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  • Maritime border dispute between Kenya and Somalia

    In a move that is set to further undermine stability in East Africa, Kenya has said that it will not take part in proceedings of the International Court of Justice (ICJ) over its maritime border dispute with neighbouring Somalia.

    Can you recall the terms like “Scramble for Africa”, “Paper Partition of Africa”? If yes, then you know very well the malady of the present-day Continent of Africa.

    What is the news?

    • Nairobi has accused the top UN body of bias.
    • The move comes after Somalia’s decision to sever diplomatic relations with Kenya in December after it accused Nairobi of meddling in its internal affairs.
    • The maritime dispute is said to form a crucial part of the diplomatic quarrel between the two countries.

    The disputed area

    • The main point of disagreement between the two neighbours is the direction in which their maritime boundary in the Indian Ocean should extend.
    • According to Somalia, the sea border should be an extension of the same direction in which their land border runs as it approaches the Indian Ocean, i.e. towards the southeast.
    • Kenya, on the other hand, argues that the territorial southeast border should take a 45-degree turn as it reaches the sea, and then run in a latitudinal direction, i.e. parallel to the equator.
    • Such an arrangement would be advantageous for Kenya, whose coastline of 536 km is more than 6 times smaller than Somalia’s (3,333 km).

    Why is this area important?

    • The triangular area thus created by the dispute is around 1.6 lakh sq km large and boasts of rich marine reserves.
    • It is also believed to have oil and gas deposits.
    • Both Somalia and Kenya have accused each other of auctioning off blocks from this area, Al Jazeera reported.

    How have Kenya and Somalia tried to resolve the dispute?

    • After negotiations to resolve the issue bilaterally failed, Somalia in 2014 asked the ICJ to adjudicate.
    • Kenya resisted, arguing that the world court did not have jurisdiction to hear the case.
    • In 2009 both countries had a commitment to settle the dispute out of court.
    • However, in February 2017, the ICJ ruled that it did have the right to rule in the case, and in June 2019 said that it would begin public hearings.
    • These hearings never took place, as Kenya successfully applied to have them postponed thrice– the last one being in June 2020, when it cited difficulties due to the Covid-19.

  • [pib] Development of Rakhi Garhi Archaeological Site

    Rakhi Garhi is being developed as one of the five Identified Iconic Archaeological Sites, informed the Minister of Culture and Tourism.

    Rakhi Garhi

    • The ancient site of Rakhi-Khas and Rakhi-Shahpur are collectively known as Rakhigarhi, located on the right bank of the now dried up Palaeo-channel of Drishadvati.
    • It is located in the Ghaggar-Hakra river plain in the Hissar district of Haryana.
    • Seven mounds are located here.
    • The site has yielded various stages of Harappan culture and is by far one of the largest Harappan sites in India.
    • The site shows the sequential development of the Indus culture in the now dried up Saraswati basin.

    Try this question from our AWE initiative

    Ancient Indian sculptural art is highly rich in its traditions. Trace the development ancient Indian sculpture that go back to the Indus Valley civilisation. 10 marks

    Major findings at Rakhi Garhi

    • Findings confirm both early and mature Harappan phases and include 4,600-year-old human skeletons, fortification and bricks.
    • Digging so far reveals a well-planned city with 1.92 m wide roads, a bit wider than in Kalibangan.
    • The pottery is similar to Kalibangan and Banawali.
    • Pits surrounded by walls have been found, which are thought to be for sacrificial or some religious ceremonies.
    • There are brick-lined drains to handle sewage from the houses.
    • Terracotta statues, weights, bronze artefacts, comb, copper fish hooks, needles and terracotta seals have also been found.
    • A bronze vessel has been found which is decorated with gold and silver.
    • A granary belonging to the mature Harappan phase has been found here.
    • Fire altars structures were revealed in Rakhigarhi.

    Back2Basics: Five Iconic Archaeological Sites

    The government has proposed to develop five archaeological sites as “iconic sites” with onsite museums in Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh), Sivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu) in the Union Budget 2020-21.

    (1) Rakhigarhi

    *discussed above*

    (2) Hastinapur

    Hastinapur in the Meerut district of Uttar Pradesh finds mention in the Mahabharata and the Puranas. One of the most significant discoveries made at this site was of the “new ceramic industry”, which was named the Painted Grey Ware, which as per the report represented the relics of the early Indo-Aryans.

