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Subject: Economics

  • What is Cartelization?

    The Competition Commission of India (CCI) issued its final order in an alleged case of cartelization involving four Japanese shipping firms, asking them to desist from avoiding competition with each other.

    What is a Cartel?

    • According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
    • The three common components of a cartel are:
    1. an agreement
    2. between competitors
    3. to restrict competition

    What is Cartelization?

    • Cartelization is when enterprises collude to fix prices, indulge in bid-rigging, or share customers, etc. But when prices are controlled by the government under law, that is not cartelization.
    • The Competition Act contains strong provisions against cartels.
    • It also has the leniency provision to incentivize a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
    • This has proved a highly effective tool against cartels worldwide.

    How do they work?

    • Four categories of conduct are commonly identified across jurisdictions (countries). These are: price-fixing, output restrictions, market allocation and, bid-rigging
    • In sum, participants in hard-core cartels agree to insulate themselves from the rigors of a competitive marketplace, substituting cooperation for competition.

    How do cartels hurt?

    • They not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
    • A successful cartel raises the price above the competitive level and reduces output.
    • Consumers choose either not to pay the higher price for some or all of the cartelized product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.

    Are there provisions in the Competition Act against monopolistic prices?

    • There are provisions in the Competition Act against abuse of dominance.
    • One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in the purchase or sale of goods or services.
    • Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
    • However, where pricing is a result of normal supply and demand, the Competition Commission may have no role.

    What is the penalty for cartelization?

    • The Competition Act calls for a penalty on each member of the cartel, which is up to three times its profit for each year of anti-competitive behavior, or 10% of turnover for each year of its continuance, whichever is higher.
    • However, in case of a leniency petition, CCI can waive the penalty depending on the timing and usefulness of the disclosure  and  full cooperation  in  the  probe.

    How might cartels be worse than monopolies?

    • Monopolies are bad for both individual consumer interests as well as society at large.
    • Monopolist completely dominates the concerned market and, more often than not, abuse this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

    How to stop the spread of cartelization?

    • Strong deterrence to those cartels that are found guilty of being one.
    • Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel and it is not always easy to ascertain the exact gains from cartelization.
    • The threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.

    Back2Basics: Competition Commission of India (CCI)

    • The CCI is the chief national competition regulator in India.
    • It is a statutory body within the Ministry of Corporate Affairs.
    • It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.

     

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  • Revamped Distribution Sector Reform Scheme (RDSS)

    Context

    Launched in July 2021, the Revamped Distribution Sector Reform Scheme (RDSS) is the latest of many central government grant-based programmes towards electricity distribution network investments.

     RDSS overview

    • Revamped Distribution Sector Reform Scheme (RDSS) has an outlay of Rs 3 lakh crore for five years.
    • Half of the outlay is for better feeder and transformer metering and pre-paid smart consumer metering.
    • The remaining half, 60 percent of which will be funded by central government grants, will be spent on power loss reduction and strengthening networks.
    • RDSS stipulates universal pre-paid metering but post-paid options may be suitable in many contexts.
    • RDSS suggested measures such as privatization and franchisee adoption.

    Legacy design issues in RDSS

    • Design issues: Complex processes and conditions for fund disbursal: Only 60 percent of the total Rs 2.5 lakh crore grants allocated in past schemes were disbursed.
    • Lack of review and regulatory oversight: Lack of public review and regulatory oversight in states is another issue.
    • Prescriptive approach: The prescriptive approach of the scheme design impedes effective implementation. For example, RDSS emphasizes loss reduction investments over system strengthening.
    • However, high losses are typically connected to sustained poor quality service which, in turn, is affected by inadequate investment in system strengthening.

