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GS Paper: GS3

  • Need for overhaul of India’s economic performance measurement framework

    Context

    It is then apparent that GDP growth matters to the average Indian only if it can generate good quality jobs and incomes for them.

    Background

    • Nobel laureate Simon Kuznets, who conceived of GDP as a measure of economic performance, never intended it to be the single-minded economic pursuit for a nation that it has now become, and warned repeatedly that it is not a measure of societal well-being.
    • Irrefutably, GDP is an elegant and simple metric that is a good indicator of economic progress which can be compared across nations.
    • But a compulsive chase for GDP growth at all costs can be counter-productive, since it is not a holistic but a misleading measure.
    • The excessive obsession over GDP growth by policymakers and politicians can be unhealthy and dangerous in a democracy.
    • If growth in GDP does not translate into equivalent economic prosperity for the average person, then in a one person-one vote democracy, exuberance over high GDP growth can backfire and trigger a backlash among the general public.
    • Global phenomenon: Sri Lanka’s mass uprising and people’s revolution can partly be explained through this prism of the structural break between headline GDP growth and economic prosperity for the people.
    • The U.S. today produces fewer new jobs for every percentage point of GDP growth than it did in the 1990s.
    • China produces one-third the number of new jobs today than it did in the 1990s for every percentage of its GDP growth.

    Employment intensity of economic growth

    • Data of ‘employment in public and organised private sectors’ published by the Reserve Bank of India (RBI) shows that in the decade between 1980 and 1990, every one percentage point of GDP growth (nominal) generated roughly two lakh new jobs in the formal sector.
    • In the subsequent decade from 1990 to 2000, every one percentage point of GDP growth yielded roughly one lakh new formal sector jobs, half of the previous decade.
    • In the next decade between 2000 and 2010, one percentage point of GDP growth generated only 52,000 new jobs.
    • The RBI stopped publishing this data from 2011-12.
    • In essence, one percentage of GDP growth today yields less than one-fourth the number of good quality jobs that it did in the 1980s.
    • It is amply clear that the correlation between formal sector jobs and GDP growth has weakened considerably.

    Implications of decline in GDP growth’s contribution to job creation

    • Irrelevant as a political measure: GDP growth may be an important economic measure, but it is becoming increasingly irrelevant as a political measure, since it impacts only a select few and not the vast majority.
    • Indicates changed nature of economic development: This divorce of GDP growth and jobs is both a reflection of the changed nature of contemporary economic development with emphasis on capital-driven efficiency at the cost of labour and GDP being an inadequate measure.
    • Political backlash: The perils of the obsession over GDP growth will be felt by politicians who have to answer voters on lack of jobs and incomes despite robust headline growth.
    • Voter disenchantment over the economy not working for them is already rife in many democracies across the world that have catalysed agitations and social disharmony.
    • Electoral outcomes in favour of extreme positions in mature democracies such as the U.S., the U.K., France and Germany in the last decade may partly be a reflection of voters’ sense of deception over economic gains.

    Way forward

    • It is time for India’s political leaders to not be drawn into argument over GDP growth every quarter and instead clamour for an overhaul of India’s economic performance measurement framework to reflect what truly matters to the common person.

    Conclusion

    GDP growth has turned into a misleading and dangerous indicator that portrays false economic promises, betrays people’s aspirations and hides deeper social problems.

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  • Recent Supreme Court judgment on IBC may weaken insolvency regime

    Context

    In the recent judgement the Supreme Court held that the National Company Law Tribunal (NCLT) cannot admit an insolvency application filed by a financial creditor merely because a financial debt exists and the corporate debtor has defaulted in its repayment.

    Why the point of trigger is important in insolvency law

    • A critical element for any corporate insolvency law is the point of trigger.
    • The law must clearly provide the grounds on which an insolvency application against a corporate debtor should be admitted.
    • If there is any confusion at this stage, precious time could be wasted in litigation.
    • That would cause value destruction of the distressed business.
    • On the other hand, if the law is clear and litigation can be minimised, the distressed business could be resolved faster.
    • Its value could be preserved.
    • And all stakeholders collectively would benefit.
    • Evidently, objective legal criteria for admission are critical for an effective corporate insolvency law.

