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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • The way forward on 5G

    Context

    The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.

    About 5G

    • 5G is the 5th generation mobile network.
    • It is a new global wireless standard after 1G, 2G, 3G, and 4G networks.
    • 5G can be significantly faster than 4G, delivering up to 20 Gigabits-per-second (Gbps) peak data rates and 100+ Megabits-per-second (Mbps) average data rates.
    • 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.
    • 5G wireless technology is meant to deliver higher multi-Gbps peak data speeds, ultra low latency, more reliability, massive network capacity, increased availability, and a more uniform user experience to more users.
    • Higher performance and improved efficiency empower new user experiences and connects new industries.
    • With high speeds, superior reliability and negligible latency, 5G will expand the mobile ecosystem into new realms.
    • 5G will impact every industry, making safer transportation, remote healthcare, precision agriculture, digitized logistics — and more — a reality.

    India’s telecom sector: From monopoly to hyper-competition to duopoly

    • India’s telecom market has seen monopoly as well as hyper-competition.
    • Twenty-five years ago, the government alone could provide services.
    • Technology and deregulation: In the following years, the combined forces of technology and deregulation helped break the shackles of public sector dominance despite the latter’s stiff resistance
    • In the following years, there were nearly a dozen competing operators. Most service areas now have four players.
    • However, the possible exit of the financially-stressed Vodafone Idea would leave only two dominant players-Airtel and Jio in the telecom sector.
    • A looming duopoly, or the exit of a global telecommunications major, are both worrying.
    • They deserve a careful and creative response.

    Government package for telecom sector to prevent duopoly

    • The near-death of competition signalled by the incipient exit of Vi late last year pushed the Department of Telecommunications (DoT) to announce steps to prevent the premature exit of a sagging operator.
    • As a part of its support package for the telecom sector, in October 2021, it dispensed with the requirement of performance bank guarantees required earlier as security.
    • It increased the tenure of spectrum holding from 20 to 30 years.
    • It allowed for the surrender of the unutilised or underutilised spectrum after 10 years.
    • Most importantly removed the levy of spectrum usage charges. 

    Why competitive telecom market is important?

    • Key to achieving digital ambitions: A competitive telecom sector is fundamental to realising India’s digital ambitions.
    • Innovation: Monopolies have no incentive to innovate.
    • Investment: The competition will guarantee that operators find it attractive to invest in network infrastructure upgradation and offer consumers a wide range of innovative service options.
    • Source of revenue: A competitive telecom sector would be an indirect source of tax revenue as well.
    • How to make market competitive? Competition cannot be willed into the sector.
    • It needs careful nurturing, assiduous fostering and regulatory neutrality. 

    Way forward on 5G

    • Structural changes: While the package may have prevented the exit of Vi from the market, to embed competition within the sector, structural changes are necessary.
    • The imminent 5G networks demand massive investment and sophistication of operations.
    • 1] Level playing field: This will not be achieved unless the playing field is level across the relevant operators and honest incentives are provided to operators to embrace new technology.
    •  2] Change the spectrum allocation method: There is no doubt that spectrum auctions have served India well in the past due to the acrimonious political economy associated with administrative spectrum assignment, including First Come First Serve (FCFS) method.
    • The auction regime worked well when demand exceeded supply, but if there is an adequate quantity of spectrum for everyone, that constraint would not exist.
    • Administrative assignments can thus be considered once again.
    • 3] Administrative assignments:  An administrative assignment will include the possibility that all spectrum can be assigned at reasonable prices and in the process, a grand bargain can be struck with telecom operators.
    • 4] Assigning 5G spectrum for private enterprise business: TRAI and the Digital Communications Commission (DCC) are considering whether 5G spectrum should be assigned to companies like TCS, Amazon and Google, among others, for their private enterprise business.
    • 5G spectrum assignment for enterprises would adversely affect the business model of telcos.
    • But there will be enterprises that telcos could serve that are not large enough to purchase 5G spectrum.
    • A grand bargain that allows enterprises to buy 5G spectrum while assigning spectrum to the existing telcos through the administrative route will also serve the revenue needs of the government.
    • 5] Privatise public sector operator: This is an opportunity to also signal to the public sector operator that 5G business is outside the range of its capability set.
    • Hence like Air India it needs to be privatised in the fullness of time.
    • These are difficult decisions and will need much more political will than in 1994.