    Opportunities for discoms under RDSS

    1] Strengthen rural networks

    • It is important to strengthen rural networks to meet growing demand.
    • In the past decade, 4.9 crore poor households have been electrified and more than Rs 50,000 crore has been invested in rural networks.
    • However, actual investments have been much less than planned.
    • Transformer and sub-station capacities were designed to meet the minimal demand assuming few lights, fans, and TV.
    • Increased supply hours, appliance usage, and the needs of rural enterprises will need more network investment.
    • Without this, the risk of power outages is high.
    • The RDSS system’s strengthening plans can focus on this challenge.

    2] Opportunity to provide reliable supply and reduce subsidy requirements for agriculture

    • About 25 percent of electricity sales is to be highly subsidized, agricultural consumers who also receive an erratic, poor quality supply.
    • Under the national KUSUM scheme, day-time, low-cost supply can be provided to a large number of farmers by installing megawatt scale solar plants.
    • For this to work, separate feeders for agricultural consumers are needed. RDSS prioritizes investments and grants towards dedicated agricultural feeders to accelerate feeder solarisation.
    • States must leverage this grant support to provide reliable supply and reduce subsidy requirements.

    3] Automatic metering of distribution feeders

    • Often, discoms under-estimate losses by over-estimating unmetered consumption in a bid to demonstrate loss reduction.
    • For greater veracity, all feeders must be equipped with meters capable of communicating readings without manual intervention.
    • States should leverage RDSS’s emphasis on automatic meter reading for this.

    4] Smart metering

    • RDSS prescribes a phase-wise roll-out of consumer smart meters, starting with commercial and industrial consumers and urban areas.
    • Such an approach provides states with an opportunity to understand implementation issues, adopt suitable strategies for metering and evolve frameworks for assessing benefits vis-a-vis the costs.

    5] Network for charging EVs

    • Discoms can avail 60 percent of grants under RDSS for network investments required to address the demand of charging infrastructure for electric vehicles.
    • This can accelerate a shift away from petrol and diesel fuels.

    Way forward

    • Flexibility: To leverage various opportunities, states must emphasize the need for flexibility in prioritizing investments in their action plans.
    • Central government agencies should also be flexible in the monitoring, tracking, and fund disbursal mechanisms.
    • Accelerated implementation: This should be accompanied by state-level commitments towards accelerated but deliberate implementation.

    Conclusion

    Despite the challenges, there are opportunities for discoms under RDSS. However, without these efforts, despite its potential, RDSS will likely be important but limited in its impact, like its predecessors.

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  • Fast-tracking Vande Bharat Express

    Presenting the Union Budget for 2022-23, Finance Minister said 400 new energy-efficient Vande Bharat trains will be introduced in three years.

    What is Vande Bharat Express?

    • The Vande Bharat Express is a semi-high speed train designed, developed, and built by the Integral Coach Factory (ICF).
    • Presently there are only two Vande Bharat trains that are running — Delhi to Varanasi and Delhi to Katra.

    Key Features 

    • The current Vande Bharat trains have seating only in two classes — chair car and executive chair car. But Railways is planning to upgrade it.
    • The trains have fully sealed gangways for a dust-free environment, modular bio-vacuum toilets, rotating seats in Executive Class, personalized reading lights, automatic entry/exit doors with sliding footsteps, diffused LED lighting, mini pantry, and sensor-based interconnecting doors in each coach.
    • They are self-propelled trains that do not require an engine. This feature is called a distributed traction power system, which is increasingly becoming the norm the world over for passenger operations(Distributed power gives the train higher acceleration and deceleration compared to loco-hauled trains, which take a much longer time to reach top speed or to gradually come to a halt).
    • 400 trains announced by the Finance Minister carry a potential investment of Rs 50,000 crore over the next three years, because of different specifications and also, inflation.
    • The current Vande Bharat’s are being made at Rs 106 crore per trainset of 16 cars, at 2018 pricing.

    Benefits of Vande Bharat Trains

    1) Cuts Travel Time Drastically

    2) Energy Efficient

    3) Reduce Turnaround Time

    4) Faster Acceleration and Deceleration among others.