    Determining insolvency and implications of the SC ruling

    • The balance-sheet test is one method for determining insolvency at the point of trigger.
    • This test, however, is vulnerable to the quality of accounting standards.
    • That’s why the Bankruptcy Law Reforms Committee did not favour this test in the Indian context.
    • Instead, it recommended that a filing creditor must only provide a record of the liability (debt), and evidence of default on payments by the corporate debtor.
    • This twin-test was expected to provide a clear and objective trigger for insolvency resolution. 
    • The Supreme Court’s latest ruling is likely to radically alter these expectations.

    Implications of the Supreme Court ruling

    • Resisting the admission by debtor: Now due to the Supreme Court ruling, even if the NCLT is satisfied that a financial debt exists and that the corporate debtor has defaulted, it may not admit the case for resolution if the corporate debtor resists admission on any other grounds.
    • Corporate debtors are likely to use this precedent to the fullest to resist admission into IBC.
    • Risk of value destruction due to delay: The likely outcome would be more litigation and delay at the admission stage, enhancing the risks of value destruction in the underlying distressed business.

    Conclusion

    In all fairness, the Supreme Court has been extremely pragmatic in its interpretation and application of the IBC. Even in the recent ruling, the court has rightly cautioned that the NCLT should not exercise its discretionary power in an arbitrary or capricious manner. Yet, this decision may have opened a Pandora’s box. Policymakers would be well-advised to take note before history starts repeating itself.

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  • A path to global connectivity

    Context

    As terrestrial 5G mobile networks are being rolled out across countries, there is a renewed interest in integrating Non-Terrestrial Networks.

    SatNets for 5G

    • Satellites and terrestrial networks have always been considered two independent ecosystems, and their standardisation efforts have proceeded independent of each other.
    • The primary non-terrestrial network that is being considered is the low latency Low Earth Orbit (LEO) satellite networks (SatNets), as a complement to terrestrial networks.
    • Towards this, Starlink, operated by the Elon Musk-owned SpaceX, and OneWeb, promoted by Bharti Global, have launched about 2,500 and 648 LEO satellites respectively at an altitude of about 1,200 km with the objective of promoting global broadband connectivity.
    • There are other players such as Reliance Jio in a joint venture with Luxembourg-based SES and Amazon’s Project Kuiper.

    Benefits of using SatNets

    • 1] Service continuity in emergency: service continuity to provide seamless transition between terrestrial networks and SatNets in case of public safety, disaster management and emergency situations;
    • 2] Providing service in remote area: Service ubiquity to provide 5G services in unserved and underserved areas of the world, thereby bridging the digital divide;
    • 3] Scalability: Service scalability that utilises the unique capabilities of SatNets in multicasting and broadcasting similar content over a large geographical area.
    • 4] Service to in-motion user: The LEO SatNets can provide service not only to stationary but also to in-motion users.
    • 5] Low latency over long distance: Wireless communications through LEO satellites over long distances is proven to be 1.47 times faster than communication over the same distance through terrestrial optic fibre. It is this advantage along with global coverage that provide a strong use case for LEO SatNets to complement terrestrial optic fibre networks.
    • SatNet in standardisation: In view of the above advantages, standard-setting organisations such as the Third Generation Partnership project (3GPP), comprising telcos and equipment manufacturers around the world, started integrating SatNets in the standardisation process.

    Measures by the government

    • Realising the advantages, the Government, in its National Digital Communications Policy 2018, has indicated the development of an ecosystem for local manufacturing of satellite communication systems and promoting participation of private players for the strengthening of satellite communication infrastructure in the country.
    • Accordingly, the New Space India Limited (NSIL), a public sector enterprise, was established in 2019 to re-orient space activities from a ‘supply driven’ model to a ‘demand driven’ model, thereby ensuring optimum utilisation of the space assets.
    • The Department of Space also established in 2020 a new regulatory body named the Indian National Space Promotion and Authorisation Centre (IN-SPACe).
    • IN-SPACe is intended to provide a level playing field for private companies to use Indian space infrastructure.

