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GS Paper: GS3

  • UNCITRAL Model for Cross Border Insolvency

    The Ministry of Corporate Affairs (MCA) has published a draft framework for cross-border insolvency proceedings based on the UNCITRAL (United Nations Commission on International Trade Law) model under the Insolvency and Bankruptcy Code.

    About Insolvency and Bankruptcy Code (IBC)

    • The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
    • It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
    • The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

    Cross border insolvency proceedings

    • Cross-border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions.
    • A framework for cross-border insolvency proceedings allows for the location of such a company’s foreign assets, the identification of creditors and their claims.
    • This helps establishing payment towards claims as well as a process for coordination between courts in different countries.

    Current status of foreign stakeholders and courts in other jurisdictions under IBC

    • While foreign creditors can make claims against a domestic company, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries.
    • Current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.

    The UNCITRAL model

    • The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues.
    • It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.
    • The law allows automatic recognition of foreign proceedings and rulings given by courts in cases where the foreign jurisdiction is adjudged.
    • Recognition of foreign proceedings and reliefs is left to the discretion of domestic courts when foreign proceedings are non-main proceedings.
    • The model law deals with four major principles of cross-border insolvency:
        • Direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor.
        • Recognition of foreign proceedings & provision of remedies.
        • Cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners.
        • Coordination between two or more concurrent insolvency proceedings in different countries. The main proceeding is determined by the concept of Centre of Main Interest (COMI).
          • The COMI for a company is determined based on where the company conducts its business on a regular basis and the location of its registered office.
      • It is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration.

    Issues with Indian framework

    • The framework for cross-border insolvency adopted in India may require reciprocity from any country which seeks to have its insolvency proceedings recognized by Indian courts.
    • This would allow Indian proceedings for foreign corporate debtors to be recognized in foreign jurisdictions.

    Back2Basics: UNCITRAL

    • It is an affiliate organization to the UN made up of business and legal professionals.
    • This group develops model standards and procedures for dealing with issues affecting international business.
    • Perhaps most notably, UNCITRAL promulgated the Convention on International Sale of Goods (CISG).
    • The CISG is a model law commonly used as the governing provisions in contracts between parties from different nations.

     

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  • What is Omicron Variant?

    A new lineage of SARS-CoV-2 has been designated as a Variant of Concern (VoC) by the World Health Organization (WHO) and has been named Omicron.

    Behind the name: Omicron

    • The WHO has been using Greek letters to refer to the most widely prevalent coronavirus variants, which otherwise carry long scientific names.
    • It had already used 12 letters of the Greek alphabet before the newest variant emerged in South Africa this week.
    • After Mu, the 12th named after a Greek letter, WHO selected the name Omicron, instead of Nu or Xi, the two letters between Mu and Omicron.
    • The WHO said Nu could have been confused with the word ‘new’ while Xi was not picked up following a convention.

    Why is the Omicron variant interesting?

    • The Omicron variant is interesting due to the fact that it has a large number of mutations compared to other prevalent variants circulating across the world.
    • This includes 32 mutations in the spike protein.
    • Many of these mutations lie in the receptor-binding domain of the spike protein, a key part of the protein required for binding to the human receptor proteins for entry into the cell.
    • It can thus play an important role in recognition by antibodies generated due to a previous infection or by vaccines.

    What do spike mutations do?

    • Many of the mutations in the spike protein have been previously suggested to cause resistance to antibodies as well as increased transmission.
    • Thus, there is a possibility that this variant could be more likely to re-infect people who have developed immunity against previous variants of the virus.
    • The behavior of the virus is not yet accurately predictable based on the evidence on individual mutations.

    Does the variant result in vaccine breakthrough infections?

    • Some of the initial individuals identified to be infected with the variant have been vaccinated for COVID-19 and therefore the variant can indeed cause vaccine breakthrough infections.
    • This should not be of concern, since the prevalent variants of concern including Delta have been shown to cause breakthrough infections.
    • Whether the variant causes more breakthrough infections than Delta is not currently known.