    Why High-speed rail projects are important for India?

    • Improve India’s GDP: According to a study conducted by the London School of Economics and Political Science and the University of Hamburg in 2008, cities that are connected to HSR systems tend to witness a rise in their gross domestic product (GDP) by at least 2.7 percentage points compared to their neighbors that do not have an HSR station. The reason for the differential was improved market access.
    • Role of the trains in India’s development: Being the third-largest network in the world under single management and
      with over 68,102 route km IR strives to provide a safe, efficient, competitive, and world-class transport system.
    • During FY21, IR carried 1.23 billion tonnes of
      freight and 1.25 billion passengers. In addition, despite COVID -19 pandemic revenue earning freight loading (excluding loading by Konkan Railway Corporation Ltd. (KRCL) was 1230.9 million tonnes in 2020-21 as compared to 1208.4 million tonnes during2019-20. Passengers originating were 1250 million in 2020-21 as compared to 8086 million in 2019-20- Economic Survey 2021-22. 
    • Spin-off effect: It is about Rs 40,000 crore business opportunity that would also create 15,000 jobs and several spin-off benefits and act as a stimulus for the development of satellite towns.
    • Boost to ‘Make in India’– it involves only about 15 percent import content which will further go down if production volumes increase.
    • Environmental Benefits: More rail traffic translates to less automobile traffic, and by extension, less highway and city street traffic congestion, reduced air pollution. In addition, less congestion means less wear and tear on the roadways, which means that they require fewer repairs.  According to the International Association of Railways (UIC), high-speed rail is eight times more energy-efficient than airplanes and four times more efficient than automobile use.
    • Social Benefits: High-speed rail can promote a sense of social cohesion among residents, by bringing distant populated areas closer together.
    • Global Experience: The High-Speed Railway has an economic multiplier effect. Since the introduction of the first Shinkansen (literally meaning ‘new main line’) in Japan in 1964, high-speed trains have proven to be an undeniable technological, commercial and popular success. Many countries like the UK, France, Germany, Spain, China, and most recently, the US have adopted the technology.

    Challenges faced by the High-Speed Rail Projects

    • Infrastructure Bottlenecks: India’s railway system is saddled with a two-pronged infrastructure deficit – aging infrastructure and the pace of new project execution struck by unforeseen circumstances related to socio-economic issues on land acquisition for new projects and escalating projects costs.
    • New Technologies: For instance, Hyperloop Transportation Technologies which proposes to make travel as fast as 760 miles per hour, investing a humongous capital on bullet trains seems like an outdated investment.
    • Political Will: The politics of Rail Bhavan and an unwillingness to accept the need for change have derailed the project execution.
    • Short of Investments: For instance, the estimated cost of Mumbai-Ahmedabad HSR is ₹1.1 lakh crore (US$17 billion) which is massively expensive. Though India receives funding from Japan (81%), the power demand and up-gradation of existing infrastructure will be more costly.
    • Social Conflict: Development along the corridor will lead to an increase in urbanization, the fight for resources, and social conflicts due to the labor influx of the workforce.
    • Legal Trouble: While farmers in Maharashtra are protesting on the ground, the farmers in Gujarat led by Gujarat Khedut Samaj (GKS)-  fighting a case in the Gujarat High Court against the land acquisition for the bullet train project.

    Way ahead

    • Stakeholders approach: Politics and Policy have to be in sync for the railway modernization. In order to achieve the target, Railways will have to pool in all resources and multiple stakeholders, including private players to deliver the propulsion system and also carry out the assembling. The Policymakers and administration should give priority to systematic sustainable development work- the convergence of jal, jungle, jameen(water-forest-land is an asset for the Adivasi community). 
    • Regular Monitoring: To ensure the induction of these trains in the shortest time possible, as envisaged by Indian Railways.
    • Technology Transfer: The government has to push for the technology transfer of HSR. This is because there is no mention of the transfer of technology anywhere in the agreement.

