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

  • [pib] Authorised Economic Operators

    Central Board of Indirect Taxes & Customs (CBIC) has inaugurated the online filing of Authorised Economic Operators (AEO) T2 and T3 applications.

    Who are Authorised Economic Operators?

    • The AEO concept is one of the main building blocks within the WCO SAFE Framework of Standards (SAFE).
    • The latter is part of the future international Customs model set out to support secure trade.
    • The growth of global trade and increasing security threats to the international movement of goods have forced customs administrations to shift their focus more and more to securing the international trade flow and away from the traditional task of collecting customs duties.
    • Recognizing these developments, the World Customs Organization, drafted the WCO Framework of Standards to Secure and Facilitate global trade (SAFE).
    • In the framework, several standards are included that can assist Customs administrations in meeting these new challenges.
    • Developing an Authorized Economic Operator programme is a core part of SAFE.

    AEOs in India

    • AEO is a voluntary programme.
    • It enables Indian Customs to enhance and streamline cargo security through close cooperation with the principal stakeholders of the international supply chain viz. importers, exporters, logistics providers, custodians or terminal operators, customs brokers and warehouse operators.

    Back2Basics: World Customs Organization (WCO)

    • WCO is an intergovernmental organization headquartered in Brussels, Belgium.
    • The WCO is noted for its work in areas covering international trade facilitation, customs enforcement activities, combating counterfeiting in support of Intellectual Property Rights (IPR), drugs enforcement, illegal weapons trading, integrity promotion, and delivering the sustainable capacity building to assist with customs reforms and modernization.
    • The WCO represents 179 Customs administrations that collectively process approximately 98% of world trade.
    • As the global centre of Customs expertise, the WCO has the tools and expertise to assist implementation of all legal, policy, procedural, technological, and human resource aspects related to trade facilitation.
    • The WCO maintains the international Harmonized System (HS) goods nomenclature and administers the technical aspects of the World Trade Organization (WTO) Agreements on Customs Valuation and Rules of Origin.

  • What is the Purchasing Managers’ Index (PMI)?

    India’s manufacturing industry has slid back to a decline in June, as per the IHS Markit Manufacturing Purchasing Managers’ Index (PMI).

    Purchasing Managers’ Index

    • PMI is an indicator of business activity — both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
    • The PMI is compiled by IHS Markit based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

    How is the PMI derived?

    • The PMI is derived from a series of qualitative questions.
    • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

    How does one read the PMI?

    • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
    • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
    • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

    What are its implications for the economy?

    • The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available.
    • It is, therefore, considered a good leading indicator of economic activity.
    • Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later.
    • Central banks of many countries also use the index to help make decisions on interest rates.

  • [pib] NATRAX: Asia’s longest and world’s fifth longest High-Speed Track

    Minister of Heavy Industries and Public Enterprises has inaugurated the 11.3 km NATRAX- the High-Speed Track (HST) in Indore which is the longest such track in Asia.

    NATRAX

    • NATRAX, developed in an area of 1000 acres of land is a one-stop solution for all sorts of high-speed performance tests for the widest categories of vehicles from 2 wheelers to heavy tractor-trailers.
    • It has multiple test capabilities like measurements of maximum speed, acceleration, constant speed fuel consumption.
    • It can conduct emission tests through real road driving simulation, high-speed handling and stability evaluation during manoeuvred such as lane change, high-speed durability testing, etc.
    • Also, it is a Centre of excellence for Vehicle Dynamics.

    Features of the HST

    • The vehicle can achieve a max speed of 375 Kmph on curves with steering control and it has less banking on ovals making it also one of the safest test tracks globally.
    • It is the one-stop solution for all sorts of high-speed performance tests, being one of the largest in the world.
    • It can cater to the widest category of vehicles; say from two-wheelers to the heaviest tractor trailers

    Its significance

    • HST is used for measuring the maximum speed capability of high-end cars like BMW, Mercedes, Audi, Ferrari, Lamborghini, Tesla and so forth which cannot be measured on any of the Indian test tracks.
    • Being centrally located in Madhya Pradesh, it is accessible to most of the major OEMs.
    • Foreign OEMs will be looking at NATRAX HST for the development of prototype cars for Indian conditions.
    • At present, foreign OEMs go to their respective high-speed track abroad for high-speed test requirements.