    Issues and challenges

    • Allocation of frequency: Issues will involve addressing issues around frequencies to be allocated for satellite broadband, the methodology of allocation, the relatively higher cost of consumer equipment and the placement and interconnections of SatNets with terrestrial public landline/ mobile networks at the ground stations
    • Cost: The other major challenge in LEO SatNets is the cost of user terminal and access charges to the end users.
    • A recent research analysing both Starlink and OneWeb concludes that the standalone LEO SatNets have a distinct cost advantage only if the density is less than 0.1 person per square km compared to terrestrial broadband networks.
    • Hence it is to the advantage of LEO SatNet providers to integrate their networks with terrestrial 5G networks to improve the cost economies.

    Conclusion

    All these, along with the proposed revisions to the Satellite Communications Policy of the Government, will provide the required fillip to LEO SatNets to become an integral part of the communication infrastructure of the country.

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    Back2Basics: LEO satellites

    • LEO satellites orbit between 2,000 and 200 kilometers above the earth. LEO satellites are commonly used for communications, military reconnaissance, spying and other imaging applications.
    • A low earth orbit (LEO) satellite is an object, generally a piece of electronic equipment, that circles around the earth at lower altitudes than geosynchronous satellites.
    • Satellites made for communications benefit from the lower signal propagation delay to LEO.
    • This lower propagation delay results in less latency.
    • Being closer to the earth has an obvious benefit for many types of earth observational satellites by resolving smaller subjects with greater detail.

  • IMF flags Recession risk

    Surging inflation and sharp slowdowns in the United States and China prompted the IMF to cut its outlook for the global economy this year and next, while warning that the situation could get much worse.

    By one common definition, the major global economies are on the cusp of a recession.

    What is Recession?

    • A recession is a significant decline in economic activity that lasts for months or even years.
    • Experts declare a recession when a nation’s economy experiences negative GDP, rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.
    • Recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy.

    What causes Recessions?

    These phenomena are some of the main drivers of a recession:

    • A sudden economic shock: An economic shock is a surprise problem that creates serious financial damage. The coronavirus outbreak, which shut down economies worldwide, is a more recent example of a sudden economic shock.
    • Excessive debt: When individuals or businesses take on too much debt, the cost of servicing the debt can grow to the point where they can’t pay their bills. Growing debt defaults and bankruptcies then capsize the economy.
    • Asset bubbles: When investing decisions are driven by emotion, bad economic outcomes aren’t far behind. Investors can become too optimistic during a strong economy.
    • Too much inflation: Inflation is the steady, upward trend in prices over time. Inflation isn’t a bad thing per se, but excessive inflation is a dangerous phenomenon. Central banks control inflation by raising interest rates, and higher interest rates depress economic activity.
    • Too much deflation: While runaway inflation can create a recession, deflation can be even worse. Deflation is when prices decline over time, which causes wages to contract, which further depresses prices. When a deflationary feedback loop gets out of hand, people and business stop spending, which undermines the economy.
    • Technological change: New inventions increase productivity and help the economy over the long term, but there can be short-term periods of adjustment to technological breakthroughs. In the 19th century, there were waves of labour-saving technological improvements.

    What’s the difference between Recession and Depression?

    • Recessions and depressions have similar causes, but the overall impact of a depression is much, much worse.
    • There are greater job losses, higher unemployment and steeper declines in GDP.
    • Most of all, a depression lasts longer—years, not months—and it takes more time for the economy to recover.
    • Economists do not have a set definition or fixed measurements to show what counts as a depression. Suffice to say, all the impacts of a depression are deeper and last longer.
    • In the past century, the US has faced just one depression: The Great Depression.

    The Great Depression

    • The Great Depression started in 1929 and lasted through 1933, although the economy didn’t really recover until World War II, nearly a decade later.
    • During the Great Depression, unemployment rose to 25% and the GDP fell by 30%.
    • It was the most unprecedented economic collapse in modern US history.
    • By way of comparison, the Great Recession was the worst recession since the Great Depression.
    • During the Great Recession, unemployment peaked around 10% and the recession officially lasted from December 2007 to June 2009, about a year and a half.
    • Some economists fear that the coronavirus recession could morph into a depression, depending how long it lasts.

    How long do recessions last?

