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GS Paper: GS3

  • How IPR served as barrier to the right to access healthcare

    Request for waiver

    •  Last year, India and South Africa requested WTO for a temporary suspension of rules under the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
    • A waiver was sought to the extent that the protections offered by TRIPS impinged on the containment and treatment of COVID-19. 
    • The request for a waiver has, since, found support from more than 100 nations.
    • But a small group of states — the U.S., the European Union, the U.K. and Canada among them — continues to block the move.
    • These countries have already secured the majority of available vaccines.
    • But for the rest of the world mass immunisation is a distant dream.

    Grounds on which patent laws are justified

    • Patent laws are usually justified on three distinct grounds:
    • On the idea that people have something of a natural and moral right to claim control over their inventions.
    • On the utilitarian premise that exclusive licenses promote invention and therefore benefit society as a whole.
    • On the belief that individuals must be allowed to benefit from the fruits of their labour and merit.
    • These justifications have long been a matter of contest, especially in the application of claims of monopoly over pharmaceutical drugs and technologies.

    Patent laws in India

    • In 1959, a committee chaired by Justice N. Rajagopala Ayyangar objected to monopolies on pharmaceutical drugs through colonial-era patent law.
    • The committee found that foreign corporations used patents to suppress competition from Indian entities, and thus, medicines were priced at exorbitant rates.
    • The committee suggested, and Parliament put this into law through the Patents Act, 1970, that monopolies over pharmaceutical drugs be altogether removed, with protections offered only over claims to processes.
    • This change in rule allowed generic manufacturers in India to grow. 

    How TRIPS goes against the interest of developing countries

    • WTO has into its constitution a binding set of rules governing intellectual property.
    • Countries that fail to subscribe to the common laws prescribed by the WTO would be barred from entry into the global trading circuit.
    • It was believed that a threat of sanctions, to be enforced through a dispute resolution mechanism, would dissuade states from reneging on their promises.
    • With the advent in 1995 of the TRIPS agreement, this belief proved true.
    • The faults in this new world order became apparent when drugs that reduced AIDS deaths in developed nations were placed out of reach for the rest of the world.
    • It was only when Indian companies began to manufacture generic versions of these medicines as TRIPS hadn’t yet kicked in against India, that the prices came down.

     Argument in support of the patent regime

    • Two common arguments are made in response to objections against the prevailing patent regime.
    • One, that unless corporations are rewarded for their inventions, they would be unable to recoup amounts invested by them in research and development.
    • Two, without the right to monopolise production there will be no incentive to innovate.

    Issues with the argument in support of patent regime

    • Big pharma has never been forthright about the quantum of monies funnelled by it into research and development.
    • Moderna vaccine in the U.S. emanated out of basic research conducted by the National Institutes of Health, a federal government agency, and other publicly funded universities and organisations. 
    • Similarly, public money accounted for more than 97% of the funding towards the development of the Oxford/AstraZeneca vaccine.
    •  Therefore, the claim that the removal of patents would somehow invade on a company’s ability to recoup costs is simply untrue.
    • The second objection — the idea that patents are the only means available to promote innovation — has become something of a dogma.
    • The economist Joseph Stiglitz is one of many who has proposed a prize fund for medical research in place of patents.

    Consider the question “What are the issues with the patent regime under the TRIPS in the field of medicine?”

    Conclusion

    We cannot continue to persist with rules granting monopolies which place the right to access basic healthcare in a position of constant peril. In its present form, the TRIPS regime represents nothing but a new form of “feudal calculus”.

  • Understanding the Ct value in a Covid-19 test

    Recently, the Maharashtra government sought clarity from the Indian Council of Medical Research (ICMR) on the threshold Ct value to treat a person Covid-negative.

    What is Ct value

    • Short for cycle threshold, Ct is a value that emerges during RT-PCR tests.
    • In an RT-PCR test, RNA is extracted from the swab collected from the patient.
    • It is then converted into DNA, which is then amplified.
    • Amplification refers to the process of creating multiple copies of the genetic material — in this case, DNA.
    • Amplification takes place through a series of cycles — one copy becomes two, two becomes four, and so on.
    • Put simply, the Ct value refers to the number of cycles after which the virus can be detected.
    • The lower the Ct value, the higher the viral load — because the virus has been spotted after fewer cycles.

