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  • Indian Ocean Power Competition

    Challenges in dealing with Indo-Pacific

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

    Context

    The Indo-Pacific region has been under pressure and East Asia, in particular, has had to weather repeated storms.

    Background

    • Recently, U.S. President Joseph Biden was on his five-day visit to Asia.
    • During this visit, the new conservative South Korean government showed a willingness to expand the presence of a U.S. missile defence system in the country, which had earlier angered China.
    • In Japan, the administration promised him that it was ready to do away with its long-standing 1% GDP ceiling for annual defence spending.
    • Mr. Biden said at a press conference that the U.S. would intervene militarily to defend Taiwan if it came under attack from China.
    • The President and members of his delegation later clarified that there is no change in the substance of American foreign policy, which is still governed by the Taiwan Relations Act.
    • As per the 1979 Congressional law, the U.S. “shall provide Taiwan with arms of a defensive character” so that the region can defend itself.
    • The law says nothing about the U.S. being required to step in militarily to defend Taiwan in the event of an invasion by China.

    China-challenge in Indo-Pacific

    • South Korea and Japan face regular nuclear and missile threats from North Korea.
    • Challenge to international maritime law: China not only challenges international maritime laws in the South China Sea, but also confronts Japan over the Senkaku Islands.
    • Spratly Islands dispute: Six nations, including China and Taiwan, are involved in the dispute over the Spratly Islands, which are supposedly sitting on vast reserves of oil and natural gas.
    • Militarisation of disputed isles: China has vigorously militarised some portions of the disputed isles, islets and coral reefs; and countries like Vietnam and the Philippines are anxious not to be left behind.

    Will IPEF framework help in tackling challenges from China?

    • The US has sought to deal with China by establishing an Indo-Pacific Economic Framework (IPEF) with Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
    • Four pillars of IPEF: The IPEF will work on fine-tuning four major pillars: standards and rules for digital trade; resilient supply chains; green energy commitments; and fair trade.
    • Issues of trade and tariffs: However, there is discontent that the framework does not address issues of trade and tariffs. 
    • Lack of trade component: Asian partners really want is trade, they want market access.
    • And the trade component of the IPEF is really lacking.

    Two facets of Indo-Pacific

    • 1] Balance relations with US and China: One is that China’s neighbours would rather balance relations between Washington and Beijing.
    • 2] Extent of resistance: Second is the extent to which countries in the region will want to get on the anti-China bandwagon, economic or strategic.
    • Whether it is in East, Southeast or South Asia, every country has its own unique relationship with Beijing.
    • India may be a part of the Quad, but is quite mindful that it is the only country in the group that shares a land border with China.
    • South Korea and Japan are part of a strong American security/strategic partnership but will be keen on maintaining their economic status with China.
    • This is also true for the Association of South East Asian Nations.

    Conclusion

    Given the complex nature of the threats and the challenges the Indo-Pacific faces, drawing up any strategy remains to be an uphill task.

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

    Monetary tightening and its impact on growth

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

    Context

    A rate hike in the monetary policy committee’s June meeting was a foregone conclusion after the spike in inflation and an off-cycle surprise interest rate hike on May 4.

    Reasons fast forwarding of interest rate hike

    • 1] Broad based inflation: A confluence of factors has pushed inflation higher and made it persistent and broad-based. 
    • 2] Policy rates are still negative: Even with this hike, the repo rate, the signalling tool for bank interest rates, is still below pre-pandemic levels.
    • The real policy rate (repo rate less expected inflation) remains negative and has some distance to cover before it reaches positive territory — where the RBI would like to see it.
    • 3] Lag in effect: Monetary policy impacts growth, and thereafter, inflation with a lag.
    • To control inflation, the RBI needed to act faster by front loading rate hikes.
    • 4] Elevated inflation expectations: The risk of inflation expectations getting unmoored had risen.
    • Household and business inflation expectations remain elevated, as indicated by the RBI’s inflation expectations survey of households.
    • 5] Interest rate hike in the US: The aggressive stance of the US Federal Reserve and ensuing tightening financial conditions.
    • India is better placed today than in 2013 to face the Fed’s actions with a stronger forex shield.

    How US Fed’s actions affect India?

