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  • What are Social Stock Exchanges?

    A working group constituted by the Securities and Exchange Board of India (SEBI) on Social Stock Exchanges (SSEs) has recommended allowing non-profit organisations to directly list on such platforms.

    Practice questions for mains:

    Q. What are Social Stock Exchanges? Discuss how it will help finance social enterprises in India.

    What are Social Stock Exchanges (SSEs)?

    • An SSE is a platform which allows investors to buy shares in social enterprises vetted by an official exchange.
    • The Union Budget 2019 proposed setting up of first of its kind SSE in India.
    • The SSE will function as a common platform where social enterprises can raise funds from the public.
    • It will function on the lines of major stock exchanges like BSE and NSE. However, the purpose of the Social Stock Exchange will be different – not profit, but social welfare.
    • Under the regulatory ambit of SEBI, a listing of social enterprises and voluntary organizations will be undertaken so that they can raise capital as equity, debt or as units like a mutual fund.

    Why SSEs?

    • India needs massive investments in the coming years to be able to meet the human development goals identified by global bodies like the UN.
    • This can’t be done through government expenditure alone. Private enterprises working in the social sector also need to step up their activities.
    • Currently, social enterprises are very active in India. However, they face challenges in raising funds.
    • One of the biggest hurdles they face is, apparently, the lack of trust from common investors.

    Benefits

    • There is a great opportunity to unlock funds from donors, philanthropic foundations and CSR spenders, in the form of zero-coupon zero principal bonds. These bonds will be listed on the SSE.
    • At first, the SSE could become a repository of social enterprises and impact investors.
    • The registration could be done through a standard process.
    • The SEs could be categorized into different stages such as- Idea, growth stage and likewise, investors can also be grouped based on the type of investment.

  • PM Swanidhi Scheme for street vendors

    The Ministry of Housing and Urban Affairs has launched a micro-credit facility for street vendors under the Swanidhi Scheme.

    Try this question from CSP 2016:

    Q.Rashtriya Garima Abhiyaan’ is a national campaign to

    (a) rehabilitate the homeless and destitute persons and provide then with suitable sources of livelihood

    (b) release the sex workers from the practice and provide them with alternative sources of livelihood

    (c) eradicate the practice of manual scavenging and rehabilitate the manual scavenger

    (d) release the bonded labourers free their bondage and rehabilitate them

    PM Swanidhi Scheme

    • The Pradhan Mantri Street Vendor’s Atmanirbhar Nidhi Scheme is aimed at benefiting over 50 lakh vendors who had their businesses operational on or before March 24.
    • The scheme was announced by Finance Minister as a part of the economic package for those affected by the COVID-19 pandemic and lockdown.
    • The loans are meant to help kick-start activity for vendors who have been left without any income since the lockdown was implemented on March 25.
    • The scheme is valid until March 2022.

    Expected beneficiaries

    • This loan will be given to those who run shops on the roadside, handcart or streetcar.
    • Fruit-vegetable, laundry, saloon and paan shops are also included in this category.

    Facilities provided under the scheme

    • The vendors will be able to apply for a working capital loan of up to ₹10,000, which is repayable in monthly instalments within a year.
    • On timely/early repayment of the loan, an interest subsidy of 7% per annum will be credited to the bank accounts of beneficiaries through direct benefit transfer on a six-monthly basis.
    • The loans would be without collateral. There will be no penalty on early repayment of the loan.

  • PM-CARES is not a public authority under RTI Act

    The PMO has refused to disclose details on the creation and operation of the PM-CARES Fund, telling a Right to Information applicant that the fund is “not a public authority” under the ambit of the RTI Act, 2005.

    Practice question for mains:

    Q. The PM-CARES fund is an old wine in a new bottle. Discuss its feasibility and how it is different in context to the PMNRF.

    About PM-CARES Fund

    • The fund will be a public charitable trust under the name of ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’.
    • The PM is Chairman of this trust and members include the Defence Minister, Home Minister and Finance Minister.
    • Contributions to the fund will qualify as corporate social responsibility (CSR) spending that companies are mandated to make.
    • The Fund accepts micro-donations as well.