    How can we be prepared for the variant?

    • Enhanced surveillance and genome sequencing efforts are essential to detect and track the prevalence of the Omicron variant.
    • Rapid sharing of genome sequences of the virus and the epidemiological data linked with it to publicly available databases will help in developing a better understanding of the variant.
    • Existing public health and social measures need to be strengthened to control and prevent transmission.
    • Enhancing vaccination coverage across different regions along with access to testing, therapeutics and support will be essential for combating the new variant.
    • Equitable access to vaccines would be key to controlling the Omicron variant, and slowing down the emergence of any future variants.

     

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  • Jaitapur Nuclear Power Project

    If built on time, Jaitapur Project in Maharashtra would be the largest nuclear power generating station in the world by net generation capacity, at 9,900 MW.

    Jaitapur Nuclear Power Project

    • Jaitapur Project is a proposed nuclear power plant in India.
    • The power project is proposed by Nuclear Power Corporation of India (NPCIL) and would be built at Madban village of Ratnagiri district in Maharashtra.
    • It is being built with technical cooperation from France.

    Project description

    • It is proposed to construct 6 European Pressurized Reactors designed and developed by Framatome (former Areva) of France, each of 1650 MW, thus totaling 9900 MW.
    • These are the third generation pressurized water reactors (PWR).
    • The cost of building the plant is about ₹20 crore (US$2.7 million) per MW electric power compared with ₹5 crore (US$660,000) per MW electric power for a coal power station.
    • A consortium of French financial institutions will finance this project as a loan. Both French and Indian government will give sovereign guarantee for this loan.

    Issues with the project

    (I) Liability for nuclear damage

    • The lack of clarity on the Civil Liability for Nuclear Damage Bill 2010 passed in Indian Parliament in August 2010 is a hurdle in finalizing deal.
    • This Civil Liability for Nuclear Damage Bill 2010 has a clause that deals with the legal binding of the culpable groups in case of a nuclear accident.
    • It allows only the operator (NPCIL) to sue the manufacturers and suppliers. Victims will not be able to sue anyone.

    (II) Clearance issue

    • Environmental effects of nuclear power and geological issues have been raised by anti-nuclear activists of India against this power project.
    • Even though the Maharashtra state govt completed land acquisition in 2010, only few people had accepted compensation cheques.

    (III) Seismicity of the area

    • Since Jaitapur is a seismically sensitive area, the danger of an earthquake has been foremost on the minds of people.
    • According to the Earthquake hazard zoning of India, Jaitapur comes under Zone III. This zone is called the moderate Risk Zone and covers areas liable to MSK VIII.
    • The presence of two major creeks on the proposed site has been ignored while clearing the site.

    (IV) Nuclear waste disposal

    • It is not clear where the nuclear waste from the site will be shipped for recycling or removed for disposal.
    • The plant is estimated to generate 300 tonnes of used nuclear fuel each year.

     

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  • Emulating Amul’s success across other agricultural commodities

    Context

    Many wish for legendary “Milk Man of India” Verghese Kurien’s presence in our midst today as the conflict between the Central government and the farming community on the issue of the farm laws appears to be still unresolved.

    Adopting cooperative model

    • Kurien won the farmers over with his professional integrity and his vision of a central role for farmers in India’s journey of development.
    • It is on that foundation that Kurien went on to design his idea of Amul as a co-operative.
    • He turned it over the years into a global brand, and later launched the White Revolution that would make India the largest milk producing nation in the world.
    • Central to Kurien’s vision was the co-operative model of business development.
    • Kurien’s fascination for the co-operative model was also influenced by Gandhian thinking on poverty alleviation and social transformation.
    • Kurien could borrow from the ideas and the practices of the corporate world.
    • In areas such as innovations in marketing and management, branding and technology, the private sector excels and sets benchmarks for businesses across the world to follow and adopt.
    • Innovations and evolving technologies: At the same time, Amul was steadily emerging as a laboratory, developing significant innovations and evolving technologies of its own, and these have strengthened its competitive power against multinational corporations.