    • India is not insulated.
    • Capital outflow: The headwinds now are stronger than in 2013 and we have seen net capital outflows since October 2021.
    • S&P Global expects the US federal funds rate to be hiked to 3-3.25 per cent in 2023, higher than the pre-pandemic level, and highest since early 2008.
    • Despite a strong forex hoard, the RBI has had to deploy monetary policy to mute the impact of the Fed’s actions.

    Inflation and its impact

    • Upward pressure on food inflation: The pressure on food inflation has increased owing to the impact of the freak heatwave on wheat, tomatoes and mangoes, which is driving prices higher.
    • This is on top of rising input costs for agricultural production, the global surge in food prices and the expected sharper than usual rise in minimum support price.
    • Fuel inflation will remain high, duty cuts notwithstanding, as global crude prices remain volatile at elevated levels.
    • Core inflation, the barometer of demand, is a complex story.
    • Goods (despite only partial pass-through of input costs) are witnessing higher inflation than services.
    • That’s because services faced tighter restrictions during the Covid-19 waves, restricting their consumption and the pricing power of providers as well.
    • Service categories that are mostly regulated, such as public transport, railways, water and education, have over 50 per cent weight in core services.
    • However, prices of discretionary services such as airlines, cinema, lodging and other entertainment are rising.
    • Transportation-related services have seen the sharpest rise in the past six months due to fuel price increases.
    • Impact on the poor: For those at the bottom of the pyramid, high inflation hits harder because energy and food are a big chunk of their consumption basket.

    Growth prospects

    • S&P Global has recently cut the growth outlook for major economies for 2022 — that of the US to 2.4 per cent from 3.2 per cent, for Eurozone to 2.7 per cent from 3.3 per cent earlier, and for China to 4.2 per cent from 4.9 per cent.
    • This will hurt exports which are very sensitive to global demand.

    Monetary policy actions

    • Not all aspects of supply-driven inflation can be addressed via monetary policy.
    • So the authorities are complementing monetary policy actions by using the limited fiscal space to cut duties and extend subsidies to the vulnerable.

    Conclusion

    Monetary tightening impacts growth with a lag of at least 3-4 quarters and the fact that real interest rates are negative and borrowing rates still below pre-pandemic levels, implies monetary policy is unlikely to be growth-restrictive for this year.

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  • Health Sector – UHC, National Health Policy, Family Planning, Health Insurance, etc.

    Healthcare in India is ailing. Here is how to fix it

    op-ed snap | Governance | Mains Paper 2: Health & Education

    Context

    The lesson emerging from the pandemic experience is that if India does not want a repeat of the immeasurable suffering and the social and economic loss, we need to make public health a central focus.

    Need for institutional reforms in the health sector

    • The importance of public health has been known for decades with every expert committee underscoring it.
    • Ideas ranged from instituting a central public health management cadre like the IAS to adopting an institutionalised approach to diverse public health concerns — from healthy cities, enforcing road safety to immunising newborns, treating infectious diseases and promoting wellness.
    • Covid has shifted the policy dialogue from health budgets and medical colleges towards much-needed institutional reform.

    About National Health Mission (NHM)

    • The National Health Mission (NHM) seeks to provide universal access to equitable, affordable and quality health care which is accountable, at the same time responsive, to the needs of the people, reduction of child and maternal deaths as well as population stabilization, gender and demographic balance.
    • The Framework for Implementation of NUHM has been approved by the Cabinet on May 1, 2013.
    • NHM encompasses two Sub-Missions, National Rural Health Mission (NRHM) and National Urban Health Mission (NUHM).
    • The National Rural Health Mission (NRHM) was launched in 2005 with a view to bringing about dramatic improvement in the health system and the health status of the people, especially those who live in the rural areas of the country.

    Learning from the failure of National Health Mission (NHM)

    • The National Health Mission (NHM) has been in existence for about 15 years now and the health budget has trebled— though not as a proportion of the GDP.
    • Despite this less than 10 per cent of the health facilities below the district level can attain the grossly minimal Indian public health standards.
    • Clearly, the three-tier model of subcentres with paramedics, primary health centres with MBBS doctors and community health centres (CHC) with four to six specialists has failed.
    • Lack of accountability framework: The model’s weakness is the absence of an accountability framework.
    • The facilities are designed to be passive — treating those seeking care.