    Not a public authority

    • The PMO cited a Supreme Court observation that indiscriminate and impractical demands under RTI Act for disclosure of all and sundry information would be counterproductive.
    • PM-CARES Fund is not a Public Authority under the ambit of Section 2(h) of the RTI Act, 2005.
    • However, relevant information in respect of PM-CARES Fund may be seen on its website.

    Then, what makes an authority, Public?

    The relevant section of the RTI Act defines a “public authority” as “any authority or body or institution of self-government established or constituted —

    • by or under the Constitution;
    • by any other law made by Parliament;
    • by any other law made by State Legislature;
    • by the notification issued or order made by the appropriate Government — and includes any (i) body owned, controlled or substantially financed; (ii) NGO substantially financed, directly or indirectly by funds provided by the appropriate govt.

    Arguments against PM-CARES

    • The fund carries a public name, the composition of the trust, control, usage of an emblem, government domain name etc. that signifies it as a public authority.
    • PM is the ex-officio chairman of the Trust, while three cabinet ministers are ex-officio trustees.
    • The composition of the trust is enough to show that Government exercises substantive control over the trust, making it a public authority.

  • Kisan Credit Cards (KCC) for 1.5 crore dairy farmers

    The Union Govt. is set to provide Kisan Credit Card (KCC) to 1.5 crore dairy farmers belonging to Milk Unions and Milk producing Companies within the next two months under a special drive.

    We can expect multiple statements based prelim question here. Note the following features of the KCC from the newscard:

    1. Year of its introduction (in rarest case)

    2. Types of banks issuing KCC

    3. Credit types extended under KCC

    4. Sectors covered under KCC

    What is Kisan Credit Card (KCC)?

    • KCC is a credit scheme introduced in August 1998 by banks to extend credit facilities to farmers.
    • This model scheme was prepared by the NABARD on the recommendations of R.V. GUPTA committee to provide term loans for agricultural needs
    • Participating institutions include all commercial banks, Regional Rural Banks, and state co-operative banks. The scheme has short term credit limits for crops and term loans.
    • KCC offering credit to the farmers is of two types: 1. Cash Credit 2. Term Credit (for allied activities such as pump sets, land development, plantation, drip irrigations).

    Facilities under KCC

    • Credit card and passbook or credit card cum passbook provided to eligible farmers facilitate revolving cash credit facility.
    • Any number of withdrawals and repayments within a limit, which is fixed on the basis of operational land holding, cropping pattern and scale of finance can be made.
    • Each withdrawal has to be repaid within a maximum period of 12 months and the Card is valid for 3 to 5 years subject to annual review.
    • Conversion/reschedulement of loans is permissible in case of damage to crops due to natural calamities.
    • Crop loans disbursed under KCC Scheme for notified crops are covered under Rashtriya Krishi Bima Yojana, to protect farmers against loss of crop yield caused by natural calamities, pest attacks etc.

    What’s’ in the bucket for Dairy Farmers?

    • Under the dairy cooperative movement, approximately 1.7 crore farmers are associated with 230 Milk Unions in the country.
    • In the first phase of this campaign, the target is to cover all farmers who are members of dairy cooperative societies and associated with different Milk Unions and who do not have KCC.
    • Although the general limit for KCC credit without collateral is Rs. 1.6 lakh, but for dairy farmers, it can be upto Rs.3 lakh.
    • This will ensure more credit availability for dairy farmers associated with Milk Unions as well as assuring repayment of loans to banks.

  • CHAMPIONS Platform to empower MSMEs

    Recently PM has launched the technology platform CHAMPIONS as a one-stop-shop solution of MSME Ministry.

    At the very first sight, the name CHAMPIONS creates a delusion. It looks more of an HRD initiative. Here lies the risk! Please cautiously make a personal note here. Demarcate all such initiatives on an A4 page.

    CHAMPIONS Platform

    • CHAMPIONS stand for Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength.
    • The portal is basically for making the smaller units big by solving their grievances, encouraging, supporting, helping and handholding.
    • It is a technology-packed control room-cum-management information system.
    • It is also fully integrated on a real-time basis with GOI’s main grievances portal CPGRAMS and MSME Ministry’s own other web-based mechanisms.
    • This ICT based system is set up to help the MSMEs in a present difficult situation and also to handhold them to become national and international champions.