    • Gulf War Recession (July 1990 to March 1991): At the start of the 1990s, the U.S. went through a short, eight-month recession, partly caused by spiking oil prices during the First Gulf War.
    • The Great Recession (2008-2009): As mentioned, the Great Recession was caused in part by a bubble in the real estate market.
    • Covid-19 Recession: The most recent recession began in February 2020 and lasted only two months, making it the shortest US recession in history.

    Can we predict a recession?

    Given that economic forecasting is uncertain, predicting future recessions is far from easy. However, the following warning signs can give you more time to figure out how to prepare for a recession before it happens:

    • An inverted yield curve: The yield curve is a graph that plots the market value—or the yield—of a range. When long-term yields are lower than short-term yields, it shows that investors are worried about a recession. This phenomenon is known as a yield curve inversion, and it has predicted past recessions.
    • Declines in consumer confidence: Consumer spending is the main driver of the US economy. If surveys show a sustained drop in consumer confidence, it could be a sign of impending trouble for the economy.
    • Drop in the Leading Economic Index (LEI): Published monthly by the Conference Board, the LEI strives to predict future economic trends. It looks at factors like applications for unemployment insurance, new orders for manufacturing and stock market performance.
    • Sudden stock market declines: A large, sudden decline in stock markets could be a sign of a recession coming on, since investors sell off parts and sometimes all of their holdings in anticipation of an economic slowdown.
    • Rising unemployment: It goes without saying that if people are losing their jobs, it’s a bad sign for the economy.

    How does a recession affect individuals?

    • We may lose your job during a recession, as unemployment levels rise. It becomes much harder to find a job replacement since more people are out of work.
    • People who keep their jobs may see cuts to pay and benefits, and struggle to negotiate future pay raises.
    • Investments in stocks, bonds, real estate and other assets can lose money in a recession, reducing your savings and upsetting your plans for retirement.
    • Business owners make fewer sales during a recession, and may even be forced into bankruptcy.
    • With more people unable to pay their bills during a recession, lenders tighten standards for mortgages, car loans, and other types of financing.

     

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  • Russia to leave International Space Station (ISS)

    Russia will pull out of the International Space Station (ISS) after 2024 and focus on building its own orbiting outpost.

    Why in news?

    • Russia will end a symbolic two-decade orbital partnership between Moscow and the west.

    International Space Station (ISS)

    • The ISS was launched in 1998 as part of joint efforts by the U.S., Russia, Japan, Canada and Europe.
    • The idea of a space station originated in the 1984 State of the Union address by former U.S. President Ronald Reagan.
    • The space station was assembled over many years, and it operates in low-earth orbit.
    • Since its inception, it has served as a laboratory suspended in space and has aided multiple scientific and technological developments.
    • The ISS was originally built to operate for 15 years.

    Why was ISS launched?

    • A space station permits quantum leaps in research in science, communications, and in metals and lifesaving medicines which could be manufactured only in space.
    • ISS has consistently maintained human presence for the past 21 years, providing astronauts with sophisticated technologies for scientific research.

    What is Russia’s role in maintaining the ISS?

    • The ISS is built with the cooperation of scientists from five international space agencies — NASA of the U.S., Roscosmos of Russia, JAXA of Japan, Canadian Space Agency and the European Space Agency.
    • Each agency has a role to play and a share in the upkeep of the ISS.
    • Both in terms of expense and effort, it is not a feat that a single country can support.
    • Russia’s part in the collaboration is the module responsible for making course corrections to the orbit of the ISS.
    • They also ferry astronauts to the ISS from the Earth and back.
    • Until SpaceX’s dragon spacecraft came into the picture the Russian spacecraft was the only way of reaching the ISS and returning.

     

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  • India adds five more Ramsar Sites

    India has added five more Ramsar sites, or wetlands of international importance, bringing the number of such sites in the country to 54.

    Newly added Ramsar Sites

    1. Karikili Bird Sanctuary, Pallikaranai Marsh Reserve Forest and Pichavaram Mangrove in Tamil Nadu,
    2. Sakhya Sagar in Madhya Pradesh
    3. Pala Wetlands in Mizoram

    What are Wetlands?

    • A wetland is a distinct ecosystem that is flooded by water, either permanently or seasonally, where oxygen-free processes prevail.
    • The primary factor that distinguishes wetlands from other landforms or water bodies is the characteristic vegetation of aquatic plants, adapted to the unique hydric soil.