    Suggestions

    • 1] FHT: Instead of passive design of NHM, we need Family Health Teams (FHT) like in Brazil, accountable for the health and wellbeing of a dedicated population, say 2,000 families.
    • The FHTs must consist of a doctor with a diploma in family medicine and a dozen trained personnel to reflect the skill base required for the 12 guaranteed services under the Ayushman Bharat scheme.
    • A baseline survey of these families will provide information about those needing attention.
    • Family as a unit: The team ensures a continuum of care by taking the family as a unit and ensuring its well-being over a period.
    •  Nudging these families to adopt lifestyle changes, following up on referrals for medical interventions and post-operative care through home visits for nursing and physiotherapy services would be their mandate.
    • 2] Health cadre: The implication of and central to the success of such a reset lies in creating appropriate cadres.
    • 3] Clarity to nomenclatures: There is also a need to declutter policy dialogue and provide clarity to the nomenclatures.
    • Currently, public health, family medicine and public health management are used interchangeably.
    • While the family doctor cures one who is sick, the public health expert prevents one from falling sick.
    • The public health management specialist holds specialisation in health economics, procurement systems, inventory control, electronic data analysis and monitoring, motivational skills and team-building capabilities, public communication and time management, besides, coordinating with the various stakeholders in the field.
    • 4] Move beyond doctor-led systems: India needs to move beyond the doctor-led system and paramedicalise several functions.
    • Instead of wasting gynaecologists in CHCs midwives (nurses with a BSc degree and two years of training in midwifery) can provide equally good services except surgical, and can be positioned in all CHCs and PHCs.
    • This will help reduce C Sections, maternal and infant mortality and out of pocket expenses.
    • 5] Counsellors and physiotherapists at PHC: Lay counsellors for mental health, physiotherapists and public health nurses are critically required for addressing the multiple needs of primary health care at the family and community levels.
    • 6] Review of existing system: Bringing such a transformative health system will require a comprehensive review of the existing training institutions, standardising curricula and the qualifying criteria.
    • Increase spending on training: Spending on pre-service and in-service training needs to increase from the current level of about 1 per cent.
    • 7] Redefining of functions: A comprehensive redefinition of functions of all personnel is required to weed out redundancies and redeploy the rewired ones.

    Conclusion

    Resetting the system to current day realities requires strong political leadership to go beyond the inertia of the techno-administrative status quoist structures. We can.

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  • Foreign Policy Watch: India-Pakistan

    India needs a forward-looking strategy on Pakistan

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

    Context

    India’s approach in dealing with Pakistan today is very different from the framework that emerged at the dawn of the 1990s.

    Terms of engagement with Pakistan

    • From the 1990s, for nearly three decades, it was Pakistan that had the political initiative.
    • The turmoil in Kashmir, the international focus on nuclear proliferation, and the relentless external pressure for a sustained dialogue with Pakistan put Delhi in a difficult situation.
    • If Pakistan was on the political offensive, a series of weak coalition governments in Delhi were forced onto the back foot.
    • At the heart of Pakistan’s ambition was to change the status quo in Jammu and Kashmir.
    • Islamabad also played up to the concerns in Western chancelleries that the conflict in Kashmir might escalate to the nuclear level.
    • The new international consensus that Kashmir is the “world’s most dangerous nuclear flashpoint” aligned well with Pakistan’s strategy.
    • Delhi had no option but to respond, but any move to counter Pakistan would make the situation worse.
    • Under Prime Minister Narendra Modi, India has begun to reset the terms of the engagement agenda.
    • Change in regional and international context: Meanwhile, the regional and international context has also altered in many ways since the early 1990s essentially in India’s favour.