    Detailed objectives

    • Grievance Redressal: To resolve the problems of MSMEs including those of finance, raw materials, labour, regulatory permissions etc particularly in the COVID created a difficult situation;
    • To help them capture new opportunities: including manufacturing of medical equipment and accessories like PPEs, masks, etc and supply them in National and International markets;
    • To identify and encourage the sparks:e. the potential MSMEs who are able to withstand the current situation and can become national and international champions.

  • What is Antifa Movement?

    As massive protests following the death of a person in racial discrimination continued to rock the US, President Donald Trump has announced that the alleged far-left group Antifa would be designated as a terrorist organisation by his government.

    One can expect a similar prelims question:

    Q. The Antifa movement recently seen in news is an: Free trade movement/Anti-terror movement etc.

    Why the US seeks to ban Antifa?

    • Trump has blamed for the protests that have convulsed cities across the US,
    • Antifa is considered the loosely affiliated group of far-left anti-fascist activists.

    Antifa: The group

    • Antifa is an acronym for ‘Anti-Fascist’. It is not an organisation with a leader nor does it have a defined structure or membership roles.
    • Antifa has been around for several decades, though accounts vary on its exact beginnings.
    • The term dates the term as far back as Nazi Germany, describing the etymology of ‘Antifa’ as “borrowed from German Antifa, short for antifaschistische ‘anti-fascist’.
    • Rather, Antifa is more of a movement of activists whose followers share a philosophy and tactics.
    • They have made their presence known at protests, including the “Unite the Right” rally in Charlottesville, Virginia, in 2017.

    Its members

    • It is impossible to know how many people count themselves as members.
    • Its followers acknowledge that the movement is secretive, has no official leaders and is organised into autonomous local cells.
    • It is also only one in a constellation of activist movements that have come together in the past few years to oppose the far right.
    • Antifa members campaign against actions they view as authoritarian, homophobic, racist or xenophobic.

    Activism over years

    • Antifa members typically dress in black and often wear a mask at their demonstrations, and follow far-left ideologies such as anti-capitalism.
    • The movement has been known to have a presence in the US in the 1980s.
    • It shot into prominence following the election of President Trump in 2016, with violence marking some of its protests and demonstrations.
    • Criticizing mainstream liberal politicians for not doing enough, Antifa members have often physically confronted their conservative opponents on the streets.
    • The group also participates in non-violent protests. Apart from public counter-protests, Antifa members run websites that track white extremist and ultra-right groups.

    Criticisms

    • The movement has been widely criticised among the mainstream left and right.
    • Conservative publications and politicians routinely rail against supporters of Antifa, who they say are seeking to shut down peaceful expression of conservative views.

  • [Burning Issue] National Security Law debate in Hong Kong

    Hong Kong is burning again. Last year it was Fugitive Offenders Amendment bill, now it’s National Security Law. This anthem bill criminalises insulting China’s national anthem. No, this is not like the same dictum given to us by Supreme Court to stand up in multiplexes. But people actually fear that this law will take away Hong Kong’s basic freedoms.

    Context

    Chinese lawmakers have approved a proposal for sweeping new national security legislation in Hong Kong, which democracy advocates say will curb essential freedoms in the city.

    About Hong Kong

    • A former British Colony and Autonomous Territory: Hong Kong is an autonomous territory, and a former British colony, in southeastern China.
    • It became a colony of the British Empire at the end of the First Opium War in 1842.
    • Sovereignty over the territory was returned to China in 1997.
    • Special Administrative Region (SAR): As a SAR, Hong Kong maintains governing power and economic systems that are separate from those of mainland China.
    • The 1984 Sino-British Joint Declaration guarantees the Basic Law for 50 years after the transfer of sovereignty.
    • It does not specify how Hong Kong will be governed after 2047.
    • Thus, the central government’s role in determining the territory’s future system of government is the subject of political debate and speculation in Hong kong.

    The ‘Basic Law’

    • One country, two systems: Hong Kong is a Special Administrative Region (SAR) of China.
    • It has observed a “one country, two systems” policy since Britain returned sovereignty to China on July 1, 1997, which has allowed it retain certain freedoms, the rest of China does not have.
    • Basic Law: It is governed by a mini-constitution called the Basic Law – constitutional document is a product of the 1984 Sino-British Joint Declaration.
    • Under this, China promised to honour Hong Kong’s liberal policies, the system of governance, an independent judiciary, and individual freedoms for a period of 50 years from 1997.