    Conclusion

    India aspires to become the third-largest economy in the next 25 years. It has already proven its prowess in the field of space and now is the time for furthering its international stature by joining the exclusive club of nations having a high-speed rail network, however, we should be careful not to confuse leapfrogging technology development with elitism, whether it is mobile phones, satellite launches, regional air connectivity, or high-speed rail. This high-speed rail project will therefore help the Indian Railways to become a global leader in scale, technology, and skill.

     

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  • Fiscal management during a pandemic

    Context

    The fiscal deficit for the year 2022-23 is higher than what was recommended by the Fifteenth Finance Commission. However, if we consider the direction of consolidation, it is towards a reduction in the fiscal deficit.

    The budget focuses on capital investment

    • This year’s Union budget projects an increase in capex by Rs 3.14 lakh crore, as compared to the budgeted numbers of the previous fiscal.
    • Given the economy’s savings-investment profile and macroeconomic uncertainties due to the pandemic, private and household investments are likely to be reactive to the general economic environment.
    • Achieving sustainable recovery: For the government, making capital investment in such uncertain times assumes a much higher priority and is equally indispensable for achieving a strong and sustainable recovery from the pandemic.
    • Increasing share of government: As per National Accounts data, gross fixed capital formation by the general government (Centre and states) has shown an increase as a percentage of GDP from 3.48 in 2011-12 to 3.82 in 2019-20, while other sectors, particularly households, the share fell from 15.75 per cent to 11.39 per cent during the same period.
    • The fiscal stance taken in the post-pandemic budgets for higher capital spending, including the budget of 2022-23, is likely to further enhance the general government share in overall capital formation. 
    • Important role of the States: it is also important to recognise that two-thirds of the general government’s capital expenditure is undertaken by states and in this context, the announcement of the Rs 1 lakh crore interest-free loans to the states to increase public investment has been a significant step.
    •  Since states taken together have a higher share in the country’s public capital spending, effective absorption of this additional borrowing facility will be critical for higher public investment.

    Three broad trends on Fiscal Consolidation

    • 1] Increase in taxes: The increase in taxes by Rs 5.71 lakh crore between 2020-21 (the first year of the pandemic) and 2022-23 shows that the fiscal challenges have eased, but remain present as we navigate economic recovery in uncertain times.
    • 2] Reduction in revenue deficit: Between 2020-21 and 2022-23 (BE), the reduction in revenue deficit has been substantial — from 7.3 per cent to 3.8 per cent of GDP.
    • 3] Revenue deficit dominates fiscal deficit: Compositionally, revenue deficit continues to be more than 55 per cent of the fiscal deficit and the management of such a deficit has few important considerations for revenue expenditure, that is, interest payments and allocation under various centrally sponsored and central sector schemes.
    • Role of CSS in revenue deficit: Aggregate allocation under centrally sponsored and central sector schemes (CSS) as per the 2022-23 (BE) is Rs 3.83 lakh crore and the interest payment cost of the Union government is Rs 9.56 lakh crore.
    • Beyond scheme-wise allocations, it is also important to consider CSS allocation as an issue of macro-fiscal management issue at the Union and state level, especially when it is contributing to the high revenue deficit of the central government and binding state resources for matching contribution, thereby increasing states’ deficit.

    Understanding the direction of fiscal consolidation

    • The fiscal deficit for the year 2022-23 is higher than what was recommended by the Fifteenth Finance Commission.
    • However, if we consider the direction of consolidation, it is towards a reduction in the fiscal deficit.
    • Though in the medium-term, the fiscal story is about supporting recovery, it is also true that there is no “one-size-fits-all” solution to fiscal consolidation and debt sustainability. 

    Conclusion

    The direction of fiscal consolidation rather than a specific quantified path in an unprecedented time like this is probably the most appropriate consideration.

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  • What are Virtual Digital Assets?

