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  • SEBI tightens rules for provisional debt rating

    New framework for debt instrument

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

  • RBI issues guidelines for tenure of bank CEOs, MDs

    What the guidelines say

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

    Applicability

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

  • Polity Titbits: Constitutional Developments under British/ British Administrative Measures

     

    28th Apr 2021

    In India, the British Government passed various laws and acts before the formulation of the constitution. The Regulating Act of 1773 was enacted as a first step to regulate the working of East India Company. However, the Indian Independence Act, 1947 finally ended the British rule in India and declared India as an independent and sovereign nation with effect from August 15, 1947.

    The Regulating Act of 1773

    • The Regulating Act of 1773 was enacted as a first step to regulate the working of East India Company
    • The Gov of Bengal was made Gov General of Bengal. He was assisted by 4 people. This 4+1 becomes became Supreme Council of Bengal also known as the GG’s Exec Council.
    • A Supreme Court was established in Bengal comprising of a chief justice and three other judges

    Pitts’s India Act, 1784

    • We see a shrinking of the Council from 4 members to 3 members. Hence 3+1 is the renewed GG’s Executive Council.
    • Board of control was established to control the civil, military and revenue affairs of the company
    • The Court of Proprietors was no more empowered to revoke or suspend the resolution of the directors approved by the Board of Control.

    Charter Act of 1833

    • The Governor-General of Bengal was made the Governor-General of India. The first Governor-General of India was William Bentinck.
    • He was given legislative powers over entire India including the Governors of Bombay and Madras.
    • The company lost the status of a commercial body and was made purely an administrative body.
    • This Act. was the first law to distinguish between the executive and legislative powers of the Gov General.
    • A 4th member was introduced who could only discuss and vote only on the legislative matter.
    • Council of India = [(3+1) +  1(4th member also called the Law Member)]
    • The first such Law Member was Macaulay. This Council of India was, to a certain extent, the Legislature. Strength of the Executive remained 3+1 .

    Charter Act of 1853

    • From here on, we see a gradual increase in the membership of the Council and further separation of powers.
    • Access to compete in civil services for Indians.
    • It brought out the separation in the legislative and executive functions of the Governor-General’s council.
    • The 4th member (Law Member)was included as a full-time Member in the GG’s Executive Council. His position was taken by 6 Members referred to as Legislative Councillors.
    • Council of India = [(4+1) + 6(Legislative Councillors) + 1 Commander-in-Chief]
    • 6 Councillors were,
      1. 1 Chief Judge of SC of Calcutta.
      2. 1 Judge of SC of Calcutta
      3. 4 members of the ICS
    •  

    Government of India Act, 1858

    • India was to be governed by and in the name of the crown through Viceroy, who would be the representative of the crown in India.
    • The designation of Governor-General of India was changed to Viceroy. Thus, Governor-General Lord Canning became the first Viceroy of India
    • Board of Control and Board of directors were abolished transferring all their powers to British Crown
    • A new office ‘secretary of state was created with a 15 member council of India to assist him. Indian Councils Act, 1861
    • The major focus of the act was on administration in India. It was the first step to associate Indians to legislation.
    • The act provided that the viceroy should nominate some Indians as non-official members in the legislative council.
    • The legislative powers of Madras and Bombay presidencies were restored.
      It provided for the establishment of legislative councils for Bengal, North-Western Frontier Province (NWFP) and Punjab.
    • Viceroy was empowered to issue ordinances during an emergency without the concurrence of the legislative council.

    Indian Councils Act of 1861

    • After 1861, the Council was called Imperial Legislative Council(ILC) or Indian Legislative Council(ILC). The Executive was further enhanced by 1 member.
    • The Viceroy now had the power to Nominate 6 – 12 Non-Official members in the Legislature who would be holding the office for 2 years.
    • ILC = [(5+1) + (Additional Members -> Minimum 6, Maximum 12)]
    • The composition of Additional Members was as follows:
      1. 50% Nominated Official Members
      2. 50% Nominated Non-Official Members
    • The Act thus sowed the seed for the future Legislative as an independent entity separate from the Executive Council.

    Indian Councils Act of 1892 

    • Due to the excessive demand of the Congress, the Additional Members were increased. Additional Members -> Minimum 10, Maximum 12.
    • ILC = [(5+1) + (Additional Members -> Minimum 10, Maximum 16)]

    The composition of Additional Members was as follows:

    • Nominated official members (those nominated by the Governor-General and were government officials)
    • 5 Nominated Non-Officials (nominated by the Governor-General but were not government officials)
    • 4 Nominated by the Provincial Legislative Councils of Bengal Presidency, Bombay Presidency, Madras Presidency and North-Western Provinces.
    • 1 Nominated by the Chamber of Commerce in Calcutta.