  • Privatisation of public sector enterprises in India

    The article suggests the privatisation of public sector enterprises by analysing their performance and devising strategy for privatisation accordingingly.

    Three categories of public sector enterprises

    1) Sick for long time and beyond redemption

    • There is the category of enterprises which have been sick for a long time.
    • Their technology, plants and machinery are obsolete. 
    • They should be closed, and assets sold.
    • The labour in these enterprises have had a political constituency which has prevented closure.

    What should be done with these enterprises?

    • The Government should close these in a time-bound manner with a generous handshake for labour.
    • After selling machinery as scrap, there would be valuable land left.
    • Prudent disposal of these plots of lands in small amounts would yield large incomes in the coming years.
    • All this would need the creation of dedicated efficient capacity as the task is huge and challenging.
    • These enterprises may be taken away from their parent line Ministries and brought under one holding company.
    • This holding company should have the sole mandate of speedy liquidation and asset sale.

    2) Financially troubled but can be turned around

    • Private management through privatisation or induction of a strategic partner is the best way to restore value of these enterprises.
    • Air India and the India Tourism Development Corporation (ITDC) hotels are good examples.

    What should be done with these enterprises?

    • Air India should ideally be made debt free and a new management should have freedom permitted under the law in personnel management to get investor interest.
    • As valuation rises, the Government could reduce its stake further and get more money.
    • If well handled, significant revenues would flow to the Government.

    3) Profitable enterprises

    • Pragmatism instead of ideology should guide thinking about them.
    • The Chinese chose to nurture their good state-owned enterprises as well as their private ones to succeed in the domestic and global markets by increasing their competitiveness in cost, quality, and technology.
    • The Chinese chose to promote both their public as well as their private sector enterprises to rise.
    • Both have made China the economic superpower that it is today.

    What should be done with profitable enterprises?

    • The Government can continue to reduce its shareholding by offloading shares and even reducing its stake to less than 51% while remaining the promoter and being in control.
    • Calibrated divestment to get maximum value should be the goal instead of being target driven to get a lower fiscal deficit number to please rating agencies.
    • In parallel, managements may be given longer and stabler tenures, greater flexibility to achieve outcomes, and more confidence to take well-considered commercial risks.

    Challenges

    • First, the number of Indian private firms which can buy out public sector firms are very few.
    • Their limited financial and managerial resources would be better utilised in taking over the large number of private firms up for sale through the bankruptcy process.
    • Then, these successful large corporates need to be encouraged to invest and grow both in brownfield and greenfield modes in the domestic as well as international markets.
    • Sale at fair or lower than fair valuations to foreign entities, firms as well as funds, has adverse implications from the perspective of being ‘Atma Nirbhar’.
    • Again, greenfield foreign investment is what India needs and not takeovers.
    • Public sector enterprises provide for reservations in recruitment.
    • With privatisation, this would end and unnecessarily generate social unrest.

    Conclusion

    Would it be in India’s interest to lose the strategic capacity that its ownership of public enterprises including financial ones provide it? It would be better to think carefully now.

  • MCA raises threshold of Small and Medium Companies

    The Ministry of Corporate Affairs has expanded the turnover and borrowing thresholds for Small and Medium-sized Companies (SMC), allowing a larger number of firms to benefit from reporting exemptions under accounting norms.

    What is the change?

    • The MCA has increased the turnover threshold for SMCs to Rs 250 crore from Rs 50 crore, and the borrowing threshold to Rs 50 crore from Rs 10 crore.
    • SMCs are permitted to avail a number of exemptions under the Company (Accounting Standards) Rule 2021 to reduce the complexity of regulatory filings for smaller firms.
    • Banks, financial institutions, insurance companies, and listed companies cannot be classified as SMCs.
    • Further, any company which is either the holding company or subsidiary of a company that is not an SMC cannot be classified as an SMC.

