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GS Paper: GS3

  • Species in news: Sela Macaque

    A new species of old world monkey recorded from Arunachal Pradesh has been named after a strategic Sela pass at 13,700 ft above sea level.

    Sela macaque (Macaca selai).

    • This new primate was identified and analysed by a team of experts from the Zoological Survey of India (ZSI) and the University of Calcutta.
    • Earlier it was called as White- Cheeked Macaque displaying white cheeks, long and thick hairs on the neck area, and a longer tail.
    • Their study has been published in the latest edition of Molecular Phylogenetics and Evolution.
    • Phylogenetics relate to the evolutionary development and diversification of a species or group of organisms.
    • The phylogenetic analysis revealed that the Sela macaque was geographically separated from the Arunachal macaque (Macaca munzala) of Tawang district by Sela.
    • This mountain pass acted as a barrier by restricting the migration of individuals of these two species for approximately two million years.

    Protection status

    • It has NOT been yet included in the Wildlife (Protection) Act, 1972 of India.
    • The potential threat to all species of macaques in the landscape is due to hunting by locals for consumption and habitat degradation due to urbanization and infrastructure development.

     About Sela Pass

    • The Sela Pass is a high-altitude mountain pass located on the border between the Tawang and West Kameng districts in Arunachal Pradesh.
    • It has an elevation of 4170 m and connects the Indian Buddhist town of Tawang to Dirang and Guwahati.
    • The pass supports scarce amounts of vegetation and is usually snow-covered to some extent throughout the year.
    • While Sela Pass does get heavy snowfall in winters, it is usually open throughout the year unless landslides or snow require the pass to be shut down temporarily.
    • The strategically-significant Sela Tunnel project is now nearing completion well before the deadline.

     

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  • GST collections touched a record high of Rs 1.67 lakh crore in April.

    Context

    There has been a remarkable upswing in GST collections in recent months. Collections touched a record high of Rs 1.67 lakh crore in April.

    GST

    GST Interstate Model Example

    What are the reasons for increased collection?

    • 1] Inflation: First, the sharp rise in inflation has played a significant role.
    • Notwithstanding concerns over the unevenness of the economic recovery, in nominal terms, the economy grew by 19.4 per cent in 2021-22 as per the second advance estimates.
    • Deflating GST collection suggests that a large part of the recent increase in collections is driven by rising prices.
    • 2] Higher imports: Part of the overall increase in collections can be traced to higher imports.
    • Higher buoyancy: Even if one is to exclude the revenue accruing from imports, the rise in GST collections has outstripped GDP growth, indicating higher buoyancy.
    • 3] Tightening of the rules: In order to improve compliance levels, the GST Council has been tweaking the rules to tighten the system.
    • Returns filed have gone up, while the number of non-filers and those who delay filing have fallen.
    • Alongside, the administration has also taken steps to tackle the menace of fake invoices by placing restrictions on the quantum of input tax credit that can be used to pay of tax obligations.
    • The introduction of e-invoicing has also played a role.
    • Until recently, this was being implemented for firms with a turnover of more than Rs 50 crore.
    • From April, this process has been extended to firms above Rs 20 crore.
    • The incremental gains from bringing smaller firms into its ambit, while consequential, are unlikely to be of the same order.
    • 4] Industrial activity:  The higher collections in April 2022 seem to be led by increase in industrial activity. This is borne by strong growth in collections in states such as Maharashtra, Karnataka and Odisha which house lot of industries. Relatively tepid growth in more populous states such as Bihar (-2.47 per cent), West Bengal (7.80 per cent) and Jharkhand (4.86 per cent) shows that the GST collections was not propelled by revival in private consumption.
    •  The real challenge lies in improving compliance levels across the entire spectrum of industries where inputs/raw materials are sourced largely from the informal sector.
    • 5] Changing the structure of the economy: The formalisation of firms, the growing concentration of economic power in the hands of a few, imply that for the same level of output, the tax paid will be higher.