    Indian Councils Act of 1909: The Morley-Minto reforms

    • It introduced for the first time the method of election.
    • The additional members of the Governor-General Council were increased from 16 to a maximum of 60.
    • The composition of Additional Members was as follows:
      1. Nominated official members (those nominated by the Governor-General and were government officials)
      2. Nominated non-official members (nominated by the Governor-General but were not government officials)
      3. Elected Members (elected by different categories of Indian people)
    • It provided for the association of Indians in the executive council of the Viceroy and Governors. Satyendra Prasad Sinha joined the Viceroy’s executive council as a law member.
    • It introduced Separate Electorate for Muslims.

    Indian Councils Act of 1919: The Montagu-Chelmsford Reforms

    • Central Legislature thereafter called the Indian Legislature was reconstituted on the enlarged and more representative character.
    • The act set up bicameral legislatures at the centre consisting of two houses- the Council of the States (Upper House) and the Central Legislative Assembly (Lower House).
    • It consisted of the Council of State consisted of 60 members of whom 34 members were elected and the Legislative Assembly consisted of about 145 members, of whom about 104 were elected and the rest nominated.
    • Of the nominated members, about 26 were officials.  The powers of both the Chambers of the Indian Legislature were identical except that the power to vote supply was granted only to the Legislative Assembly.
    • The central and provincial subjects were demarcated and separated.
    • The Provincial subjects were further divided into Transferred Subjects and Reserved Subjects, the legislative council had no say in the latter. This was known as the system of Diarchy.
    • The principle of separate electorate was further extended to Sikhs, Indian Christians, Anglo-Indians and Europeans.
    • It provided for the appointment of a statutory commission to report the working of the act after ten years

    The Government of India Act 1935

    • It marked the next great stride in the evolution of the Legislatures.
    • The Federal Legislature was to consist of two Houses, the House of Assembly called the Federal  Assembly and the Council of States.
    • The Federal Assembly was to consist of 375 members, 250 to represent Provinces and 125 to represent the Indian States, nominated by the Rulers.
    • The representatives of the Provinces were to be elected not directly but indirectly by the Provincial Assemblies.
    • The term of the Assembly was fixed as five years.
    • The Council of State was to be a permanent body not subject to dissolution, but one-third of the members should retire every three years.
    • It was to consist of 260 members.  104 representatives of Indian States, six to be nominated by the Governor-General, 128 to be directly elected by territorial communal constituencies and 22 to be set apart for smaller minorities, women and depressed classes.
    • The two Houses had in general equal powers but demands for supply votes and financial Bills were to originate in the Assembly.
    • The principle of Separate Electorate was extended to depressed classes, women and workers.
    • Provided for the formation of Reserve bank of India

    Indian Independence Act, 1947

    • The act formalized the Lord Mountbatten Plan regarding the independence of India on June 3, 1947.
    • The Act ended the British rule in India and declared India as an independent and sovereign nation with effect from August 15, 1947.
    • Provided for the partition of India into two dominions of India and Pakistan
    • The office of Viceroy was abolished and a Governor-General was to be appointed in each of the dominions
    • The Constituent Assemblies of the two dominions were to have powers to legislate for their respective territories.
    • Princely states were free to join any of the two dominions or to remain independent.

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  • 28th April 2021 | Prelims Daily with Previous Year Questions

    [WpProQuiz 612]

    [WpProQuiz_toplist 612]

  • Undermining vaccination for all

    The article highlights the issues with the new vaccine strategy adopted by the government.

    Revamped vaccine strategy

    • With the second Covid-19 wave reaching catastrophic proportions, the Government of India has acted by unveiling a completely revamped vaccine strategy.
    • Two key elements are the hallmark of this new strategy, which will be implemented from May 1.
    • First, the vaccination drive has now been extended to the entire adult population, namely, to those above 18 years.
    • Second, vaccine manufacturers have been given the freedom to sell 50% of their vaccine production to State governments and private hospitals.
    •  A third element of the vaccine strategy, which was not announced formally, is a grant of ₹45 billion to the two vaccine manufacturers, the Serum Institute of India (SII) and Bharat Biotech, to boost their capacities.

