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  • Foreign Policy Watch: India-Middle East

    India’s new West Asia approach is a welcome break with past diffidence

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Context

    The first summit this week of I2U2, which brings together India, Israel, the United Arab Emirates and the United States – is exploratory in nature.

    I2U2 forum

    • Following the Abraham Accords between Israel and the UAE, I2U2 was founded in October 2021 to address marine security, infrastructure, and transportation challenges in the region.
    • It was known as the ‘International Forum for Economic Cooperation’at the time. At that time, UAE had referred to the new grouping as the ‘West Asian Quad’.
    • I2U2 seeks to empower the partners and encourages them to collaborate more closely, resulting in a more stable region.
    • India is seen as a large consumer market as well as a large producer of high-tech and highly sought-after items in the United States.
    • This has led India to enhance its relationship with Israel without jeopardising its ties with the UAE and other Arab states.

    How I2U2 matters to India

    • India can contribute to peace and prosperity in the region: The initiative signifies the US bet that India can contribute significantly to peace and prosperity in the region.
    • West Asian engagement: It also underlines a new political will in Delhi to break the old taboos on India’s West Asian engagement.
    • Consolidation of  India’s Middle East Policy: The I2U2 marks the consolidation of a number of new trends in India’s Middle East policy that acquired greater momentum in the past few years.
    • What stands out sharply in India’s new thinking in the Middle East is that the summit involves three countries that Delhi had traditionally kept a safe political distance from.

    India-Israel relations

    • Although India was one of the first countries to extend recognition to Israel in 1950, Jawaharlal Nehru held back from establishing full diplomatic relations with the Jewish state.
    •  PV Narasimha Rao reversed that policy in 1992 but he did not travel to Israel nor did he receive an Israeli prime minister.
    • Atal Bihari Vajpayee of the BJP, which had a more empathetic view of Israel, hosted Israeli PM Ariel Sharon in 2003.
    • While the relationship steadily expanded, there was ideological reluctance in Delhi to give the partnership a political profile.
    • In the past few years India imparted a political character to the Israel ties.
    • No backlash from the Arab countries: There was little negative reaction to the more open pursuit of India’s ties with Israel.
    • The problem was never with the Middle East but Delhi’s ideological preconceptions that distorted India’s view of the region.
    • Turkey, now a champion of political Islam, had diplomatic ties with Israel since 1949.
    • Egypt normalised ties in 1980.
    • Under the Abrahamic accords promoted by the Trump Administration, the UAE, Bahrain, Sudan and Morocco set up formal ties with Israel in 2020.

    India’s relations with the Arab countries

    • India’s engagement with Israel was matched by effort to deepen India’s ties with the Arab world.
    •  During his first visit to Israel in 2018, Prime Minister Mode also became the first Indian PM to visit Palestine.
    • Even more important has been the transformation of India’s relations with the Gulf Kingdoms, especially the UAE and Saudi Arabia.
    • India’s traditional preference in the Arab world was for engaging the republics.
    • Engagement with monarchies: Delhi remained wary of engagement with the monarchies, telling itself that they were pro-Pakistan.
    •  No Indian PM visited Saudi Arabia between 1982 and 2010 and UAE between 1981 and 2015.
    • After 2015 India developed strong ties with these governments without a reference to Pakistan.
    • Despite Delhi’s ideological posturing, the Middle East had long ceased to be a political priority for India.
    • In contrast with the past, recently the prime minister has travelled four times to the UAE alone, negotiated a free trade agreement with it, and has ambitious plans for the transformation of bilateral relations.
    • The UAE has also backed India’s 2019 constitutional changes in Kashmir and is ready to invest in the union territory.

    Change in India’s approach to the region

    • India-US ties: For political Delhi, the US and Western policies in the region were a main part of the problem.
    • The immediate focus of Nehru’s policy after independence was to actively oppose US moves in the region in the name of promoting an “area of peace”.
    • That policy had no lasting impact as many regional countries sought active economic, political, and security cooperation with the US and the West.
    • The I2U2 then marks a big break from the anti-Western tradition in India’s approach to the region.
    • Negotiating the terms of joint engagement: In the past, standing up to the West in the Middle East was part of India’s approach, India now is prepared to confidently negotiate the terms of a joint engagement.

