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GS Paper: GS2-18.Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

  • Why India needs an international development cooperation agency

    Context

    Enhancing the efficacy of India’s development cooperation endeavours has been a challenging issue for the past several decades. The country, therefore, needs to expedite work on a specialised agency for proficient delivery of outcomes.

    Development assistance and lack of institutional foundation

    • In the last couple of years, India’s assistance to other developing countries has multiplied several times.
    • India’s development cooperation has converged to an all-encompassing integrated framework, a development compact that has five modalities — capacity building, concessional finance, technology sharing, grant and trade wherein duty-free and quota-free access to the Indian market is provided.
    •  India’s benevolent image does yield tremendous goodwill globally, but quality project delivery is yet to become the country’s USP.
    • On average, India provides development assistance of $6.48 billion and receives assistance of $6.09 billion annually from key partners as Official Development Assistance (ODA).
    • Under Indian Cooperation Mission (ICM) — India partners for development cooperation and does not give aid like OECD members.
    • India has been supporting the developmental endeavours of several partner countries in Africa and Asia, even before Independence.
    • However, this process lacks a firm institutional foundation.

    Efforts to form an institutional framework

    • The first effort by India to shape a framework was in 2003 with the announcement of the India Development Initiative (IDI).
    • Subsequently, the Indian Development and Economic Assistance Scheme (IDEAS) was launched in 2005 for managing credit lines.
    • The IDI was suspended in 2007 and the announcement about the setting up of the India International Development Cooperation Agency (IIDCA), which never took off.
    • Meanwhile, in 2018, China founded its international development cooperation agency.

    Changes in concessional financing

    • At this point, concessional financing in India’s development cooperation portfolio is close to 70 per cent.
    • So any major change would require alterations in the way LOCs (Line of Credit) have been working.
    • In 2015, the government made efforts to bring in operational changes in the way credit lines work.
    •  As of now, the EXIM Bank raises global resources and the Government of India absorbs the interest differential.

    Way forward

    • Countries have sovereign and non-sovereign windows for promoting infrastructure financing abroad — both have their own place.
    • A non-sovereign window would provide greater flexibility and bandwidth.
    • To become a leading strategic investor in commercially viable and financially attractive public-private partnership infrastructure projects, the fund may build an investment ecosystem in Africa with support from leading Indian firms.
    • The proposed new entity may also provide handholding to select performing Indian social enterprises to operate in other countries as well.
    • Besides making an immediate economic impact, these enterprises can facilitate development partnerships between India and other countries.
    • Post-pandemic, countries worldwide are exploring ways to reinvigorate their development cooperation efforts.
    • India’s own development experience is also evolving with programmes like the JAM trinity, Ayushman Bharat and other initiatives like Gati Shakti — the learnings from which should be absorbed in the portfolio to be shared with fellow developing countries.

    Conclusion

    It is high time India restructures its development finance apparatus for deeper and effective engagement and to address the rapidly evolving newer competitive development financing landscape.

  • Is the Indian foreign-policy ship changing course?

    Context

    India plans to host an international conference on Afghanistan in the second week of November.

    Is the Indian foreign policy changing course?

    • All signs point towards a major calibration of the foreign-policy compass in recent weeks since the tumultuous events in Kabul two months ago culminated in the formation of an interim government by the Taliban.
    • As regards the way forward in Afghanistan, India has opted to align with the Anglo-American camp in the international line-up arrayed against the Eurasian axis of Russia, China and Iran.
    • While the US has an attitude of “You’re either with us, or against us”, vis-a-vis the Taliban, Russia, China, Iran and other neighbouring states give primacy to stability and security of Afghanistan.
    • Being a discontented party, unsurprisingly, India would have more in common with the revisionist powers — the US and the UK.
    • While the stated purpose of the participating countries is marking Afghanistan, it is the future that matters, being an epochal one that would transform the geopolitics of the region.
    • Thus, Delhi has moved up to the centrestage of the Quad.
    • In turn, the US accepts that the Quad ought to be “inclusive”. Global Britain is knocking at the door.
    • On its part, Delhi has displayed its comfort level with the AUKUS.
    • The historical Western experience of the EU and NATO moving in tandem to weaken a common enemy is being replicated with Asian characteristics.
    • A dual containment strategy is unfolding against China and Russia.
    • Thus, its short-lived dalliance with Iran is losing its gravitas and India has swung to the other extreme to identify with a new quadrilateral platform in West Asia, with Israel, UAE and the US.
    • India shrugs its shoulders as its “time-tested” friend, Moscow, bemoans the Quad and AUKUS.
    • This astonishing zigzagging in India’s regional policy takes the breath away.