    Why is Hong Kong fuming?

    • The handover agreement gave Hong kong special freedoms of press, speech, and assembly for at least 50 years.
    • These freedoms stand in stark contrast to China’s strict censorship and Jinping’s tight grip on power, which have seen dissidents jailed and interrogated in secret prisons.
    • This is why protesters here are desperate to protect their freedoms — because they fear Hong Kong to become just another Chinese city under Xi’s rule.

    China vs. Basic Law

    • Mini-constitution: Hong Kong’s mini-constitution, the Basic Law, says that ultimately both the leader and the Legislative Council should be elected in a more democratic way – but there’s been disagreement over what this should look like.
    • China dominated system: The Chinese government said in 2014 it would allow voters to choose their leaders from a list approved by a pro-Beijing committee, but critics called this a “sham democracy” and it was voted down in Hong Kong’s legislature.
    • Issue: The new proposal is also controversial because it is expected to circumvent Hong Kong’s own law-making processes – leading to accusations that Beijing is undermining Hong Kong’s autonomy.

    Why Hong Kong matters for China?

    • Legitimacy to PLA: The handover of Hong Kong by Great Britain was a major achievement of the CCP and had helped boost the party’s legitimacy.
    • Extending nationalism: The handover strengthened nationalism debates within Chinese society and was perceived as righting the wrongs of the century of humiliation.
    • Since 1978, the basic tenet of the CCP has been reform and liberalisation of the economic sphere and command and control of the political sphere.
    • Political reform (So-called): Today, after more than 40 years of reform, mainland China is yet to witness any breakthrough in political reform.
    • Beijing expects other countries to acknowledge that there exists only one China.

    The National Security Law

    • Under Article 23 of the Basic Law, Hong Kong has to enact a national security law “to prohibit any act of treason, secession, sedition, and subversion against the Chinese government.”
    • When the Hong Kong government first tried to enact the law in 2003, the issue became a rallying point for the city-wide protests which occurred that year.
    • Since then, the government has steered clear of introducing the legislation again.

    Unrest in Hong Kong

    • Banning Sedition: The new law would ban seditious activities that target mainland Chinese rule, as well as punish external interference in Hong Kong affairs.
    • Many expect a revival of the protests that rocked the city last year.
    • China, on the other hand, has sought support and understanding of India and other countries for its controversial decision as a precautionary measure.

    Rise of Taiwanese aspirations and Domino Effect

    • The upsurge in Hong Kong’s pro-democracy movement is more closely linked to the developments in Taiwan than is commonly acknowledged.
    • The Taiwanese election results have given hope to the pro-democracy supporters in Hong Kong.
    • However, to imagine that Beijing will stop interfering in the territory’s domestic sociopolitical space is perhaps over-optimistic.
    • National unity and the “One China Principle” are core issues of the Chinese communist party (CCP).
    • Hong Kong, however, is already seen as a part of China under the “one country, two systems” formula.

    implications of the Security Law across the globe

    China’s authoritarianism stands exposed in Hong Kong and its assertiveness seriously damages its soft power. The developments in Hong Kong, therefore, have global consequences for Beijing’s search of power and legitimacy.

    On Hong Kong

    • Hong Kong is a global financial hub – so a hit to its economy affects business worldwide as well.
    • Experts warn that if the unrest continues, international companies could look to pull out of Hong Kong and relocate their branches elsewhere.
    • The stock market would likely crash, followed by the housing market. A mass exodus could follow, and other countries could see migrants’ incoming from Hong Kong.
    • Many Hong Kongers hold foreign passports, a legacy of 1997, and it is easy for them to move overseas.
    • On a more abstract level, some people have framed the unrest as a tug-of-war between Chinese authoritarianism and the Western ideals of freedom and democracy.