    Conclusion

    India’s participation in the West Asian Quad brings Delhi in line with other major powers– including Europe, China, and Russia – to try and engage all parties in the region. The I2U2 sets the stage for a new and dynamic phase in India’s relations with the Middle East.

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    Back2Basics: Abraham Accords

    • The Israel–UAE normalization agreement is officially called the Abraham Accords Peace Agreement.
    • It was initially agreed to in a joint statement by the United States, Israel and the United Arab Emirates (UAE) on August 13, 2020.
    • The UAE thus became the third Arab country, after Egypt in 1979 and Jordan in 1994, to agree to formally normalize its relationship with Israel as well as the first Persian Gulf country to do so.
    • Concurrently, Israel agreed to suspend plans for annexing parts of the West Bank.
    • The agreement normalized what had long been informal but robust foreign relations between the two countries.

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  • RBI Notifications

    RBI sets up system to settle International Trade in Rupees

    | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

    RBI has decided to put in place an additional arrangement of international trade for invoicing, payment, and settlement of exports / imports in INR.

    • Banks acting as authorised dealers for such transactions would have to take prior approval from the regulator to facilitate this.
    • All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
    • Exchange rate between the currencies of the two trading partner countries may be market determined.
    • Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
    • These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
    • Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

    Nostro and Vostro Accounts

    • Nostro and vostro are terms used to describe the same bank account; the terms are used when one bank has another bank’s money on deposit.
    • They are used to differentiate between the two sets of accounting records kept by each bank.
    • Nostro comes from the Latin word for “ours,” as in “our money that is on deposit at your bank.”
    • Vostro means “yours,” as in “your money that is on deposit at our bank.”

    Why such move?

    • The rupee is at a historic low against the dollar.
    • The mechanism is meant to facilitate trade with countries under sanction.
    • Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
    • As a result of the trade facilitation mechanism, we see easing of payment issues with Russia.
    • The move would also reduce the risk of forex fluctuation specially looking at the Euro-rupee parity.
    • We see this as a first step towards 100% convertibility of rupee.
    • It will also help stabilize rupee.

    What does the change mean for exports?

    • Several countries including Sri Lanka and some in Africa and Latin America are facing forex shortage.
    • As such, the new mechanism will help India promote its exports.
    • It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.

    Will the move help narrow trade deficit?

    • The gap between India’s exports and imports widened to record highs.
    • This puts pressure on the current account deficit, which some economists estimate would nearly double to more than 3% of GDP in FY23.
    • RBI’s decision may not benefit the external account immediately, but over the medium term, demand for dollars may come down.
    • This is partly because opening of new vostro accounts between banks may take some time.

    Back2Basics: Currency Convertibility

    • Convertibility is the ease with which a country’s currency can be converted into gold or another currency through global exchanges.
    • It indicates the extent to which the regulations allow inflow and outflow of capital to and from the country.
    • Currencies that aren’t fully convertible, on the other hand, are generally difficult to convert into other currencies.
    • Having a convertible currency allows a government to pay for goods and services in a currency that may not be the buyer’s own.

    Convertibility of Rupee

    • In order to face the serious current account deficit in the balance of payments, the Government of India introduced the partial convertibility of rupee from March 1, 1992.
    • This was an inevitable move for the expeditious integration of Indian economy with that of the world.
    • Under this system, 60 per cent of the exchange earnings were convertible in rupees at market-determined exchange rate and the remaining 40 per cent were at the officially determined exchange rate.
    • Current account convertibility relates to the removal of restrictions on payments relating to the international exchange of goals, services and factor incomes.
    • Capital account convertibility refers to a similar liberalization of a country’s capital transactions such as loans and investment, both short term and long term.

     

    A bit difficult, but pls take an effort to try this PYQ from CSP 2020:

    If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

    1. Not depending on short-term foreign borrowings
    2. Opening up to more foreign banks
    3. Maintaining full capital account convertibility

    Select the correct answer using the code given below:

    (a) 1 only

    (b) 1 and 2 only

    (c) 2 only

    (d) 1, 2 and 3

     

    Post your answers here. Detailed explanation will be provided.