    (3) Sivasagar

    In Sivasagar (Assam), excavations at the Karenghar (Talatalghar) complex between 2000 and 2003 led to the discovery of buried structures in the north-western and north-eastern side of the complex. Among the structural remains found at the site were ceramic assemblages including vases, vessels, dishes, and bowls, etc. Terracotta smoking pipes were also found.

    (4) Dholavira

    Dholavira in Gujarat is located in the Khadir island of the Rann of Kutch, and like Rakhigarhi is one of the sites where the remains of the Harappan civilization have been found. It is unique because the remains of a complete water system have been found here.

    (5) Adichnallur

    Adichnallur lies in the Thoothukudi district of Tamil Nadu. The urn-burial site was first brought to light during a “haphazard excavation” by a German archaeologist in 1876. Following this, an Englishman Alexander Rae excavated the site between 1889 and 1905.

  • [pib] Mission Sagar-IV

    As part of Mission Sagar-IV, Indian Naval Ship Jalashwa has arrived at Port Anjouan, Comoros to deliver 1,000 Metric Tonnes of rice.

    Mission SAGAR, unlike other missions, can create confusion with the name and its purpose. It is not a military exercise. Make note of such special cases. UPSC can ask such questions as one-liner MCQs.

    Also note the location of the island country Comoros and its geostrategic significance.

    Mission Sagar

    • SAGAR is a term coined by PM Modi in 2015 during his Mauritius visit with a focus on the blue economy.
    • It is a maritime initiative that gives priority to the Indian Ocean region for ensuring peace, stability and prosperity of India in the Indian Ocean region.
    • The goal is to seek a climate of trust and transparency; respect for international maritime rules and norms by all countries; sensitivity to each other`s interests; peaceful resolution of maritime issues; and an increase in maritime cooperation.
    • It is in line with the principles of the Indian Ocean Rim Association.

    Earlier such missions

    • This is the second visit of an Indian Navy ship to the island country within a span of one year.
    • Earlier, as part of Mission Sagar-I, in May-June 2020, the Indian Navy had delivered essential medicines to the nation.
    • Mission Sagar-II was undertaken in May-June 2020, wherein India reached out to Maldives, Mauritius, Seychelles, Madagascar and Comoros, and provided food aid and medicines.
    • Sagar-III was undertaken in Sihanoukville Port, Cambodia.

  • Places in news: Baralacha Pass

    For the first time ever, the Border Roads Organisation (BRO) has started work on reopening the crucial Baralacha Pass in Himachal Pradesh much before schedule to restore connectivity to Leh in Ladakh.

    Note all the Himalayan passes from their N-S sequences.

    Baralacha Pass

    • Bara-lacha la also known as Bara-lacha Pass is a high mountain pass in the Zanskar range connecting the Lahaul district in Himachal Pradesh to Leh district in Ladakh.
    • It is situated along the Leh–Manali Highway.
    • The Bhaga river, a tributary of the Chenab river, originates from Surya Taal lake, which is situated a few kilometres from the pass towards Manali.
    • The native name of Chenab “Chandrabhaga” represents the union of Chandra and Bhaga rivers downstream.
    • The pass also acts as a water-divide between the Bhaga River and the Yunan River.

    Why is this pass so important?

    • The BRO had kept crucial passes open for a longer duration to enable the Army to undertake advanced winter stocking for the thousands of additional troops deployed in Ladakh.
    • The team has traversed a total distance of 20 km in super high-altitude conditions scrupulously crossing the Baralacha La in the Zanskar range on foot amidst sub-zero freezing conditions.
    • Frequent avalanches and slides with 15 to 20 feet of snow accumulation.

  • What India needs for population stabilisation

    Achieving replacement levels of fertility

    • The National Population Policy 2000 affirmed a commitment to achieve replacement levels of fertility (total fertility rate of 2.1) by 2010.
    • Ten states — Karnataka, Punjab, Gujarat, Assam, Telangana, Andhra Pradesh, West Bengal, Maharashtra, Tamil Nadu and Kerala — and Jammu and Kashmir, have achieved this goal.
    • This fertility decline over half of India has cut across all sections of society — the privileged and the poor, those educated or not, and the high and low caste.
    • The National Family Health Survey-4 has shown how TFR has reduced even among illiterate women from all religions in the southern states.