    Recently, The Central Board of Direct Taxes (CBDT) issued detailed guidelines on the Tax Deducted at Source (TDS) rule for Virtual Digital Assets (VDAs) such as cryptocurrencies .

    What are Virtual Digital Assets?

    • To define the term “virtual digital asset”, a new clause (47A) is proposed to be inserted into section 2 of the Act.
    • A virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency):
    1. Generated through cryptographic means or otherwise
    2. Providing a digital representation of value that is exchanged with or without consideration with the promise or representation of having inherent value
    3. Functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes
    4. Can be transferred, stored, or traded electronically.
    • Non-fungible token (NFT) and; any other token of similar nature are included in the definition.

    Why tax them?

    • Popularity: Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets have increased substantially.
    • Growing market: Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset.
    • Increased transactions: There has been a phenomenal rise in such transactions and the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.
    • Prevalence of gifting: The gifting of virtual digital assets is also a popular mode of exchange.

    Key takeaways from the FM’s speech

    • The bill provides for the definition of virtual digital assets which is wide enough to cover emerging digital assets including NFT, assets in metaverse, cryptocurrencies, etc.
    • This recognition of digital assets under income tax is NOT akin to granting legal status.

     

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  • What is the Digital Rupee?

    The Union Finance Minister has announced the launch of the Digital Rupee — a central bank digital currency (CBDC) — 2022-23 onwards.

    Who will launch the CBDC?

    • The Reserve Bank of India will launch the CBDC in the upcoming financial year.
    • This follows the government’s plans to launch the CBDC that will be backed by blockchain technology.

    What is a CBDC?

    • CBDC is a legal tender issued by a central bank in a digital form.
    • It is similar to a fiat currency issued in paper and is interchangeable with any other fiat currency.
    • One chief difference will be that a Digital Rupee transaction will be instantaneous as opposed to the current digital payment experience.

    Features of CBDC

    • High-security instrument: CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value.
    • Uniquely identifiable: And like paper currency, each unit is uniquely identifiable to prevent counterfeit.
    • Liability of central bank: It is a liability of the central bank just as physical currency is.
    • Transferability: It’s a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services.

    What is the need for CBDC?

    • Online transactions: India is a leader in digital payments, but cash remains dominant for small-value transactions.
    • High currency in circulation: India has a fairly high currency-to-GDP ratio.
    • Cost of currency management: An official digital currency would reduce the cost of currency management while enabling real-time payments without any inter-bank settlement.
    • The growth of cryptocurrencies such as Bitcoin, Ethereum, etc has raised challenges to fiat currencies.

    Key benefits offered

    • Faster system: CBDC can definitely increase the transmission of money from central banks to commercial banks and end customers much faster than the present system.
    • Financial inclusion: Specific use cases, like financial inclusion, can also be covered by CBDC that can benefit millions of citizens who need money and are currently unbanked or banked with limited banking services
    • Monetary policy facilitation: The move to bring out a CBDC could significantly improve monetary policy development in India.
    • Making of a regional currency: In the cross-border payments domain, India can take a lead by leveraging digital Rupee especially in countries such as Bhutan, Saudia Arabia, and Singapore where NPCI has existing arrangements.

    Why is CBDC preferred over Cryptocurrency?

    • Sovereign guarantee: Cryptocurrencies pose risks to consumers.  They do not have any sovereign guarantee and hence are not legal tender.
    • Market volatility: Their speculative nature also makes them highly volatile.  For instance, the value of Bitcoin fell from USD 20,000 in December 2017 to USD 3,800 in November 2018.
    • Risk in security: A user loses access to their cryptocurrency if they lose their private key (unlike traditional digital banking accounts, this password cannot be reset).
    • Malware threats: In some cases, these private keys are stored by technical service providers (cryptocurrency exchanges or wallets), which are prone to malware or hacking.
    • Money laundering: Cryptocurrencies are more vulnerable to criminal activity and money laundering.  They provide greater anonymity than other payment methods since the public keys engaging in a transaction cannot be directly linked to an individual.
    • Regulatory bypass: A central bank cannot regulate the supply of cryptocurrencies in the economy.  This could pose a risk to the financial stability of the country if their use becomes widespread.
    • Power consumption: Since validating transactions is energy-intensive, it may have adverse consequences for the country’s energy security (the total electricity use of bitcoin mining, in 2018, was equivalent to that of mid-sized economies such as Switzerland).

