to India within the ambit of government approval reducing the space for private business negotiations.
    • The decision would face difficulties, especially if the government tried to attribute nationality to venture capital funds.
    • China has argued that the barriers set by the Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment.

    China’s objection raises an important question:

    Is India’s revision of its FDI policy valid under international investment law?

    1) Invoking WTO

    • It is important to note that the entry or regulation of FDI into a country is not governed by the World Trade Organization (WTO).
    • The multilateral WTO Agreements mainly regulate disciplines on trade in goods and services, and intellectual property and not the right to regulate foreign investment per se.

    2) Emergency provisions

    • Many international agreements, including WTO Agreements, provide exceptions for extraordinary measures taken in times of emergencies.
    • The WHO has classified the COVID-19 crisis as a public health emergency of international concern.
    • Therefore, any measures that a country considers necessary for the protection of its essential security interests, which are taken in time of war or other emergencies, are not considered to be in contravention of its international commitments.
    • A state’s commitment to trade and investment liberalization certainly does not include forfeiture of its essential security interests.

    3) A more bilateral issue (if considered any)

    • Disputes over the regulation of FDI would normally be considered under the dispute settlement mechanisms of a bilateral investment treaty (BIT).
    • However, currently, there are no bilateral investment treaties between India and China.
    • Therefore, China lacks the ability to challenge India’s amendment to its FDI policy under a BIT arbitration mechanism as well.

    Conclusion

     

    • India’s revised FDI policy clearly intends to protect an essential security interest and cannot be considered inconsistent with the relevant WTO Agreements.
    • The amendments are not aimed at any one country but at curbing “opportunistic” takeovers of Indian firms, many of which are under strain.
    • The amendments are not prohibiting investments. Only the approval route for these investments has been changed.
    • Before India, the European Union and Australia had initiated similar measures. These, again, were seen as being targeted at Chinese investments.

    Way Forward

    • India is unlikely to be bullied as its FDI moves are on an extremely strong legal footing. But it is important to address the larger picture.
    • The financial and strategic exploitation of a pandemic-induced economic slowdown is reprehensible and unquestionably needs urgent attention.
    • Considering the injury caused to China’s status as a responsible stakeholder (being failed at share information of coronavirus), Beijing would be wise to avoid actions that risk a reaffirmation of its bad faith.
    • Particularly at a time when manufacturing companies are exiting its shores and Chinese capital is increasingly becoming unwelcome, India needs to adopt a more conciliatory approach.

    Also read:

    FDI in Indian economy

     

    References

    https://www.theweek.in/news/biz-tech/2020/04/23/the-great-wall-against-china-understanding-india-new-foreign-investment-rules.html

    https://www.orfonline.org/expert-speak/india-fires-a-salvo-at-china-65011/

    https://indianexpress.com/article/explained/why-india-tightened-fdi-rules-and-why-its-china-thats-upset-6374693/

  • Why US’s offer of financial aid to Greenland has angered Denmark?

    Context

    • The US had last year sent a proposal to “purchase” Greenland from the Nordic nation.
    • This proposal follows plans by the US government to open a consulate in Nuuk, Greenland’s capital.
    • This move is being considered to be “extremely provocative” interference by the US.

    Go for a detailed map reading of the Arctic region. It has been in news for several times this year.

    Why is the US opening a consulate in Greenland?

    • The US is opening a consulate in Greenland after nearly seven decades of closing its first consulate after the Second World War.
    • Russia has been steadily expanding its military presence in the Arctic and China has done its bit on the economic front.

    US’s interests in Greenland

    1) Domestic interest

    • The US claims that its aid is to ensure “sustainable growth” in the autonomous island.
    • It also cited Russia’s “aggressive behavior and increased militarisation in the Arctic” and China’s “predatory economic interests” as reasons for the decision.
    • The US acquiring new territory under Trump would appeal to the nationalistic and imperialistic views of Americans.
    • Acquiring Greenland would also secure Trump’s position in US history of having been the third president to add land to the country’s territory.

    2) Strategic interest

    • Due to climate change, the Arctic ice is melting at an accelerated rate, opening up water routes for military and maritime trade.
    • This is in addition to global superpowers and regional players vying for control over Greeland’s vast untapped natural resources.

    3) Economic interest

    • Greenland is also a resource-rich landmass, strategically located between the Arctic Sea and the Atlantic Ocean, with some of the largest deposits of rare-earth metals, including iron-ore, uranium, and by-products of zinc, neodymium, praseodymium, dysprosium and terbium.
    • These rare-earth metals are used in the production of electric cars, mobile phones and computers.
    • For the longest time, China has been the world’s largest supplier of these rare-earth metals and has expanded its acquisitory plans by excavating mines across the African continent.
    • An acquisition of Greenland would make the US less reliant on China for these rare-earth metals.
    • Greenland, as a part of the Arctic region, also has large deposits of undiscovered oil and gas, resources that the US always wants more of.

    The US obsession

    • Trump’s interest in Greenland is almost an extension of his world view and US foreign policy in his administration.
    • Purchasing another country or territory is unusual, but the US government has done this twice before.
    • Erstwhile President Thomas Jefferson acquired Louisiana from the French in 1803 and the second time when President Andrew Johnson purchased Alaska from Russia in 1867.