    Challenges facing cooperative movements in India

    • Amul’s success has not been the catalyst for similar movements across other agricultural commodities in India.
    • Bypassing digital revolution: India’s digital revolution has bypassed the agriculture sector.
    • The cooperative movement in India is in a state of flux.
    • Decline of cooperative movement: India has suffered due to lack of professional management, adequate finance and poor adoption of technology.

    Conclusion

    This is truly a moment to reflect on Verghese Kurien’s remarkable legacy and the unfinished task he has left behind.

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  • Is crypto mania more a symptom than a cause?

    Context

    The draft legislation on crypto currency being introduced in Parliament and the stance of the RBI suggest that consideration is being given to banning crypto currencies in India.

    What fascination with crypto reveals about our society?

    • It is about faith in that value is largely a matter of belief.
    • It is about politics because money is always about the allocation of power.
    • The money itself may not be material, but it is still embedded in a materiality.
    • The fact that money is subject to politics is actually the advantage of money.
    • It allows a modicum of collective control over our future, and allows distributive questions to be posed.
    • It is mania because the alchemy of creating something out of nothing is always deeply alluring.
    • Cheap money: The global economy is awash with cheap money.
    • Seeking return: In an Indian context small savers are desperate for return.
    • In this context it is easy for the powerful to misallocate money and the small saver to express desperation by speculation.

    Background

    • Faced with the inflation of the 1970s, thinkers like Friedrich Hayek theorised about reasserting the dominance of private currencies, protected from the state.
    • Crypto currencies are a fascinating technological innovation.
    • Part of their initial attraction was that they promised a new governance order. 
    • It is at the confluence of faith, politics, and psychological mania.
    • Solving the problem of trust: This project crucially depended on solving the problem of “trust” on which every currency depends.
    • Crypto seemed to solve that problem, with its decentralised architecture and community and self-verification protocols.

    How cryptocurrency poses challenges to the state?

    • No state was going to let go of its power to assert control over the monetary system.
    • Significance of fiat money: The sustenance of state-sponsored fiat money is one of the great achievements of modern state formation and the foundation of its power and legitimacy.
    • Cryptocurrency requires material infrastructure: There was a delusion, as if crypto is conjured out of thin air: It actually requires substantial material infrastructure, which a state could always control.
    • States can shut down mining as China has done.

    Way forward

    • We allow people to invest in all kinds of things. Why ban this, especially now that so many investors are in it?
    • Analyse the risk to the financial system: The answer to this question depends on how much risk the existence of crypto assets pose to the stability of the rest of the financial system.
    • Insulate financial system: One answer is if you can insulate the financial system from the gyrations of crypto markets there are few systemic risks.
    • This is why it was a good idea of the RBI to prohibit the entanglement of financial institutions with this market.
    • Instead of just focussing on issues of fraud, money laundering, and private risks, the RBI’s case would be strengthened if it spelled out the systemic risks that crypto might pose to the stability of the real economy.
    • Avoid ban with exception scenario: For political economy reasons, the RBI should avoid a scenario where it bans but then carves out exceptions.
    • Ensuring that trade does not go offshore: The second thing is that if it somehow allows Indians to invest then it has to ensure that trade does not go offshore. 
    • Not fully banning and allowing it offshore will be the worst of both worlds.

    Challenges in insulating the crypto market

    • In practice the insulation of crypto markets will be difficult to achieve.
    • Political economy: The first reason is political economy. Once you have a large number of investors, and some influential ones, they will be a vested interest in their own right, potentially demanding the socialisation or mitigation of losses.
    • Impact of volume: The second reason is that it is difficult to pretend that a major new class of assets, especially if volumes grow, does not have systemic effects on the rest of the economy.

    Consider the question “What are the risks and advantages provided by the cryptocurrencies? Suggest the approach India should adopt in dealing with cryptocurrencies.”

    Conclusion

    As the RBI makes the case for banning crypto, we also need to ask, why it is alluring in the first place. What does this mania reveal about our politics and economics?