    Way forward

    • The launch of CBDCs may not be a smooth affair and still requires more clarity in India. There are still a lot of misconceptions about the concept of digital currency in the country.
    • The effectiveness of CBDCs will depend on aspects such as privacy design and programmability.
    • There is a huge opportunity for India to take a lead globally via a large-scale rollout and adoption of digital currencies.

     

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  • Govt. proposes new SEZ Law

    The government has proposed to replace the existing law governing Special Economic Zones (SEZs) with new legislation to enable States to become partners in ‘Development of Enterprise and Service Hubs’.

    Why amend SEZ Act, 2005?

    • Units in SEZs used to enjoy 100% income tax exemption on export income for the first five years, 50% for the next five years, and 50% of the ploughed back export profit for another five years.
    • SEZs now have started losing their sheen after the imposition of minimum alternate tax and the introduction of a sunset clause for the removal of tax incentives.
    • The new act will cover all large existing and new industrial enclaves to optimally utilize the available infrastructure and enhance the competitiveness of exports.
    • The government will also undertake reforms in customs administration of SEZs with a view to promote ease of doing business.

    What are SEZs?

    • A Special Economic Zone (SEZ) is an area in which the business and trade laws are different from the rest of the country.
    • SEZs are located within a country’s national borders, and their aims include increasing trade balance, employment, increased investment, job creation, and effective administration.
    • To encourage businesses to set up in the zone, financial policies are introduced.
    • These policies typically encompass investing, taxation, trading, quotas, customs, and labor regulations.
    • Additionally, companies may be offered tax holidays, where upon establishing themselves in a zone, they are granted a period of lower taxation.

    SEZs in India

    • The SEZ policy in India first came into inception on April 1, 2000.
    • The prime objective was to enhance foreign investment and provide an internationally competitive and hassle-free environment for exports.
    • The idea was to promote exports from the country and realize the need for a level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.
    • Subsequently, the SEZ Act 2005, was enacted to provide the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.

    Who can set up SEZs? Can foreign companies set up SEZs?

    • Any private/public/joint sector or state government or its agencies can set up an SEZ.
    • Yes, a foreign agency can set up SEZs in India.

    What is the role of state governments in establishing SEZs?

    • A representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal.
    • Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

    Are SEZs controlled by the government?

    • In all SEZs, the statutory functions are controlled by the government.
    • The government also controls the operation and maintenance function in the central government-controlled SEZs. The rest of the operations and maintenance are privatized.

    Are SEZs exempt from labor laws?

    • Normal labor laws are applicable to SEZs, which are enforced by the respective state governments.
    • The state governments have been requested to simplify the procedures/returns and for the introduction of a single-window clearance mechanism by delegating appropriate powers to development commissioners of SEZs.

    Who monitors the functioning of the units in SEZ?

    • The performance of the SEZ units is monitored by a unit approval committee consisting of a development commissioner, custom, and representative of the state government on an annual basis.

    What are the special features for business units that come to the zone?

    • Business units that set up establishments in an SEZ would be entitled to a package of incentives and a simplified operating environment.
    • Besides, no license is required for imports, including second-hand machinery.

    How do SEZs help a country’s economy?