    Suggestion

    • Increase tax rate: Around two-fifths of the taxable value (or turnover) falls under the 18 per cent slab as per research by some analysts.
    • This implies that simply merging the 12 per cent and the 18 per cent slab as some have been suggesting would lead to a revenue loss.
    • Before opting for such adjustments, the GST Council must first ascertain the potential revenue (net of cess and refunds) at varying levels of compliance, tax rates and exemptions afforded.
    • Now, as per some estimates presented to the 15th Finance Commission, with existing exemptions in place, the current tax regime should ideally yield revenues equivalent to 8.23 per cent of GDP.
    •  In another scenario, even if existing exemptions are kept in place, and if a single rate of 14 per cent is levied, then collections should rise to 8.93 per cent.

    Conclusion

    Considering the current economic situation, now may not be an opportune moment to raise taxes. But there is no getting around it. Both the Centre and the states need to work towards this.

     

  • Green Hydrogen: Fuel of the Future

    India aspires to emerge as the leader of green hydrogen by taking advantage of the current energy crisis across the globe.

    Why in news?

    • Oil India Limited (OIL) has commissioned India’s first 99.99% pure green hydrogen plant in eastern Assam’s Jorhat.
    • Powered by a 500 KW solar plant, the green hydrogen unit has an installed capacity to produce 10 kg of hydrogen per day and scale it up to 30 kg per day.

    What is Hydrogen?

    • Hydrogen is the lightest, simplest and most abundant member of the family of chemical elements in the universe.
    • It is colourless, odourless, tasteless, non-toxic and highly combustible gaseous substance.

    What is Green hydrogen?

    • Green hydrogen is the one produced with no harmful greenhouse gas emissions.
    • It is made by using clean electricity from surplus renewable energy sources, such as solar or wind power, to electrolyse water.
    • Electrolysers use an electrochemical reaction to split water into its components of hydrogen and oxygen, emitting zero-carbon dioxide in the process.
    • Green hydrogen currently makes up a small percentage of the overall hydrogen, because production is expensive.

    Why is India pursuing green hydrogen?

    • Under the Paris Agreement of 2015, India is committed to reducing its greenhouse gas emissions by 33-35% from the 2005 levels.
    • It is a legally binding international treaty on climate change with the goal of limiting global warming to below 2°C compared to pre-industrial levels.
    • At the 2021 CoP in Glasgow, India reiterated its commitment to move from a fossil and import-dependent economy to a net-zero economy by 2070.
    • India’s average annual energy import bill is more than $100 billion .
    • The increased consumption of fossil fuel has made the country a high CO2 emitter which accounts for nearly 7% of the global CO2 burden.

    Various policy moves

    • In order to become energy independent by 2047, the government stressed the need to introduce green hydrogen as an alternative fuel that can make India the global hub and a major exporter of hydrogen.
    • The National Hydrogen Mission was launched on August 15, 2021, with a view to cutting down carbon emissions and increasing the use of renewable sources of energy.

    How much green hydrogen is India producing?

    • India has just begun to generate green hydrogen with the objective of raising non-fossil energy capacity to 500 gigawatts by 2030.
    • It was on April 20, 2022 that the public sector OIL, which is headquartered in eastern Assam’s Duliajan, set up India’s first 99.99% pure green hydrogen pilot plant.
    • Research and development efforts are ongoing for a reduction in the cost of production, storage and the transportation of hydrogen.

    What are the advantages of hydrogen as a fuel?

    • Hydrogen can be used to produce electricity using fuel cells.
    • Hydrogen, thus, can act as an energy storage device and contribute to grid stability.
    • The oxygen, produced as a by-product (8 kg of oxygen is produced per 1 kg of hydrogen), can also be monetised by using it for industrial and medical applications or for enriching the environment.

    Limitations to Hydrogen

    • Despite being the most abundant element in the Universe, hydrogen does not exist on its own so needs to be extracted from water via electrolysis or separated from carbon fossil fuels.
    • Hydrogen fuel cells need huge investment to be developed to the point where they become a genuinely viable energy source.
    • This will also require the political will to invest the time and money into development in order to improve and mature the technology.
    • Precious metals such as platinum and iridium are typically required as catalysts in fuel cells meaning unfeasibly high cost.
    • There are also barriers around regulatory issues concerning the framework that defines commercial deployment models.
    • Storage and transportation of hydrogen is more complex than that required for fossil fuels due to its high inflammability.