    Significance of Wetlands

    • Wetlands provide a wide range of important resources and ecosystem services such as food, water, fibre, groundwater recharge, water purification, flood moderation, erosion control, and climate regulation.
    • They are, in fact, are a major source of water and our main supply of freshwater comes from an array of wetlands that help soak rainfall and recharge groundwater.
    • They provide many societal benefits: food and habitat for fish and wildlife, including threatened and endangered species; water quality improvement; flood storage; shoreline erosion control; economically beneficial natural products for human use; and opportunities for recreation, education, and research, etc.

     India and Ramsar Wetlands

    • India’s Ramsar wetlands are spread over 11,000 sq.km — around 10% of the total wetland area in the country — across 18 States.
    • No other South Asian country has as many sites, though this has much to do with India’s geographical breadth and tropical diversity.
    • The UK (175) and Mexico (142) — smaller countries than India — have the most Ramsar sites, whereas Bolivia spans the largest area with 1,48,000 sq.km under the Convention protection.
    • The National Wetland Inventory and Assessment compiled by the ISRO estimates India’s wetlands to span around 1,52,600 square kilometres.

    What makes Ramsar designation significant?

    • Being designated a Ramsar site does not necessarily invite extra international funds.
    • Acquiring this label helps with a locale’s tourism potential and its international visibility.

    Criteria for Ramsar site designation

    To be Ramsar site a place must meet at least one of the criteria as defined by the Ramsar Convention of 1961, such:

    1. Supporting vulnerable, endangered, or critically endangered species or threatened ecological communities or,
    2. If it regularly supports 20,000 or more waterbirds or,
    3. Is an important source of food for fishes,
    4. Spawning ground,
    5. Nursery and/or migration path on which fish stocks are dependent upon.
    6. Static or flowing, fresh, brackish or salt, including areas of marine water the depth of which at low tide does not exceed six metres
    7. Does not include river channels, paddy fields, human-made water bodies/ tanks specifically constructed for drinking water purposes

    Back2Basics: Ramsar Convention

    • The Convention on Wetlands of International Importance (better known as the Ramsar Convention) is an international agreement promoting the conservation and wise use of wetlands.
    • It is the only global treaty to focus on a single ecosystem.
    • The convention was adopted in the Iranian city of Ramsar in 1971 and came into force in 1975.
    • Traditionally viewed as a wasteland or breeding ground of disease, wetlands actually provide fresh water and food and serve as nature’s shock absorber.
    • Wetlands, critical for biodiversity, are disappearing rapidly, with recent estimates showing that 64% or more of the world’s wetlands have vanished since 1900.
    • Major changes in land use for agriculture and grazing, water diversion for dams and canals, and infrastructure development are considered to be some of the main causes of loss and degradation of wetlands.

     

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  • Reforms needed in the next stage of GST

    Context

    India has completed five years under the GST regime.

    How GST has performed so far

    • Before the GST, there were multiplicity of the Centre and state levies that masked the actual incidence of tax on products, the debilitating effects of the entry tax and the uncertainty of tax rates.
    • Today, in contrast, we have a single tax across the country combined with a stability in rates and a common technology platform in the form of a GSTN.
    • Record number of registrants: The ease of payments has improved over time with the technical glitches having been slowly sorted out, leading to a record number of GST registrants – increasing from 1.08 crore in April 2018 to 1.36 crore in 2022.
    •  The revenue gains have been significant.
    • If we factor in the three-percentage point decline in the incidence of GST duty from 14.8 to 11.8 per cent as suggested by the RBI, the actual proportion in 2021-2022 would have been 7.4 per cent of the GDP (according to a recent article by Arvind Subramanian and Josh Felman).

    What were the changes made to ensure the stricter compliance

    • The above improvement can be traced to stricter compliance flowing from three factors.
    • 1] Input credit only after supplier uploads invoice: Denial of input credit to the buyer without the supplier uploading the invoice.
    • 2] The introduction of e-invoicing.
    • 3] Third the introduction of e-waybills for transporters for value exceeding Rs 50,000 per consignment.
    • Greater coordination between CBIC and CBDT: Another factor is greater coordination between the Central Board of Excise and Customs (CBIC) and Central Board of Direct Taxes (CBDT) in compliance verification.