    Reset in engagement

    • India’s transformed relations with the US, the resolution of Delhi’s dispute with the global nuclear order, and getting the West to discard its temptation to mediate on Kashmir enormously improved India’s diplomatic position.
    • But the most consequential change has been in the economic domain.
    • The persistent neglect of economic challenges left Pakistan in an increasingly weaker position in relation to India.
    • If India has inched its way into the top six global economies, Pakistan today is broke.
    • Modi had the opportunity to build on these shifting fortunes of Delhi and Islamabad and develop a three-pronged strategy of his own.
    • 1] India bet that the heavens won’t fall if Delhi stops talking to Islamabad or negotiating with Pakistan-backed militant groups in Kashmir.
    • 2] Delhi has been unafraid of staring at nuclear escalation in responding to Pakistan’s cross-border terrorism.
    • 3] By changing the constitutional status of Kashmir in 2019, India has reduced the scope of India’s future negotiations with Pakistan on Kashmir.

    Way forward

    • Pakistan’s hand today is much weaker than in the 1990s and Delhi’s room for manoeuvring has grown, notwithstanding the challenges it confronts on the China border.
    • That opens some room for new Indian initiatives toward Pakistan.
    • Getting Pakistan’s army and its political class to be more practical in engaging India is certainly a tall order; but Delhi can afford to make a move.

    Conclusion

    While there can be much disagreement on Pakistan’s capacity to respond, Delhi’s new initiatives can reinforce the positive evolution of Indian foreign policy, and expand the space for Indian diplomacy in the region and beyond.

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

    Challenges in global growth recovery

    | Economics | Mains Paper 3: Indian Economy

    Context

    The global economy was well on its path to recovery until the invasion of Ukraine by Russia.

    Uncertainties in global growth prospects

    • Divergent economic recoveries: Economic prospects have worsened since the Ukraine crisis, worsening the divergence between the economic recoveries of advanced economies and those of the developing ones.
    • The prevailing uncertainties in global growth prospects come in the aftermath of frequent disruptions to worldwide supply chains in the last two years.
    • Against this background, two key macroeconomic variables have a persistent effect on growth rebound.
    • 1] Price pressure: There is tenacious price pressure, leading to policy trade-offs especially in developing economies.
    • 2] Capital outflow: There have been capital outflows and a tightening of financial conditions, affecting investment and growth in the medium and long term.

    1] Price pressure

    • Global concern: In some of the advanced economies, inflation has reached its highest level in the last 40 years.
    • The major contributors to high inflation are energy and food prices.
    • A spike in oil and gas prices due to a tight fossil fuel supply and geopolitical uncertainty have led to substantial increases in energy costs worldwide.
    • In developing economies, rising food prices have had cascading effects, culminating in higher overall inflation.
    • This gets intensified if poor weather hits harvests and rising oil prices drive up the cost of producing and transporting fertilizers.
    • In developing economies, higher prices for food impacts different sections of the population differently, depending on the types of food consumed and the share of food expenditure in a household’s consumption basket.
    • Persistent short supply and increases in food and fuel prices could significantly increase the risk of social unrest as the poorer sections are pushed to the edge of heightened deprivation.

    2] Capital outflow

    • Emerging markets suffered their first portfolio outflows in a year in March 2022.
    • The Institute of International Finance (IIF) says “foreign net portfolio outflows for emerging markets came to $9.8 billion in March.
    • Investors have become more selective, as higher risk sensitivity mounts due to tighter monetary conditions and rising inflation.
    • Reasons for capital outflow: Interest rates tightening in the United States is associated with capital flow reversals from emerging markets.
    • Impact on developing economies: For developing economies, the result of sudden large capital outflows is currency depreciation and tighter external sector conditions, leading to growth fluctuations.

    Way forward

    • Monitor the pass-through of international prices: Though the factors contributing to high inflation (global supply shocks) are beyond the control of central banks, they need to carefully monitor the pass-through of rising international prices to domestic inflation to calibrate their responses.
    • Calibrate the pace of policy tightening: The pace of policy tightening needs to be attuned to prevailing economic situations and activity levels.
    • Communicate the importance of inflation targeting: Central banks could also signal a readiness to shift the monetary stance to maintain the credibility of their inflation-targeting frameworks by clearly communicating the importance of inflation stabilisation in their objectives and backing it with policy actions.
    • Foreign exchange interventions: As sudden capital flow reversals can threaten financial stability, foreign exchange interventions could address market imbalances.
    • Fiscal consolidation: There exists an imperative to prune expenditure and get back to the road of fiscal consolidation.
    • However, a push for consolidation should not prevent governments from prioritising spending to protect and help vulnerable populations affected by price increases and the pandemic.
    • Income support policies: In the post-pandemic global economy, there will be a likely cross-sectoral labour reallocation.
    •  These transitions require labour market and income support policies that are designed to provide safety nets for workers without hindering employment growth.