    Back2Basics:  Colours spectrum of Hydrogen

    (1) Green hydrogen

    (2) Blue hydrogen

    • It is produced mainly from natural gas, using a process called steam reforming, which brings together natural gas and heated water in the form of steam.
    • The output is hydrogen – but also carbon dioxide as a by-product.
    • That means carbon capture and storage (CCS) is essential to trap and store this carbon.
    • Blue hydrogen is sometimes described as ‘low-carbon hydrogen’ as the steam reforming process doesn’t actually avoid the creation of greenhouse gases.

    (3) Grey hydrogen

    • Currently, this is the most common form of hydrogen production.
    • Grey hydrogen is created from natural gas, or methane, using steam methane reformation but without capturing the greenhouse gases made in the process.

    (4) Black and brown hydrogen

    • Any hydrogen made from fossil fuels through the process of ‘gasification’ is sometimes called black or brown hydrogen interchangeably.
    • They are the most environmentally damaging.

    (5) Pink hydrogen

    • Pink hydrogen is generated through electrolysis powered by nuclear energy.
    • Nuclear-produced hydrogen can also be referred to as purple hydrogen or red hydrogen.
    • In addition, the very high temperatures from nuclear reactors could be used in other hydrogen productions by producing steam for more efficient electrolysis or fossil gas-based steam methane reforming.

     

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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’ĂȘtre

    • 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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  • Supreme Court’s ruling on GST deepens the churn in the tax regime

    Context

    Last week, the Supreme Court ruled that the decisions taken by the GST Council are merely recommendations with “persuasive value” and are not binding.

    GST as a advisory body

    • The court has rejected the Centre’s contention that the entire structure of GST would crumble if the Council’s decisions were not treated as enforceable.
    • In some ways, the verdict states the obvious.
    • Article 246-A inserted after the 122nd constitutional amendment states, “Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every state, have the power to make laws with respect to the GST imposed by the Union or by such state.”
    • Thus, the power to levy the central GST (CGST) vests with Parliament, the power to levy state GST (SGST) vests with state legislatures and Parliament has exclusive power to make laws with respect to the GST on items that are part of inter-state trade or commerce.
    •  Thus, the GST Council is only an advisory body and the actual decisions regarding model GST levies, principles of levy, apportionment of GST levied on inter-state supplies, principles relating to place of supply, exemptions and rate structure and any special provisions will have to be taken by either Parliament in the case of CGST and IGST or the states in the case of SGST.
    • In effect, decisions on the structure and operation of the tax can be made by the Centre and individual states without discussion and deliberation in the Council and both can ignore any recommendation made by the Council.
    • The judgment reiterates that the sovereign right to levy the tax still exists with the Union and state governments and it is for them to consider the recommendations of the Council.
    • The chance of having a harmonised GST and reforms in the tax regime will crucially depend upon continued negotiation and bargaining between the Union and states.
    • Intergovernmental cooperation has been kept alive to ensure a harmonised GST and unless both the Centre and the states see the gains, reforms will be hard to come by and if the Centre desires the reforms more than the states, it will have to ensure a “buy in” from the states to agree for the reform.

    Implications of the judgement

    • Given that the GST Council has been declared as only an advisory body with a persuasive value, what happens to the dream of having a harmonised one nation, one tax, if a state or a group of states decides to deviate?
    • But the judgment paves the way for more intensive bargaining and negotiations, placing states on an equal footing with the Centre in taking decisions on the structure and operations of the tax.
    • At present, decisions get approved in the GST Council when passed by a majority of three-fourths of the weighted votes of the members present and voting, with the Centre having one-third weight and individual states (and UTs) having an equal share of the remaining two-thirds weight.
    • However, in the past, all decisions in the Council have been taken by consensus (except in the case of determining the rate on lotteries), and the Supreme Court decision reinforces this convention.
    • The immediate impact of this will be bargaining by states for extending the period of compensation for the loss of revenue.
    •  As the five-year period of compensation gets over at the end of June, this decision will now help the states to bargain hard for the extension.