    Changes needed

    • 1] Provisions for unregistered GST suppliers: The micro, small and medium enterprises (MSME) sector has been affected by the GST reforms because the large units have been reluctant to buy from them in the absence of input duty credit.
    • An important measure here would be to amend the law to provide that all units buying from unregistered GST suppliers would have to pay duty on a reverse charge basis.
    • 2] Rate rationalisation: While the revenue gains have come through better compliance, the next surge in GST revenues will have to come from an increase in the average incidence of GST duties.
    • This will require a combination of measures — phasing out of exemptions, raising of the merit rate from the present level of 5 per cent and merging the 12 per cent rate with the standard rate, whether to 16 per cent or 18 per cent.
    • 3] Inclusion of fuels and real estate: Including natural gas/ATF under GST should be considered.
    • Further reforms in the factor markets — land, real estate and energy — would require their inclusion in the GST.
    • This is essential because while the economic reforms of the 1990s restructured the product market, the factor market reforms were incomplete.
    • 4] Creation of federal institution: We need to create another institution in the form of a GST state secretariat that can bring together senior officers from the Centre and states in an institutional forum registered under the Society Act.
    • This forum could also provide a common point of contact for trade and industry to redress the grievances on non-policy matters.

    Conclusion

    As GST enters its sixth year journey, the changes suggested above will fine tune it to propel India towards $5 trillion economy.

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    Back2Basics: GST Input Tax Credit

    • Input Tax Credit means claiming the credit of the GST paid on purchase of Goods and Services which are used for the furtherance of business.
    • The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST.

  • Indian MNCs are absent from discussions on digital policy

    Context

    Hyperactivity in the digital regulatory space in India in the form of policies, rules and guidelines signals the accelerated growth of the digital ecosystem which needs regulatory nurturing.

    Recent policy measures related to digital ecosystem

    • The Ministry of Electronics and Information Technology (MeitY) has announced the draft amendment to the IT Rules 2021 (June 2022).
    • The draft India Data Accessibility and Use Policy (February 2022),
    • National Data Governance Framework Policy (May 2022) and the new cyber security directions (April 2022).
    • Besides these, the most awaited and critical e-commerce policy and the Data Protection Bill, both of which have been in the making for at least a few years now, are likely to be announced soon.
    • This hyperactivity signals the accelerated growth of the digital ecosystem which needs regulatory nurturing.
    • The government has recently invited stakeholders to an open house discussion on the proposed changes to the IT Rules.

    Participation of Big Tech platforms  and other stakeholders in policy discussions

    • Various aspects of digital economy: Governments have been pushed to respond to myriad aspects of the digital economy — from financial sector regulation to anti-trust to data privacy.
    • With so much at stake, Big Tech platforms have upped their advocacy by hiring qualified professionals and funding empirical research, not only in India but also across the world.
    • Google, Amazon, Facebook, Twitter and the likes are all actively engaged in policy discussions, either directly or through third parties to put forth a point of view.
    • Similarly, start-ups, think tanks, civil society organisations and academics invested in the issues of the digital economy either as users or as observers contribute to the policy discourse.

    Who is missing?

    • Indian origin multinational corporations — the Tatas, Reliance, Aditya Birla Group, Godrej, ITC, Bajaj, and Hero — have collectively contributed to the country’s development.
    • While these may not be quintessential digital companies, except for Reliance Jio, many are working towards adopting digital technologies for manufacturing, distribution, and client service.
    • Many companies now have online distribution channels that retail through intermediary platforms or their own websites.
    • The Tatas have taken the plunge into e-commerce, first with Tata Cliq and recently with Neu.
    •  Despite this, these Indian MNCs are distant from conversations on these landmark policies that will determine the future of Indian commerce.

    Government relations and outreach functions of MNCs

    • Government relations and outreach functions have always been important to big businesses.
    • At what point and in what manner MNCs interact with the government will of course vary.
    • Using a sector-specific example, all telecom companies in India committedly participate in TRAI’s open houses, industry deliberations and written submissions so that they can nudge policymakers toward industry-friendly decision-making that sits well with overall growth objectives.
    • On general concerns such as infrastructure and the ease of doing business, intervention from the industry is much more indirect and often an ex-post phenomenon, that is, after the policy has been announced.
    • The practice of multi-stakeholderism in policy formulation is present in letter, if not always in spirit.