    Consider the question “Why a competitive telecom market is a prerequisite for achieving India’s digital dream and why an eminent duopoly in the sector stands to threaten that dream? Suggest way forward.”

    Conclusion

    It would be tragic if India’s telecom-access market was to be reduced to only two competing operators, as we have a long way to go. What we need is structural changes in the sectors as well as the way the sector is regulated.

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    Back2Basics: Spectrum usage charges

    • Companies had to pay 3-5 per cent of their adjusted gross revenue (AGR) as spectrum usage charge to the department of telecom.
    • If they share spectrum with another operator, operators must pay an additional 0.5 per cent of AGR for that band as SUC.
    • However, in September 2021, the Department of Telecommunications (DoT) decided to remove the floor rate of 3% of the adjusted gross revenue (AGR) for operators to pay their spectrum usage charge (SUC).
    • The removal of the clause fixing a floor rate of 3% was done to give effect to the recently announced telecom relief package.
    • Though the telecom package talks of scrapping SUC only on spectrum acquired in future auctions like that of 5G, if the 3% floor is abolished, as and when operators acquire more spectrum in future auctions, their SUC will become zero on the entire holding.
    • This is because of a complex weighted average formula to calculate the SUC of operators who have a mix of administratively allocated spectrum and acquired through auctions.

  • What is a Not-for-Profit Company?

    The Enforcement Directorate (ED) has summoned Rahul Gandhi and Sonia Gandhi following a trial court order in a tax assessment case of his not-for-profit company.

    What is the case?

    • A case alleged cheating and misappropriation of funds on part of the leaders in acquiring the newspaper.
    • The alleged persons acquired it through a Section 25 company — in which they have 86% stake.

    What is a Section 25 company?

    • It is defined under the Companies Act, 1956.
    • It is a not-for-profit charitable company.
    • It is formed with the sole object of promoting commerce, art, science, religion, charity, or any other useful object.
    • It intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members
    • Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare and protection of the environment among others.

    Fiscal activities allowed

    • While it could be a public or a private company, a Section 25 company is prohibited from payment of any dividend to its members.
    • Section 25 states that by its constitution the company is required/ intends to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members.

    What are prominent examples of such companies?

    • According to details available with the Ministry of Corporate Affairs, a large number of companies have been formed under the Section.
    • Among these are Reliance Foundation, Reliance Research Institute, Azim Premji Foundation, Coca Cola India Foundation, and Amazon Academic Foundation.

    Why are such companies formed?

    • Most people looking to form a charitable entity go for forming a company under Section 25, now Section 8, rather than a Trust structure.
    • This is because most foreign donors like to contribute to a company rather than Trust because they are more transparent and provide more disclosures.
    • If a company has to be converted into a not-for-profit company, they can’t be converted into a Trust, however, they can be converted into a Section 25/ Section 8 company.

     

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  • Unicorn boom in India

    Prime Minister has praised India’s startup ecosystem as he highlighted that the country has reached a landmark figure of 100 unicorns with a valuation of more than $300 billion.

    What is a Unicorn Startup?

    • Unicorns are privately held, venture-capital-backed startups that have reached a value of $1 billion.
    • The valuation of unicorns is not expressly linked to their current financial performance.
    • This is largely based on their growth potential as perceived by investors and venture capitalists who have taken part in various funding rounds.

    Some of the successful Indian unicorns:

    • Lenskart
    • Cred
    • Meesho
    • PharmEasy
    • Licious
    • Grofers etc.

    When was the term first used?

    • American venture capitalist Aileen Lee is credited with coining the term in 2013.
    • It was used to emphasize the rarity of the emergence of such startups.

    Unicorn boost in India

    • The growth of Unicorns in India has been phenomenal in the past two years.
    • From 17 Unicorns in 2018 the number went up to 38 in 2020 and it’s 71 and counting in 2021.
    • Many of these unicorns, which have cumulatively raised more than 9 billion dollars till date, have also seen a surge in valuations.

    Features of a unicorn Start-up

    To be a unicorn is no cakewalk and each unicorn today has its own story with a list of features that worked in its favour.

