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  • Problem of interest rate differential in India

    Do you remember Operation Twist by the RBI? what was being twisted there? It was the yield curve that was sought to be twisted. It had been aimed at reducing the gap between long term interest rates and short term policy rates. This article explains the impact such gap could have on the economy.

    Why long term loans come with a higher interest rate?

    • Long term loans equate to long repayment periods.
    • More uncertainty during these long periods can translate to higher risks.
    • And to compensate for the high risks involved, banks quote higher interest rates when corporates borrow from them to build and operate stuff.
    • However, when banks borrow from the RBI they are borrowing over short intervals.
    • And so they get charged lower interest rates.

    So, why banks are keeping interest rates high despite borrowing at low rates from the RBI?

    • Ever so often, the RBI cuts rates in the hopes of making loans more accessible to banks.
    • They are hoping banks will also extend this benevolence to their customers by cutting long term interest rates.
    • But right now, banks are scared.
    • They don’t think the corporates can pay back.
    • So they are keeping long term rates at elevated levels despite borrowing at consistently low rates from the RBI.

    What happens when gap between long-term and short term interest rates widen?

    •  Capital wasn’t cheap to begin with for corporate borrowers, and it’s getting more expensive.
    • This comes just as migrant rural workers have been driven out of urban production centers because of shuttered factories.
    • Even if this labor is safely put back on, say, road construction, concessionaires [think private road contractors] might still go bankrupt before completing any projects.
    • That’s because their annuity payments from the government are linked to falling short-term policy rates, whereas their long-term borrowing costs are both high and sticky

    To understand the issue of annuity payment and its relation with interest rates, let’s dig deeper into 3 types of models-

    1. Build-Operate-Transfer (BOT) Model

    • So, NHAI is the National Highways Authority of India and is largely responsible for building and maintaining roads.
    • Its preferred method to get the job done is to deploy what is called the BOT model.
    • The Build-Operate-Transfer (BOT) model, as the name suggests is a way for NHAI to offload its responsibilities of road building to private contractors.
    • Under BOT model, private contractors build the road, operate it, make money off of collecting toll, and after about 10–15 years, they hand over the road back to NHAI.
    • There aren’t enough private contractors willing to bid for such projects because — hey, maintaining and operating a road is a pain.
    • Why pain?  You have to wait 15 years to recoup all the money you had to pour in to build the damn thing. That’s the pain.

    2. Engineering, procurement and Construction (EPC) model

    • Under the EPC (Engineering, Procurement & Construction) model, NHAI pays private contractors first, so that they can help NHAI build the road.
    • The contractor does not operate or collect tolls here.
    • Instead, it can walk away scot-free with money in its coffers once it’s done building the road.
    • But it’s hard for the government to shore up all the resources required upfront.

    3. Hybrid Annuity Model (HAM)- The middle path

    •  It’s a nice little mix of both EPC and BOT.
    • Under it, NHAI pays some money upfront in fixed installments usually, 40% of the project cost.
    • And the private contractor does his bit by putting up the rest and finishing the project.
    • However, once the construction is complete, the contractor does not make money off of collecting toll.
    • Instead, he transfers the assets over to NHAI.
    • So its incumbent on the government to pay the rest of the money once the project takes off.
    • And the payments are dependent on the asset created, the performance of the developer, and a few other things.
    • However, since the payouts usually last 15–20 years we need to find a way to determine what kind of money the government pays the contractor every 6 months.
    • And here’s the best way to think about this — So when the government pays the 40% upfront, it’s promising to pay the 60% sometime in the future.
    • It’s money they owe the contractor.

    And, here is the crux of the matter

    • So when the repayments, are made, they’ll have to pay the principal and the interest.
    • The interest involves a fixed component (3%) and a variable component.
    • What is varible component? The variable component is effectively the short term policy rates.
    • So if the RBI keeps cutting these short term rates, private contractors get less money per instalment even if their roads are all nice and shiny.
    • And this can’t bode well for them because they probably put up the 60% back in the day by borrowing from another bank.
    • A bank that’s charging them long term interest rates that refuse to come down.

    Conclusion

    The widening gap between the short term policy rates and long term interest could easily spell the disaster for the entrepreneurs and in turn for the economy as a whole. The government should consider a special package for such entities given the unprecedented situations we found ourselves in.

  • Time to revisit the special relationship with Nepal

    A new map released by Nepal delivered a blow to the India-Nepal relations. But this is hardly the first time this has happened. The article clears some cobwebs about Nepal’s foreign policy. First, it throws light on the past trend set by Nepal. And drawing on the past experience, it suggests the changes India should adopt in new framework to deal with Nepal.

    Nepal’s new map: Yet another knock on India-Nepal relations

    • As the parliament in Nepal gets ready to approve a new map that will include parts of Indian territory in Uttarakhand, Delhi is bracing for yet another knock to a bilateral relationship.
    • Many in the Indian strategic community believe that the train wreck was avoidable.
    • But others view the collision between Delhi and Kathmandu as both inevitable and imminent.
    • Even if the territorial issue had been finessed, something else would have triggered the breakdown.

