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FDI in Indian economy

Recent amendments to FDI policy – a boon or a bane?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Routes of FDI, External commercial borrowing etc.

Mains level : Paper 3- What are the factors responsible for declining FDI in India? Discuss the changes made in FDI policy amid covid pandemic.

This article deals with the recent changes made by the government in the FDI policy. The major change was that the government approval route was made mandatory for investment coming from certain countries. There are certain ambiguities and issues with the latest changes.These are discussed here.

What changes were made in the FDI policy?

  • Government approval route for investment: Investment is permitted through government route only in the following cases-
  • 1) An entity situated in a country which shares a land border with India.
  • 2) Where the owner of investment into India is situated in or is a citizen of any such country.
  • Further, any transfer of ownership of any existing or future foreign direct investment (FDI) in an entity in India (indirectly or indirectly) resulting in the beneficial ownership falling within the purview of the above restrictions, would require the government’s approval.

Ambiguities arising due to press note

  • There appear to be certain ambiguities arising from the press note and the amendments to the Rules.
  • The usage of the term “FDI” in the press note and the relevant amendments to Rule 6(a) of the Rules, seem to suggest that the restrictions are on investments that are structured as FDI.
  • FDI is defined under the Rules to mean investment through equity instruments by a person resident outside India in an unlisted Indian company, or in 10% or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company
  • The restriction doesn’t seem to be on investments by an FPI registered with SEBI.
  • FPI is permitted to invest in listed or to be listed Indian companies’ securities, in the manner set out in Schedule II of the Rules.
  • Also not on investments under the FVCI route.
  • Investment through FVCI is an investment in the securities of Indian companies operating in certain specific sectors, in the manner set out in Schedule VII of the Rules.
  • It is also unclear if “foreign investments” in LLPs, not being FDI, would also be subject to these restrictions.
  • This ambiguity is further amplified by the subject line of the press note, which reads “curbing opportunistic takeovers/acquisitions of Indian companies”, without making any reference to LLPs.
  • And the amendments to Rule 6(a) of the Rules, which only pertain to investments in equity instruments of an Indian company under Schedule I of the Rules.

The points mentioned here add to our understanding of FDI and issues with it. A question based on the issue can be asked, for ex-“What are the reasons for a steady decline in FDI in India? To what extent FDI poilcy is responsible for this?”

Difficulties in seeking government approval

  • The requirement of seeking government approval may also pose operational difficulties for many entities.
  • For instance, the approval requirement seems to be applicable in all cases of further investments irrespective of the threshold.
  • It applies whether or not such investments are in the form of rights issue (where all or almost all existing shareholders also participate) or preferential allotments.
  • Which results in causing some amount of hardship for entities to raise further capital, especially where entities already have existing investments from investors situated in countries like China.
  • The amendments to the Rules also do not attempt to clarify the applicability of the approval requirements where there is no change in the shareholding percentage of the investor pursuant to a follow-on investment.
  • Another aspect which is important, is the usage of the terms “directly or indirectly” in the context of transfer/ divestment of beneficial ownership of existing FDI, to entities in/ citizens of a country which shares a land border with India.
  • This may require global acquisitions of entities in other jurisdictions which have subsidiaries/ investee companies in India, by a person in one of India’s neighbouring countries, to be subject to the approval requirements, thereby impacting timelines for closing.

No restrictions on external commercial borrowings (ECB)

  • There are presently no such commensurate restrictions under the ECB regulations.
  • Therefore, an eligible borrower could avail ECB from a recognised lender.
  • That includes a foreign equity holder in one of India’s neighbouring countries which are FATF compliant for any immediate funding requirements.
  • Any conversion of the ECB or any part thereof, into shares of the Indian company, would be subject to the restrictions and approval requirements under the FDI policy and the Rules.

Conclusion

The government/RBI should provide necessary clarifications on these issues and ambiguities at the earliest. With there being no sunset clause presently contemplated on the applicability of these restrictions, only time will tell if the amendments to the Rules are a boon to the economy and a step in the right direction, or otherwise.