    Challenges for India

    • India lives in its region and the Quad and AUKUS are of no help when it comes to Afghanistan.
    • Pakistan and China are riding high in the Hindu Kush; Moscow and Beijing have moved close in Central Asia which Washington is having a hard time in dealing with.
    • India’s much-touted “influence” in Kabul has turned out to be delusional.
    • Its own capacity to shape future events is virtually nil. These are the hard realities.

    Conclusion

    With the conference where India hopes to create an equivalent of the vajrayudha of the ancient Vedas which would allow India to reclaim its rightful place in the Afghan pantheon of gods and demi-gods.

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  • EU, India and the Indo-Pacific

    Context

    Last month, the EU released it “EU strategy for cooperation in the Indo-Pacific”. This document is very rich and needs to be analysed in the context of the rapprochement between the EU and India, which culminated in the June EU-India summit, a “turning point” according to some analysts.

    Important takeaways from EU’s Indo-Pacific strategy

    • The EU strategy in the Indo-Pacific appears to be over-determined by China’s expansionism.
    • “The display of force and increasing tensions in regional hotspots such as in the South and East China Sea and in the Taiwan Strait may have a direct impact on European security and prosperity,” the document says.
    • If security interests are highlighted in the beginning, they are rather low in the list of the objectives of the EU Indo-Pacific strategy, which are listed as: “Sustainable and inclusive prosperity; green transition; ocean governance; digital governance and partnerships; connectivity; security and defence; human security”.
    • Many paragraphs of the document are dedicated to values, including human rights.

    India does not figure prominently in the policy document

    • In terms of partnerships, India does not figure very prominently.
    • By contrast, ASEAN is presented as “an increasingly important partner for the EU”.
    • However, India appears in the list of the countries which already have an Indo-Pacific strategy and with which the EU is interested in a deeper “engagement”, a list made of ASEAN, Australia, India, Japan, New Zealand, the Republic of Korea, the UK and US.
    • However, the document does not mention the role India could play in value-chain diversification, a top priority of the EU since the Covid-19 pandemic in particular.
    • Yet, India is mentioned few pages later in a similar perspective when it is said that the EU will help “low and middle-income Indo-Pacific partners to secure access to the Covid-19 vaccine through the Covax facility and through other means”.
    • What the French see as India’s main asset, its strategic dimension, is not central in the EU document.
    •  India is listed as the EU’s first partner only in one area: “under the project Enhancing Security Cooperation in and with Asia (ESIWA), which covers counter-terrorism, cybersecurity, maritime security and crisis management.
    • The pilot partners are India, Indonesia, Japan, the Republic of Korea, Singapore and Vietnam, with EU military experts already operating in Indonesia and in Vietnam.”

    Understanding the German influence on the policy document

    • Thus, the EU strategy for cooperation in the Indo-Pacific is more in tune with the German vision of the Indo-Pacific than with the French one.
    • The fact that the German approach prevails in the EU document is a reflection of the influence of Berlin’s weltanschauung (worldview) in Europe — something Brexit has accentuated, Great Britain’s Indo-Pacific strategy being similar to France’s.
    • But China’s attitude may force Germany — and the EU — to change their mind in the near future.

    Conclusion

    By and large, the Indo-Pacific strategy of the EU remains driven by economic considerations and India, whose main asset is geopolitical and even geostrategic, does not figure prominently in it.

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  • Indo-Abrahamic Accord: A new QUAD

     

    The first-ever meeting between the foreign ministers of India, Israel, the United Arab Emirates, and the United States is being widely perceived as a new QUAD group.

    What is Abraham Accord?

    • The Israel–UAE normalization agreement is officially called the Abraham Accords Peace Agreement.
    • It was initially agreed to in a joint statement by the United States, Israel and the United Arab Emirates (UAE) on August 13, 2020.
    • The UAE thus became the third Arab country, after Egypt in 1979 and Jordan in 1994, to agree to formally normalize its relationship with Israel as well as the first Persian Gulf country to do so.
    • Concurrently, Israel agreed to suspend plans for annexing parts of the West Bank.
    • The agreement normalized what had long been informal but robust foreign relations between the two countries.