    Why Ct value is important

    • According to the ICMR, a patient is considered Covid-positive if the Ct value is below 35.
    • If the benchmark were to be lowered to 24 — the value mentioned in Maharashtra’s letter — it would mean that Ct values in the range 25-34 would not be considered positive.
    • A benchmark of 35, therefore, means that more patients would be considered positive than we would get if the benchmark were 24.
    • The ICMR has said lowering Ct threshold parameter may lead to missing several infectious persons.

    Does Ct score indicate the severity of disease

    • A small study published in the Indian Journal of Medical Microbiology in January this year found that there was no correlation between Ct values and severity of disease or mortality in patients with Covid-19 disease.
    • It found that the time since the onset of symptoms has a stronger relationship with Ct values as compared to the severity of the disease.
    • The Ct value tells us about the viral load in the throat and not in the lungs.
    • The Ct value does not correlate with severity – only with infectivity.

  • Growth of ARCs not in line with NPA trends

    Key takeaways from the RBI report

    • The RBI report states that notwithstanding the rise in the number of Asset Reconstruction Companys (ARCs), the growth in their assets under management (AUM) has been largely trendless except for a major spurt in FY14.
    • The growth of the ARC industry has not been consistent over time and not always been synchronous with the trends in non-performing assets (NPAs) of banks and non-banking financial companies (NBFCs).
    • During 2019-20, asset sales by banks to ARCs declined, which could probably be due to banks opting for other resolution channels such as IBC and SARFAESI.
    • The acquisition cost of ARCs as a proportion to the book value of assets declined, suggesting lower realisable value of the assets.

    Overview of ARCs in India

    • The ARC industry began with the establishment of the Asset Reconstruction Company India Ltd (ARCIL) in 2003.
    • Of the total AUM, about 62 per cent and 76 per cent was held by the top-three and top-five ARCs in March 2020, respectively.
    • After remaining subdued in the initial years of their inception, a jump was seen in the number of ARCs in 2008, and then in 2016.
    • Although the number of ARCs has risen over time, their business has remained highly concentrated.

    Role of the government

    • Indian ARCs have been private sector entities registered with the Reserve Bank.
    • Public sector AMCs in other countries have often enjoyed easy access to government funding or government-backed.
    • By contrast, capital constraints have often been highlighted as an area of concern for ARCs in India.

    Scope for new ARC supported by the government

    • The ARC proposed in the Budget will be set up by state-owned and private sector banks, and there will be no equity contribution from the Centre.
    • The RBI report supported the government’s proposal for a new ARC, saying that “such an entity will strengthen the asset resolution mechanism further.”
    • Introduction of a new asset reconstruction company for addressing the NPAs of public sector banks may also shape the operations of the existing ARCs, it added. 
    • The ARC, which will have an Asset Management Company (AMC) to manage and sell bad assets, will look to resolve stressed assets of Rs 2-2.5 lakh crore that remain unresolved in around 70 large accounts.

  • SEBI tightens rules for provisional debt rating

    New framework for debt instrument

    • The new framework requires that a rating will be considered provisional in cases where certain compliances that are crucial to the assignment of credit rating are yet to be complied with at the time of rating.
    • Under the new framework, all provisional ratings (‘long term’ or ‘short term’) for debt instruments need to be prefixed as ‘provisional’ before the rating symbol.
    • In no case shall a rating, including provisional rating, be assigned by a credit rating agency for an issuer or client evaluating strategic decisions such as funding mix for a project, acquisition, debt restructuring, scenario-analysis in loan refinancing,” SEBI said.
    • On validity period, SEBI said provisional rating will be converted into a final rating within 90 days from the date of issuance of the instrument.

  • RBI issues guidelines for tenure of bank CEOs, MDs

    What the guidelines say

    • The Reserve Bank of India recently issued certain instructions on the governance for banks.
    • As per the instructions from the central bank, the post of Managing Director (MD) and Chief Economic Officer (CEO) MD or Whole Time Director (WTD) cannot be held by the same incumbent for more than 15 years.
    • The individual will be eligible for re-appointment as MD&CEO or WTD in the same bank after a minimum gap of three years, subject to meeting other conditions.
    • The upper age limit for MD & CEO and WTDs in private banks would continue to be 70 years.
    • MD&CEO or WTD who is also a promoter/ major shareholder, cannot hold these posts for more than 12 years except in extraordinary circumstances.
    • Banks are permitted to comply with these instructions latest by October 01, 2021.

    Applicability

    • These guidelines are applicable for banks, including private banks, Small Finance Banks (SFBs), Wholly Owned Subsidiaries of Foreign Banks.
    • However, it added that this circular is not applicable to foreign banks operating as branches in India.