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  • NITI Aayog’s Multidimensional Poverty Index (MPI)

    The Government think-tank NITI Aayog has released the National Multidimensional Poverty Index (MPI).

    Multidimensional Poverty Index (MPI)

    • This baseline report of India’s first-ever national MPI measure is based on the reference period of 2015-16 of the National Family Health Survey (NFHS)- 4.
    • It uses the globally accepted and robust methodology developed by the Oxford Poverty and Human Development Initiative (OPHI) and the United Nations Development Programme (UNDP).
    • It captures multiple and simultaneous deprivations faced by households.

    Parameters used

    • The NMPI is calculated using 12 indicators — nutrition, child and adolescent mortality, antenatal care, years of schooling, school attendance, cooking fuel, sanitation, drinking water, electricity, housing, assets and bank account,
    • They have been grouped under three dimensions namely, health, education and standard of living.

    Why NFHS-4?

    • Data collected during the NFHS-4 (2015-2016) corresponds to the period before the full roll out of new governments’ flagship schemes.
    • Hence it serves as a useful source for measuring the situation at baseline i.e. before large-scale rollout of nationally important schemes.

    How is the data used?

    • The national MPI 2021 is calculated using the household microdata collected at the unit-level for the NFHS-4 that is used to derive the baseline multidimensional poverty.
    • Further, the country’s progress would be measured using this baseline in the NFHS-5, for which the data was collected between 2019 and 2020.
    • The progress of the country with respect to this baseline will be measured using the NFHS-5 data collected in 2019-20.

    Key highlights NMPI

    • As per the index, 51.91% of the population in Bihar is poor, followed by Jharkhand (42.16%), Uttar Pradesh (37.79%), Madhya Pradesh (36.65%) and Meghalaya (32.67%).
    • On the other hand, Kerala registered lowest population poverty levels (0.71%), followed by Puducherry (1.72%), Lakshadweep (1.82%), Goa (3.76%) and Sikkim (3.82%).
    • Other States and UTs where less than 10% of the population are poor include Tamil Nadu (4.89%), Andaman & Nicobar Islands (4.30%), Delhi (4.79%), Punjab (5.59%), Himachal Pradesh (7.62%) and Mizoram (9.8%).

     

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  • India, while moving to renewable energy needs to focus on sustainable well-being

    Context

    With current per capita emissions that are less than half the global average, India’s pledge to reach ‘net zero’ emissions by 2070 has cemented India’s credentials as a global leader.

    Implication of net-zero by 2070

    • The political implication of the date 2070 is that the world should get to ‘net-zero’ by 2050.
    • For that, the rich countries will need to do more and step up closer to their share of the carbon budget.
    • India’s stand also signals that it will not act under external pressure, as requiring equal treatment is the hallmark of a global power, and will have an impact on other issues.

    How focus on coal harms developing countries

    • The subject of oil was not touched at COP26, even as automobile emissions are the fastest growing emissions, because it is a defining feature of western civilisation.
    • Most abundant source of energy: Coal is the most abundant energy source, essential for base load in electrification, and the production of steel and cement.
    • Its use declines after the saturation level of infrastructure is reached.
    • Declining role of G-7 in rule setting: That India and China working together forced the G7 to make a retraction has signalled the coming of a world order in which the G7 no longer sets the rules.
    • Specific language on finance and adaptation: After 40 years there is more specific language on both finance and adaptation finally recognising that costs and near-term effects of climate change will hit the poorest countries hardest.

    Feasibility of the goal of ‘net-zero’ by 2070

    • Seeing the challenge in terms of the scale and the speed of the transformation of the energy system assumes that India will follow the pathway of western civilisation.
    • Transition to electrification: India is urbanising as it is industrialising, moving directly to electrification, renewable energy and electric vehicles, and a digital economy instead of a focus on the internal combustion engine.
    • Most of the infrastructure required has still to be built and automobiles are yet to be bought.
    • Investment vs. incurring cost: India will not be replacing current systems and will be making investments, not incurring costs.