    The idea of the Indo-Abrahamic Accord

    • The idea of an accord between India, the UAE and Israel was first suggested by Mohammed Soliman, an Egyptian scholar based in Washington.
    • The focus, then, was on India taking full advantage of the normalisation of relations between Israel and the Arabs.

    Prospects of India joining the accord

    • Adding “Indo” to the Abrahamic Accords — from think tank level to the policy domain underlines the extraordinary churn in the geopolitics of the Middle East.
    • It also points to new openings for India in the region and ever-widening possibilities for Delhi’s strategic cooperation with Washington.

    Significance for India

    The new minilateral consultation with the US, Israel and the UAE should started breaking that political taboo by:

    (1) Creating a minilateral in the Middle-East:

    • Such events mark an important turning point in Delhi’s engagement with the Middle East.
    • It suggests India is now ready to move from bilateral relations conducted in separate silos towards an integrated regional policy.
    • As in the Indo-Pacific, so in the Middle East, regional coalitions are bound to widen Delhi’s reach and deepen its impact.

    (2) India bridging the Arab-Israeli rift:

    • Often the Arab nations and Israel are divided over Palestine.
    • The simultaneous expansion of Delhi’s cooperation with Israel and the Arab world was considered impossible.
    • However, India’s new foreign policy broke from that assessment and demonstrated the feasibility of a non-ideological engagement with the Middle East.
    • This diplomatic pragmatism allows Delhi to reimagine its policies towards the Middle East.

    (3) Extension of cooperation with the US:

    • Thinking of the US as a partner in the Middle East is part of the reimagination.
    • For long, India defined the US, and more broadly the West, as part of the problem in the Middle East.
    • As a result, Delhi kept a reasonable political distance from the US in the region.

    (4) Miscellaneous:

    • India’s scale with Israeli innovation and Emirati capital could produce immense benefits to all three countries.
    • Add American strategic support and you would see a powerful dynamic unfolding in the region.

    Is it a new Quad in making?

    • It is perhaps too early to call the new minilateral with the US, UAE and Israel the “new Quad” for the Middle East.
    • It will be a while before this grouping will find its feet and evolve.
    • After all, it took quite some effort to build the Quad in the east with Australia, India, Japan and the United States.

    What is the kind of agenda that this group can develop?

    Economic Cooperation: Like the eastern Quad, it would make sense for the new Middle Eastern minilateral to focus on non-military issues like trade, energy, and environment and focus on promoting public goods.

    Technology cooperation: Beyond trade, there is potential for India, UAE and Israel to collaborate on many areas — from semiconductor design and fabrication to space technology.

    A new geopolitical entity: The new “Quad” in the Middle East is likely to be India’s only new coalition in the region. It provides a thrust to new regionalism to the west involving India.

    ‘Extended’ neighborhood: This engagement will open the door for extending the collaboration with other common regional partners like Egypt (better call it Suez Canal), who will lend great strategic depth to the Indo-Abrahamic accords.

    Conclusion

    • This engagement has thus opened up a new opportunity for India to go for deeper engagement with Israel without risking its relations with the other Arab states of the Persian Gulf.
    • In the evolving scenario, there seems much scope for a profitable trilateral synergy, but India cannot take its preponderance as a given.
    • There is much to be done in realizing the full potential of the “Indo-Abrahamic Accords”.

     

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  • [pib] One Sun One World One Grid

    The Union Minister for Power and New and Renewable Energy (MNRE) has addressed the Ministerial session of the Green Grids Initiative-One Sun One World One Grid (OSOWOG) Northwest Europe Cooperative Event.

    One Sun, One World, One Grid

    • The mega plan of OSOWOG calls for trans-national electricity grid supplying solar power across the globe.
    • It will connect 140 countries through a common grid that will be used to transfer solar power.
    • The idea was first floated by PM Modi in 2018 during the first assembly of the International Solar Alliance (ISA).
    • The vision behind the OSOWOG mantra is “the Sun never sets” and is a constant at some geographical location, globally, at any given point of time.