    Policy formulation in digital economy

    • The case of the digital economy is different.
    • There are multiple opportunities and avenues for participating in dialogue.
    • Striking balance between business viability and government objectives: The policy teams of Big Tech make the most use of these channels to present their point of view and hope for reconciliation on issues, with the final policy document attempting to strike a balance between business viability and government objectives.
    • Over the last few years of active debate on critical digital policies including those on data governance, privacy, anti-trust, and intermediary liability, there has been an overwhelming presence of the Big Tech Indian start-ups competing in this space, as well as their affiliated associations.
    • Indian MNCs, for reasons unclear, has been mostly absent.

    Conclusion

    Absence of Indian MNCs resulted in is a disproportionate policy focus on keeping Big Tech in check as against creating an enabling, secure and trusted digital ecosystem in India. As many issues highlighted by Big Tech are likely to be pain points for Indian businesses as well, participation of Indian MNCs could break the “us versus them” problem plaguing policy making in India today.

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  • Private Sector Boost in India’s Space Industry

    Principal Scientific Adviser stated earlier this month that the government would soon come up with a new space policy that could initiate the rise of India’s own “SpaceX-like Ventures”.

    Prospects of the proposed Space Policy

    • The final version of the policy would soon be referred to the Empowered Technology Group for further examination.
    • The proposed move would increase private sector participation in the industry.
    • The policy document recognizes that India has not tapped into its complete potential in space sector.

    Why is development in the space sector important?

    Ans. Address wide range of problems

    (1) Climate Change

    • Satellites provide more accurate information on weather forecasts and assess (and record) long-term trends in the climate and habitability of a region.
    • By monitoring the long-term impact of climate change at regional, territorial, and national scales, governments would be able to devise more pragmatic and combative plans of action for farmers and dependent industries.
    • Additionally, they can also serve as real-time monitoring and early-warning solutions against natural disasters such as earthquakes, tsunamis, floods, wildfires, mining etc.
    • Real-time tracking can also serve multiple purposes in defence.

    (2)  Connectivity

    • In this light, it must be noted that satellite communications, which are used to facilitate telecommunication services, are among the major categories for investment in the space technology sector.
    • Satellite communication can reach more remote areas where conventional networks would require a heavy complimenting infrastructure.
    • Additionally, as to reliability, the World Economic Forum had stated that satellite communication can help connect 49% of the world’s unconnected population.
    • Other prominent categories include spacecraft and equipment manufacturing.
    • What essentially needs to be remembered is that the strategic space avenue is an integration of the aerospace, IT hardware and telecom sectors.

    Where does India stand in the global space market?

    • As per SpaceTech Analytics, India is the sixth-largest player in the industry internationally having 3.6% of the world’s space-tech companies (as of 2021).
    • US holds the leader’s spot housing 56.4% of all companies in the space-tech ecosystem.
    • Other major players include UK (6.5%), Canada (5.3%), China (4.7%) and Germany (4.1%).
    • The Indian Space Industry was valued at $7 billion in 2019 and aspires to grow to $50 billion by 2024.

    Why does India matter in the global space-tech market?

    • The country’s standout feature is its cost-effectiveness.
    • India holds the distinction of being the first country to have reached the Mars’ orbit in its first attempt and at $75 million — way cheaper than Western standards.

    Future prospects of India’s private ‘Space’

    Ans. India may lead in space junk management

    • Almost 60-odd start-ups had registered with the Indian Space Research Organisation (ISRO) this year.
    • A majority of them were dealing in projects related to space debris management.
    • As space becomes more congested with satellites, the technology would thus help in managing ‘space junk’ (debris of old spacecraft and satellites).

    Where does India lack?

    Ans. Undisputedly, it is the finances

    • The US and Canada were the highest receivers of space-related investment in 2021.
    • The US’s space budget was $41 billion in 2021, $23.3 billion of which was focused on NASA.
    • India’s total budgetary allocation for FY2022-23 towards the Department of Space was ₹13,700 crore ($172 million).
    • Further, as per Tracxn data, funding into the sector’s start-ups (in India) nearly tripled to $67.2 million on a year-over-year basis in 2021.