     

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  • Judicial Reforms

    Parliamentary Committee opposes Mediation Bill

    Bills/Act/Laws | Polity | Mains Paper 2: Parliament & State Legislatures

    The Parliamentary Standing Committee on Law and Justice has recommended substantial changes to the Mediation Bill.

    Mediation Bill, 2021

    • Mediation is a voluntary dispute resolution process.
    • It is an informal, confidential, flexible, and non-binding process in which an impartial person called a “mediator” helps the parties to understand the interests of everyone involved, and their practical and legal choices.
    • The Bill requires persons to try to settle civil or commercial disputes through mediation before approaching any court or tribunal.
    • Agreements resulting from mediation will be binding and enforceable in the same manner as court judgments.

    Key features of the Bill

    (1) Pre-litigation mediation

    • Parties must attempt to settle civil or commercial disputes by mediation before approaching any court or certain tribunals.
    • Even if they fail to reach a settlement through pre-litigation mediation, the court or tribunal may at any stage refer the parties to mediation if they request for the same.

    (2) Disputes not fit for mediation

    • The Bill contains a list of disputes which are not fit for mediation.
    • These include disputes: (i) relating to claims against minors or persons of unsound mind, (ii) involving criminal prosecution, and (iii) affecting the rights of third parties.
    • The central government may amend this list.
    • It will apply to mediations conducted in India: (i) involving only domestic parties, (ii) involving at least one foreign party and relating to a commercial dispute (i.e., international mediation).

     (3) Mediation process

    • Mediation proceedings will be confidential, and must be completed within 180 days (may be extended by 180 days by the parties).
    • A party may withdraw from mediation after two sessions.
    • Court annexed mediation must be conducted as per the rules framed by the Supreme Court or High Courts.

    (4) Mediators

    • Mediators may be appointed by: (i) the parties by agreement, or (ii) a mediation service provider (an institution administering mediation).
    • They must disclose any conflict of interest that may raise doubts on their independence.
    • Parties may then choose to replace the mediator.

    (5) Mediation Council of India

    • The central government will establish the Mediation Council of India.
    • The Council will consist of a chairperson, two full-time members (with experience in mediation or ADR), three ex-officio members (including the Law Secretary, and the Expenditure Secretary), and a part-time member from an industry body.
    • Functions of the Council include: (i) registration of mediators, and (ii) recognising mediation service providers and mediation institutes (which train, educate, and certify mediators).

    (6) Mediated settlement agreement

    • Agreements resulting from mediation (other than community mediation) will be final, binding, and enforceable in the same manner as court judgments.
    • They may be challenged on grounds of: (i) fraud, (ii) corruption, (iii) impersonation, or (iv) relating to disputes not fit for mediation.

    (7) Community mediation

    • This may be attempted to resolve disputes likely to affect the peace and harmony amongst residents of a locality.
    • It will be conducted by a panel of three mediators (may include persons of standing in the community, and representatives of resident welfare associations).

    Issues highlighted by the Parliamentary Committee

    • Compulsion: The panel cautioned against making compulsory pre-litigation mediation.
    • Scope for Delay: Making pre-litigation mediation mandatory may actually result in delaying of cases.
    • Judicial intervention: The provision to give higher courts the power to frame rules for mediation was also questioned.
    • Narrower scope: The members questioned the non-applicability of the provisions to non-commercial disputes involving the Government and its agencies.
    • No bar of experienced professionals: The MCI, established to regulate the profession of mediators, may not have representation of practising mediators with adequate experience.
    • Prior approval from centre: The MCI requires prior approval from the central government before issuing regulations related to its essential functions.  It is not clear why such prior approval is required.
    • Domestic conduct of mediation: The Bill applies to international mediations only if they are conducted in India and not outside.

    Why need a law on Mediation?

    • Fast: Because the amount of time necessary for the parties and therefore the Mediator to organize for the mediation is significantly way less as that needed for trial or arbitration, a mediation of dispute can occur relatively early.
    • Flexible: There exists no set formula for mediation. Different Mediators employ different styles. Procedures are often modified to satisfy the requirements of a specific case.
    • Cost Efficient: Because mediation generally requires less preparation, is very less formal than trial or arbitration, and may occur at an early stage of the dispute.
    • Brings Parties Together: Parties can save and sometimes rebuild their relationship like during a family dispute or commercial dispute.
    • Convenient: The parties can control the time, location, and duration of the proceedings to large extent. Scheduling isn’t subject to the convenience of courts.
    • Creative: Resolutions that aren’t possible through arbitration or judicial determination could also be achieved.
    • Confidential: What’s said during mediation are often kept confidential. Parties wishing to avoid the glare of publicity can use mediation to stay their disputes low-key and personal
    • Control: The parties control the result of the mediation and either party has the advantage of terminating the mediation, if it’s felt that it’s not within the interest of the said party.