    Way forward

    •  Though the period of collecting compensation cess has been extended till March 2026 to meet the interest and repayment requirements of the funds borrowed from the RBI to meet the compensation requirements, the lasting solution lies in increasing the revenue productivity of the tax by pruning the list of exempted items, rationalising the rates and taking administrative measures.
    • These reforms will require strengthening the cooperative spirit.

    Conclusion

    This has come at a time when reforms have to be set in motion and hopefully, the Court’s decision will strengthen the cooperative spirit in reforming the domestic consumption tax system in the country.

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  • Monkeypox Virus: Origins and Outbreaks

    With cases being reported from across the world, monkeypox has caught everyone’s attention.

    What is Monkeypox?

    • Monkeypox is not a new virus.
    • The virus, belonging to the poxvirus family of viruses, was first identified in monkeys way back in 1958, and therefore the name.
    • The first human case was described in 1970 from the Democratic Republic of Congo.
    • Many sporadic outbreaks of animal to human as well as human to human transmission has occurred in Central and West Africa in the past with significant mortality.
    • After the elimination of smallpox, monkeypox has become one of the dominant poxviruses in humans, with cases increasing over years along with a consequent reduction in the age-group affected.

    How is it transmitted?

    • Since the transmission occurs only with close contact, the outbreaks have been in many cases self-limiting.
    • Since in the majority of affected people, the incubation period ranges from five to 21 days and is often mild or self-limiting, asymptomatic cases could transmit the disease unknowingly.
    • The outbreaks in Central Africa are thought to have been contributed by close contact with animals in regions adjoining forests.
    • While monkeys are possibly only incidental hosts, the reservoir is not known.
    • It is believed that rodents and non-human primates could be potential reservoirs.

    Does the virus mutate?

    • Monkeypox virus is a DNA virus with a quite large genome of around 2,00,000 nucleotide bases.
    • While being a DNA virus, the rate of mutations in the monkeypox virus is significantly lower (~1-2 mutations per year) compared to RNA viruses like SARS-CoV-2.
    • The low rate of mutation therefore limits the wide application of genomic surveillance in providing detailed clues to the networks of transmission for monkeypox.
    • A number of genome sequences in recent years from Africa and across the world suggest that there are two distinct clades of the virus — the Congo Basin/Central African clade and the West African clade.
    • Each of the clades further have many lineages.

    What do the genomes say?

    • With over a dozen genome sequences of monkeypox, it is reassuring that the sequences are quite identical to each other suggesting that only a few introductions resulted in the present spread of cases.
    • Additionally, almost all genomes have come from the West African clade, which has much lesser fatality compared to the Central African one.
    • This also roughly corroborates with the epidemiological understanding that major congregations in the recent past contributed to the widespread transmission across different countries.

    Does it have an effective vaccine?

    • It is reassuring that we know quite a lot more about the virus and its transmission patterns.
    • We also have effective ways of preventing the spread, including a vaccine.
    • Smallpox/vaccinia vaccine provides protection.
    • While the vaccine has been discontinued in 1980 following the eradication of smallpox, emergency stockpiles of the vaccines are maintained by many countries.
    • Younger individuals are unlikely to have received the vaccine and are therefore potentially susceptible to monkeypox which could partly explain its emergence in younger individuals.

     

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  • What is the Service Charge levied by Restaurants on Customers?

    The Centre has called a meeting of restaurant owners over service charge levied by them on customers.

    Why in news?

    • The restaurants are collecting service charges from consumers by default, even though collection of any such charge is voluntary and at the discretion of consumers and not mandatory as per law.

    What are the components of a food bill?

    • A restaurant bill in India comprises food charge (from the menu), with an addition of service charge (anywhere between 5 to 15 per cent) and a 5 per cent GST on this amount (IGST+SGST).
    • This is for all kinds of standalone restaurants.
    • In case a restaurant is located inside a hotel wherein room rate is upwards of Rs 7,500 (mostly in case of five-stars), the GST would be 18 per cent.