    With India at the fulcrum, the solar spectrum can easily be divided into two broad zones viz:

    1. Far East: It would include countries like Myanmar, Vietnam, Thailand, Lao, Cambodia and
    2. Far West: It would cover the Middle East and the Africa Region

    Implementation phases of the plan

    The plan is divided into three phases:

    • Phase 1: It will connect the Indian grid with the Middle East, South Asia and South-East Asian grids to share solar and other renewable energy resources
    • Phase 2: It will connect the first phase nations with the African pool of renewable sources
    • Phase 3: It will be the concluding step of global interconnection

    How novel is the idea?

    (1) Scale of the program

    • Not limited by national boundaries, it can tackle global challenges linked to energy.
    • It will tackle access for underserved people and communities the world over.
    • It will enable 3 billion people to access clean drinking water (via solar pumps), give 2 billion women access to clean cooking and bring light to the homes of 750 million people.

    (2) Pivotal moment in India’s energy history

    • Going back even further, almost a decade ago, the price of solar energy (then INR 15 a unit) had raised question marks about its commercial feasibility.
    • Today OSOWOG envisions dispatching surplus electricity at near-zero cost as India produces the cheapest solar-powered electricity anywhere in the world.

    (3) Sustainability

    • OSOWOG directly tackles two key problems that are emerging as energy systems try to deliver both energy sustainability and access to underserved populations.
    • Countries like Singapore or Bangladesh simply may not have enough empty land to generate solar energy.
    • Many nations’ policies also prioritise food security (i.e., devoting land to farming) over solar energy. These countries can still benefit from the solar energy dispatched to them via OSOWOG.

    (4) India extending leadership

    • Having international associations is not a new trend for the energy sector which already has a strong geopolitical organisation such as OPEC.
    • Several countries including China have initiated infrastructure projects in other countries, which is seen as a sign of asserting supremacy by several policy experts.
    • While India is a partner nation with most trade associations, with ISA and OSOWOG, it is planning to take a leadership position.

    Significance of OSOWOG

    • Successful ambitious project: It is obviously a very grand and ambitious project with a looming success.
    • Pathbreaking idea: It is also clear that a new energy sector paradigm is needed as we are facing a huge inflection point in electricity generation and consumption.
    • Green benefits: Potential benefits include widespread scale up in energy access, abatement in carbon emissions, lower cost and improved livelihoods.
    • Energy alternative: With battery and storage technology becoming cheaper, electricity consumption at source end is a more feasible idea for solar power.

    Limitations of OSOWOG

    • Low financial benefits: This may sound a geopolitically a clever strategy. However, it is to be seen if this makes sense, technology-wise and in terms of financial benefits.
    • Cost-sharing challenge: The mechanism of cost-sharing will be challenging, given the varied priorities of participating countries depending on their socio-economic orders.
    • Pace of progress: The OSOWOG will turn out to be an expensive, complex and very slow progress project.
    • Geopolitical issue: Any disruption caused due to any bilateral/multilateral issues can potentially affect critical services in multiple continents and countries.
    • Grid parameters: There is a difference in voltage, frequency and specifications of the grid in most regions. Maintaining grid stability with just renewable generation would be technically difficult.

    Way forward

    • While India has taken baby steps with ISA, a major investment drive is still missing. This is planned to be achieved through OSOWOG.
    • India will need a strong coalition of international partners to realise this vision.

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    Back2Basics: International Solar Alliance

    • Officially announced during UN Climate Change Conference in Paris in 2015, the ISA is a partnership of solar-resource rich countries.
    • Currently, there are 121 countries that have agreed to be members for ISA.
    • Most of these are countries with large participation from Africa, South-east Asia and Europe.
    • Pakistan and China are not a part of ISA.

     

  • Europe as a valuable strategic partner

    Context

    Last week’s in-person summit in Delhi was with the Danish prime minister, Mette Frederiksen.