  • An idea on taxation that is worth a try

    The article highlights the issue of race among countries to offer low corporate taxes to attract global financial capital and its implications.

    What factors contributed to low corporate tax

    • When the Soviet Bloc collapsed in 1990, nations in east Europe were badly hit and needed capital infusion to overcome their economic woes.
    • To attract global capital, they cut their tax rates sharply. This resulted in a ‘race to the bottom’.
    • Global financial capital which is highly mobile has effectively used tax havens and shell companies to shift profits and capital across the globe.
    • This mobility has enabled it to extract concessions from countries by making them compete with each other to match the concessions given by another — that is the ‘race to the bottom’.
    • Nations in Europe were forced to cut their tax rates one after the other to not only attract capital but also to prevent capital from leaving their shores.
    • Also, any country facing economic adversity can cut its tax rates to attract capital and force others to follow suit.
    • India has also cut its tax rates since the 1990s.
    • Most recently in 2019 the corporation tax rate was cut drastically to match those prevailing in Southeast Asia.

    Implications of lower corporate tax rate

    1) Shortage of resources

    • The race to the bottom had global implications.
    • Nations became short of resources and cut back expenditures on public services and encouraged privatisation.
    • The developing countries followed suit even though private markets do not cater to the poor.
    • Thus, disparities increased within nations.

    2) Base Erosion and Profit Shifting

    • The world experienced Base Erosion Profit Shifting (BEPS).
    • Namely, companies shifted their profits to low tax jurisdictions, especially, the tax havens.
    • For instance, many of the most profitable companies like Google and Facebook are accused of shifting their profits to Ireland and other tax havens and paying little tax.
    • EU has levied fines on Google and Apple for such practices.
    • Since all the OECD countries have suffered due to cuts in tax rates and BEPS, initiatives have been taken to check these practices.
    • But they will not succeed unless there is agreement among all the countries.

    3) Regressive tax structure

    • Another implication of the reductions in direct tax rates has been that governments have increasingly depended on the regressive indirect taxes for revenue generation.
    • Value-Added Tax and Goods and Services Tax have been increasingly used to get more revenues.
    • This impacts the less well-off proportionately more and is inflationary.
    • Direct taxes tend to lower the post-tax income inequality.
    • The rising inequalities result in shortage of demand in the economy and to its slowing down which then requires more investment and that calls for more concessions to capital.

    Call for Global minimum tax rate

    • It is against this backdrop that United States Secretary of the Treasury Janet L. Yellen’s has proposed a global minimum tax rate.
    • But, without global coordination, corporation tax rates cannot be raised.
    • The U.S. is crucial to this coordination.
    • There will also have to be cooperation among countries to tackle the lure of the tax havens by enacting suitable global policies.

    Consider the question “What factors contributed to the race to bottom on the corporate taxes among the countries? What are its implications? Will the global minimum tax rate be able to deal with it?”

    Conclusion

    The impact of all this will be far-reaching impacting inequalities, provision of public services and reduction of flight of capital from developing countries such as India and that will impact poverty.

  • India third highest military spender in 2020: SIPRI

    What the SIPRI database says

    • India was the third largest military spender in the world in 2020, behind only the US and China.
    • The US accounted for 39 per cent of the money spent on military globally, China accounted for 13 per cent, and India accounted for 3.7 per cent of the globe’s share.
    • The US spent a total of $778 billion in 2020, China spent $252 billion and India’s military expenditure was $72.9 billion.
    • The United States’ military spending was 3.7 per cent of its GDP while the corresponding numbers for China and India were 1.7 per cent and 2.9 per cent respectively.
    • The other top spenders included Russia with $61.7 billion, the UK at $59.2 billion, Saudi Arabia at $57.5 billion, followed by Germany and France at just under $53 billion each.

    Increase in spending in the year of pandemic

    •  SIPRI said that the total “global military expenditure rose to $1981 billion last year, an increase of 2.6 per cent in real terms from 2019.
    • 2.6 per cent increase in world military spending came in a year” when the global GDP shrank by 4.4 per cent largely due to the economic impacts of the Covid-19 pandemic.
    • Military spending as a share of GDP—the military burden—reached a global average of 2.4 per cent in 2020, which is the biggest year-on-year rise in the military burden since the global financial and economic crisis in 2009.