    Bigger fissures in relation

    • A closer look suggests that the territorial dispute is merely a symptom of the structural changes.
    • These structural changes are unfolding in the external and internal context of the bilateral relationship.
    • The question, then, is not what Delhi could have done to prevent the current crisis.
    • It should be about looking ahead to build more sustainable ties with Kathmandu.

    2 factors India must consider and depart from

    • Any new framework for engaging Kathmandu must involve two important departures from the past in Delhi.
    • 1) First is coming to terms with Nepal’s natural politics of balance.
    • 2) The other is the recognition that Delhi’s much-vaunted “special relationship” with Kathmandu is part of the problem.

    Let’s look at the history of Nepal’s geopolitics

    • The founder of the modern Nepali state, Prithvi Narayan Shah, described Nepal as a “yam between two rocks”.
    • He was pointing to the essence of Nepal’s geographic condition between the dominant power in the Gangetic plains on the one hand and Tibet and the Qing empire on the other.
    • Contrary to the conventional wisdom in India, China has long been part of Kathmandu’s international relations.
    • As the East India Company gained ground at the turn of the 19th century, Nepal’s rulers made continuous offers to Beijing to act as China’s frontline against Calcutta’s expansion into the Himalayas.
    • Kathmandu also sought to build a coalition of Indian princes to counter the Company.
    • Even after it lost the first Anglo-Nepal war in 1816, Kathmandu kept up a continuous play between Calcutta and Beijing.
    • As the scales tilted in the Company’s favour after the First Opium War (1839-42), Nepal’s rulers warmed up to Calcutta.
    • When the 1857 Mutiny shook the Company, Kathmandu backed it and regained some of the territories it lost when the Raj replaced the Company.
    • As the fortunes of the Raj rose, Kathmandu rulers enjoyed the benefits of being Calcutta’s protectorate.
    • India inherited this framework but has found it impossible to sustain.

    Why the Treaty of Peace and Friendship (1950) lost its appeal?

    • The 1950 Treaty of Peace and Friendship gave the illusion of continuity in Nepal’s protectorate relationship with the Raj and its successor, independent India.
    • That illusion was continuously chipped away amid the rise of mass politics in Nepal, growing Nepali nationalism, and Kathmandu’s acquisition of an international personality.
    • The 1950 Treaty, which proclaims an “everlasting friendship” between the two nations, has become the symbol of Indian hegemony in Nepal.
    • In a paradox, its security value for India has long been hollowed out.
    • It is a political millstone around India’s neck that Delhi is unwilling to shed for the fear of losing the “special relationship”.
    • Delhi has been trapped into a perennial political play among Kathmandu’s different factions and responding to Nepal’s China card.

    Weakening of “special relationship”: Essence of Nepal’s foreign policy

    • Once the Chinese Communist Party consolidated its power in Tibet and offered assurances to Nepal, Kathmandu’s balancing impulses were back in play.
    • At the risk of oversimplification, Nepal’s foreign policy since the 1950s has, in essence, been about weakening the “special relationship” with India and building more cooperation with China.
    • Kathmandu has used different labels to package its desire for greater room for manoeuvre between its two giant neighbours — non-alignment, diversification, “zone of peace”, equidistance, and a Himalayan bridge between India and China.
    • The stronger China has become, the wider have Kathmandu’s options with India become.

    Way forward

    • It makes no sense for Delhi to hanker after a “special relationship” that a large section of Kathmandu does not want.
    • If Delhi wants a normal and good neighbourly relationship with Kathmandu, it should put all major bilateral issues on the table for renegotiation.
    • Such issues should include the 1950 treaty, national treatment to Nepali citizens in India, trade and transit arrangements, the open border and visa-free travel.
    • Delhi should make it a priority to begin talks with Nepal on revising, replacing, or simply discarding the 1950 treaty.
    • It should negotiate a new set of mutually satisfactory arrangements.
    • India had conducted a similar exercise with Bhutan to replace the 1949 treaty during 2006-07.
    • The issues and political context are certainly more complicated in the case of Nepal.
    • It is better that Delhi bites the bullet and makes a fresh beginning with Kathmandu rather than let the relationship deteriorate.
    • No bilateral relationship between nations can be built on sentiment — whether it is based on faith, ideology or inheritance.
    • Only those rooted in shared interests will endure.
    • Rather than object to Kathmandu’s China ties, Delhi must focus on how to advance India’s relations with Nepal.
    • It should bet that the logic of Nepal’s economic geography, its pursuit of enlightened self-interest, and Kathmandu’s natural balancing politics, will continue to provide a strong framework for India’s future engagement with Nepal.

    Conclusion

    Discarding the appearances of the “special relationship” might, in fact, make it easier for Delhi to construct a more durable and interest-based partnership with Kathmandu that is rooted in realism and has strong popular support on both sides.

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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/

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