    The few pointers that are commonly seen across all the unicorns is as under:

    • Disruptive innovation: Mostly, all the unicorns have brought a disruption in the field they belong to. Uber, for example, changed the way people commuted.
    • ‘Firsts’: It is seen that unicorns are mostly the starters in their industry. They change the way people do things and gradually create a necessity for themselves.
    • High on tech: Another common trend across unicorns is that their business model runs on tech. Uber got their model accepted by crafting a friendly app.
    • Consumer-focused: Often, theirgoal is to simplify and make things easy for consumers and be a part of their day-to-day life.
    • Affordability: Keeping things affordable is another key highlight of these startups. Spotify, for example, made listening to music easier to the world.
    • Privately owned: Most of the unicorns are privately owned which gets their valuation bigger when an established company invests in it.
    • *Mostly software based: A recent report suggests that 87% of the unicorns’ products are software, 7% are hardware and the rest 6% are other products & services.

    Entrepreneurship today is ‘survival-driven’ self-employment, formed out of necessity, as well as opportunity motivated, largely because poverty and lack of formal employment opportunities rear their ugly head in striving economies.

    Reasons for sudden success

    • COVID pandemic: The pandemic accelerated adoption of digital services by consumers helping start-ups and new-age ventures that typically build tech-focused businesses delivering an array of offerings to customers.
    • Boost in online services: Many Indians who had traditionally been subscribers of brick-and-mortar businesses moved online and explored a host of services ranging from food delivery and edu-tech to e-grocery.
    • Work-from-home culture: This added significant numbers to start-ups’ user base and expedited their business expansion plans and attracting investors.

    Inherent challenges to Start-ups in India

    • Financial scarcity: Availability of finance is critical for the startups and is always a problem to get sufficient amounts.
    • Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks etc.
    • Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge.
    • Compliance hurdles: For example, earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies.
    • Low success rate: Several startups fail due to shifting away the focus on the fundamentals of business grows.
    • Lack of an Innovative Business Model: To be successful a start-up must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere.
    • Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India.
    • Digital divide: The majority of Indians who live in rural areas and small towns remain untouched by most startups.

    Various initiatives by the Govt.

    There are numerous government initiatives to assist start-ups:

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

    Roadmap for the future success of start-ups

    Start-ups can judiciously take cues from unicorns in understanding the ecosystem and building a business model that adds value while being sustainable.

    • New-age startups should devise a customer-centric business model.
    • Through proper branding and strategy, they should make sure that this value proposition reaches the end-user.
    • What brings startups closer to success is the execution and customer acquisition strategy, where all the action occurs.
    • Notably, technology (rather deep-technology) has played a key role in the making of pioneer business models.

    Attracting venture capitalists

    • VCs are actively looking for investment opportunities in early-stage startups.
    • They possess the selection ability to effectively screen startups having a higher potential to succeed.
    • VCs primarily look for a mindset alignment with promoters and companies where they, as investors, can add value by leveraging their industry experience, expertise, network and reputation.

    Conclusion

    • The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
    • The word ‘unicorn’ has come a long way from just being a mythological creature to a regular feature in business and finance discussions.
    • Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
    • The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm to arrest this talent.

     

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  • Global Chip Shortage and Related Issues

    CEOs of AMD, Nvidia and Intel have said at different forums last year that the chip situation will remain tight for the rest of 2022.

    Genesis of shortage

    • After reaching its peak in 2011, the laptop market growth slowed down with the rise of alternatives such as smartphones and tablets.
    • Then, the pandemic hit.
    • People switched to work from home, children connected to schools through laptops, and get-togethers happened over video calls.
    • This shift led to a surge in demand for laptops and tablets.
    • The stay-at-home rules also made several people pick up console-based learning and gaming.
    • Each of these devices were in high demand and are run on thumbnail-sized semiconductors, performing various functions on a single device.

    Also read:

    [Sansad TV] Perspective: Semiconductor Industry & India

    What led to the production anomaly?

    • Manufacturers produce them as 200mm or 300mm wafers. These are further split into lots of tiny chips.
    • While the larger wafers are expensive and mostly used for advanced equipment, the devices that were in high demand needed smaller diameter wafers.
    • But the manufacturing equipment needed to make them were in short supply even before the pandemic began.
    • Industry is moving in the direction of 5G and advanced communication, which requires expensive wafers.
    • High consumer demand for low-end products, coupled with large orders from tech firms chocked chip makers whose factories were also closed during lockdowns.
    • As the industry gradually tried to pull itself out of the supply crunch, and logistical complexities have exacerbated the problem.