    Nature of Service charge

    • While the GST is a mandatory component as per law, the service charge is supposed to be optional.
    • It is the equivalent of what is known as gratuity around the world, or tip, in casual parlance.
    • Most restaurants decide the service charge on their own, and print it at the bottom of the menu with an asterisk.

    Policy measures

    • The Ministry of Consumer Affairs had come out with “Guidelines on Fair Trade Practices Related to Charging of Service Charge from Consumers by Hotels/ Restaurants”.
    • Here it was clearly mentioned that a component of service is inherent in the provision of food and beverages ordered by a customer.
    • Hence the pricing of the product is expected to cover both the goods and service components.
    • It said that the bill “may clearly display that service charge is voluntary, and the service charge column of the bill may be left blank for the customer to fill up before making payment.”

    What do the restaurants say?

    • The levy of service charge by a restaurant is a matter of individual policy to decide if it is to be charged or not.
    • There is no illegality in levying such a charge.
    • Once the customer is made aware of such a charge in advance and then decides to place the order, it becomes an agreement between the parties, and is not an unfair trade practice.
    • GST is also paid on the said charge to the Government.

    Where does the fund go?

    • Restaurants claim that a major chunk of the service charge thus collected goes to the staff, while the rest goes towards a welfare fund to help them out during good and bad times.
    • It’s a default billing option, even as customers can choose not to pay it if they don’t want to.
    • Of course, they are paid the salaries but the service charge works as an incentive for them.
    • Restaurateurs also say that patrons can decide not to pay the charge and tip the server directly, but in this case, the backroom staff doesn’t get anything.
    • A service charge ensures all staff members are rewarded evenly.

    What is the issue then?

    • The issue is that almost all restaurants have put service charge (fixed at their own accord) as a default billing option.
    • And if a consumer is aware that it is not compulsory and wants it removed or wants to tip the server directly, the onus is on them to convince the management why they don’t want to pay it.
    • The department says they received several complaints saying it leads to public embarrassment and spoils the dining experience since at the end of it, they either pay the charge quietly and exit the place feeling cheated, or have to try hard to get it removed.
    • Also, there is no transparency as to where this charge goes.
    • The officials also say that collecting service charge on their own and paying GST on it to the government doesn’t make it authorised.

    Problems faced by customers

    • It is this component which has come under dispute from time to time, with consumers arguing they are not bound to pay it.
    • It also said that hotels and restaurants charging tips from customers without their express consent in the name of service charges amounts to unfair trade practice.

     

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  • The message from the government’s wheat export ban

    Context

    The ban on the export of wheat was not unexpected. The rather ambivalent approach to agriculture comes out clearly with this move.

    Understanding how this ban has come about

    • We are not comfortable with market forces operating in agriculture.
    • Nor are we quite sure whether we want the farmer to get a better price or the consumer to pay less.
    • Governments spend a lot of money in the form of subsidies to ensure farmers are enthused to produce more wheat.
    • The Centre keeps increasing the MSP for this purpose and states often pay a bonus for procurement.
    • There are political reasons too as the farmer lobby needs to be placated.
    •  There are political reasons too as the farmer lobby needs to be placated.
    • We have been taking credit for the production of wheat and every year we set a new record.
    • This year, the Ministry announced that wheat production will touch a record of 111 million tonnes, which has recently been revised downwards.
    • With the war, conditions have changed. Russia and Ukraine are large producers of wheat and their supply to world markets has been cut off due to sanctions and supply chain disruptions.
    • With supplies interrupted, there is an opportunity for other surplus nations to step in.
    • But the disruption has caused world prices to rise significantly.

    Opportunity for India

    • The World Bank data indicates that the price of US (soft red winter) wheat has gone up from $328/tonne in December to $672/tonne while US (hard red winter) wheat is up from $377 to $496/tonne.
    • Countries that produce abundant wheat now have a chance to leverage this opportunity to export.
    • However, in case of India it does appear that production will be lower than expected.
    • Low wheat stock: The government has also not been able to procure wheat as farmers are no longer selling at MSP (which is at Rs 2,015/quintal) as they are getting higher prices in mandis.
    • As of May 10, procurement was just 18 million tonnes against 43 million tonnes last year.
    • This is a significant fall.
    • But stocks with the Centre and other state agencies are 30.3 million tonnes, way above the buffer norms of 27.6 million tonnes.
    • The ban on wheat exports is because of this.