    Europe as a valuable partner

    • Few Asian countries view Europe with strategic suspicion. Many in Asia see Europe as a valuable partner.
    • As the deepening confrontation between the US and China begins to squeeze South East Asia, Europe is widely seen as widening the strategic options for the region.
    • The perspective is similar in Delhi, which now sees Brussels as a critical element in the construction of a multipolar world.
    • Cultivate Europe: As External Affairs Minister Subrahmanyam Jaishankar puts it, India’s strategy is to “engage America, manage China, cultivate Europe, reassure Russia, bring Japan into play”.
    • EU’s Strategy for India: The EU outlined a strategy for India in 2018 to focus on four themes — sustainable economic modernisation, promotion of a rules-based order, foreign policy coordination, and security cooperation.
    • At the summit in Portugal in May this year, the EU and India agreed to resume free trade talks and develop a new connectivity partnership that would widen options for the world beyond the Belt and Road Initiative.
    • Rebalancing the international system: Above all, there is a recognition in both Delhi and Brussels that the India-EU strategic partnership is crucial for the rebalancing of the international system amidst the current global flux.

    Possibilities with smaller European countries

    • Europe looms so large in the Indian diplomatic agenda today and smaller European states draw unprecedented political attention from Delhi.
    • That Denmark, a country of barely six million people, can establish a significant green partnership with India, is a reminder that smaller countries of Europe have much to offer in India’s economic, technological, and social transformation.
    • Luxembourg brings great financial clout, Norway offers impressive maritime technologies, Estonia is a cyber power, Czechia has deep strengths in optoelectronics, Portugal is a window to the Lusophone world, and Slovenia offers commercial access to the heart of Europe through its Adriatic sea port at Koper.
    • As India begins to realise this untapped potential, there are new openings with the 27-nation EU headquartered in Brussels.

    EU’s important role in Indo-Pacific

    • The EU’s Indo-Pacific strategy is likely to have a much greater impact on the region more immediately and on a wider range of areas than military security.
    • Area’s of impact range from trade and investment to green partnerships, the construction of quality infrastructure to digital partnerships, and from strengthening ocean governance to promoting research and innovation.
    • Defence and security are important elements of the EU’s Indo-Pacific strategy that “seeks to promote an open and rules-based regional security architecture, including secure sea lines of communication, capacity-building and enhanced naval presence in the Indo-Pacific.
    • Whatever the specific circumstances of the AUKUS deal and its impact on France, the US wants all its partners, especially Europe, to contribute actively to the reconstitution of the Asian balance of power.
    • Working with Quad: The EU strategy, in turn, sees room for working with the Quad in the Indo-Pacific, while stepping up security cooperation with a number of Asian partners, including India, Indonesia, Japan, the Republic of Korea, Singapore and Vietnam.
    • India is conscious that Europe can’t match America’s military heft in the Indo-Pacific.
    • But it could help strengthen the military balance and contribute to regional security in multiple other ways.

    Consider the question “Delhi knows that Europe could significantly boost India’s capacity to influence future outcomes in the Indo-Pacific. It would also be a valuable complement to India’s Quad coalition”. Comment.

    Conclusion

    It was Russia that defined India’s discourse on the multipolar world after the Cold War. Today, it is Europe — with its much greater economic weight, technological strength, and normative power — that promises to boost India’s own quest for a multipolar world and a rebalanced Indo-Pacific.

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  • Explained: Patrolling Points along LAC

    The standoffs between Indian and Chinese troops in Ladakh on the Line of Actual Control (LAC), where initial steps towards disengagement have taken place, are around a number of patrolling points or PPs in Galwan, Hot Springs and Gogra areas.

    What exactly are Patrolling Points?

    • PPs are patrolling points identified and marked on the LAC, which are patrolled with a stipulated frequency by the security forces.
    • They serve as a guide to the location of the LAC for the soldiers, acting as indicators of the extent of ‘actual control’ exercised on the territory by India.
    • By regularly patrolling up to these PPs, the Indian side is able to establish and assert its physical claim about the LAC.

    Are all the Patrolling Points numbered?

    • Some of the PPs are prominent and identifiable geographical features, such as a pass, or a nala junction where no numerals are given.
    • Only those PPs, where there are no prominent features, are numbered as in the case of PP14 in Galwan Valley.

    Are all on the Patrolling Points bang on the LAC?

    • Mostly, yes. Except for the Depsang plains in northern Ladakh, where PP10, PP11, PP11A, PP12 and PP13 – from Raki Nala to Jivan Nala – do not fall on the LAC.
    • These are short of the LAC, on the Indian side.

    Are these Patrolling Points not manned?

    • The PPs are not posts and thus not manned.
    • Unlike on the Line of Control (LoC) with Pakistan, the border with China is not physically held by the Army all along.
    • They are just physical markers on the ground, chosen for their location and have no defensive potential or tactical importance for the Army.