    Impact of Ukrainian War

    • Separately, Russia’s invasion of Ukraine has strained exports of essential commodities used to make chip sets.
    • Moscow supplies rare materials like palladium, and Kyiv sells rare gases to make semiconductor fab lasers.
    • This combination is required to build chipsets that power a range of devices, from automobiles to smartphones.

    Global supply chain

    • About a decade and half back, semiconductors barely drew attention from large companies that have now come to rely on the thumbnail-sized semiconductor piece.
    • During this period, firms developed a system to make chip sets.
    • The system was made by interconnecting several parts of the world to make a single device.
    • It is what we now call as the global supply chain.

    How intricate is this network?

    • Semiconductor manufacturing involves roughly 25 countries in the direct supply chain, and 23 countries in allied functions, according to a joint study by Global Semiconductor Alliance and Accenture.
    • The report estimates a semiconductor-based product could cross international borders about 70 times before finally making it to the end customer.
    • Wafer fabrication is the most globally dispersed, with 39 countries directly involved in the supply chain and 34 involved in allied activity.
    • They provide services like photolithography, etching and cleaning.
    • Designing happens across 12 countries; product testing and manufacturing each are done across 25 countries.

    COVID is the only raison d’être

    • Supply chain dynamics back fired due to the pandemic, and the recent geopolitical events.
    • When the pandemic began, carmakers stopped requesting chips from suppliers due to low demand for new vehicles.
    • And now, as they ramp up production to meet consumer demand, chip makers are down on supply because they have cut deals with other industries.
    • As the geopolitical events in Central Europe and production shutdowns in China continue to add pressure to the already complicated semiconductor supply chain.

     

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  • FDI inflow ‘highest ever’ at $83.57 bn

    The foreign direct investment (FDI) in the financial year 2021-22 has touched a “highest-ever” figure of $83.57 billion.

    Get aware with the recently updated FDI norms. Key facts mentioned in this newscard can make a direct statement based MCQ in the prelims.

    Ex. FDI source in decreasing order: Singapore – Mauritius – Netherland – Ceyman Islands – Japan – France

    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 is thus distinguished from a foreign portfolio investment by a notion of direct control.
    • FDI may be made either “inorganically” by buying a company in the target country or “organically” by expanding the operations of an existing business in that country.
    • Broadly, FDI includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans”.
    • In a narrow sense, it refers just to building a new facility, and lasting management interest.

    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.

    Features of FDI

    • Any investment from an individual or firm that is located in a foreign country into a country is FDI.
    • Generally, FDI is when a foreign entity acquires ownership or controlling stake in the shares of a company in one country, or establishes businesses there.
    • It is different from foreign portfolio investment where the foreign entity merely buys equity shares of a company.
    • In FDI, the foreign entity has a say in the day-to-day operations of the company.
    • FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise.
    • It is a major source of non-debt financial resources for the economic development of a country.

    Significance of rising FDI

    • This is a testament of India’s status among global investors.

    Recent amendments in 2020

    • 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:

    Present 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.

    In response to China

    • China accused that India’s recently adopted policy goes against the principles of the World Trade Organisation (WTO).
    • It tends to violate WTO’s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment.

     

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  • What is Pravaig Field Pack?

    A Bengaluru-based venture has produced a rugged tactical battery that it is now planning to sell to the North Atlantic Treaty Organisation (NATO) forces in Europe.

    Pravaig Field Pack

    • It is a heavy-duty power bank that is portable and weighs 14 kilograms.
    • It is of great utility to the digitally connected modern military and Special Forces personnel who have to operate in high-risk zones while using gadgets that require constant power back-up.
    • These batteries are designed, engineered and made in India.
    • The field pack can be used to charge a MacBook 60 times.

    Significance of Pravaig

    • This supply marks a major shift in the defense landscape of India — a tipping point in the reversal of India’s high technology defense industry, from users to developers, from importers to exporters.
    • The field pack can be used to energize a military person’s field duties and it can be used to deploy remote sensors.
    • A powerful tactical battery can be used even to operate larger military equipment such as drones and it can even help coordinate tactical operations which involve multiple weapons systems.