    India’s concerns

    • India and Hong Kong have signed a double taxation avoidance agreement (DTAA).
    • It gives protection against double taxation to over 1,500 Indian companies and businesses that have a presence in Hong Kong.
    • Hong Kong is similarly host to a large number of Indian companies and professionals in banking, IT and shipping.
    • India was Hong Kong’s third-largest export market (after China and the US) in 2017 and Hong Kong was India’s third-largest export market (after the US and the UAE).
    • Hong Kong has a very well established Indian diaspora and has much wealth and business influence within the territory.

    India and Chinese diplomatic take(Informal take)

    • Possibly due to its leadership’s idolization of communism, India for long-neglected the basic principle of reciprocity in its relationship with China.
    • India has consistently upheld the “One China” policy. It was one of the first countries to recognise Tibet as a part of China.
    • Today, India is a democracy and only has to deal with the Kashmir issue.
    • But China is facing resistance movements in Tibet, Xinjiang and Southern Mongolia. Hong Kong and Taiwan, too, remain a concern for Beijing.
    • This makes Delhi’s One-China policy lopsided in terms of diplomacy.
    • China expects India to remain silent on 60 per cent of the contested area under China’s territorial control, and also Hong Kong and Taiwan, while China refuses to stand with India only on Kashmir.

    Way forward

    • China and India should never let their differences shadow the overall bilateral ties and must enhance mutual trust.
    • India’s firm military and diplomatic posturing for the ongoing border dispute has made it clear to Beijing that India is in for the long haul.
    • Given its own problems at home and the focus on Hong Kong over the coming days, de-escalation on its borders with India suits China well.

    Conclusion

    China under Xi’s leadership is one of the most assertive and aggressive powers the world has encountered in a long time. Hong Kong’s protest has been continuing for a long time now. Not just Hong Kongers but even India feels the heat of Dragon’s assertiveness on borders. No one knows the result yet but it is going to be long fight that is for sure.

     

    References

    https://www.civilsdaily.com/news/how-china-is-seeking-more-control-on-hong-kong/

    https://www.bbc.com/news/world-asia-china-48607723

    https://www.epw.in/engage/article/hong-kongs-basic-law-and-history-popular-protest

    https://swarajyamag.com/world/as-china-seeks-support-on-hong-kong-india-has-the-opportunity-to-revive-relations-on-new-terms

    https://www.livemint.com/Politics/IiMAWzG8C7MRi85S9OSoUO/Hong-Kong-can-be-Indias-gateway-to-China-Gautam-Bambawale.html

    https://www.orfonline.org/expert-speak/china-revisionism-hongkong-india-borders-67086/

  • A phantom called the Line of Actual Control with China

    Yet again, India and China are engaged in a standoff on the border. But why the issues persist even after four agreements with a view to solve the boundary problem? This article explains the problem in wording of the agreement. And also explains the lack of intent from China’s part.

    Four agreements: vision of progress or strategic illusion?

    •  At the heart of India’s and China’s continued inability to make meaningful progress on the boundary issue are four agreements.
    • Those agreements were signed in September 1993, November 1996, April 2005 and October 2013 — between the two countries.
    • Ironically, India and China keep referring to these agreements as the bedrock of the vision of progress on the boundary question.
    • Unfortunately, these are deeply flawed agreements.
    • And also make the quest for settlement of the boundary question at best a strategic illusion and at worst a cynical diplomatic parlour trick.

    Let’s look into LAC provision in 1993 and 1996 agreements

    • According to the 1993 agreement, “pending an ultimate solution”, “the two sides shall strictly respect and observe the LAC between the two sides… No activities of either side shall overstep the LAC”.
    • Further, both the 1993 and the 1996 agreement—on confidence-building measures in the military field along the LAC— say they “will reduce or limit their respective military forces within mutually agreed geographical zones along the LAC.”
    • This was to apply to major categories of armaments and cover various other aspects as well, including air intrusions “within ten kilometres along the LAC”.

    Okay, but where is the LAC?