Back2Basics: What is ‘Rights issue’

  • Cash-strapped companies can turn to rights issues to raise money when they really need it.
  • In these rights offerings, companies grant shareholders the right, but not the obligation, to buy new shares at a discount to the current trading price.
  • A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
  • This type of issue gives existing shareholders securities called rights.
  • With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
  • The company is giving shareholders a chance to increase their exposure to the stock at a discount price.
  • Until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.
  • The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares’ value.
  • Dilution occurs because a rights offering spreads a company’s net profit over a larger number of shares.
  • Thus, the company’s earnings per share, or EPS, decreases as the allocated earnings result in share dilution.

What is the Limited Liability Partnership (LLP)?

  • LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
  • In a general partnership, all partners share liability for any issue that may arise.
  • The LLP is a formal structure that requires a written partnership agreement and usually comes with annual reporting requirements depending on your legal jurisdiction.

What is the FVCI route of investment?

  • Foreign Venture Capital Investor’ (FVCI) means an investor incorporated and established outside India and registered with Securities and Exchange Board of India under Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000.
  • The amount of consideration for all investment by an FVCI has to be received/made through inward remittance from abroad through banking channels or out of funds held in a foreign currency account and/ or a Special Non-Resident Rupee (SNRR) account maintained by the FVCI with an AD bank in India.
  • The foreign currency account and SNRR account shall be used only and exclusively for transactions under the relevant Schedule.

Judicial Reforms

Issue of post-retirement appointments of the judges.

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Various article to ensure the independence of judiciary.

Mains level : Paper 2- Do you agree with the view that post-retirement appointment of the judges undermine the confidence in judiciary? Give suggestions to deal with the problem.

The article discusses the issue of retired judges accepting government post after retirement. Such appointments have several implications. It undermines confidence in the independence of the judiciary. It also influence pre-retirement judgements delivered by the judges. The article also offers some solutions to this problem.

The provisions in the Constitution to secure the independence of the judiciary

  • The Constitution has been conceived to provide a pride of place to the judiciary.
  • Constitutional appointees to the Supreme Court have been guaranteed several rights in order to secure their independence.
  • Salary: The salaries of judges and their age of retirement are all guaranteed in order to secure their independence.
  • Removal: They cannot be easily removed except by way of impeachment under Articles 124(4) and 217(1)(b).
  • They have the power to review legislation and strike it down.
  • They can also question the acts of the executive.
  • All this makes it clear that the framers of the Constitution envisaged an unambitious judiciary for which the only guiding values were the provisions of the Constitution.

Issue of judges accepting post-retirement jobs

  • It was thought that on retirement from high constitutional office, a judge would lead a retired life.
  • Nobody ever expected them to accept plum posts.
  • But the clear demarcation between the judiciary and executive got blurred as many judges over the years began to accept posts offered by the government.
  • A few years ago, a former Chief Justice of India (CJI) was made a Governor by the ruling party.
  • Now, we have the case of a former CJI, Ranjan Gogoi, being nominated by the President to the Rajya Sabha and taking oath as Member of Parliament.
  • Pre-retirement judgements under cloud: During his tenure as CJI, Justice Gogoi presided over important cases such as Ayodhya and Rafale where all the decisions went in favour of the government.
  • This gave rise to the impression that his nomination was a reward for these ‘favours’.
  • Thus his appointment — and that too within a few months of his retirement — not only raised eyebrows but came in for severe condemnation from varied quarters.
  • Loss of confidence: People are fast losing confidence in the so-called independent judiciary.
  • In 2013 Arun Jaitley, who was also a senior Advocate, ironically said that legislature was creating post-retirement avenues for Judges in every legislation.
  • He also said that post-retirement job influences pre-retirement judgements.
  • It is in this context that the appointment of Mr Gogoi has to be perceived.

Did Constitution makers intend to nominate Judges?

  • Mr Gogoi’s view that membership of the Rajya Sabha was not a job but a service, and that once the President nominated him the call of duty required him to accept it, only created the impression that the judiciary is pliant.
  • A bare reading of Article 80(3) of the Constitution only envisages the President to nominate “persons having special knowledge in literature, science, art and social service” as members to the Rajya Sabha.
  • It is difficult to imagine that the Constitution-makers had in mind a retired CJI when framing this provision.

A direct question based on the issue can be asked, like “What are the implications of post-retirement appointments of the judges? Give suggestions to deal with this problem”.  So, take note of the various issues and their solutions discussed here.