    How is the private sector’s involvement regulated in India?

    • In June 2020, the Union government announced reforms in the space sector enabling more private players to provide end-to-end services.
    • The central idea was to bring forth a predictable policy and regulatory environment for them and additionally provide access to ISRO facilities and assets to improve their capacities.

    (1) Establishment of IN-SPACe

    • An announcement for the establishment of the Indian National Space Promotion and Authorisation Centre (IN-SPACe) was made.
    • It was mandated the task of promoting, authorising and licensing private players to carry out space activities.
    • As an oversight and regulatory body, it is responsible for devising mechanisms to offer sharing of technology, expertise, and facilities free of cost to promote non-government private entities (NGPEs).
    • IN-SPACe’s Monitoring and Promotion Directorate oversees NGPE’s activities as per prescribed regulations and reports back in case any corrective actions or resolutions are required.
    • ISRO shares its expertise in matters pertaining to quality and reliability protocols, documentation, and testing procedure through IN-SPACe’s ‘interface mechanism’.

    (2) Establishment of NSIL

    • Additionally, constituted in March 2019, New Space India Ltd (NSIL), is mandated to transfer the matured technologies developed by the ISRO to Indian industries.
    • All of them are under the purview of the Ministry of Defence.
    • Private sector’s involvement in the long term, as with other commercial sectors, is believed to help spur investment and expertise in the realm which is capital-intensive and demands high technology.

     

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  • NITI Aayog’s plan for rollout of Digital Banks

    Last week, federal think tank NITI Aayog released a report on digital banks, offering a template for their licensing in India. It said India already has a technology stack to facilitate digital banks.

    What are the planned Digital Banks?

    • Digital Banks or DBs are full-scale banks to be licensed under the Banking Regulation Act.
    • Unlike traditional banks, which require brick-and-mortar infrastructure or physical access points, digital banks simply leverage technology to provide banking services through mobile applications and internet-based platforms.
    • DBs behave like any other scheduled commercial bank, accepting deposits, giving loans etc.
    • They will follow prudential and liquidity norms at par with the commercial banks.
    • Globally, terms like “digital banks”, “neobanks”, “challenger banks”, and “virtual banks” are often used interchangeably.

    What about digital banking units then?

    • The Union budget for FY23 proposed to establish digital banking units (DBUs) of scheduled commercial banks in 75 districts.
    • The objective is to ensure that the benefits of digital payments, banking and fintech innovations reach the grass-roots.
    • DBUs are treated as banking outlets, equivalent to a branch.
    • These units do not have a legal personality and are not licensed under the Banking Regulation Act.
    • Only existing commercial banks may establish DBUs. In contrast, digital banks will be licensed.
    • These banks are expected to ensure credit penetration to underserved MSMEs and retail customers.

    What purpose will digital banks serve?

    • Digital banks are expected to further innovation and support the underserved segments.
    • However, some believe that it will only cater to customers with some level of comfort with digital transactions.
    • According to them, RBI too is not comfortable with this model as the central bank believes that cash handling and credit decisions require physical branches.

    What does NITI Aayog suggest for DBs?

    • In the first phase, a restricted digital bank licence may be given, with limits in terms of volume/value of customers. In the second stage, the licensee will be put in a regulatory sandbox.
    • Finally, a ‘full-scale’ licence may be granted contingent on satisfactory performance.
    • A digital bank will be required to have initial capital of ₹20 crore while in the regulatory sandbox.
    • Upon progression from the sandbox, a full-stack digital business/consumer bank will be required to bring in ₹200 crore capital.

    What has been the global experience?

    • The UK has led the pack in terms of digital banks, with new entrants in the form of Monzo and Starling Bank.
    • Several jurisdictions in the South East Asian region have witnessed the rise of digital banks.
    • Hong Kong has issued separate licences for virtual banks.
    • As of May 2020, the Hong Kong Monetary Authority has licensed 8 entities out of 33 applications.
    • In South Korea, Kakao Bank and K Bank operate as internet banks licensed under the Banking Act.
    • The Philippines has approved six licenses for digital banks.

     

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