    Growing gap between North-South

    • The difference between the progressive South and the Central- North is becoming disproportionately skewed.
    • UP and Bihar are 23 per cent of India’s population and are projected to grow by over 12 per cent and 20 per cent in the next 15 years.
    • Their high TFR pervades all religious groups.
    • Action to prevent unwanted pregnancies particularly in these two Hindi belt states is urgently required.
    • For decades UP has had a dedicated agency — SIFPSA (State Innovations in Family Planning Services Agency). But its website gives dated information.
    • Women in rural UP are still giving birth to four or more children.
    • In some districts, the contraceptive prevalence rate is less than 10 per cent.
    • In many districts neither Hindus nor Muslims use modern family planning methods.
    • In such a scenario, demographics will eclipse economic growth and destroy the gains from a young populace.
    • UP’s over-reliance on traditional methods of contraception needs to be swiftly replaced with reliable and easy alternatives.
    • Bihar has the highest fertility rate in the country and also the highest outmigration.

    Which method  should be used

    • While national and state policies emphasise male vasectomy, politicians never champion its adoption.
    • No other country in the world uses female sterilisation as excessively as India.
    • Indonesia and Bangladesh introduced injectables right from the late 1980s but India only did so in 2016.
    • Executed properly, one jab renders protection from pregnancy for three months.
    • This method needs greater impetus given the helplessness of women who carry the burden of unwanted pregnancies.

    Way forward

    • Three things are needed:
    • 1) Incentivise later marriages and child births.
    • 2) Make contraception easy for women.
    • 3) Promote women’s labour force participation.
    •  Some other disturbing nationwide trends must also be counteracted without delay because stabilisation isn’t only about controlling population growth.
    • A balanced sex ratio is essential to secure social cohesion.
    • The inheritance law favouring women’s rights to ancestral property is far from being implemented.
    • And then there is ageing. Paradoxically, it is the Southern states that will face problems in future.
    • Having largely redeemed their demographic dividend, the cohort of the elderly will start outstripping the working age population.
    • The theoretical possibility that younger people from the Central-Northern states may fill the growing gap in services will need strong political support.
    • The freeze on the state-wise allocation of seats in Parliament until 2026 was extended through the Constitutional (84th Amendment) Act, 2002, to serve “as a motivational measure to pursue population stabilisation”.
    • This goal has not been achieved.
    • In the absence of further extension, it will be politically destabilising.

    Consider the question “India’s efforts at populations stabilisation still remains work in progress, as the Northern states fail to achieve the targets. Suggest the ways to deal with the issue.”

    Conclusion

    The population momentum, if managed properly in the Hindi belt, will remain India’s biggest asset until 2055. By 2040, India will be the undisputed king of human capital.

  • How scarcity of jobs is fuelling nativism in the States

    The article examines the factors contributing to the States pursuing domicile based employment policies.

    What is driving states to provide reservation to locals in private jobs

    • The Haryana government has recently passed legislation that mandates companies in Haryana to provide jobs to local Haryanvis first.
    • The unemployment rate in Haryana is the highest of all States in India, as per data from the Centre for Monitoring Indian Economy, or CMIE.
    • The cabinet of the government of Jharkhand approved similar legislation to reserve jobs for Jharkhand residents.
    • The Dravida Munnetra Kazhagam (DMK) in Tamil Nadu announced a similar proposal in its manifesto for the upcoming Assembly elections.
    • Such moves have attracted criticism from economists and commentators
    • Creating more jobs, not on reserving the few available ones’ is the popular refrain.
    • Creation of new jobs is not entirely in the control of State governments. It is a complex interplay of multitude of factors.

    Factors playing role in job creation

    • Job creation is obviously an outcome of the performance of the larger economy.
    • Chief Minister of a State in India has limited control over the management of the larger economy and thereby, attract new investors and businesses who can create jobs.
    • Businesses need abundant high quality skilled and unskilled labour, land at affordable prices, uninterrupted supply of electricity, water and other such ‘ease of business’ facilities for its expansion.
    • State governments in India can theoretically compete with each on these parameters.
    • Further, any tax advantages that a particular State can provide vis-à-vis others will increase its attractiveness.
    • But, realistically in India, in very few of these parameters can a poorer State compete against a richer State.