    If the Patrolling Points are not manned, how is the claim actually asserted?

    • The claim is asserted by the Army or joint Army-ITBP patrols as they show more visible presence in these areas.
    • This is done by physically visiting PPs with a higher frequency, as the deployment has moved closer to the LAC and due to improved infrastructure.
    • As the Chinese may not see when the Indian patrols visit these PPs, they will leave come cigarette packets or food tins with Indian markings behind.
    • That lets the Chinese know that Indian soldiers had visited the place, which indicates that India was in control of these areas.

    Who has given these Patrolling Points?

    • These PPs have been identified by the high-powered China Study Group, starting from 1975 when patrolling limits for Indian forces were specified.
    • It is based on the LAC, after the government accepted the concept in 1993, which is also marked on the maps with the Army in the border areas.
    • But the frequency of patrolling to PPs is not specified by the CSG – it is finalised by the Army Headquarters in New Delhi, based on the recommendations made by the Army and ITBP.

    What is this frequency?

    • The frequency of reaching various PPs are given in the annual patrolling programme.
    • Based on the terrain, the ground situation and the location of the LAC, the duration for visiting each PP is specified – it can vary from once a month to twice a year.

    Major friction area: Hot Springs

    • Hot Springs lies in the Chang Chenmo River valley, close to Kongka La, a pass that marks the Line of Actual Control.
    • India’s Patrolling Point 15, it is not a launchpad for any offensive action though the area did see action before and during the 1962 war.
    • China’s unwillingness to pull back its platoon-sized unit from Hot Springs is a sign of the difficulties that lie in normalising the situation.
    • The PLA has traditionally had a major base east of Kongka La.
    • The pass also marks the border between two of China’s most sensitive provinces — Xinjiang to the north and Tibet to the south.

     

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  • Explained: Global Minimum Tax Deal

    A global deal to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation has been agreed by 136 countries.

    What is the news?

    • The OECD said four countries – Kenya, Nigeria, Pakistan and Sri Lanka – had not yet joined the agreement.
    • However, the countries behind the accord together accounted for over 90% of the global economy.

    Why a global minimum tax?

    • With budgets strained after the COVID-19 crisis, many governments want more than ever to discourage multinationals from shifting profits – and tax revenues – to low-tax countries.
    • Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions.
    • This has allowed companies to avoid paying higher taxes in their traditional home countries.
    • The minimum tax and other provisions aim to put an end to decades of tax competition between governments to attract foreign investment.

    How would a deal work?

    • The global minimum tax rate would apply to overseas profits of multinational firms with 750 million euros ($868 million) in sales globally.
    • Govts could still set whatever local corporate tax rate they want.
    • However, buif companies pay lower rates in a particular country, their home governments could “top up” their taxes to the 15% minimum, eliminating the advantage of shifting profits.
    • A second track of the overhaul would allow countries where revenues are earned to tax 25% of the largest multinationals’ so-called excess profit – defined as profit in excess of 10% of revenue.

    What happens next?

    • The next step is for finance ministers from the Group of 20 economic powers to formally endorse the deal, paving the way for adoption by G20 leaders at an end October summit.
    • Nonetheless, questions remain about the US position which hangs in part on a domestic tax reform the Biden administration wants to push through the US Congress.
    • The agreement calls for countries to bring it into law in 2022 so that it can take effect by 2023, an extremely tight timeframe given that previous international tax deals took years to implement.
    • Countries that have in recent years created national digital services taxes will have to repeal them.

    What will be the economic impact?

    • The OECD, which has steered the negotiations, estimates the minimum tax will generate $150 billion in additional global tax revenues annually.
    • Taxing rights on more than $125 billion of profit will be additionally shifted to the countries were they are earned from the low tax countries where they are currently booked.
    • Economists expect that the deal will encourage multinationals to repatriate capital to their country of headquarters, giving a boost to those economies.
    • However, various deductions and exceptions baked into the deal are at the same time designed to limit the impact on low tax countries like Ireland, where many US groups base their European operations.