     

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  • Judicial Reforms

    In news: Pardoning Power of the President

    | Polity | Mains Paper 2: Indian Constitution – historical underpinnings, evolution, features, amendments, significant provisions and basic structure

    The Supreme Court has held that the Centre was “bound to advise” the President to remit the life sentence of gangster Abu Salem in the 1993 Mumbai blasts case on his completion of 25 years of his jail term.

    What did the SC say?

    • On the appellant completing 25 years of his sentence, the Central government is bound to advise the President for the exercise of his powers under Article 72 of the Constitution.
    • The Centre could itself consider remission on the completion of 25 years’ sentence in terms of Sections 432 and 433 of the Code of Criminal Procedure.

    What is Pardon?

    • A pardon is a government/executive decision to allow a person to be absolved of guilt for an alleged crime or other legal offense as if the act never occurred.

    Why need Pardon?

    • Pardons can be granted when individuals are deemed to have demonstrated that they have “paid their debt to society”, or are otherwise considered to be deserving of them.
    • Pardons are sometimes offered to persons who were either wrongfully convicted or who claim that they were wrongfully convicted.
    • Pardons are sometimes seen as a mechanism for combating corruption, allowing a particular authority to circumvent a flawed judicial process to free someone that is seen as wrongly convicted.

    What is the Article 72?

    • Article 72 says that the president shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offense.
    • There are five different types of pardoning:
    1. Pardon: means completely absolving the person of the crime and letting him go free. The pardoned criminal will be like a normal citizen.
    2. Commutation: means changing the type of punishment given to the guilty into a less harsh one, for example, a death penalty commuted to a life sentence.
    3. Reprieve: means a delay allowed in the execution of a sentence, usually a death sentence, for a guilty person to allow him some time to apply for Presidential Pardon or some other legal remedy to prove his innocence or successful rehabilitation.
    4. Respite: means reducing the quantum or degree of the punishment to a criminal in view of some special circumstances, like pregnancy, mental condition etc.
    5. Remission: means changing the quantum of the punishment without changing its nature, for example reducing twenty year rigorous imprisonment to ten years.

    Cases as specified by art. 72

    In all cases where the punishment or sentence:

    • is by a court-martial
    • is for an offence against any law relating to a matter to which the executive power of the Union extends
    • is a sentence of death

    Nature of the Pardoning Power

    • The pardoning power of the president is not absolute. It is governed by the advice of the Council of Ministers.
    • This has not been discussed by the constitution but is the practical truth.
    • Further, the constitution does not provide for any mechanism to question the legality of decisions of presidents or governors exercising mercy jurisdiction.
    • But the SC in Epuru Sudhakar Case has given a small window for judicial review of the pardon powers of President and governors for the purpose of ruling out any arbitrariness.
    • The court has earlier held that court has retained the power of judicial review even on a matter which has been vested by the Constitution solely in the Executive.

    Some traditions

    • It is important to note that India has a unitary legal system and there is no separate body of state law.
    • All crimes are crimes against the Union of India.
    • Therefore, a convention has developed that the governor’s powers are exercised for only minor offenses.
    • While requests for pardons and reprieves for major offenses and offenses committed in the UTs are deferred to the President.

    Try this PYQ:

    Who/Which of the following is the custodian of the Constitution of India?

    (a) The President of India

    (b) The Prime Minister of India

    (c) The Lok Sabha Secretariat

    (d) The Supreme Court of India

     

    Post your answers here.

     

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  • Foreign Policy Watch: United Nations

    United Nations’ World Population Prospects (WPP)

    | Trivia | Mains Paper 1: Population & Associated Issues

    The 2022 edition of the United Nations’ World Population Prospects (WPP) was released.

    Why in news?

    • India is projected to surpass China as the world’s most populous country in 2023.