    • SEZs play a key role in the rapid economic development of a country.
    • In the early 1990s, it helped China and there were hopes that the establishment in India of similar export-processing zones could offer similar benefits – provided, however, that the zones offered attractive enough concessions.
    • Traditionally the biggest deterrents to foreign investment in India have been high tariffs and taxes, red-tapism, and strict labor laws.
    • To date, these restrictions have ensured that India has been unable to compete with China’s massively successful light-industrial export machine.

     

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  • PM’s Development Initiative for North East (PM-DevINE)

    Union Budget 2022-23 provided for a new scheme, Prime Minister’s Development Initiative for North East (PM-DevINE) will be implemented through the North-Eastern Council.

    PM-DevINE

    • It will fund infrastructure, in the spirit of PM GatiShakti, and social development projects based on felt needs of the northeast.
    • This will enable livelihood activities for youth and women, filling the gaps in various sectors.
    • While the Central Ministries may also pose their candidate projects, priority will be given to those posed by the States.

    Some of the projects to be implemented are:

    1. Dedicated Services for the Management of Paediatric and Adult Haemotolymphoid Cancers in North East India, Guwahati
    2. Construction of Aizawl bypass on western side, gap funding for passenger ropeway system for Pelling to Sanga-Choeling in West Sikkim
    3. Gap funding for eco-friendly Ropeway (Cable Car) from Dhapper to Bhaleydhunga in South Sikkim
    4. Pilot project for the construction of Bamboo Link Road at different locations in various districts in Mizoram

     

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  • What is UNCITRAL Model for Cross-Border Insolvency?

    The Economic Survey 2021-22 has called for a standardized framework for cross-border insolvency as the Insolvency and Bankruptcy Code (IBC) at present does not have an instrument to restructure firms involving cross-border jurisdictions.

    What is the Insolvency and Bankruptcy Code (IBC)?

    • The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
    • It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
    • The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

    Cross-border insolvency proceedings

    • Cross-border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions.
    • A framework for cross border insolvency proceedings allows for:
    1. Location of such a company’s foreign assets
    2. Identification of creditors and their claims
    3. Establishing payment towards claims and
    4. Process for coordination between courts in different countries

    Current status of foreign stakeholders and courts in other jurisdictions under IBC

    • Foreign creditors can make claims against a domestic company.
    • However, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries.
    • Current provisions do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.

    What is the UNCITRAL Model?

    • The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues.
    • It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea, and Singapore.
    • It is designed to assist States in reforming and modernizing their laws on the arbitral procedure so as to take into account the particular features and needs of international commercial arbitration.

    Key provisions

    This law works on four main principles: access, recognition, cooperation and coordination:

    1. Direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor.
    2. Recognition of foreign proceedings & provision of remedies.
    3. Cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners.
    4. Coordination between two or more concurrent insolvency proceedings in different countries: The main proceeding is determined by the concept of Centre of Main Interest (COMI).

    Implications for India

    • The framework for cross-border insolvency adopted in India may like in the case of some other countries require reciprocity from any country which seeks to have its insolvency proceedings recognised by Indian courts.
    • This would allow Indian proceedings for foreign corporate debtors to be recognised in foreign jurisdictions.

    How is IBC different from the model law?

    • Many countries that adopt the UNCITRAL model law do make certain changes to suit their domestic requirements.
    • The Indian cross-border insolvency framework excludes financial service providers from being subjected to cross-border insolvency proceedings.
    • This is because many countries exempt businesses providing critical financial services, such as banks and insurance companies, from the provisions of cross-border insolvency frameworks.

    Back2Basics: UNCITRAL

    • It is an affiliate organization to the UN made up of business and legal professionals.
    • This group develops model standards and procedures for dealing with issues affecting international business.
    • Perhaps most notably, UNCITRAL promulgated the Convention on International Sale of Goods (CISG).
    • The CISG is a model law commonly used as the governing provisions in contracts between parties from different nations.

     

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  • What is Design Linked Incentive (DLI) Scheme?