    Issues with the new vaccine strategy

    1) Control over the market for vaccine

    • The central government has given up its control over the market for vaccines, a key feature of the vaccine roll-out plans thus far.
    • This issue assumes further significance since the Government of India is well aware about the significance of vaccinating every citizen in the country; “none of us will be safe until everyone is safe”.
    •  It is, therefore, vitally important that public health authorities in the country take an objective view of the realities of the country before adopting strategies for vaccine availability.

    2) Vaccine export

    • The phased roll-out of the government’s ambitious vaccination drive, beginning with health-care and frontline workers in January was in sync with the availability of vaccines in the country.
    •  But, given that India too saw a degree of “vaccine-scepticism”, the Government of India found itself in a situation where it could promise exports of vaccines to 95 countries, mostly in Africa and Asia.
    • As of April 26, these countries have received more than 66.4 million doses of vaccines from India.
    • Until now, nearly 142 million vaccine doses have been administered in the country, the third highest in the world.
    • However, in terms of population share, less than 2% has received both vaccine doses, while less than 9% has received one dose.
    • But there is one worrying facet, which is that a demand-supply mismatch has begun to appear as the coverage of the vaccine-eligible population expanded.
    • The largest supplier, SII, gave two explanations for its inability to meet its commitments.
    • The first was that the United States Government had restricted exports of vaccine culture and other essential materials.
    • Second, the company complained that it lacked the financial capacity to expand its production, requesting a grant of ₹30 billion from the government.

    3) Onus on the States

    • Central government have allowed vaccine producers to sell 50% of their production directly to State governments and private hospitals.
    • The central government would continue to support vaccination for people above 45 years, and health-care workers and frontline workers.
    • The new strategy shifts the onus onto the State governments, which have to take decisions regarding free vaccination for people above 18 years.
    • The government has not fixed the vaccine prices and has allowed the producers to pre-declare the prices they would charge from the State governments and private hospitals, a sharp departure from the extant strategy.
    • New policy fragments the market into three layers namely, central government procurement, State government procurement and the private hospitals.
    • This layering of the market would allow the producers to charge high prices from the State governments and private hospitals.
    • The new strategy would shift the burden of vaccination of the young population, namely, those between 18-44 years, entirely on the State governments.
    •  This implies that the vaccination of a significant section of the population depends on the financial health of each State government, resulting in inequitable access to vaccines across States. 

    4) Public money given for expanding production capacity

    • In view of the advance of ₹45 billion made by the Government of India to the two vaccine producers in India for expanding their production capacities decision to deregulate the vaccine market raises serious questions.
    • This question is more pertinent in India, where access to affordable vaccines is critical for ensuring “vaccination for all”.

    Way forward

    •  Rather than allowing duopoly in the vaccine market, the government should have ensured a competitive market for vaccines.
    • One positive step that the government has taken in this direction is to increase production of Bharat Biotech’s vaccine through the involvement of three public sector undertakings, including Haffkine Institute.
    • There is a need for more open licensing of this vaccine to scale up production.

    Conclusion

    There can be no alternative to vaccination for all if we want to overcome the Covid and to ensure that government needs to rethink its new strategy.

  • An idea on taxation that is worth a try

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

    What factors contributed to low corporate tax

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

    Implications of lower corporate tax rate

    1) Shortage of resources

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

    2) Base Erosion and Profit Shifting

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

    3) Regressive tax structure

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

    Call for Global minimum tax rate

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

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

    Conclusion

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

  • India third highest military spender in 2020: SIPRI

    What the SIPRI database says

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

    Increase in spending in the year of pandemic

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

  • Complexities of herd immunity

    What is herd immunity

    • The herd immunity concept is based on lowering the number of susceptible individuals.
    • If sufficient individuals in the population are immune either through vaccination or a prior exposure, then the number of susceptible individuals drops.
    • For example, if the immune population is 70%, then the susceptible population is 30%.

    Does herd immunity really protect from subsequent waves?

    • The number of daily cases depends on three factors: The number of infectious people in the population, the number of susceptible individuals, and the rate of transmission of the virus.
    • The rate of transmission is dependent on the nature of the virus and the extent of contact between individuals.
    • So, if the rate of transmission increases due to change in social behaviour and increased contact then even with a large percentage of the immune population, a significant number of daily cases can result.
    • The “herd immunity” number is not a static number but it changes depending on the rate of transmission of the virus and the extent of virus present.