    Conclusion

    The message from the current phase of global growth is clear. Policymakers in the developing economies have to prepare for tighter financial conditions and spillovers from geopolitical volatility.

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  • Goods and Services Tax (GST)

    Implications of GST Council ruling

    op-ed snap | Polity | Mains Paper 2: Federalism

    Context

    The Supreme Court of India recently ruled that “The recommendations of the GST Council are not binding on either the Union or the States…”.

    About GST Council

    • The GST Council is a federal body that aims to bring together states and the Centre on a common platform for the nationwide rollout of the indirect tax reform.
    • Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.
    • According to the article, the GST Council will be a joint forum for the Centre and the States. It consists of the following members:
    • 1] The Union Finance Minister will be the Chairperson.
    • 2] As a member, the Union Minister of State will be in charge of Revenue of Finance.
    • 3] The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.
    • The Council has to function as a platform to bring the Union and State governments together.
    • As a mark of cooperative federalism, the Council shall, unanimously or through a majority of 75% of weighted votes, decide on all matters pertaining to GST and recommend such decisions to the Union and State governments.
    • Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as the goods and services will be subject or exempted from the Goods and Services Tax.
    • Article 246A confers simultaneous or concurrent powers on Parliament and the state legislatures to make laws relating to GST.
    • This article is in sharp contrast to the constitutional scheme that prevailed till 2017.

    Background of the case

    • In Union of India Anr. vs Mohit Minerals Pvt. Ltd., the Supreme Court of India on May 19, 2022 ruled on a petition relating to the levy of Integrated Goods and Services Tax (IGST) on ocean freight paid by the foreign seller to a foreign shipping company.
    • Mohit Minerals had filed a writ petition before the Gujarat High Court challenging notifications levying IGST on the ground that customs duty is levied on the component of ocean freight and the levy of IGST on the freight element in the course of transportation would amount to double taxation.
    • GST is paid by the supplier, but if the shipping line is located in a non-taxable territory, then GST is payable by the importer, the recipient of service.
    • Ocean freight is a method of transport by which goods and cargo is transported by ships through shipping lines.

    Important aspects of the judgement

    • Power to legislate simultaneously: Article 246A gives powers to the Union and State governments simultaneously to legislate on the GST.
    • In other words, the two tiers of the Indian Union can simultaneously legislate on matters of the GST (except the IGST, which is in the legislative domain of the Union government).
    • In this case, the Government of India had argued that “Neither can Article 279A override Article 246A nor can Article 246A be made subject to Article 279A.”
    • However, cooperative federalism is to operate through the GST Council to bring in harmony and alignment in matters pertaining to the GST from both governments.
    • Given this background, the Union government had almost delegated the powers to create laws under the GST Act Section 5(1) to the GST Council.
    • Persuasive value only: The Supreme Court of India adjudicated that the GST Council’s recommendations are non-qualified and the simultaneous legislating powers of the Union and State governments give only persuasive value to the Council’s recommendations.
    • The power of the recommendations rests on the practice of cooperative federalism and collaborative decision-making in the Council.

    Issues with voting rights in GST council

    • Inbalance in voting rights: The Union government holds one-third weight for its votes and all States have two-thirds of the weight for their votes.
    • This gives automatic veto power to the Union government because a resolution can be passed with at least three-fourths of the weighted votes.
    • This imbalance in the voting rights between the Union and State governments, makes democratic decision-making difficult.
    • Equal weight to all states creates political problems: Though all the States are not equal in terms of tax capacity, everyone has equal weight for their votes.
    • This creates another political problem as the smaller States with lesser economic stakes can be easily influenced by interest groups.
    • Debate on political lines: The debates in the GST Council will be on political lines rather than on the economics of taxation.
    •  When the States governed by Opposition parties are vocal on counter-points, the States governed by the same party at the Union government are mute spectators.