    What are the exemptions available to SMCs that are not available to other firms?

    • SMC are completely exempted from having to file cash flow statements and provide a segmental break up of their financial performance in mandatory filings.
    • SMCs can also avail partial reporting exemptions in areas including reporting on employee benefits obligations such as pensions.
    • SMCs are exempted from having to provide a detailed analysis of benefit obligations to employees, but are still required to provide actuarial assumptions used in valuing the company’s obligations to employees.
    • SMCs are also exempted from having to report diluted earnings per share in their filings.
    • Diluted earnings per share reflect the per-share earnings of a company assuming that all options to convert other securities into shares are exercised.

    Answer this PYQ in the comment box:

    Q. What is/ are the recent policy initiative(s) of the Government of India to promote the growth of the manufacturing sector?

    1. Setting up of National Investment and Manufacturing Zones.
    2. Providing the benefit of single window clearance.
    3. Establishing the Technology Acquisition and Development Fund.

    Select the correct answer using the codes given below:

    (a) 1 only

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

    How does this impact these firms?

    • Experts have noted that the move would promote ease of doing business for the firms that would now be included under the definition of SMC.
    • The Accounting Standards for SMC, which were notified in December 2006 and amended from time to time, are much simpler as compared to Indian Accounting Standards (Ind AS).
    • These accounting standards involve less complexity in their application, including the number of required disclosures being less onerous.
    • Ind AS standards are applied to larger firms and are largely similar to International Financial Reporting Standards (IFRS) used in most developed jurisdictions.

  • GIMAC: India’s first maritime arbitration centre

    The Gujarat Maritime University signed a Memorandum of Understanding (MoU) with the International Financial Services Centres Authority in GIFT City to promote the Gujarat International Maritime Arbitration Centre (GIMAC).

    What is GIMAC?

    • The GIMAC will be part of a maritime cluster that the Gujarat Maritime Board (GMB) is setting up in GIFT City at Gandhinagar.
    • The Maritime Board has rented about 10,000 square feet at GIFT House which is part of the Special Economic Zone (SEZ) area with clearance from the development commissioner.
    • This will be the first centre of its kind in the country that will manage arbitration and mediation proceedings with disputes related to the maritime and shipping sector.
    • The centre is expected to be ready by the end of August.

    Why is such a centre needed?

    • It is required because, for instance, the ship owners belong to a different country and the person leasing the ship is from another country.
    • Any dispute arising between them can be resolved within this centre.
    • There are over 35 arbitration centres in India. However, none of them exclusively deals with the maritime sector.
    • The arbitration involving Indian players is now heard at the Singapore Arbitration Centre.
    • The idea is to create a world-class arbitration centre focused on maritime and shipping disputes that can help resolve commercial and financial conflicts between entities having operations in India.
    • Globally, London is the preferred centre for arbitration for the maritime and shipping sector.

    What is the current status of the project?

    • The process of recruiting staff for the arbitration centre is currently underway.
    • A 10-member advisory board for GIMAC, consisting of international experts and professionals, has been created, which will help in the framing of rules for the arbitration centre and in empanelling arbitrators.

  • [pib] Guidelines for Other Service Providers (OSP)

    The Union Minister for Electronics & Information Technology has further liberalized the guidelines for Other Service Providers (OSPs).

    Do you remember quaternary and quinary sectors of Economy from NCERTs?

    What are OSPs?

    • These entities are business process outsourcing (BPO) organizations giving Voice based services, in India and abroad.
    • The term Business Process Outsourcing or BPO as it is popularly known, refers to outsourcing in all fields.
    • A BPO service provider usually administers and manages a particular business process for another company.
    • BPOs either use new technology or apply an existing technology in a new way to improve a particular business process.
    • India is currently the number one destination for business process outsourcing, as most companies in the US and UK outsource IT-related business processes to Indian service providers.