    Issues faced by the States

    • The availability of skilled local labour is a function of many decades of social progress of the State and cannot be retooled immediately.
    • After the introduction of the Goods and Services Tax (GST), State governments in India have lost their fiscal autonomy and have no powers to provide any tax concessions to businesses.
    • Beyond all these, the most critical factor in the choice of a location for a large business is what economists term as the ‘agglomeration effect’
    • Agglomeration effect is the ecosystem of supply chain, talent, good living conditions and so on attracting the other businesses.
    • So, a State with an already well-established network of suppliers, people, schools, etc. are at a greater advantage to attract even more businesses.
    • It is due to this agglomeration effect that the three richest large States (Maharashtra, Tamil Nadu and Karnataka) are three times richer than the three poorest large States (Bihar, Uttar Pradesh and Madhya Pradesh), in per-capita income, compared to 1.4 times in 1970.
    • In the absence of a level playing field and with no fiscal autonomy, it is enormously difficult for developing States in India to attract new investments and create new jobs.

    Consider the question “Examine the factors contributing to the nativist tendencies in the employment within the States. Suggest the measures to deal with the issue.”

    Conclusion

    Until the economic playing fields for the various States are levelled and much greater fiscal freedom provided to the States, “don’t protect but create jobs” will only remain a topic of a hollow lecture and moral sermons.

  • Govt. reconstitutes panel for studying mythical Sarasvati River

    The Centre has reconstituted an advisory committee to chalk out a plan for studying the mythical Sarasvati River for the next two years after the earlier panel’s term ended in 2019.

    Do you know?

    Rigveda describes India as a land of Sapta Sindhavah.

    There is a verse in Nadistuti sukta of Rigveda , hymn of praise of rivers which mentions the following 10 rivers: Ganga, Yamuna, Sarasvati, Sutudri, Parusni, Asikni, Marudvrdha , Vitasta , Arjikiya , Susoma.

    The Shutudri was Sutlej, Parushni was Ravi, Asikni was Chenab and Vitasta was Jhelum.

    Sarasvati River

    • The Sarasvati River is an extinct river mentioned in the Rig Veda and later Vedic and post-Vedic texts.
    • As a physical river, it is described as a small river ending in “a terminal lake (Samudra).
    • As the goddess Sarasvati, the main referent for the term “Sarasvati” which developed into an independent identity in post-Vedic times, she is described as a powerful river and mighty flood.
    • The Sarasvati is also considered by Hindus to exist in a metaphysical form, in which it formed a confluence with the sacred rivers Ganges and Yamuna, at the Triveni Sangam.

    Vedic reference of the river

    • Rigvedic and later Vedic texts have been used to propose identification with present-day rivers, or ancient riverbeds.
    • The Nadistuti hymn in the Rigveda (10.75) mentions the Sarasvati between the Yamuna in the east and the Sutlej in the west.
    • Later Vedic texts like the Tandya and Jaiminiya Brahmanas, as well as the Mahabharata, mention that the Sarasvati dried up in a desert.

    What led to its extinction?

    • Since the late 19th-century, scholars have proposed to identify the Rig Vedic Saraswati river with the Ghaggar-Hakra river system.
    • This flows through northwestern India and eastern Pakistan, between the Yamuna and the Sutlej.
    • Recent geophysical research suggests that the Ghaggar-Hakra system was glacier-fed until 8,000 years ago, and then became a system of monsoon-fed rivers.
    • ISRO has observed that major Indus Valley Civilization sites at Kalibangan (Rajasthan), Banawali and Rakhigarhi (Haryana), Dholavira and Lothal (Gujarat) lay along this course.
    • The Indus Valley Civilisation may have declined as a result of climatic change when the monsoons that fed the rivers diminished at around the time civilisation diminished some 4,000 years ago.

  • What is Index of Industrial Production (IIP)?

    Last week saw the release of the Index of Industrial Production (IIP), which recorded a contraction of 1.6% in January.

    Index of Industrial Production (IIP)

    • Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy.
    • The IIP number measures the industrial production for the period under review, usually a month, as against the reference period.
    • IIP is a key economic indicator of the manufacturing sector of the economy.
    • There is a lag of six weeks in the publication of the IIP index data after the reference month ends.
    • IIP index is currently calculated using 2011-2012 as the base year.