     

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  • India’s U-turn on Wheat Exports

    The Union commerce ministry was preparing to send delegations abroad to boost the country’s wheat exports, when the government abruptly banned its exports on 14 May.

    Why did India ban the export of wheat?

    • Record retail inflation has punctured India’s export hopes.
    • While wheat prices are up nearly 20%, prices of essential food items such as flour have risen nearly 15% last year.
    • Prices of other food items that use wheat, like bread and biscuits, have surged, too.
    • Heatwaves in the latter part of March, especially in northwest India, impacted the production of foodgrains.

    Is India staring at a food shortage?

    • India’s grain stocks are well above the buffer levels and the decision to regulate wheat exports was taken largely to check prices and curb hoarding.
    • The public distribution system in the country would be run smoothly.
    • However, the government has replaced wheat with rice in the Pradhan Mantri Garib Kalyan Yojana scheme for 2022-23.
    • The effort clearly is a response to the reduced availability of wheat.

    What has been the global reaction to the ban?

    • Agriculture ministers from G7 condemned India’s decision to withhold wheat exports amid a global grain shortage.
    • India is the world’s second-largest wheat producer and was expected to fill the gap created because of the Ukraine war.
    • However, wheat exports will be allowed in cases where an irrevocable letter of credit has already been issued.

    How will the ban affect India’s neighbors?

    • The export control will help India guide wheat trade in a certain direction.
    • Even with the ban, there is a window open for neighbouring countries.
    • The export will be allowed to other countries “based on the request of their governments”.
    • This window is crucial for Sri Lanka because the country is facing an economic crisis.
    • Also, Bangladesh and Nepal have traditionally relied on Indian wheat.

    What is the impact on farmers and traders?

    • The ban has deprived Indian wheat traders the opportunity to gain from the global grain shortage.
    • It may have an unfavorable impact on wheat farmers too.
    • Market prices of wheat had soared past the minimum support price (MSP) in recent months.

    Issues with the ban

    • This ban has impacted the credibility of India as a reliable supplier of anything in global markets.
    • It conveys that we don’t have any credible export policy as it can turn its back at the drop of a hat.
    • More interestingly, it also reflects a deep-rooted consumer bias in India’s trade policies.
    • It is this consumer bias that indirectly becomes anti-farmer. This ban deprives farmers from profit-making.
    • It only shows the hollowness of agri-trade policies and dreams of doubling agri-exports.
    • The export ban also reflects poorly on India’s image in playing its shared global responsibility amid the Russia-Ukraine war.

    Way forward

    • It may be recognised that inflation is a global phenomenon today caused by excessive liquidity injected by central banks and loose fiscal policies around the world.
    • India’s wheat export ban will not help tame inflation at home.
    • The Government could have announced a bonus of Rs 200-250/quintal on top of MSP to augment its wheat procurement.
    • The govt could have calibrated exports by putting some minimum export price (MEP).

    Back2Basics:

    How the Central and State governments procure Wheat?

     

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  • What is the Xiaomi Scam?

    Last week, the Enforcement Directorate had seized Rs 5551.27 crore ($725 million) from the local bank accounts of the Chinese smartphones company, Xiaomi.

    Unfolding the Xiaomi Scam

    • Xiaomi faces charges of having made illegal remittances to foreign entities by passing them off as royalty payments.
    • It is a charge that Xiaomi has been continuously facing in India.
    • The ‘royalty and licence fee’ paid by Xiaomi India were not being added to the transaction value of the goods imported by the company and its contract manufacturers.
    • By not adding “royalty and licence fee” into the transaction value, Xiaomi was evading Customs duty.

    What is the recent probe?

    • The Enforcement Directorate has seized the bank account assets from Xiaomi Technology India, under the provisions of Foreign Exchange Management Act (FEMA.
    • The company had remitted over Rs 5500 crore to foreign-based entities, including one Xiaomi group entity, in the guise of royalty payments.
    • Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities.