Way forward

  • If post-retirement appointments are going to undermine confidence in the judiciary and in a constitutional democracy.
  • Enact law or amend Constitution: It is time to have a law in place either by way of a constitutional amendment or a parliamentary enactment barring such appointments.
  • This is the only way to secure the confidence of the people and prevent post-retirement appointments.
  • Increase pension: Judges can be compensated by being given their last drawn salary as a pension.
  • Retirement age can be increased: Also, the age of retirement for judges can be increased by a year or two.
  • This will undo the damage caused by post-retirement jobs.

Conclusion

The appointments of persons who have held constitutional office will undermine the very constitutional values of impartiality in the dispensation of justice. So, enacting a law to bar such appointments or amendment to the Constitution would be the step in the right direction.

Coronavirus – Economic Issues

Restarting the coronavirus-hit economy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Reproduction number-with respect to pandemic.

Mains level : Paper 3- What was the extent of damage caused by the Covid-19 to the India economy?

The theme of the article is the restarting of the Indian economy. Striking the right balance between livelihood and the spread of the virus is important for India. While India has been doing well on the curbing of the spread of the virus, its economy remains in the complete shutdown. So, we must restart our economy and this article offers some suggestions to do so and some trends that our economy is showing are discussed here.

Striking the balance between the economy and the spread of the virus

  • One critical problem is striking the right balance between curbing the spread of the virus and keeping the economy functioning.
  • We cannot have the poor, the labourers and the migrants bear the brunt of the effort to contain the spread of the virus.
  • And nor do we want to weaken the foundations of the economy so much that we emerge from the pandemic onto an economic wasteland.
  • The choice between lives and economy is also a choice between lives and lives.

Appreciation of India’s effort to curb the virus

  • India’s effort to curb the spread of the virus has received appreciation — not just the state of Kerala, which has got accolades from around the world, but the country as a whole.
  • The incidence of COVID-19 remains low in India.
  • Of every 10 million people, there are as yet 5 lives lost in India.
  • Comparison with the world: This is vastly lower, not just compared to Belgium, which tops the list with 5,180 fatalities for every 10 million people, but many other nations, such as the United States with 1,370 fatalities, Spain with 4,550, Italy with 4,080 and the UK with 2,550 fatalities.

One of the many puzzles associated with the Covid-19 is variation shown by it in fatality rate across the globe. Following are some figures about it.

Worldwide variation in the fatality rate

  • To be fair, the low fatality, per 10 million population, is not specific to just India.
  • We have comparably low figures currently in almost all African and South Asian nations.
  • Thus, it is seven for Bangladesh, three for Sri Lanka, nine for Pakistan, two for Tanzania, one for Nigeria, and 0.3 for Ethiopia.
  • No one fully understands these huge differences between Europe and North America, on the one hand, and Africa and South Asia, on the other.
  • Isolation of nation, not a factor: This cannot be because these nations are more isolated.
  • Bangladeshis are among the most globally scattered people and Ethiopia has huge interactions with China, but the fatality rates are low in both countries.
  • Why is this so? The short answer is we do not know.

Defeating the virus by keeping reproduction number below one

  • It is important to realise that the risk cannot be cut to zero — nothing in life is a zero-risk activity.
  • To defeat the virus, the aim has to be to keep the “reproduction number”, or R-0, down to less than one.
  • R-0 refers to the number of people, on average, who get infected by each infected person.
  • When R-0 reaches less than one in any given region, such as is the case in Kerala, we know that the incidence of the disease is winding down in that region.

Following points are important from the UPSC perspective. A question can be framed on the economic damage of the Covid-19, opportunities provided by it, its implications for the vulnerable section of the society, unemployment, international trade, changes in the economic policies of the government etc.

Coming out of lockdown: Economic policy challenge

  • The economic policy challenge is about how to come out of the lockdown.
  • This has to be done carefully, but quickly.
  • The stringency of India’s lockdown at top: A study by researchers at the University of Oxford, of the stringency of lockdowns in 73 countries, places India right on top.
  • For a short while, this is worth it, and also impressive for a populous nation like India.
  • Not desirable position: The top rank on the stringency index is not something any country will want to occupy for long.
  • That will have a devastating effect on the poor and damage the nation’s long-run economic prospects.