    India has invited applications from 100 domestic companies, startups, and small and medium enterprises to become a part of the design-linked incentive (DLI) scheme.

    What is the DLI scheme?

    • Aims to provide financial and infrastructural support to companies setting up fabs or semiconductor making plants in India.
    • It aims to attract existing and global players as it will support their expenditures related to design software, IP rights, development, testing, and deployment.
    • Centre for Development of Advanced Computing (CDAC), a scientific society operating under MeitY, will serve as the nodal agency for the implementation of the DLI scheme.

    Components of the scheme

    It has three components which are

    1. Chip Design infrastructure support: C-DAC will set up the India Chip Centre to host the state-of-the-art design infrastructure (viz. EDA Tools, IP Cores, and support for MPW (Multi Project Wafer fabrication) & post-silicon validation) and facilitate its access to supported companies.
    2. Product Design Linked Incentive: Reimbursement of up to 50% of the eligible expenditure subject to a ceiling of Rs. 15 Crore per application will be provided as financial support to the approved applicants who are engaged in semiconductor design.
    3. Deployment Linked Incentive: An incentive of 6% to 4% of net sales turnover over 5 years subject to a ceiling of Rs. 30 Crore per application will be provided to approved applicants whose semiconductor design for Integrated Circuits (ICs), Chipsets, System on Chips (SoCs), Systems & IP Cores and semiconductor linked design are deployed in electronic products.

    Why need such a scheme?

    Ans. Growing semiconductor demand in India

    • The semiconductor industry is growing fast and can reach $1 trillion dollars in this decade. India can grow fast and reach $64 billion by 2026 from $27 billion today.
    • Mobiles, wearables, IT, and industrial components are the leading segments in the Indian semiconductor industry contributing around 80% of the revenues in 2021.
    • The mobile and wearables segment is valued at $13.8 billion and is expected to reach $31.5 billion in 2026.

    A boost to semiconductor manufacturing

    • The sudden surge in demand for chips and semiconductor components has underpinned the need to establish a robust semiconductor ecosystem in India.
    • Several sectors, including auto, telecom, and medical technology suffered due to the unexpected surge leading to the scarcity of chips manufactured by only a few countries.
    • The inception of new companies will help in meeting the demand and supply and encourage innovation in India.

    What are other countries doing to be dominant in the race of chip-making?

    • Currently, semiconductor manufacturing is dominated by companies in the U.S., Japan, South Korea, Taiwan, Israel, and the Netherlands.
    • They are also making efforts in solving the chip shortage problem.
    • The US wants to bring manufacturing back to America and reduce the country’s reliance on a small number of chipmakers based largely in Taiwan and South Korea.
    • These chipmakers produce up to 70% of the world’s semiconductors.

    Challenges in India

    • No incubation: In India, more than 90% of global companies already have their R&D and design centers for semiconductors but never established their fabrication units.
    • Strategic sector: Although India has semiconductor fabs in Mohali and Bangalore, they are purely strategic for defense and space applications only
    • Capital requirement: Setting up fabs is capital intensive and needs investment in the range of $5 billion to $10 billion.
    • Lack of supportive policies: Lack of investments and supportive government policies are some of the challenges to setting up fabs in India.
    • Geopolitical limitations: A combination of capital and the geopolitical situation comes into play to build new fabs.

    Way forward

    • Further incentivization: Schemes like the DLI are crucial to avoid high dependencies on a few countries or companies.
    • Raw material supply: Several gases and minerals which are a part of the global semiconductor supply chain are produced in India.
    • Large talent pool: Availability of highly-skilled engineers for semiconductor manufacturing.

    Conclusion

    • The 21st century will be an era of Digital revolution signifying an increased use of mobile phones and computer devices. This enhanced usage can be met only with a robust availability of semiconductor chips that sustains their functioning. Therefore India needs to focus on the indigenous development of semiconductors in order to realize its digital potential and emerge as a strong power in the present era.

     

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