    Xiaomi’s response

    • Xiaomi, for its part, said that it is committed to working closely with government authorities to clarify any misunderstandings.
    • It argued that the royalty payments and statements to the bank are all legit and truthful and were made for the in-licensed technologies and IPs used in our Indian version products.
    • It is a legitimate commercial arrangement for Xiaomi India to make such royalty payments.
    • But it is a typical corporate response, something on the lines that Xiaomi did on the previous occasion too.

    How has China responded?

    • China firmly support its companies in protecting their lawful rights and interests.
    • It urged India to provide a fair, just and non-discriminatory business environment for Chinese companies making investment and operating in the country.
    • It is visible that China has made a dovish statement as they usually do.
    • Xiaomi now has alleged its top executives faced threats of “physical violence” and coercion during questioning by ED.

    Indian govt on strong wicket

    • Indian governmental authorities have made it clear that the Chinese companies were not being targeted.
    • And financial misdemeanours had indeed been committed by these companies.
    • The government has also explained the various cases in details and what it has seized so far.
    • But the Chinese companies seem to be playing the victim card.

    Back2Basics: Directorate of Enforcement (ED)

    • ED is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime (esp Money Laundering) in India.
    • It is part of the Department of Revenue of the Ministry of Finance.
    • It is composed of officers from the Indian Revenue Service, Indian Police Service and the Indian Administrative Service as well as promoted officers from its own cadre.
    • The total strength of the department is less than 2000 officers out of which around 70% of officials came from deputation from other organizations while ED has its own cadre, too.
    • The prime objective of the Enforcement Directorate is the enforcement of two key Acts namely:
    1. Foreign Exchange Management Act 1999 (FEMA) and
    2. Prevention of Money Laundering Act 2002 (PMLA)

     

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  • LIC

    Context

    LIC is now at a transformational moment. Its listing on the bourses should lift LIC to be a part of the elite corporate community in India.

    Insurance sector in India

    • Opening of the insurance sector: A milestone in the history of India’s insurance industry was the opening of the sector for private participation in the year 2000 and this caused widespread concern that LIC will find the competition tough and could very well be marginalised.
    • Today, there are 24 private players in the life insurance space and many of them have foreign collaborations.
    • LIC has steadily grown in the past six decades and today with over 290 million policyholders and an asset value of ₹38 lakh crore ($520 billion), it ranks as one of the largest insurance companies in the world.
    • Yet, LIC remains a colossus capturing 75% of the life insurance business in the country.
    • Its claim settlement at 99.87% is far above the industry average of 84%.

    Role of LIC in skilling and women’s employment

    • LIC created large scale employment for women right from its inception in 1956. 
    • Thousands of women became LIC agents in the 1950s and 60s, when job opportunities were scarce.
    • There was no entry barrier in terms of age or fixed time for work.
    • Education requirement was a mere high school pass.
    • Many of these women were housewives who could earn an extra income by selling LIC policies.
    • This was a period before the arrival of digital technologies and mobile phones.
    • Skill development program: LIC’s training programme with its mix of online education and real-life case studies offer the best model for India’s skill development programmes.
    •  LIC’s relevance comes from its track record of creating vast number of employment opportunities for ordinary Indians, male and female, urban and rural.

    Policies focused on savings

    • In a country of vast poverty and low income, LIC recognised from the beginning that it cannot sell insurance as a risk cover on premature death.
    • It, therefore, devised policies focussing on savings and the need for children’s education and daughter’s marriage which are fundamentals to family values in India.
    • These policies also ensured that a part of the premium paid was returned at regular intervals before the maturity period, providing liquidity for emergencies.
    • They simultaneously covered risk caused by death.
    • People-centric approach: While the private players concentrated on technology-driven marketing, LIC’s approach was significantly people-centric.
    • When Pradhan Mantri Jan Dhan Yojana was launched for financial inclusion of over 300 million of the rural population on August 15, 2014, LIC was already there with its policies covering a rural population of 200 million.

    Conclusion

    The nation must not forget the fact that LIC was built on sweat and tears, pain and sacrifice of ordinary Indians. It is these democratic credentials that remain LIC’s most valuable asset.

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  • Recent woes of the jute industry in West Bengal

    Member of Parliament (MP) from Barrackpore constituency in West Bengal met the Union Textile about issues concerning jute farmers, workers and the overall jute industry.

    What is the news?