    What is the World Population Prospects?

    • The Population Division of the UN has been publishing the WPP in a biennial cycle since 1951.
    • Each revision of the WPP provides a historical time series of population indicators starting in 1950.
    • It does so by taking into account newly released national data to revise estimates of past trends in fertility, mortality or international migration.

    Main takeaways for the global population

    (1) Slow pace of growth

    • The world’s population continues to grow, but the pace of growth is slowing down.
    • The global population is expected to grow to around 8.5 billion in 2030, 9.7 billion in 2050 and 10.4 billion in 2100.
    • In 2020, the global growth rate fell under 1% per year for the first time since 1950.

    (2) Region-wise differential

    • Rates of population growth vary significantly across countries and regions.
    • More than half of the projected increase in global population up to 2050 will be concentrated in just eight countries- Congo, Egypt, Ethiopia, India, Nigeria, Pakistan, the Philippines and Tanzania.
    • Disparate growth rates among the world’s largest countries will re-order their ranking by size.

    (3) Ageing population

    • The population of older persons is increasing both in numbers and as a share of the total.
    • The share of the global population aged 65 years or above is projected to rise from 10% in 2022 to 16% in 2050.
    • The report suggests measures for ageing population by improving the sustainability of social security and pension systems and by establishing universal health care and long-term care systems.

    (4) Decline in fertility rate

    • A sustained drop in fertility has led to an increased concentration of the population at working ages (between 25 and 64 years), creating an opportunity for accelerated economic growth per capita.
    • This shift in the age distribution provides a time-bound opportunity for accelerated economic growth known as the “demographic dividend”.

    (5) International migration

    • This is having important impacts on population trends for some countries.
    • For high-income countries between 2000 and 2020, the contribution of international migration to population growth (net inflow of 80.5 million) exceeded the balance of births over deaths (66.2 million).
    • Over the next few decades, migration will be the sole driver of population growth in high-income countries.
    • In many of these countries, the outflows were due to temporary labour movements, such as for Pakistan (net flow of -16.5 million), India (-3.5 million), Bangladesh (-2.9 million), Nepal (-1.6 million) etc.

    How reliable is the UN projection, and how do they compare with India’s Census?

    • In India, of course, the Registrar General comes out with a population projection based on the Census.
    • The last such projection was released in 2019 and it was based on Census 2011.
    • The Census projection is slightly lower than the UN projection.
    • Still UN projection is widely acknowledged across the world

    What is the significance of India overtaking China?

    • That India would overtake China has been known for a while.
    • Moreover, in the past, when the world population was still at 5-billion or 6-billion levels, there was a concern about overcrowding.
    • Those concerns no longer exist because the global population is already 8 billion and several countries (including India) have achieved a replacement rate of fertility.
    • The concern now is not about the absolute numbers — India’s population is already 1.4 billion and may go up to 1.6 billion before declining.

     

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  • Russian Invasion of Ukraine: Global Implications

    What is the Nord Stream 1 Gas Link?

    Prelims Only | International Relations | Mains Paper 2: Important International Institutions

    The Nord Stream 1, Germany’s main source of gas from Russia, was recently shut down for scheduled maintenance work.

    Why in news?

    • There are growing concerns in European countries that Russia would shut down its gas supplies in retaliation against the current sanctions against Moscow.

    What is Nord Stream 1?

    • It is a system of offshore natural gas pipelines running under the Baltic Sea from Russia to Germany.
    • Nord Stream 1 is a 1,224 km underwater gas pipeline that runs from Vyborg in northwest Russia to Lubmin in northeastern Germany via the Baltic Sea.
    • Two further pipelines under construction running from Ust-Luga to Lubmin termed Nord Stream 2.
    • Majority owned by the Russian energy giant Gazprom, the pipeline is the primary route through which its gas enters Germany.

    Worry for Europe

    • There have been growing concerns that there could be further restrictions to European gas supplies.
    • European countries rely on Russian energy for their cold winters.
    • But now they believe that Russia could weaponized their dependency as a response to their sanction due to the conflict in Ukraine.

    What are Europe’s alternative sources of energy?