    • The specification of this phantom LAC as the starting point and the central focus has made several key stipulations and articles of the four agreements effectively inoperable for more than a quarter of a century.
    • In fact, many of the articles have no bearing on the ground reality.
    • Article XII of the 1996 agreement, for instance, says, “This agreement is subject to ratification and shall enter into force on the date of exchange of instruments of ratification.”
    • It is not clear if and when that happened.
    • Nowhere in the 1993 agreement is there the provision to recognise the existing lines of deployment of the respective armies, as they were in 1993.
    • The agreement does not reflect any attempt to have each side recognise the other’s line of deployment of troops at the time it was signed.
    • That would have been the logical starting point.
    • If both armies are to respect the LAC, where is the line?
    • The ambiguity over the LAC has brought a prolonged sense of unease and uncertainty and thus exponentially contributed to the military build-up in those areas.
    • The absence of a definition of this line allows ever new and surreptitious advances on the ground.

    What could have been done?

    • Had the 1993 agreement begun the exercise with the phrase “pending an ultimate solution, each side shall strictly respect and observe the line of existing control/deployment” instead of the “LAC”, it would have been more possible to keep the peace.
    • In such a case there would have been two existing lines of control on the map — one for the physical deployment of the Chinese troops and the other for the physical deployment of the Indian troops.
    • This would have rendered the areas between the two lines no man’s land, and would have ensured that the two armies were frozen in their positions.

    The issue of two LAC in the eastern and western sector

    • The LAC is two hypothetical lines in the following two sectors-
    • 1) In the eastern sector, where the Chinese have not accepted the loosely defined McMahon line which follows the principle of watershed.
    • 2) The western sector, which is witnessing another episodic stand-off.
    • The first is what Indian troops consider the extent to which they can dominate through patrols, which is well beyond the point where they are actually deployed and present.
    • The second is what the Chinese think they effectively control, which is well south of the line they were positioned at in 1993.

    Why map exchange didn’t happen for the western sector?

    • It is in this theatre of the militarily absurd that we should look at the outcome of the attempted exchange of maps in the western sector.
    • It is the sector where this round of confrontation continues between India and China.
    • This came after the exchange of maps in the middle sector.
    • In the middle sector, divergences were the least, i.e., the existing line and the Chinese and Indian idea of the LAC were more or less the same (in 2002).
    • The Foreign Secretary India and the head of the Chinese delegation, met in New Delhi in 2003 for sharing the map of the western sector.
    • It had been agreed that both sides would exchange maps to an agreed scale on each side’s perceptions of the location of the LAC in the western sector.
    • The idea was to superimpose the maps to see where the perceptions converged and, crucially, where they diverged.
    • Due to the contentious nature of the sector, it would provide a starting point, not the end point, to discuss how to reconcile divergences presumed to be significant, given Chinese military behaviour on the ground there.
    • Each side handed over its map to the other.
    • But, head of the Chinese delegation gave it a long, hard look, and wordlessly returned it.
    • They provided no reason for their action.
    • The meeting effectively ended there.

    Consider the question “Examine the reasons for the persistent nature of the India-China border issue.”

    Conclusion

    By disregarding the map, China is not bound in any way by New Delhi’s perception of the LAC, and therefore does not have to limit liberty of action. This was evident then and is especially evident now. Because the nature of the terrain, deployment, and infrastructure and connectivity asymmetries in the border areas continue to be so starkly in China’s favour that it is clear that the Chinese are in no hurry to settle the boundary question. They see that the cost to India in keeping this question open suits them more than settling the issue.

  • Is India prepared for crude oil eventualities?

    The era we are living in is reigned by the uncertainties. And the oil market is not immune to these uncertainties. Against this background, India’s energy security is discussed in this article. Switching to the “just in case” needs with respect to crude oil is suggested by the author. But, that would require capital. So, how could the problem of capital be solved? Read the article to know…

    Switching from just in time to just in case

    • The post-COVID “world (will be) switching from just in time to just in case”  said economist Alan Kirman.
    • This is more so for the Indian petroleum sector.
    • The decision-makers of this sector should switch to a “just in case” policy mode.

    Oil market: Land full of uncertainties

    • The oil market is in no man’s land. Few speak with conviction about its future trajectory.
    • Last month, it dropped into negative territory for a day in the USA.
    • But today the price of the same crude quality is above $30/barrel.
    • If one reads the commentary of experts, some predict that prices will soon cross $50/barrel while some predict price-crash to below $20/barrel.
    • The fine print of these reports is always caveated with the disclaimer, “it all depends” on one or more of the comparably uncertain variables.
    • These variables include economic growth, geopolitics — US-China relations, the timing of the development of an anti-COVID vaccine or a combination of all these variables.
    • The fact is no one really knows how the petroleum sector will fare in the “new normal” of the post-COVID world.