    • The Barrackpore MP had earlier written to West Bengal CM, seeking her intervention into the “arbitrary decision” of capping the price for procuring raw jute from the mills.
    • He was referring to the Office of the Jute Commissioner (JCO)’s September 30 notification mandating that no entity would be allowed to purchase or sell raw jute at a price exceeding ₹6,500 per quintal.

    What is Jute?

    • Jute is the only crop where earnings begin to trickle in way before the final harvest.
    • The seeds are planted between April and May and harvested between July and August.
    • The leaves can be sold in vegetable markets for nearly two months of the four-month jute crop cycle.
    • The tall, hardy grass shoots up to 2.5 metres and each part of it has several uses.
    • The outer layer of the stem produces the fibre that goes into making jute products.
    • But the leaves can be cooked, the inner woody stems can be used to manufacture paper and the roots, which are left in the ground after harvest, improve the yield of subsequent crops.
    • A ‘Golden Fibre Revolution’ has long been called for by various committees, but the jute industry is in dire need of basic reforms.

    Jute production in India

    • India is the world’s biggest producer of jute , followed by Bangladesh.
    • Jute is primarily grown in West Bengal, Odisha, Assam, Meghalaya, Tripura and Andhra Pradesh.
    • The jute industry in India is 150 years old.
    • There are about 70 jute mills in the country, of which about 60 are in West Bengal along both the banks of river Hooghly.
    • Jute production is a labour-intensive industry. It employs about two lakh workers in the West Bengal alone and 4 lakh workers across the country.

    Significance of Jute

    • Compared to rice, jute requires very little water and fertiliser.
    • It is largely pest-resistant, and its rapid growth spurt ensures that weeds don’t stand a chance.
    • Jute is the second most abundant natural fibre in the world.
    • It has high tensile strength, acoustic and thermal insulation, breathability, low extensibility, ease of blending with both synthetic and natural fibres, and antistatic properties.
    • Jute can be used: for insulation (replacing glass wool), geotextiles, activated carbon powder, wall coverings, flooring, garments, rugs, ropes, gunny bags, handicrafts, curtains, carpet backings, paper, sandals, carry bags, and furniture.

    Why in news now?

    • Mills are now procuring raw jute at prices higher than what they are selling them at after processing.
    • The government has a fixed Minimum Support Price (MSP) for raw jute procurement from farmers, which is ₹4,750 per quintal for the 2022-23 season.
    • However, as the executive stated, this reached his mill at ₹7,200 per quintal, that is, ₹700 more than the ₹6,500 per quintal cap for the final product.
    • Though the Union government has come up with several schemes to prevent de-hoarding, the executive believes the mechanism requires a certain “systematic regulation”.

    What happened to supply?

    • What made the situation particularly worrisome recently was the occurrence of Cyclone Amphan in May 2020 and the subsequent rains in major jute producing States.
    • These events led to lower acreage, which in turn led to lower production and yield compared to previous years.
    • Additionally, as the Commission for Agricultural Costs and Prices (CACP) stated in its report, this led to production of a lower quality of jute fibre in 2020-21 as water-logging in large fields resulted in farmers harvesting the crop prematurely.
    • Acreage issues were accompanied by hoarding at all levels – right from the farmers to the traders.

    Where does India stand in comparison to Bangladesh?

    • As per the Food and Agriculture Organisation (FAO), India is the largest producer of jute followed by Bangladesh and China.
    • However, in terms of acreage and trade, Bangladesh takes the lead accounting for three-fourth of the global jute exports in comparison to India’s 7%.
    • This can be attributed to the fact that India lags behind Bangladesh in producing superior quality jute fibre due to infrastructural constraints and varieties suitable for the country’s agro-climate.
    • Further, as the CACP report stated, Bangladesh provides cash subsidies for varied semi-finished and finished jute products.
    • Hence, the competitiveness emerges as a challenge for India to explore export options in order to compensate for the domestic scenario.

    What is at stake?

    • The jute sector provides direct employment to 3.70 lakh workers in the country.
    • It supports the livelihood of around 40 lakh farm families, closure of the mills is a direct blow to workers and indirectly, to the farmers whose production is used in the mills.
    • West Bengal, Bihar and Assam account for almost 99% of India’s total production.

     

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