    IIP Index Components:

    • Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
    • The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
    • Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.

    Basket of products

    There are 6 sub-categories:

    1. Primary Goods (consisting of mining, electricity, fuels and fertilisers)
    2. Capital Goods (e.g. machinery items)
    3. Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
    4. Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
    5. Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
    6. Consumer Non-durables (e.g. food items, medicines, toiletries, etc)

    Who releases IIP data?

    • The IIP data is compiled and published by CSO every month.
    • CSO or Central Statistical Organisation operates under the Ministry of Statistics and Programme Implementation (MoSPI).
    • The IIP index data, once released, is also available on the PIB website.

    Try this PYQ:

    Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

    (a) Coal production

    (b) Electricity generation

    (c) Fertilizer production

    (d) Steel production

    Who uses IIP data?

    • The factory production data (IIP) is used by various government agencies such as the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, among others for analytical purposes.
    • The data is also used to compile the Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP) on a quarterly basis.

    IIP base year change:

    • The base year was changed to 2011-12 from 2004-05 in the year 2017.
    • The earlier base years were 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05.

    IIP vs ASI

    • While the IIP is a monthly indicator, the Annual Survey of Industries (ASI) is the prime source of long-term industrial statistics.
    • The ASI is used to track the health of industrial activity in the economy over a longer period. The index is compiled out of a much larger sample of industries compared to IIP.
    • The IIP essentially tracks the change in the volume of production in Indian industries.

  • What are AT1 Bonds?

    The decision of the Securities and Exchange Board of India (SEBI) to slap restrictions on mutual fund (MF) investments in additional tier-1 (AT1) bonds has raised a storm in the MF and banking sectors.

    What are AT1 Bonds?

    • AT1 Bonds stand for additional tier-1 bonds. These are unsecured bonds that have perpetual tenure. In other words, the bonds have no maturity date.
    • They have a call option, which can be used by the banks to buy these bonds back from investors.
    • These bonds are typically used by banks to bolster their core or tier-1 capital.
    • AT1 bonds are subordinate to all other debt and only senior to common equity.
    • Mutual funds (MFs) are among the largest investors in perpetual debt instruments and hold over Rs 35,000 crore of the outstanding additional tier-I bond issuances of Rs 90,000 crore.

    What action has been taken by the Sebi recently and why?

    • In a recent circular, the Sebi told mutual funds to value these perpetual bonds as a 100-year instrument.
    • This essentially means MFs have to make the assumption that these bonds would be redeemed in 100 years.
    • The regulator also asked MFs to limit the ownership of the bonds to 10 per cent of the assets of a scheme.
    • According to the Sebi, these instruments could be riskier than other debt instruments.

    Try this PYQ:

    Consider the following statements:

    1. The Reserve Bank of India manages and services the Government of India Securities but not any State Government Securities.
    2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
    3. Treasury bills offer are issued at a discount from the par value.

    Which of the statements given above is/are correct?

    (a) 1 and 2 only

    (b) 3 Only

    (c) 2 and 3 only

    (d) 1, 2 and 3

    How MFs will be affected?

    • Typically, MFs have treated the date of the call option on AT1 bonds as the maturity date.
    • Now, if these bonds are treated as 100-year bonds, it raises the risk in these bonds as they become ultra long-term.
    • This could also lead to volatility in the prices of these bonds as the risk increases the yields on these bonds rises.
    • Bond yields and bond prices move in opposite directions and therefore, the higher yield will drive down the price of the bond, which in turn will lead to a decrease in the net asset value of MF schemes holding these bonds.
    • Moreover, these bonds are not liquid and it will be difficult for MFs to sell these to meet redemption pressure.

    What’s the impact on banks?

    • AT1 bonds have emerged as the capital instrument of choice for state banks as they strive to shore up capital ratios.
    • If there are restrictions on investments by mutual funds in such bonds, banks will find it tough to raise capital at a time when they need funds in the wake of the soaring bad assets.
    • A major chunk of AT1 bonds is bought by mutual funds.

    Why has the Finance Ministry asked Sebi to review the decision?