    Way forward

    • Work in a harmonised manner: The Supreme Court has recorded, “Since the Constitution does not envisage a repugnance provision to resolve inconsistencies between the Central and State laws on GST, the GST Council must ideally function, as provided by Article 279A(6) in a harmonised manner to reach a workable fiscal model through cooperation and collaboration.”
    • Cooperative federalism: The nuanced understanding of cooperative federalism shows that there is no space for one-upmanship in either of the two tiers of the Indian federal government and particularly for the Union government under a quasi-federal Constitution.

    Conclusion

    Given the lopsided power structure favouring the Union government in the GST Council, it is against the spirit of democracy and federalism that the finances of governments can be left to such bodies.

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  • Capital Markets: Challenges and Developments

    Understanding SEBI Rules on Passive Funds

    Prelims Only | Economics | Mains Paper 3: Investment Models

    The Securities and Exchange Board of India (SEBI) recently issued a circular on passive funds covering matters related to transparency, liquidity and operational aspects of exchange-traded funds (ETFs) and index funds.

    What are Passive Funds?

    • A passive fund is an investment vehicle that tracks a market index, or a specific market segment, to determine what to invest in.
    • Unlike with an active fund, the fund manager does not decide what securities the fund takes on.
    • This normally makes passive funds cheaper to invest in than active funds, which require the fund manager to spend time researching and analysing opportunities to invest in.
    • Tracker funds, such as ETFs (exchange traded funds) and index funds fall under the banner of passive funds.

    What is a passive ELSS scheme?

    • Passive funds mimic an underlying index. By contrast active funds are actively managed by fund managers.
    • The SEBI has now introduced a passive equity-linked saving schemes (ELSS) category, which will give taxpayers another investment option to avail of tax benefits.
    • According to the circular, the passive ELSS scheme will be based on any index comprising equity shares from the top 250 companies in terms of market capitalization.
    • Beginning 1 July, a fund house will be able to either have an active ELSS scheme or a passive ELSS scheme, but not both.

    What are the norms for debt ETFs?

    • Passive debt funds are now divided into three categories:
    1. Corporate debt funds with exposure to corporate bonds
    2. G-Sec funds investing in government securities, and
    3. Hybrid funds where allocation is a combination of corporate bonds and government securities
    • Currently, debt funds in the passive category invest only in AAA-rated instruments.
    • The Sebi circular introduces norms for each debt fund category, including portfolio exposure limits to each sector, the issuer (based on rating) and group.
    • Application of these provisions should help mitigate concentration risk in debt ETFs/ index funds.

    What about tracking error?

    • As per Sebi’s circular, passive funds must disclose ‘tracking error’ and ‘tracking difference’ in their monthly fact sheets.
    • These metrics indicate how different the performance of the fund is compared to its underlying index—an effort to keep investors better informed.
    • The circular specifies limits for tracking error and tracking difference, which passive funds must follow.

    What is the mandate on disclosing NAVs?

    • Because of poor liquidity for ETFs in the secondary market in India, ETF prices could differ widely from the net asset value (NAV) of the fund.
    • The NAV of the fund represents the value of the underlying asset of the ETF.
    • The Sebi circular mandates disclosure of NAV (indicative) on a continuous basis throughout the day on the stock exchange.
    • While the practice is already in existence, Sebi rules institutionalize it.
    • Checking the NAV can help one avoid making a transaction at a significant premium or discount.

    Can one execute ETF transactions directly?

    • Investors can buy or sell units of ETFs only on stock exchanges.
    • But, large buy or sell transactions can also be directly placed with the fund house.
    • Sebi now says orders greater than ₹25 crore alone can be placed for redemption or subscription directly with the asset management company (AMC).

     

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  • Corruption Challenges – Lokpal, POCA, etc

    What is a Not-for-Profit Company?

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

    The Enforcement Directorate (ED) has summoned Rahul Gandhi and Sonia Gandhi following a trial court order in a tax assessment case of his not-for-profit company.

    What is the case?

    • A case alleged cheating and misappropriation of funds on part of the leaders in acquiring the newspaper.
    • The alleged persons acquired it through a Section 25 company — in which they have 86% stake.

    What is a Section 25 company?

    • It is defined under the Companies Act, 1956.
    • It is a not-for-profit charitable company.
    • It is formed with the sole object of promoting commerce, art, science, religion, charity, or any other useful object.
    • It intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members
    • Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare and protection of the environment among others.