    Two constraints on the wheat economy

    • In 2007 and again in 2021, the government banned futures trading in wheat on grounds that it led to speculative pressure on prices even though the quantity traded and the open interest were minuscule.
    • At that time, it was a decline in expected output which triggered this action.
    • It does look like the wheat economy will continue to operate within two constraints that have become barriers to commercialisation.
    • MSP and government procurement: The first is MSP and government procurement, which feeds into the public distribution system.
    • Arhatiya system: The second is the arhatiya system of trading where middlemen have come in the way of any reform.

    Suggestions

    • Abolish MSP and procurement system: The MSP and procurement system needs to be dismantled.
    • Cash transfers: As the government has successfully expanded both the Aadhaar and Jan Dhan programmes, there should be simple cash transfers to beneficiaries.
    • Buffer stocks can be held to ease distress during a crisis, but government involvement should stop there.
    • Procuring unlimited quantities of wheat and keeping huge stocks has distorted the wheat matrix.
    • The mandi system too needs to be revisited and alternatives have to be made available so that farmers can choose the point of sale.

    Conclusion

    We have been talking about being a part of global supply chains to augment value addition and accelerate growth. But when it comes to agriculture it is a blow-hot blow-cold approach. This not only affects our credibility but also sends confusing signals to producers as to what is the best way out for them.

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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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  • Norms eased for GM Crop Research

    The Department of Biotechnology (DBT) has issued guidelines easing norms for research into genetically modified (GM) crops and circumventing challenges of using foreign genes to change crops profile.

    Guidelines for Safety Assessment of Genome Edited Plants, 2022: Key Highlights

    • It exempt researchers who use gene-editing technology to modify the genome of the plant from seeking approvals from the Genetic Engineering Appraisal Committee (GEAC).
    • The environment ministry in March 2022 exempted SDN 1 and SDN 2 genomes from Rules 7-11 of the Environment Protection Act.
    • Conventional breeding technique takes 8- 10 years for development of new crop varieties; genome-editing can do this faster.
    • The Environment Ministry too has sanctioned this exemption.

    What are the SDNs?

    The genome edited plants derived from the use of genome editing techniques employing site- directed nucleases (SDNs) such ZFNs, TALENs, CRISPR and other nucleases with similar functions are generally classified under three categories as

    1. Site-Directed Nuclease (SDN)-1, a site-directed mutagenesis without using a DNA sequence template;
    2. SDN-2, a site-directed mutagenesis using a DNA sequence template; and
    3. SDN-3, site-directed insertion of gene/large DNA sequence using a DNA sequence template.

    What are GM crops?

    • The GM plants involve transgenic technology or introducing a gene from a different species into a plant, for instance BT-cotton, where a gene from soil bacterium is used to protect a plant from pest attack.
    • The worry around this method is that these genes may spread to neighboring plants, where such effects are not intended and so their applications have been controversial.
    • Genome editing involves the use of technologies that allow genetic material to be added, removed, or altered at particular locations in the genome. Several approaches to genome editing have been developed.
    • A well-known one is called CRISPR-Cas9, which is short for clustered regularly interspaced short palindromic repeats and CRISPR-associated protein 9.

    Try this PYQ:

    Q.The Genetic Engineering Appraisal Committee is constituted under the:

    (a) Food Safety and Standards Act, 2006

    (b) Geographical Indications of Goods (Registration and Protection) Act, 1999

    (c) Environment (Protection) Act, 1986

    (d) Wildlife (Protection) Act, 1972

     

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    About Genetic Engineering Appraisal Committee (GEAC)

    • The Genetic Engineering Appraisal Committee (GEAC) is a statutory body conotified under the Environment (Protection) Act, 1986.
    • It was formed as the Genetic Engineering Approval Committee and was renamed to its current name in 2010.
    • It functions under the Ministry of Environment, Forests & Climate Change.
    • The body regulates the use, manufacture, storage, import and export of hazardous microorganisms or genetically-engineered organisms and cells in India.