    • As an alternative source for energy, European countries have increasingly turned towards the US, from whom they purchase liquified natural gas (LNG) that comes via ships.
    • Since ship-delivered gas ends up being far more expensive, there are also attempts to get non-Russian pipeline gas from Norway and Azerbaijan.
    • While EU countries were earlier seeking to phase out fossil fuels and emphasize renewable forms of energy, many are now returning to coal to deal with the energy crisis.

     

     

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  • Defence Sector – DPP, Missions, Schemes, Security Forces, etc.

    The West has a chance to wean India off Russian weaponry

    | Security Issues | Mains Paper 3: Various Security Forces, Agencies & Their Mandates

    Context

    Perturbed by India’s reluctance to condemn the Russian invasion of Ukraine and keen to bind the country closer in confronting China, Western governments have launched a fresh push to wean India, the world’s biggest importer of arms, off its long dependence on Russian weaponry.

    India’s concerns after Ukraine war

    • India has grown increasingly alarmed about China, following deadly border clashes in 2020.
    • Since the war in Ukraine began, it has also worried about Russia’s reliability as an arms supplier and about the quality of some of its weapons.
    • Diversification away from Russia: India, though insistent that it has every right to choose its own suppliers, is already diversifying away from Russia. 
    • The share of weapons it imports from Russia has fallen sharply, to around 50% between 2016 and 2021, down from 70% during the previous five-year period.
    • Western help for diversification: It has welcomed Western help in fulfilling its ambition to make more of its own weapons.

    Joint arms production plan

    • As the West cannot compete with Russia on price and remain reluctant to share their most cutting-edge technology, they are counting on joint arms production.
    • Western leaders have been vocal about their willingness to help India arm itself.
    • At a ministerial meeting in Washington in April, American officials discussed helping India to make advanced weapons, including reconnaissance aircraft and a system for combating aerial drones.
    • On visits to Delhi that month, Boris Johnson, Britain’s prime minister, and Ursula von der Leyen, the European Commission’s president, also proposed joint arms ventures.
    • Despite avowed interest from both sides, such a shift faces many challenges.

    Challenges

    • Dominance of PSUs: India’s arms industry, technically open to private investment since 2001, has long been hampered by the dominance of a small number of state-owned giants such as Hindustan Aeronautics Limited (HAL).
    • Inefficiencies: State-owned arms-makers remain notoriously inefficient.
    • They also retain long-running tie-ups with Russia, making Western governments wary of accepting India’s demands for the transfer of more advanced technology.
    • Low presence of private sector: The share of defence production in the hands of the private sector, which is a more natural partner for big Western defence manufacturers, is about a fifth—scarcely higher than it was five years ago.
    • Lack of industrial capacity and skill: Both the state and private sector still lack the industrial capacity and skilled workers to produce highly specialised defence technology at scale—especially military aircraft.
    • Trust issue: While Western companies worry about inadvertent technology transfers to Russia, India worries about the reliability of its Western partners.
    • Past record: Many see America, which in the past has imposed sanctions on India for its nuclear-weapons programme, as a fickle supplier.
    • More recently America refused to sell India its Patriot missile system, prompting India to fall back on a Russian alternative and thereby put itself at risk of American sanctions once more.

    Way forward

    • Liberalisation of defence sector: As a step to liberalise the industry as part of his push towards self-reliance, in 2020 India raised the limit on foreign ownership of defence firms from 49% to 74%.
    • Ordinance Factory Board was dissolved into small units to corporatize the entity.
    • Lockheed Martin, a big American defence manufacturer, last year approved the manufacture of wings for the f-16 fighter jet by its joint venture with Tata.
    • The company has also pledged to produce a more advanced fighter, the f-21, in India, provided it wins a multi-billion-dollar contract to supply 114 fighter jets.
    • Big deals like those would provide incentives for foreign governments to approve more technology transfer and for Western manufacturers to make the investments needed to spur India’s indigenisation drive.

    Conclusion

    Russia’s war and China’s muscle-flexing have opened a door for India and the West to walk through, but crossing the threshold will require some resolve on both sides.

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  • Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

    As GST compensation ends, state governments need to be provided certainty of revenues

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Context

    The five-year transition period after the adoption of the Goods and Services Tax (GST) on July 1, 2017, came to an end on June 30, 2022. With this, the era of GST compensation that the state governments were entitled to has ended.