    Fiscal activities allowed

    • While it could be a public or a private company, a Section 25 company is prohibited from payment of any dividend to its members.
    • Section 25 states that by its constitution the company is required/ intends to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members.

    What are prominent examples of such companies?

    • According to details available with the Ministry of Corporate Affairs, a large number of companies have been formed under the Section.
    • Among these are Reliance Foundation, Reliance Research Institute, Azim Premji Foundation, Coca Cola India Foundation, and Amazon Academic Foundation.

    Why are such companies formed?

    • Most people looking to form a charitable entity go for forming a company under Section 25, now Section 8, rather than a Trust structure.
    • This is because most foreign donors like to contribute to a company rather than Trust because they are more transparent and provide more disclosures.
    • If a company has to be converted into a not-for-profit company, they can’t be converted into a Trust, however, they can be converted into a Section 25/ Section 8 company.

     

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  • Parliament – Sessions, Procedures, Motions, Committees etc

    How are Rajya Sabha MPs elected?

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

    Ahead of Rajya Sabha elections in four states, various parties have accommodated legislators from at least three states in resorts, away from potential poaching by rival parties.

    Do you know?

    • Only two UTs elect members to the Rajya Sabha, not all.
    • Polling is held only if the number of candidates exceeds the number of vacancies.
    • Independent members can also be elected etc.

    Read this newscard for all such interesting facts which can be directly asked in the prelims.

    Rajya Sabha Polls

    • A third of MPs in the Rajya Sabha (which is a permanent House and is not subject to dissolution), from each State, retire once in two years and polls are held to fill up the vacancies.
    • Only elected members of the State Legislative Assemblies can vote in a Rajya Sabha election.
    • The legislators send a batch of new members to the Upper House every two years for a six-year term.
    • In addition, vacancies that arise due to resignation, death or disqualification are filled up through by-polls after which those elected serve out the remainder of their predecessors’ term.

    Composition of Rajya Sabha

    • A bloc of MPs belonging to one or more parties can elect a member of their choice if they have the requisite numbers.
    • This is to avoid the principle of majority, which would mean that only candidates put up by ruling parties in the respective States will be elected.
    • The Delhi and Puducherry Assemblies elect members to the Rajya Sabha to represent the two UTs.

    What is the election process?

    • Polling for a Rajya Sabha election will be held only if the number of candidates exceeds the number of vacancies.
    • Since the strength of each party in the Assembly is known, it is not difficult to estimate the number of seats a party would win in the Rajya Sabha poll.
    • In many states, parties avoid a contest by fielding candidates only in respect to their strength. Where an extra candidate enters the fray, voting becomes necessary.
    • Candidates fielded by political parties have to be proposed by at least 10 members of the Assembly or 10% of the party’s strength in the House, whichever is less.
    • For independents, there should be 10 proposers, all of whom should be members of the Assembly.

    Voting procedure

    • Voting is by single transferable vote, as the election is held on the principle of proportional representation.
    • A single transferable vote means electors can vote for any number of candidates in order of their preference.
    • A candidate requires a specified number of first preference votes to win. Each first choice vote has a value of 100 in the first round.
    • To qualify, a candidate needs one point more than the quotient obtained by dividing the total value of the number of seats for which elections are taking place plus one.

    Example: If there are four seats and 180 MLAs voting, the qualifying number will be 180/5= 36 votes or value of 3,600.

    Why do not the Rajya Sabha polls have a secret ballot?

    • The Rajya Sabha polls have a system of the open ballot, but it is a limited form of openness.
    • As a measure to check rampant cross-voting, which was taken to mean that the vote had been purchased by corrupt means.
    • There is a system of each party MLA showing his or her marked ballots to the party’s authorised agent (called Whip), before they are put into the ballot box.
    • Showing a marked ballot to anyone other than one’s own party’s authorised agent will render the vote invalid.
    • Not showing the ballot to the authorised agent will also mean that the vote cannot be counted.
    • And independent candidates are barred from showing their ballots to anyone.

    Is there any NOTA option in voting?