    Challenge for the West

    • The consumption of affluent households both determines and accelerates an increase of emissions of carbon dioxide.
    • This is followed by socio-economic factors such as mobility and dwelling size.
    • In the West, these drivers have overridden the beneficial effects of changes in technology reflected in the material footprint and related greenhouse-gas emissions.
    • The West has yet to come out with a clear strategy of how it will remain within the broad contours of its carbon budget.
    • And increasing inequality and a rise of protectionism and trade barriers imposing new standards need to be anticipated.
    • This knowledge is essential for national policy as well as the next round of climate negotiations.

    Way forward for India

    • Climate change has to be addressed by the West by reducing consumption, not just greening it.
    • Shifting the consumption pattern: Consumption patterns need to be ‘shifted away from resource and carbon-intensive goods and services, e.g. mobility from cars and aircraft to buses and trains.
    • Reducing the carbon intensity: Along with’ reducing demand, resource and carbon intensity of consumption has to decrease, e.g. expanding renewable energy, electrifying cars and public transport and increasing energy and material efficiency’.
    • Equal distribution of wealth and affordable energy use: Equally important, will be achieving a’ more equal distribution of wealth with a minimum level of prosperity and affordable energy use for all’, e.g., housing and doing away with biomass for cooking.
    • Focused research group: The Government now needs to set up focused research groups for the conceptual frame of sustainable well-being.
    • It should analyse the drivers of affluent overconsumption and circulate synthesis of the literature identifying reforms of the economic systems as well as studies that show how much energy we really need for a decent level of well-being.

    Role for legislature

    • Fundamental duty: After the Stockholm Declaration on the Global Environment, the Constitution was amended in 1976 to include Protection and Improvement of Environment as a fundamental duty.
    • Use of provision under Article 253: Parliament used Article 253 to enact the Environment Protection Act to implement the decisions reached at the Stockholm Conference.
    • Enabling new set of legislation: The decisions at COP26 enable a new set of legislation around ecological limits, energy and land use, including the efficient distribution and use of electricity, urban design and a statistical system providing inputs for sustainable well-being.

    Consider the question “Examine the feasibility of India’s ‘net-zero’ target by 2070, also suggest the way forward for India to achieve the target by focusing on sustainable well being”

    Conclusion

    For India, in parallel with the infrastructure and clean technology thrust, the focus on a decent living standard leads to behavioural change in the end-use service, such as mobility, shelter and nutrition — for change modifying wasteful trends.

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  • Finance Ministry backs three-rate GST structure

    The Government can rationalize the GST rate structure without losing revenues by rejigging the four major rates of 5%, 12%, 18% and 28% with a three-rate framework of 8%, 15% and 30%, as per a National Institute of Public Finance and Policy (NIPFP) study.

    GST Slabs

    • In India, almost 500+ services and over 1300 products fall under the 4 major GST slabs.
    • These comprise rates of 5%, 12%, 18%, and 28%. The GST Council periodically revises the items under each slab rate to adjust them according to industry demands and market trends.
    • The updated structure ensures that the essential items fall under lower tax brackets, while luxury products and services entail higher GST rates.
    • The 28% rate is levied on demerit goods such as tobacco products, automobiles, and aerated drinks, along with an additional GST compensation cess.

    Why harmonize GST slabs?

    • Multiple rate changes since the introduction of the GST regime in July 2017 have brought the effective GST rate to 11.6% from the original revenue-neutral rate of 15.5%.
    • Merging the 12% and 18% GST rates into any tax rate lower than 18% may result in revenue loss.
    • The nature of rate changes has also meant that over 40% of taxable turnover value now falls in the 18% tax slab, thus any move to dovetail that slab with a lower rate will trigger losses.

    What next?

    • Restructuring GST rates is a timely idea to improve revenues.
    • It is important to sequence the transition to the new rate structure so as to minimize the costs associated with tax compliance, administration, and economic distortions.

     

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  • Cryptocurrencies regulation across the World

    The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was listed for introduction in Parliament’s Winter Session.