    High estimated loan issuance

    • Many state governments have asked for the compensation period to be extended by a few years.
    • To tangibly assess the near-term outlook for state finances, we have to rely on the states’ own estimates for their market borrowing requirements for the second quarter of 2022-23.
    • The indicative calendar of market borrowings by 23 state governments and two Union territories for the second quarter has pegged their total state development loan issuance — the primary source of financing state government deficits — at Rs 2.1 trillion.
    •  This projected issuance is 29 per cent higher than the same period last year, and at an eight-quarter high.
    • This high level of issuance projected by states reflects concerns that some of them might rightfully have regarding the uncertainty of their cash flows in the post-GST compensation era.
    • High dependence on GST compensation: Of these 23 states, Tamil Nadu, Andhra Pradesh, Haryana, Punjab and Gujarat have indicated large increases in borrowings.
    • Most of these states have an above-average dependence on GST compensation.

    Implications of discontinuation of GST compensation

    • Alter the revenue compensation: The discontinuation of the GST compensation flows would alter the revenue composition of some states adversely, particularly those with a relatively larger share of such receipts in their overall revenue streams.
    • Increase in debt level: To offset a portion of the associated revenue loss, such states are likely to enhance their borrowings and/or to undertake some expenditure adjustments in the quarters ahead.

    Adjustment of borrowing limit of the States by the Centre

    • At the time of communicating to states their annual borrowing limits for the ongoing year, we understand that the Centre had informed state governments that their off-budget borrowings for the past two years (2020-21 and 2021-22) would be adjusted from their borrowing ceiling this year.
    • Data on off-budget borrowing: It appears that the calculation of the adjusted borrowing limit required the submission of detailed data by the state governments related to their off-budget borrowings for the last two fiscal years, followed by a thorough assessment of the same by the Centre.

    Need for early step up in tax-devolution

    • On the whole, though, states appear to have entered the year with a comfortable cash flow position.
    • This follows from the back-ended release of the tax devolution to states for 2021-22 — nearly half of the full-year amount was released in the fourth quarter.
    • Additionally, the total amount was also well above the revised estimate, providing an unexpected gain to states.
    • This may have allowed them to temporarily withstand the changes related to their borrowing permission.
    • Subsequently, the release of the GST compensation grant of Rs 869 billion for several months in May is likely to have further eased their cash flows.
    • If the government does decide to step-up tax devolution to the states in the near term, instead of back-ending it as was done in the last year, it may reduce the size of state borrowings in the second quarter.
    • But more significantly, such revenue certainty, despite the end of the GST compensation era, may embolden states to ringfence their capital spending, providing a positive impulse to the economy.

    Conclusion

    The discontinuation of the GST compensation flows would alter the revenue composition of some states adversely, tax devolution to the states in the near term could cushion the blow of the discontinuation.

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    Back2Basics: Compensation under GST regime

    • The adoption of the GST was made possible by the States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed under the GST.
    • While the States would receive the SGST (State GST) component of the GST, and a share of the IGST (Integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022.
    • This corpus in turn is funded through a compensation cess that is levied on so-called ‘demerit’ goods.
    • This GST Compensation Cess or GST Cess is levied on five products considered to be ‘sin’ or luxury as mentioned in the GST (Compensation to States) Act, 2017 and includes items such as- Pan Masala, Tobacco, and Automobiles etc.

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  • Urban Transformation – Smart Cities, AMRUT, etc.

    The road to productivity

    op-ed snap | Governance | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters

    Context

    The commute time for the labour force to the workplace plays a very important role in determining their productivity in cities.

    Issue of long travel time to work

    • Labour market: Cities are labour markets where the labour force exchanges their labour and creates knowledge spillovers.
    • Relation between commute time and productivity: The commute time for the labour force to the workplace plays a very important role in determining their productivity in cities.
    •  The longer the commute time in a city, the smaller is its effective labour market and vice-versa.
    • Difference between nominal and effective labour market: While the nominal labour market of the city refers to all jobs created in the metropolitan area, the effective labour market refers to the jobs accessible within a certain commute.
    • Importance of effective labour market: The larger a city’s effective labour market, the greater its agglomeration economies and knowledge spillovers will be.
    • From the viewpoint of enlarging a city’s effective labour market and economic output, it is therefore very important to keep the commute time short and commuting cost cheap within a city as it keeps growing in population.