    Main features of the liberalized guidelines

    • Distinction between Domestic and International OSPs has been removed. A BPO centre with common Telecom resources will now be able to serve customers located worldwide including in India.
    • EPABX (Electronic Private Automatic Branch Exchange) of the OSP can be located anywhere in the world. OSPs apart from utilising EPABX services of the Telecom Service Providers can also locate their EPABX at third Party Data Centres in India.
    • With the removal of the distinction between Domestic and International OSP centres, the interconnectivity between all types of OSP centres is now permitted.
    • Remote Agents of OSP can now connect directly with the Centralised EPABX/ EPABX of the OSP/ EPABX of the customer using any technology including Broadband over wireline/ wireless.
    • No restriction for data interconnectivity between any OSP centres of same company or group company or any unrelated company.

  • Why is China targeting Cryptocurrencies?

    China’s crackdown against cryptocurrencies, which are those that aren’t sanctioned by a centralized authority and are secured by cryptography, is said to have a lot to do with the crashing of the value of cryptocurrencies.

    Background

    • The price of the world’s most prominent cryptocurrency Bitcoin has more than halved in the last two months after hitting a peak in mid-April.
    • The second-most valuable cryptocurrency, Ether, has seen a similar fall from its peak last month.

    What is Cryptocurrency?

    • A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers.
    • This decentralized structure allows them to exist outside the control of governments and central authorities.
    • The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.
    • Blockchains, which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.
    • Many experts believe that blockchain and related technology will disrupt many industries, including finance and law.
    • Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.

    What has China done?

    • In recent weeks, China has reportedly cracked down on crypto mining operations.
    • The country has over the years accounted for a large percentage of the total crypto mining activity that takes place.
    • In purpose, Bitcoin miners play a similar role to gold miners — they bring new Bitcoins into circulation.
    • They get these as a reward for validating transactions, which require the successful computation of a mathematical puzzle.
    • And these computations have become ever-increasingly complex, and therefore energy-intensive in recent years. Huge mining operations are now inevitable if one is to mine Bitcoins.

    Why is Crypto mining booming in China?

    • Access to cheap electricity has made mining lucrative in China.
    • According to the Cambridge Bitcoin Electricity Consumption Index, China accounted for nearly two-thirds of the total computational power last year.

    For an ‘unregulated’ market

    • Actually, there is little change in the policy as far as China is concerned. It first imposed restrictions on cryptocurrencies way back in 2013.
    • It then barred financial institutions from handling Bitcoin.
    • Four years later, it barred what are called initial coin offerings, under which firms raise money by selling their own new cryptocurrencies.
    • This is largely an unregulated market.

    What does China want?

    • An inter-ministerial committee report in India two years ago noted that in 2017, the government of China also banned trading between RMB (China’s currency renminbi) and cryptocurrencies.
    • Before the ban, RMB made up 90% of Bitcoin trades worldwide.
    • The fact that cryptocurrencies bypass official institutions has been a reason for unease in many governments.
    • Not just that. The anonymity that it offers aids in the flourishing of dark trades online.
    • While many countries have opted to regulate the world of cryptocurrencies, China has taken the strictest of measures over the years.
    • According to observers, the latest set of measures are to strengthen its monetary hold and also project its new official digital currency.

    For a digital Yuan

    • China launched tests for a digital yuan in March.
    • Its aim is to allow Beijing to conduct transactions in its own currency around the world, reducing dependency on the dollar which remains dominant internationally.

    Also read:

    Legalizing Bitcoin in El Salvador and takeaways for India

  • [pib] Amendments to the Consumer Protection (E-commerce) Rules, 2020

    For the purposes of preventing unfair trade practices in e-commerce, the Central Government had notified the Consumer Protection (E-Commerce) Rules, 2020 with effect from 23 July 2020.

    Consumer Protection (E-commerce) Rules, 2020

    The proposed amendments aim to bring transparency in the e-commerce platforms and further strengthen the regulatory regime to curb the prevalent unfair trade practices.