Trends in the Indian economy

  • Unemployment rate at an all-time high: There are studies showing that India’s unemployment rate is now at 24 per cent, an all-time high.
  • Biggest ever capital outflow in a month: March also saw the biggest outflow of capital from the nation ever recorded in one month — roughly $15 billion left the nation.
  • This also happens to be the largest capital outflow from any emerging economy in March.
  • Clearly, global players are reacting to the fact that the economy is not functioning.
  • Rupee at an all-time low: These sentiments have weakened the Indian rupee, which is now at an all-time low.
  • Some of these problems are inevitable in this dystopian world; we can deal with these problems for a short while.
  • Global trade: If these trends persist, India would end up ceding space to other nations in global trade, exports and business, and the suffering will be huge on the working classes.

Way forward in opening the economy

  • Once this phase of the lockdown ends on May 3, we will have to start opening businesses, allowing the private sector, especially the informal enterprises and small firms, to operate.
  • Rule of behaviour: There will have to be rules of behaviour in place, such as social distancing, masks, hand-washing, but we have to begin to facilitate poor labourers to reach their place of work, and our farms and factories to function.
  • Focus on participation, not permission: We have to encourage the rules of behaviour to continue by “participation” and not by bureaucratic “permission”.
  • India has a long history of the “permit raj”, where all businesses were beholden to the bureaucracy for what they did.
  • This had a tendency to strangle all but a few big firms and had held up the nation’s economic growth for long.

Conclusion

India stands at an important juncture. A misstep at such moment could turn the course of history for the nation. So, the right steps at various fronts from containing the spread to the reopening of the economy are required from the government.

Freedom of Speech – Defamation, Sedition, etc.

Highlights of the World Press Freedom Index, 2020

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Highlights of the report

Mains level : Freedom of Press

 

India has dropped two places on a global press freedom index to be ranked 142nd out of 180 countries in the annual World Press Freedom Report.

Press freedom  especially after the abrogation of Art. 370 in J&K was profoundly debated back then.  We can expect a mains question like-

“Reasonable restrictions to the freedoms enjoyed by media are necessary while addressing the concerns of national security.  Critically comment.”

World Press Freedom Index

  • The Press Freedom Index is an annual ranking of countries compiled and published by Reporters Without Borders.
  • It is based upon the organization’s own assessment of the countries’ press freedom records.
  • It intends to reflect the degree of freedom that journalists, news organisations, and netizens have in each country, and the efforts made by authorities to respect this freedom.
  • The report is partly based on a questionnaire which asks questions about pluralism media independence, environment and self-censorship, legislative framework, transparency, and infrastructure.

Highlights on India

  • The report said that with no murders of journalists in India in 2019, as against six in 2018.
  • However, there have been constant press freedom violations, including police violence against journalists, ambushes by political activists, and reprisals instigated by criminal groups or corrupt local officials.

Global scenario

  • Norway is ranked first in the Index for the fourth year running.
  • India ranked better than its neighbours Pakistan (145) and Bangladesh (151), but worse than Sri Lanka (127) and Nepal (112).
  • China at 177th position is just three places above North Korea, which is at 180th.

Various threats to press freedom

  • Across the world, press freedom is under pressure from aggressive authoritarian regimes.
  • The media is also facing a technological crisis, due to a lack of democratic guarantees and a democratic crisis following polarization and repressive policies, the report reads.
  • In addition comes a crisis of trust following growing suspicion and even hatred of the media, and an economic crisis and impoverishing of quality journalism.
  • Among other issues, the report has listed coordinated social media hate campaigns against journalists reporting on issues that “annoy right-wing followers”, criminal prosecutions to gag journalists critical of authorities and police violence against journalists.

Fertilizer Sector reforms – NBS, bio-fertilizers, Neem coating, etc.

[pib] Nutrient Based Subsidy (NBS) rates and its fixation

Note4Students

From UPSC perspective, the following things are important :

Prelims level : NBS schemes

Mains level : NBS scheme and its benefits

Union Cabinet has approved fixation of Nutrient Based Subsidy (NBS) rates for Phosphatic and Potassic (P&K) fertilizers for the year 2020-21.

 

Fertilizer subsidy  accounts for large fiscal subsidies (about 0.73 lakh crore or 0.5 per cent of GDP), the second-highest after food.  We can expect a question like – “Discuss the role of NBS in ensuring land fertility and farm productivity in India.”

 

About Nutrient Based Subsidy (NBS) Scheme

  • The NBS Scheme for fertilizer was initiated in the year 2010 and is being implemented by the Department of Fertilizers.
  • Government is making available fertilizers, Urea and 21 grades of P&K fertilizers to farmers at subsidized prices through fertilizer manufacturers/importers.