    • The FM has sought withdrawal of valuation norms for AT1 bonds as it might lead to mutual funds making losses and exiting from these bonds, affecting capital raising plans of PSU banks.
    • The government doesn’t want a disruption in the fund mobilization exercise of banks at a time when two PSU banks are on the privatization block.
    • Banks are yet to receive the proposed capital injection in FY21 although they will need more capital to face the asset-quality challenges in the foreseeable future.
    • Fitch’s own estimate pegs the sector’s capital requirement between $15 billion-58 billion under various stress scenarios for the next two years, of which state banks account for the bulk.

  • Need for national security shield in FDI

     

    Relaxation on Chinese FDI

    • Last April, India had subjected all Chinese FDI to mandatory government screening.
    • The aim was to curb opportunistic takeovers of Indian companies, a concern fuelled by sharp corrections in equity markets in March 2020.
    • Several economies including the US, Australia, Canada and Germany faced similar concerns.
    • They blocked specific takeover attempts, using special laws for national security screening of inward FDI.
    •  In the absence of similar legislation, India did not differentiate between investments which raised genuine national security concerns and those that did not.
    • This is a crucial shortcoming.
    • With market indices now hovering at their peaks, reportedly India may allow Chinese FDI up to 25 per cent in equity under the automatic route.

    Regulation of FDI and issues with it

    • India regulates foreign investments primarily through FEMA.
    • FEMA clearly provides two specific macro-prudential objectives — facilitating external trade and payments; and promoting orderly development and maintenance of foreign exchange markets in India.
    • Accordingly, it empowers the central government and the RBI, acting in consultation with each other, to regulate capital account transactions.
    • These regulations determine who can invest through the FDI route, in which sector and how much.
    • In practice, however, FEMA regulations have often responded to concerns not strictly related to macro-prudential objectives.
    • One such concern has been national security.

    Need for the law to scrutinise FDI from national security angle

    • Shortcoming of FEMA underscores the need for India to emulates its western peers and enact a statute specifically designed for national security screening of strategic FDI.
    • Unlike FEMA, this new statute must explicitly lay down legal principles for determining when a foreign acquisition of an Indian company poses genuine national security threats.
    • In this regard, a policy paper published by the Peterson Institute for International Economics three types of legitimate threats from foreign acquisitions.

    3 Types of threat from foreign acquisitions

    1) Dependency on foreign supplier

    • The first threat arises if a foreign acquisition renders India dependent on a foreign-controlled supplier of goods or services crucial to the functioning of the Indian economy.
    • For this threat to be credible, it needs to be further established that the industry in which the acquisition is supposed to take place is tightly concentrated, the number of close substitutes limited, and the switching costs are high.

    2) Technology transfer

    • The second threat emanates from a proposed acquisition transferring a technology or an expertise to a foreign-controlled entity that might be deployed by that entity or a foreign government in a manner harmful to India’s national interests.
    • The credibility of this threat again depends on whether the market for such technology or expertise is tightly concentrated or if they are readily available elsewhere.

    3) Threat of infiltration, surveillance or sabotage

    • The third threat arises if a proposed acquisition allows insertion of some potential capability for infiltration, surveillance or sabotage via human or non-human agents into the provision of goods or services crucial to the functioning of Indian economy.
    • This threat is particularly credible when the target company supplies crucial goods or services to the Indian government, its military or even critical infrastructure units and the switching costs are high.

    Way forward

    • The above stated 3 types of threats could provide conceptual clarity in the new statute could make national security assessments objective, transparent and amenable to the rule of law.
    • On procedure, the statute must empower only the finance minister to reject certain strategic foreign acquisitions on national security grounds.
    • Both the power and accountability mechanisms should be hardcoded into the statute itself, as is the case in some mature parliamentary democracies.
    • For instance, the Australian Foreign Acquisitions and Takeovers Act, 1975 empowers the treasurer to block certain foreign acquisitions on national security grounds.
    • Similarly, the Investment Canada Act, 1985 empowers a minister to reject certain foreign acquisitions.

    Consider the question “India needs to recognise the national security threat emanating from strategic FDI. This requires identifying threats. In lights of this, examine the types of threats and suggest the ways to deal with it.” 

    Conclusion

    Overall, India’s tryst with Chinese FDI underscores the importance of identifying specific national security threats emanating from strategic FDI and addressing them objectively. This is too sensitive a matter to be left to capital controls under FEMA. A dedicated statute for national security screening of inward FDI would be best suited for handling such issues.