    Back2Basics: Greenland

    • Greenland is the world’s largest island located between the Arctic and Atlantic oceans, east of the Canadian Arctic Archipelago.
    • It is an autonomous territory within the Kingdom of Denmark.
    • Though physiographically a part of the continent of North America, Greenland has been politically and culturally associated with Europe
    • The majority of its residents are Inuit, whose ancestors migrated from Alaska through Northern Canada, gradually settling across the island by the 13th century.

  • What is Operation Twist?

    The Reserve Bank of India (RBI) has announced simultaneous purchase and sale of government bonds in a bid to soften long-term yields under its Operation Twist.

    Operation Twist

    • Operation Twist is a move taken by U.S. Federal Reserve in 2011-12 to make long-term borrowing cheaper.
    • It first appeared in 1961 as a way to strengthen the U.S. dollar and stimulate cash flow into the economy.
    • It is the name given to a Federal Reserve monetary policy operation that involves the purchase and sale of bonds.
    • The operation describes a form of monetary policy where the bank buys and sells short-term and long-term bonds depending on their objective.

    Its genesis

    • The name “Operation Twist” was given by the mainstream media due to the visual effect that the monetary policy action was expected to have on the shape of the yield curve.
    • If we visualize a linear upward sloping yield curve, this monetary action effectively “twists” the ends of the yield curve, hence, the name Operation Twist.
    • To put another way, the yield curve twists when short-term yields go up and long-term interest rates drop at the same time.

     Back2Basics: Open Market Operations

    • Open market operations are the sale and purchase of government securities and treasury bills by RBI or the central bank of the country.
    • The objective of OMO is to regulate the money supply in the economy.
    • When the RBI wants to increase the money supply in the economy, it purchases the government securities from the market and it sells government securities to suck out liquidity from the system.
    • OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise its impact on the interest rate and inflation rate levels.

  • Mobile Virology Research and Diagnostics Laboratory (MVRDL)

    The Defence Research and Development Organisation (DRDO) has developed a mobile virology research lab.

    We can expect a  prelim question on BSL ratings as the term is widely appearing in news these days.

    About the MVRDL

    • The MVRDL is the combination of a bio-safety level (BSL)-3 lab and a BSL-2 lab and was set up in a record time of 15 days.
    • It can process 1,000-2,000 samples a day.
    • The mobile lab will be helpful in carrying out a diagnosis of COVID-19 and in virus-culturing for drug screening, convalescent plasma-derived therapy, comprehensive immune profiling of patients towards vaccine etc.

    What are Biosafety Level (BSL) Ratings?

    • A BSL is a set of biocontainment precautions required to isolate dangerous biological agents in an enclosed laboratory facility.
    • The levels of containment range from the lowest biosafety level 1 (BSL-1) to the highest at level 4 (BSL-4).
    • BSL-1 is suitable for work with well-characterized agents which do not cause disease in healthy humans.
    • BSL- 2 is suitable for work involving agents of the moderate potential hazard to personnel and the environment.
    • BSL-3 is appropriate for work involving microbes which can cause serious and potentially lethal disease via the inhalation route.
    • BSL-4 is the highest level of biosafety precautions and is appropriate for work with agents that could easily be aerosol-transmitted within the laboratory and cause severe to fatal disease in humans for which there are no available vaccines or treatments.

  • Highlights of the World Press Freedom Index, 2020

     

    India has dropped two places on a global press freedom index to be ranked 142nd out of 180 countries in the annual World Press Freedom Report.

    Press freedom  especially after the abrogation of Art. 370 in J&K was profoundly debated back then.  We can expect a mains question like-

    “Reasonable restrictions to the freedoms enjoyed by media are necessary while addressing the concerns of national security.  Critically comment.”

    World Press Freedom Index

    • The Press Freedom Index is an annual ranking of countries compiled and published by Reporters Without Borders.
    • It is based upon the organization’s own assessment of the countries’ press freedom records.
    • It intends to reflect the degree of freedom that journalists, news organisations, and netizens have in each country, and the efforts made by authorities to respect this freedom.
    • The report is partly based on a questionnaire which asks questions about pluralism media independence, environment and self-censorship, legislative framework, transparency, and infrastructure.

    Highlights on India

    • The report said that with no murders of journalists in India in 2019, as against six in 2018.
    • However, there have been constant press freedom violations, including police violence against journalists, ambushes by political activists, and reprisals instigated by criminal groups or corrupt local officials.

    Global scenario

    • Norway is ranked first in the Index for the fourth year running.
    • India ranked better than its neighbours Pakistan (145) and Bangladesh (151), but worse than Sri Lanka (127) and Nepal (112).
    • China at 177th position is just three places above North Korea, which is at 180th.

    Various threats to press freedom

    • Across the world, press freedom is under pressure from aggressive authoritarian regimes.
    • The media is also facing a technological crisis, due to a lack of democratic guarantees and a democratic crisis following polarization and repressive policies, the report reads.
    • In addition comes a crisis of trust following growing suspicion and even hatred of the media, and an economic crisis and impoverishing of quality journalism.
    • Among other issues, the report has listed coordinated social media hate campaigns against journalists reporting on issues that “annoy right-wing followers”, criminal prosecutions to gag journalists critical of authorities and police violence against journalists.