What NBS provides?

  • The scheme allows the manufacturers, marketers, and importers to fix the MRP of the Phosphatic and Potash fertilizers at reasonable levels.
  • The MRP will be decided considering the domestic and international prices of P&K fertilizers, inventory level in the country and the exchange rates.
  • The NBS ensures that adequate quantity of P&K is made available to the farmers at a statutory controlled price.

Fertilizers covered

  • Under this, a fixed amount of subsidy decided on an annual basis is provided on each grade of subsidized Phosphatic and Potassic (P&K) fertilizers, except for Urea based on the nutrient content present in them.
  • It is largely for secondary nutrients like N, P, S and K and micronutrients which are very important for crop growth and development.
  • In India, urea is the only controlled fertilizer and is sold at a statutory notified uniform sale price.

Primary and Secondary Education – RTE, Education Policy, SEQI, RMSA, Committee Reports, etc.

[pib] VidyaDaan 2.0 Programme for e-learning content contributions

Note4Students

From UPSC perspective, the following things are important :

Prelims level : VidyaDaan initiative

Mains level : Various e-learning initiaitves

The Union HRD Ministry has e-launched VidyaDaan 2.0 program for inviting e-learning content contributions.

There are various web/portals/apps with peculiar names such as YUKTI, DISHA, SWAYAM etc. Their core purpose is similar with slight differences. Pen them down on a separate sheet under the title various digital HRD initiatives.

Add one more to this list.

VidyaDaan

  • ‘Vidya Daan’ is a digital program to enable contributions to improve teaching & learning.
  • It encourages the sharing of high quality, curated, relevant & curriculum-linked digital content.
  • This program attempts to synergize countrywide developments in the field of education by providing schools all over India, from the Metro cities to the smallest villages with good quality e-content.

How does it work?

  • VidyaDaan has a content contribution tool that provides a structured interface for the contributors to register and contribute different types of content (such as, explanation videos, presentations, competency-based items, quizzes etc.), for any grade (from grade 1 to 12), for any subject as specified by the states/UTs.

About phase 2.0

  • The programme has been re-launched due to the increasing requirement for e-learning content for students especially in the backdrop of the situation arising out of COVID- 19.

Horticulture, Floriculture, Commercial crops, Bamboo Production – MIDH, NFSM-CC, etc.

[pib] Species in news:  Anthurium

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Anthurium

Mains level : NA

A women innovator from Thiruvananthapuram, Kerala, has developed ten varieties of Anthurium, a flower with high market value, by cross-pollination.

Anthurium

  • An anthurium is a vast group of beautiful blooming plants available in a wide range of colours.
  • Anthurium is one of the best domestic flowering plants in the world.
  • They are decorative as well as purify the surrounding air and remove harmful airborne chemicals like formaldehyde, ammonia, toluene, xylene, and allergens.
  • Its importance of removing toxic substances from the air, NASA has placed it in the list of air purifier plants.
  • Anthurium has larger economic importance because of its eye-catching and beautiful inflorescence and fetches a good market price.

Salient features of the Anthurium varieties are

  • Large beautiful flowers
  • Different colors of spathe and spadix
  • Long stalks
  • Better shelf life
  • Good market value

Earth Overshoot

Earth Day 2020 and its significance

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Earth Day

Mains level : NA

Yesterday, April 22nd was celebrated as Earth Day, an international event celebrated around the world to pledge support for environmental protection.

The Earth Day designation by UN and its first observance have confusing difference. Make note of that. We can expect a question based on that. Also read about Earth Overshoot Day.

What is Earth Day?

  • In 2009, the United Nations designated April 22 as ‘International Mother Earth Day’.
  • Earth Day aims to “build the world’s largest environmental movement to drive transformative change for people and the planet.”
  • Earth Day was first observed in 1970, when 20 million took to the streets to protest against environmental degradation.
  • The event was triggered by the 1969 Santa Barbara oil spill, as well as other issues such as smog and polluted rivers.
  • The landmark Paris Agreement, which brings almost 200 countries together in setting a common target to reduce global greenhouse emissions, was signed on Earth Day 2016.

Significance of this year

  • The year 2020 marks the 50th anniversary of the annual celebrations.
  • This year’s theme for Earth Day is ‘climate action’.