    About the Bill

    • The bill aims to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”.
    • It seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

    How are cryptocurrencies regulated in countries around the world?

    The stance of countries and regulators has ranged from:

    1. A total ban on these financial assets Ex. China
    2. Allowing them to operate with some regulations
    3. Allowing virtual currency trading in the absence of any guidelines Ex. El Salvador
    • Governments and regulators remain divided on how to categorize it as a currency or asset — and how to control it from an operational point of view.
    • The evolution of the policy and regulatory response has been uncharacteristically discordant, with no apparent coordination in the responses of countries.

    Among the countries that haven’t issued detailed regulations, there are those that have recognized and defined these currencies.

    [A] CANADA

    • It defines virtual currency  under its Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, as:

    (a) a digital representation of value that can be used for payment or investment purposes that is not a fiat currency and that can be readily exchanged for funds or for another virtual currency that can be readily exchanged for funds; or

    (b) a private key of a cryptographic system that enables a person or entity to have access to a digital representation of value referred to in paragraph (a).

    • The Canada Revenue Authority (CRA) generally treats cryptocurrency as a commodity for purposes of the country’s Income Tax Act.

    [B] ISRAEL

    • Israel in its Supervision of Financial Services Law includes virtual currencies in the definition of financial assets.
    • The Israeli securities regulator has ruled that cryptocurrency is a security subject, while the Israel Tax Authority defines cryptocurrency as an asset and demands 25% on capital gains.

    [C] GERMANY

    • In Germany, the Financial Supervisory Authority qualifies virtual currencies as “units of account” and therefore, “financial instruments”.
    • It considers Bitcoin to be a crypto token given that it does not fulfill typical functions of a currency.
    • However, citizens and legal entities can buy or trade crypto assets as long as they do it through exchanges and custodians licensed with the German Federal Financial Supervisory Authority.

    [D] UNITED KINGDOM

    • In the UK, Her Majesty’s Revenue & Customs, do not consider crypto assets to be currency or money.
    • It further notes that cryptocurrencies have a unique identity and cannot, therefore, be directly compared to any other form of investment activity or payment mechanism.

    [E] UNITED STATES

    • In US different states have different definitions and regulations for cryptocurrencies.
    • While the federal government does not recognize cryptocurrencies as legal tender, definitions issued by the states recognize the decentralized nature of virtual currencies.

    [F] THAILAND

    • In Thailand, digital asset businesses are required to apply for a license, monitor for unfair trading practices, and are considered “financial institutions” for anti-money laundering purposes.

    Conclusion

    • While most of these countries do not recognize cryptocurrencies as legal tender, they do recognize the value these digital units represent.
    • Almost all countries consider their functions as either a medium of exchange, unit of account, or a store of value (any asset that would normally retain purchasing power into the future).
    • Like India, several other countries have moved to launch a digital currency backed by their central bank.

     

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  • Trilateral Exercise ‘Dosti’

    The 15th edition of the biennial trilateral coast guard exercise ‘Dosti’ involving India, the Maldives and Sri Lanka is underway in the Maldives.

    Exercise Dosti

    • The aim of this exercise is to further fortify the friendship, enhance mutual operational capability, and exercise interoperability and to build cooperation.
    • Both the Maldives and Sri Lanka are of strategic importance to New Delhi and to its maritime security interests.
    • 2021 marks 30 years since these exercises were first launched.

    Significance of the exercise

    • These exercises help during joint operations and missions undertaken by countries and also help enhance interoperability.
    • Although piracy is not a major issue in this part of the Indian ocean, these kinds of exercises also help coast guards with training for possibilities.
    • These exercises help develop a better understanding of the other nation’s coast guard operations and how to enhance coordination during different kinds of missions.

    What it involves

    • The scope of these exercises are wide-ranging.
    • India, Sri Lanka and the Maldives have agreed to work on what they called the “four pillars” of security cooperation.
    • These involved the areas of marine security, human trafficking, counter-terrorism and cyber security.

     

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