    The problems policy-makers face: some known, some unknown

    • Policy-makers know that irrespective of the twists and turns in the petroleum market, India will need fossil fuels (coal, oil and gas) to drive its economic growth for at least the next decade, if not longer.
    • And that a sizeable percentage of these requirements will have to be imported.
    • The country does not have the geology to expect gushers especially in an environment of volatile (and relatively low) oil prices.
    • What must also be discomforting is the “known unknown” of the post-COVID stress.
    • They know that COVID has knocked the props from under the Indian economy.
    • They also know that every petroleum company, irrespective of whether it is in the private or public sector, will face an increasingly uncertain and challenging future business environment.
    • What they do not know is the nature of these challenges, and therefore, the conditions, sine qua non, for managing them.

    Let’s look at some facts and figures of India’s crude oil requirements

    • India consumes around 50,00,000 barrels of crude oil every day.
    • Of that, it imports approximately 45,00,000 barrels/day making the country the third-largest crude market in the world.
    • Every month, on average, 70 loaded VLCC (very large crude carriers ) — accounting for 10 per cent of the global tanker market — bring crude oil to India.
    • Approximately 60 per cent of this oil is discharged in and around the Jamnagar area and then carried by pipelines to refineries in Jamnagar, Mathura, Panipat, Bina and Bhatinda.
    • And 50 per cent or so is sourced from Saudi Arabia, Kuwait, Abu Dhabi, Iran and Iraq.
    • It is against this background of post-COVID uncertainties and above facts India should consider switching to “just in case” policy mode.

    Why should India consider switching to “just in case” policy mode?

    We should analyse this by considering two scenarios

    • ONGC/OIL are strategically important PSUs.
    • Few have questioned the support to these two companies and the importance of harnessing our indigenous oil and gas reserves.
    • Until now, this support has been premised on the view that oil supplies are relatively scarce and that prices will trend upwards.

    1) Low oil prices scenario

    • 1) We now need to ask: What if, “just in case” the oil market is structurally oversupplied and prices fall to such low levels that it makes no commercial sense for ONGC/OIL to expend public resources on “ high risk, high cost” exploration?
    • Oil and gas are, after all, tradables and can be purchased on the high seas.
    • Should they not, given this possibility, contemplate redefining their core purpose and perhaps pivot away from oil and gas towards clean energy?

    2) Choking of supply lines scenario

    • Looked at through a different lens but with a “just in case” mindset, the preponderance of crude supplies sourced from countries facing deep political, economic and social tensions raises the question:
    • What if these domestic problems choked our access?
    • How would we manage the disruption?
    • Our decision-makers have worried about supply security for decades.
    • But the circumstances created by COVID are new.
    • The issue of strategic reserves could, for instance, acquire a different hue.
    • We have currently 11 days of reserve cover (5.33 million tonnes) with plans to increase it to 24 days (11.83 million tonnes).
    • Were we to decide to build up these reserves to levels comparable to other countries of between 70 to 100 days of import cover, the issue would be capital.
    • Given the slowdown of the economy and the pressures on the exchequer, the government would not have the financial resources to invest in the creation of additional facilities.
    • The only way this financial hurdle could be overcome is if the government and the private sector invest jointly.
    • This collaborative option would have to be considered to counter the “just in case” contingency of prolonged and major disruption.
    • And if indeed such an option were acceptable, it could be extended to cover trading, crude purchases, co-freighting, subject of course to anti-trust and competition rules.

    Consider the example to understand the importance of “just in case” thinking

    • An example to embed the importance of “just in case” thinking can be drawn from the geopolitics of our neighbourhood.
    • What if the relations between India/Pakistan/China took an ugly turn?
    • What security measures should we contemplate to protect the petroleum assets located in Mumbai and Jamnagar?

    Consider the question “Over the decades, India has been grappling with the issue of energy security. With the rising uncertainties around the world, the issue has gained more prominence. In light of this, suggest the ways to tide over the disruption in oil supplies.”