    The proposed amendments are as follows:

    (a) Chief Compliance Officer

    • To ensure compliance of the rules, the appointment of Chief Compliance Officer, a nodal contact person for 24×7 coordination with law enforcement agencies, officers to ensure compliance to their orders and Resident Grievance Officer for redressing of the grievances of the consumers on the e-commerce platform, has been proposed.
    • This would ensure effective compliance with the provisions of the Act and Rules and also strengthen the grievance redressal mechanism on e-commerce entities.

    (b) Registration of e-coms

    • Putting in place a framework for registration of every e-commerce entity with the DPIIT for allotment of a registration number which shall be displayed prominently on the website as well as invoice of every order placed by the e-commerce entity.
    • This would help create a database of genuine e-commerce entities and ensure that the consumers are able to verify the genuineness of an e-commerce entity before transacting through their platform.

    (c) Prohibition of miss-selling

    • The goods and services entities selling goods or services by deliberate misrepresentation of information have been prohibited.

    (d) Expiry dates

    • This would ensure that consumers are aware of the expiry date of the products they are buying on the e-commerce platform.
    • It compels all sellers on marketplace e-commerce entities and all inventory e-commerce entities to provide the best before or use before the date to enable consumers to make an informed purchase decision.

    (e) Fair and equal treatment

    • It has been provided that where an e-commerce entity offers imported goods or services, it shall incorporate a filter mechanism to identify goods based on country of origin and suggest alternatives to ensure fair opportunity to domestic goods.

    (f) Fall-back liability

    • This would ensure that consumers are not adversely affected in the event where a seller fails to deliver the goods or services due to negligent conduct by such seller in fulfilling the duties and liabilities.

    Why need such an amendment?

    It was observed that there was an evident lack of regulatory oversight in e-commerce which required some urgent action.

    • Manipulating search results: Moreover, the rapid growth of e-commerce platforms has also brought into the purview the unfair trade practices of the marketplace e-commerce entities engaging in manipulating search result to promote certain sellers.
    • Preferential treatment: This includes preferential treatment to some sellers, indirectly operating the sellers on their platform, impinging the free choice of consumers, selling goods close to expiration etc.
    • Flash sales: Certain e-commerce entities are engaging in limiting consumer choice by indulging in “back to back” or “flash” sales. This prevents a level playing field and ultimately limits customer choice and increases prices.

    Check this PYQ from CSP 2012:

    Q. With reference to consumer’s rights / privileges under the provision of law in India which of the following statements correct?

    1. Consumer are empowered to take samples for food testing
    2. When consumer fi les a complaint in any consumer forum, no fee is required to be paid.
    3. In case of death of consumer, his/her legal heir can file a complaint in the consumer forum on his/her behalf.

    Select the correct answer using the codes given below:

    (a) Only 1

    (b) 2 and 3 only

    (c) 1 and 3 only

    (d) 1, 2 and 3

  • [pib] Indian Certification of Medical Devices (ICMED) Plus Scheme

    The Quality Council of India (QCI), and the Association of Indian Manufacturers of Medical Devices (AiMeD) have added further features to the ICMED Scheme for Certification of Medical Devices.

     ICMED 13485 PLUS

    • The ICMED 13485 PLUS, as the new scheme has been christened, will undertake verification of the quality, safety and efficacy of medical devices.
    • It was first launched in 2016.
    • It has been designed to integrate the Quality Management System components and product-related quality validation processes through witness testing of products with reference to the defined product standards and specifications.
    • This is the first scheme around the world in which quality management systems along with product certification standards are integrated with regulatory requirements.
    • This scheme will be an end-to-end quality assurance scheme for the medical devices sector in India.

    Details of the scheme

    • This scheme provides the much-needed institutional mechanism for assuring product quality and safety.
    • It will go a long way in assisting the procurement agencies to tackle the challenges relating to the menace of counterfeit products and fake certification.
    • This will also help in eliminating the circulation and use of sub-standard medical products or devices of doubtful origin that could prove to be serious health hazards.