    • The ECI issued two circulars, on January 24, 2014, and November 12, 2015, giving Rajya Sabha members the option to press the NOTA button in the Upper House polls.
    • However, in 2018, the Supreme Court struck down the provision, holding that the ‘none of the above’ option is only for general elections.
    • It cannot be applied to indirect elections based on proportional representation.

    Does cross-voting attract disqualification?

    • The Supreme Court, while declining to interfere with the open ballot system, ruled that not voting for the party candidate will not attract disqualification under the anti-defection law.
    • As voters, MLAs retain their freedom to vote for a candidate of their choice.
    • However, the Court observed that since the party would know who voted against its own candidate, it is free to take disciplinary action against the legislator concerned.

    Can a legislator vote without taking oath as a member of the Assembly?

    • While taking oath as a member is for anyone to function as a legislator, the Supreme Court has ruled that a member can vote in a Rajya Sabha election even before taking oath as a legislator.
    • It ruled that voting at the Rajya Sabha polls, being a non-legislative activity, can be performed without taking the oath.
    • A person becomes a member as soon as the list of elected members is notified by the ECI, it said.
    • Further, a member can also propose a candidate before taking the oath.

    Try this PYQ:

    Q. Consider the following statements:

    1. The Rajya Sabha has no power either to reject or to amend a Money Bill.
    2. The Rajya Sabha cannot vote on the Demands for Grants.
    3. The Rajya Sabha cannot discuss the Annual Financial Statement.

    Which of the statements given above is/are correct?

    (a) Only 1

    (c) 2 and 3 only

    (b) 1 and 2 only

    (d) 1, 2 and 3

     

    Post your answers here.

     

    Also read

    [Sansad TV] Perspective – Rajya Sabha: The Upper House

     

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  • Indian Army Updates

    Chief of Defence Staff (CDS)

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

    Setting the stage for appointment of the next Chief of Defence Staff (CDS), the government has amended Service Rules of the Army, Navy and Air Force.

    The post of CDS has also been lying vacant since the demise of Late. Gen. Bipin Rawat.

    What is the update in rules?

    • The govt has allowed retired Service Chiefs and three-star officers eligible for consideration for the country’s top military post.
    • However, with an age limit that the retired officer should not have attained 62 years on the date of appointment.
    • Retired Service chiefs are largely ruled out, especially so for the present consideration.

    Office of the Chief of Defence Staff (CDS)

    • The CDS is a high military office that oversees and coordinates the working of the three Services, and offers seamless tri-service views and single-point advice to the Executive.
    • On long-term it provides for defence planning and management, including manpower, equipment and strategy, and above all, “joint manship” in operations.
    • In most democracies, the CDS is seen as being above inter-Service rivalries and the immediate operational preoccupations of the individual military chiefs.
    • The role of the CDS becomes critical in times of conflict.

    Duties and Functions of the CDS

    The Ministry of Defence has outlined various functions and duties for the post of CDS:

    • To head the Department of Military Affairs in Ministry of Defence and function as its Secretary.
    • To act as the Principal Military Advisor to Raksha Mantri on all Tri-Service matters.
    • To function as the Permanent Chairman of the Chiefs of Staff Committee
    • To administer the Tri-Service organizations/agencies/commands.
    • To be a member of Defence Acquisition Council chaired by Raksha Mantri.
    • To function as the Military Advisor to the Nuclear Command Authority.
    • To bring about jointness in operation, logistics, transport, training, support services, communications, repairs and maintenance, etc of the three Services.
    • To implement Five-Year Defence Capital Acquisition Plan and Two-Year roll-on Annual Acquisition Plans, as a follow up of Integrated Capability Development Plan.
    • To bring about reforms in the functioning of three Services with the aim to augment combat capabilities of the Armed Forces by reducing wasteful expenditure.

    Why need CDS?

    • Tri-services coordination: The creation of the CDS will eventually lead to the formation of tri-service theatre commands intended to create vertical integration of the three forces.
    • Single-point military advisory: The CDS will be a single-point military adviser to the government and synergise long term planning, procurements, training and logistics of the three Services.
    • Efforts saving: This is expected to save money by avoiding duplication between the Services, at a time of shrinking capital expenditure within the defence budget.
    • Military diplomacy: This is today supporting conventional diplomacy. That can’t be done by different Services.

     

     

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