    Conclusion

    In the backdrop of COVID, when all hands on decks are needed to tackle the “urgent” task of reviving the economy, the government must not, in the process, lose sight of the “importance” of creating, if nothing else, the mindset of preparedness to respond to “just in case outcomes”.

  • Using COVID crisis to reorient India towards reforms

    Following the announcement of relief and stimulus package, the debate began over its various aspects. This article assesses the various aspects of the package and draws comparison with the package announced by the other countries. So, how does India fare compared with other countries?

    Fiscal component of  stimulus package

    • According to the IMF-PT (policy tracker), the fiscal component of the Indian package is estimated to be at least 3.5 per cent of GDP as expenditure for poor households, migrant workers and agriculture.
    • There is an additional 0.5 per cent of GDP for states to spend unconditionally, bringing the fiscal package excluding loans to businesses to at least 4 per cent of GDP.
    • The support for businesses (MSMEs) is estimated to be 2.7 per cent of GDP.
    • Of this, at least 2 per cent of GDP is in the form of 100 per cent credit guarantees and equity infusion.

    Comparison with major emerging economies

    • Among major developing economies, only Brazil -8 per cent of GDP– and Peru -7 per cent of GDP– have a fiscal stimulus higher than the 5 per cent level for India.
    • The Brazil estimate includes about 3 per cent of GDP as working capital loans to businesses and households.
    • The fiscal support level for some important emerging economies is — China 2.5 per cent of GDP and Indonesia 3.5 per cent.

    Why it is difficult to segregate the stimulus package?

    • While comparing the fiscal stimulus packages across countries, it is important to understand that such packages are in the nature of additional spending and tax reliefs.
    • Which can work directly through aggregate demand or indirectly by mitigating risk and enhancing access to fund.
    • Access to fund is ensured in the nature of credit guarantees to financial institutions and non-financial enterprises
    • A large number of fiscal stimulus packages announced by different countries contain credit guarantees to financial institutions, SMEs, and agriculture.
    • Hence, it is difficult to segregate fiscal stimulus into its pure and impure components.
    • Most economists, and international organisations, recognise that fiscal stimulus consists of both the pure and impure.
    • And includes three broad items — a direct “above-the-line” component, a “below-the-line” component and guarantees of various forms primarily credit.
    • The choice of using only one component of the fiscal stimulus is selective and highly inappropriate.

    India as a positive fiscal stimulus outlier

    • To put the packages into perspective, the average of all fiscal measures in the G24 developing economies is equal to 3.6 per cent.
    • No matter how the calculation is done, India is a positive fiscal stimulus outlier; by IMF-PT calculations.
    • The stimulus is close to the largest among major emerging market economies.

    So, how much rich countries are spending?

    • The rich nations are spending more — they can afford to. Japan announced what may be the upper limit to the expansion — 21.1 per cent of GDP.
    • However, this does include large elements of loans and credit guarantees.
    • Through a combination of several fiscal measures (tax deferrals, credit guarantees, etc.) the US has pledged close to 13 per cent of GDP.
    • The European Union, on average, has pledged 4 per cent of GDP.
    • The average for advanced countries is around 6 per cent of GDP.

    Significance of monetary policy change made by RBI

    • The monetary policy change in India is quite significant.
    • The change paves the way for internationally competitive monetary policy.
    •  That is, real interest rates comparable to those prevalent in competitor economies.
    • The repo rate now stands at 4 per cent, with inflation well contained.
    • This is substantially a much different, and much-improved RBI response than that what occurred in 2008-09.
    • At that time, as a monetary counter to the financial crisis, the RBI reduced the repo rate by 425 basis points to 4.75 per cent.
    • This was done over seven months and the prevailing CPI inflation rate was 10 per cent.

    Economic reforms as a part of stimulus package

    • India has announced several economic reforms as a part of the stimulus package.
    • These are long-awaited — freeing up of the labour market, allowing farmers to sell their produce and land to who they choose, removal of archaic laws like the Essential Commodities Act, with the promise of more to come.
    • This is not an empty promise — the Centre will advance another 1.5 per cent of GDP to states to expand spending.
    • This advance will be conditional on them for undertaking long-pending reforms.
    • The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures.

    Conclusion

    The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures. We should use the crisis to re-orient India towards its long-awaited destiny.

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