  • Covid fear and anxiety spread, cash back in favour with public

    Increase in currency with the public

    • During the fortnight ended April 9, currency with the public jumped by Rs 30,191 crore to hit a new high of Rs 27,87,941 crore.
    • In the six-week period between February 27 and April 9, currency with the public rose by Rs 52,928 crore, show RBI data.
    • Experts said the increase in currency with the public is on account of the fear of imposition of lockdowns by state or central governments.

    How currency with public is arrived at

    • According to the RBI, currency with the public is arrived at after deducting the cash with banks from the total currency in circulation.
    • Currency in circulation, which includes notes in circulation, rupee coins, and small coins, refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
    • It effectively means the currency that individuals across the country hold with themselves.

    M3 has gone up

    • Money supply in the economy – or M3 – has gone up over the last couple of months.
    • M3, which includes currency with public, current deposits, savings deposits, and fixed deposits, has increased by 11.3 per cent, or Rs 19.17 lakh crore, to a new high of Rs 189.07 lakh crore as on April 9, 2021.

    B2BASICS

    Measures of Money supply

    1. Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money etc.
      M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI
      It is the monetary base of economy.
    2. Narrow Money (M1):
      M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI
    3. M2 = M1 + Savings deposits of post office savings banks
    4. Broad Money (M3)
      M3 = M1 + Time deposits with the banking system
    5. M4 = M3 + All deposits with post office savings banks

  • Cybersecurity norms for payment services

    What prompted RBI to take such step

    • Following a series of data breaches faced by operators including Mobikwik and payment aggregator JusPay, the Reserve Bank of India (RBI) will soon issue cybersecurity norms for payment service providers (PSPs).
    • On cyber frauds, Reserve Bank of India has issued very recently basic guidelines on cyber hygiene and cybersecurity for banks and certain NBFCs,
    • The standards for fintech-driven payment services providers will be similar to these cyber hygiene norms issued recently.
    • the critical challenge for regulators would be to speed up the absorption of fintech without undermining the financial system’s integrity or stability.

    UPI dominated by limited players

    •  There are not too many payment systems in India and the number of players is limited.
    • Two apps provide about 70% of third-party services in the UPI system.
    • The concentration of two or three third-party providers in this retail payments space could give rise to competitive weaknesses. 
    • Therefore, the National Payments Corporation of India (NPCI) had laid down a framework for a more even distribution of share of third-party app providers in the UPI system.

  • Microfinance Institutions

    The article highlights the important role played by the microfinance sector in furthering financial inclusion in India and suggests measures to achieve holistic development of the sector.

    Important role played by microfinance

    • No other form of financial services has had the kind of far-reaching impact, in terms of fostering financial inclusion, as microcredit has.
    • Access to small, collateral-free loans for economically productive purposes has helped transform the lives of millions at the bottom-of-the-pyramid—especially women.
    • Over the past decade, India’s microfinance industry has grown at a compound annual growth rate of 26% to reach â‚č2.36 trillion.
    • It has helped 50 million economically vulnerable Indians, 99% of them women, live a life of dignity and financial independence.
    • Assuming that these 50 million people who took a loan to start a small business employed at least one other person, it translates into 50 million additional jobs in the country.
    • This creates a ‘network effect’ that has a social impact at scale.

    Evolution of microfinance industry

    • Recommendations of the Malegam Committee, which became regulations, and practices such as relying on credit bureau data to assess a borrower’s creditworthiness have helped the industry immensely.
    • The vital role that microfinance plays in the last-mile delivery of financial services was acknowledged.
    • Subsequently, eight out of the 10 small finance bank licences granted were also given to microfinance institutions.
    • RBI has sought to undertake a comprehensive review of the sector again, after 10 years, to better align the regulatory framework with the sector’s current realities.

    Steps for development of sector

    • First, Entities should promote financial literacy through group meetings of borrowers.
    • Second, organizations should complement their microcredit operations with social development projects and community-connect initiatives.
    • Third, prospective borrowers’ indebtedness and ability to repay dues should be assessed properly.
    • Fourth, loans must be given only for income-generation purposes.
    • Fifth, every microfinance organization should devote time and resources for capacity building at the grassroots.
    • Sixth, rather than focusing on taking over the existing debt of a borrower, or lending to her further, institutions should focus on bringing new-to-credit customers into the fold.

    Consider the question “How can microcredit stimulate financial inclusion in India? Suggest the measures for the development of microfinance sector in India.”

    Conclusion

    There is much more that we, as a nation, collectively need to do in order to bring a vast population of unbanked and underbanked Indians into the fold of formal financial services.