    Way forward

    • One way in which urban local bodies (ULBs) directly impact the city’s economic output is through their infrastructure.
    • Increase in tax base: Road length has a positive effect on the city’s tax base.
    • Motivation to pay texes: This is because roads lead to easy access to jobs and increased economic activity; that also gives the public more confidence and motivation to pay taxes.
    • Cities should not view investment in road networks as expenditure; rather, roads add to the city’s revenue base which the city can use to improve infrastructure and public services.

    Conclusion

    Investing in roads not only reduces travel time and enlarges effective labour markets of cities and their economic output, but also improves access to schooling for children as well as healthcare, thereby upgrading human development. This is indeed the road to the $5 trillion economy along with improvement in human well-being.

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  • Wildlife Conservation Efforts

    Proposed Amendments to the Environment (Protection) Act, 1986

    | Enviro & Biodiversity | Mains Paper 3: Conservation, Environmental Pollution & Degradation, Eia

    The Ministry of Environment, Forest and Climate Change (MoEFCC), put out a note, proposing amendments in the Environment (Protection) Act, 1986.

    Environment Protection Act (EPA), 1986

    • EP Act was passed under Article 253 of the Constitution, which empowers the Centre to enact laws to give effect to international agreements signed by the country.
    • The purpose of the Act is to implement the decisions of the UN Conference on the Human Environment.
    • They relate to the protection and improvement of the human environment and the prevention of hazards to human beings, other living creatures, plants and property.
    • It was enacted in 1986 on the backdrop of Bhopal Gas Tragedy.
    • The Act was last amended in 1991.

    Why this Act?

    • The Act is an “umbrella” legislation that has provided a framework for the environmental regulation regime in India.
    • It covers all major industrial and infrastructure activities and prohibits and regulates specific activities in coastal areas and eco-sensitive areas.
    • The Act also provides for coordination of the activities of various central and state authorities established under other environment-related laws, such as the Water Act and the Air Act.

    What are the proposed amendments?

    • The Environment Ministry has proposed amendments in four key legislations:
    1. Environment (Protection) Act, 1986
    2. Water (Prevention and Control of Pollution) Act, 1974
    3. Air (Prevention and Control of Pollution) Act, 1981 and
    4. Public Liability Insurance (PLI) Act, 1991
    • These are the cornerstone environmental laws that led to the setting up of the Central Pollution Control Board (CPCB).
    • These laws empowered the CPCB to take criminal action against individuals and corporate bodies who pollute air, water and land.

    Powers given to CPCB by these Laws

    • The clutch of laws currently empowers the CPCB to either:
    1. Shut down a polluting industrial body or
    2. Imprison executives of an organization found to be environmental violators
    • The EPA currently says that violators face imprisonment up to five years or a fine up to ₹1 lakh or both.
    • There’s also a provision for the jail term to extend to seven years.

    Purpose of the Amendments

    • The Environment Ministry had received suggestions to decriminalise existing provisions of the EPA to weed out “fear of imprisonment for simple violations.”
    • These, however, don’t apply to violations that cause grave injury or loss of life.

    How will violators be punished?

    • The changes proposed include the appointment of an ‘adjudication officer’.
    • He/She will decide on the penalty in cases of environmental violations such as reports not being submitted or information not provided when demanded.
    • Funds collected as penalties would be accrued in an “Environmental Protection Fund.”
    • In case of contraventions of the Act, the penalties could extend to anywhere from 5 lakh to 5 crore, the proposal notes.

    Need for such amendments

    • Limited success of existing laws: The history of environmental action and its success in India shows that the current laws have had limited effectiveness.
    • Backlog of cases: An analysis by the Centre for Science and Environment found that Indian courts took between 9-33 years to clear a backlog of cases for environmental violations.
    • Capitalist power: Myriad challenges dogged the process of bringing violators to book.
    • Red tapism: Flag pollution from an industrial unit would mean filing a complaint with the court of the concerned DM, or furnishing evidence to the CPCB which would again have to approach the same institution.
    • Burden of proof: In most cases, it was practically impossible to hold a specific individual in an organization responsible for a specific crime given the burden of proof required.

     

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