    Back2Basics: Base Erosion and Profit Shifting (BEPS)

    • BEPS refers to corporate tax planning strategies used by multinationals to “shift” profits from higher-tax jurisdictions to lower-tax jurisdictions.
    • It thus “erodes” the “tax base” of the higher-tax jurisdictions.
    • Corporate tax havens offer BEPS tools to “shift” profits to the haven, and additional BEPS tools to avoid paying taxes within the haven.
    • It is alleged that BEPS is associated mostly with American technology and life science multinationals.

    Try this:

     

    Q.3) What are the factors that led to the demand of global minimum corporate tax? What will be its implications for India? (10 Marks)

     

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  • India-ASEAN FTA

    The Commerce and Industry Minister has called for a renegotiation of the India-ASEAN free trade agreement (FTA).

    Why such move?

    • The MCI aims to prevent its misuse by ‘third parties’ and remove trade restrictions as well as non-tariff barriers that he said had hurt Indian exports disproportionately since the pact was operationalized in 2010.
    • The focus needed to be on new rules to eliminate misuse ‘by third parties outside ASEAN’, the minister said, hinting at China.
    • India had to deal with several restrictive barriers on exports in the ASEAN region, particularly in the agriculture and auto sectors.

    About ASEAN

    • Members:
    • Officially the Association of Southeast Asian Nations, ASEAN is an economic union comprising 10 member states in Southeast Asia.
    • It promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration between its members and other countries in Asia.

    India-ASEAN Free Trade Agreement

    • The initial framework agreement for ASEAN–India Free Trade Area (AIFTA) was signed on 8 October 2003 in Bali, Indonesia.
    • The FTA came into effect on 1 January 2010.
    • The FTA had emerged from a mutual interest of both parties to expand their economic ties in the Asia-Pacific region.

    Background of the AIFTA

    • India’s Look East policy was reciprocated by similar interests of many ASEAN countries to expand their interactions westward.
    • After India became a sectoral dialogue partner of ASEAN in 1992, India saw its trade with ASEAN increase relative to its trade with the rest of the world.
    • Between 1993 and 2003, ASEAN-India bilateral trade grew at an annual rate of 11.2%, from US$2.9 billion in 1993 to US$12.1 billion in 2003.
    • Total Indian FDI into ASEAN from 2000 to 2008 was US$1.3 billion.

    Acknowledging this trend and recognising the economic potential of closer linkages, both sides recognised the opportunities to pave the way for the establishment of an ASEAN–India Free Trade Area (FTA).

    Structure of the AIFTA

    • The signing of the ASEAN-India Trade in Goods Agreement paves the way for the creation of one of the world’s largest FTAs – a market of almost 1.8 billion people with a combined GDP of US$2.8 trillion.
    • It sees tariff liberalisation of over 90 percent of products traded between the two dynamic regions, including the so-called “special products”.
    • The products include palm oil (crude and refined), coffee, black tea and pepper.

    Criticism

    While there are many benefits to the ASEAN-India FTA, there is concern in India that the agreement will have several negative impacts on the economy.

    • Opening-up its market: This FTA will allow them to increase the market access of their products.
    • No specific gains: It is criticised, however, that India will not experience as great an increase in market access to ASEAN countries as ASEAN will in India.
    • Export driven ASEAN: The economies of the ASEAN countries are largely export-driven. Considering India’s expansive domestic market, the ASEAN countries will look eagerly towards India as a home for its exports.
    • Huge trade deficit: Since the early 2000s, India has had an increasing trade deficit with ASEAN. It is feared that a gradual liberalisation of tariffs and a rise in imported goods into India will threaten several sectors of the economy.
    • Inaccessible Markets: As a dominant exporter of light manufacturing products, ASEAN has competitive tariff rates that make it difficult for India to gain access to the industry market in ASEAN countries.
    • Cheaper imports: The state of Kerala is an important exporter in the national export of plantation products. It fears that cheap imports of oil palm, rubber, coffee, and fish would lower domestic production, adversely affecting farmers and ultimately its economy.

     

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  • A strategy for India in a world that is adrift

    This article discusses new situations prompted by the tectonic shifts in India’s internal and external environment to take another look at India’s path to power in a world between orders.

    New global order: No Order

    • Multipolarity: The world is today adrift. We are neither in a bipolar Cold War nor in a multipolar world, though perhaps tending towards a world of several power centres.
    • Lack of cohesion: The lack of a coherent international response to the COVID-19 pandemic is proof of an absence of international order and of the ineffectiveness of multilateral institutions.
    • Climate ignorance: So is the ineffective international response to climate change and other transnational threats.