    Estimating exposures in metro cities

    • Serosurveys indicated that Covid had touched 56% of population in Delhi by January; 75% in some slums Mumbai in November, and about 30% in Bengaluru in November.
    • The population touched by Covid can also be estimated by the Infection Fatality Rate (IFR).
    • This is the total number of deaths divided by the total people infected. In India, the estimate is 0.08%.
    • So this number can be used to back-calculate the number of infections based on the number of deaths in the different cities.
    • The table given below shows the number of people exposed to Covid in some metros until January 31 using the method above.

    What are the reasons behind the recent surge

    • The reasons behind the recent surge are not fully understood.
    • The one factor that is not in doubt, however, is that interaction and contact with the population has increased since February.
    • Such increased contact increased the virus in circulation and led to increased cases in the susceptible population.

  • An unquiet neighbourhood

    The article highlights the inherent difficulty in finding a solution to the two conflicts raging on in India’s neigbourhood.

    Tale of two conflicts in neighbourhood

    • Efforts to end two major conflicts in India’s neighbourhood have become intense.
    • To the west, a peace summit on Afghanistan, seeking to end decades of conflict there, was also scheduled to take place in Istanbul over the weekend.
    • To the east, the Association of Southeast Asian Nations (ASEAN) has produced a diplomatic opening with Myanmar’s military leadership.
    • Afghan conflict go back to the late 1970s; since then we have seen different phases of the conflict.
    • Although the crisis in Myanmar appears recent, the tension between civil-military relations is not new.
    • Back in 1988, the army annulled the huge mandate won by Aung San Suu Kyi and unleashed massive repression.

    3 Common Themes in the effort at peace and reconciliation

    1) Ending violence

    • The first is about ending violence.
    • In Afghanistan it has been near impossible to get a resurgent Taliban to agree to stop its attacks on government forces or the civilian population.
    • The ASEAN initiative in Myanmar calls for an immediate cessation of violence and utmost restraint from all sides.
    • The opposition demanding restoration of democracy might find this rather ironic, since it is the army that is employing violence and has shown scant restraint.

    2) Dialogue among all parties

    • The second theme in the ASEAN initiative — “constructive dialogue among all parties” to “seek a peaceful solution” — is also common to all peace processes.
    • The Taliban found all kinds of excuses to delay a dialogue with the Kabul government that it always saw as illegitimate. So far, it has avoided one.
    • In Myanmar, the army might be ready to engage the opposition in a prolonged dialogue and defuse international pressure; but it will be hard for the victims of the coup to accept a dialogue on the army’s terms.

    3) Third-party mediator

    • The Afghan conflict has long been internationalised.
    • All major powers, including regional actors and neighbours, have acquired stakes in the way the Afghan conflict is resolved.
    •  This unfortunately makes the construction of an internal settlement that much harder.
    • In Myanmar, the ASEAN has set the ball rolling by agreeing that a special envoy will be traveling to the region and will engage with all parties to the conflict.

    Cost-benefit in diplomacy

    • The US is hoping that the Taliban will moderate some of its hardline positions given its need for significant international economic assistance for reconstruction, political legitimacy.
    • In Myanmar, too, the international community will hope the military would want to avoid the risks of political isolation and economic punishment.
    • But how the Taliban and the Myanmar army calculate these costs and benefits could be very different.
    • Both have long experience of surviving external pressure and enduring sanctions.

    Conclusion

    Few civil wars have seen the kind of massive external effort to change the internal dynamics as in Afghanistan; but to no avail. In Myanmar, it is not clear how far the international community might go. The prospects for positive change in Afghanistan and Myanmar, then, do not look too bright in the near term.

  • Centre uses Disaster Management Act to restrict liquid oxygen use for non-medical purposes

    Order under Disaster Management Act 2015

    • Invoking the Disaster Management Act, the Centre ordered States that all liquid oxygen shall be made available to the government and will be used for medical purposes only.
    • The order said that under section 10(2)(I) and section 65 of the DM Act, States had to ensure that “liquid oxygen is not allowed for any non medical purpose”
    • The order was passed after the review of oxygen supply situation in the country.

    Dealing with the shortage

    • On April 22, Centre issued order under the DM Act, making the district magistrates and senior superintendent of police personally liable to allow unhindered inter-State movement of vehicles carrying medical oxygen.
    • Despite MHA’s orders and letters, States continued to flag shortage of oxygen supply.
    • Medical oxygen to States are being provided as per daily quota decided by an empowered group of officers in central ministries.

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