    What are the major shifts in global order?

    • Secular stagnation
    • Retreat from globalisation
    • Regionalisation of trade
    • Shifting balance of power
    • Rise of China and others
    • Structural China-United States strategic rivalry

    All above factors have shifted the geopolitical and economic centres of gravity from the Atlantic to Asia.

    Major Concerns

    • Chauvinism: Inequality between and within states has bred a narrow nationalism and parochialism.
    • Existential threats: We are entering a new polarised information age, and face ecological crises of the Anthropocene, making climate change an existential threat.

    Asia as the nucleus: With focus on China

    • Shift of focus by the US: Over the next decade we expect Asia to remain the cockpit of geopolitical rivalries, and that the US remains the most formidable power, though its relative power is declining.
    • China at the centre: China sees a window of opportunity but acts in a hurry, suggesting that she believes that window may close or is already closing due to push back from the West and others.

    China’s expansionism

    • China’s crowded geography constrains her both on land and at sea.
    • Hence it expects her profile and power to continue expanding, particularly in our periphery.
    • The result is likely continued friction, some cooperation, and quasi-adversarial relations between India and China, which others will take advantage of.
    • Overall, we do not expect conventional conflict between the great powers in Asia, though other forms and levels of violence and contention in the international system will rise, with Taiwan a special case.

    Opportunities in disguise for India

    • The uncertainty and changing geopolitical environment clearly pose considerable challenges to Indian policy.
    • However, it also throws up certain opportunities, enhancing our strategic options and diplomatic space, if we adjust policies internally and externally, particularly in the subcontinent.

    How can India reap the benefits?

    • Enhancing ties with the US: Increasing security congruence with the US could enable growing cooperation in fields significant for India’s transformation: energy, trade, investment, education and health.
    • Climate cooperation: Other areas in which India and the U.S. could increase cooperation are: climate change and energy, tech solutions for renewable energy, and on digital cooperation.
    • Neighbourhood first: Several middle powers like Sri Lanka, Bangladesh, Indonesia in the neighbourhood are now India’s natural partners.
    • Digital space: This time of transition between orders is also when new standards and norms are being developed, particularly in the digital space. India can and must be present at the creation.
    • Maritime cooperation: At sea, the balance is today more favourable to us than before, possibly more so than on the continent. India must bat for the creation of a Maritime Commission in IOR.

    Bottlenecks in India’s neighbourhood policy

    • Over securitisation of policy: towards our neighbours has driven trade underground, criminalised our borders.
    • Conducive environment for entry of China: This has enabled the large-scale entry of Chinese goods destroying local industry in the northeast.
    • Lack of self-strengthening: While lessening dependence on China, and seeking external balancing, our primary effort has to concentrate on self-strengthening.
    • Lack of socio-political enterprise: If there is one country which in terms of its size, population, economic potential, scientific and technological capabilities can match or even surpass China, it is India.

    Way forward for India

    (A) Bringing multipolarity in Asia.

    • The way forward should be based on the core strategic principles in Non-Alignment 2.0 which are still relevant: independent judgement, developing our capacities, and creating an equitable and enabling international order for India’s transformation.
    • Today’s situation makes India’s strategic autonomy all the more essential.

    (B) Making an issue-based coalition

    • India must adjust to changing circumstances. We have no choice but to engage with this uncertain and more volatile world.
    • One productive way to do so would be through issue-based coalitions including different actors, depending on who has an interest and capability.

    (C) Reviving SAARC

    • India must craft and reinvigorate regional institutions and processes in the neighbourhood, reviving the South Asian Association for Regional Cooperation (SAARC) for instance.
    • India could be the primary source of both prosperity and security in the neighbourhood — the subcontinent and the Indian Ocean Region.

    Conclusion

    • Economic policy must match political and strategic engagement.
    • Globalisation has been central to India’s growth.
    • A more active regional and international role for India is incompatible with a position on the margins of the global economy.
    • Self-reliance in today’s world and technologies can only be realised as part of the global economy.
    • We should not imitate China’s claims to being a civilisational state and its adoption of victimhood.
    • Instead, we should affirm our own strength and historic national identity.

     

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