💥Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: International Relations

  • Myanmar Refugees Issue

    India has sealed all entry points along the border with the southeast Asian neighbour and is closely monitoring to prevent any Myanmar nationals from entering the country.

    Issue: Problem with refugees

    • At least 1,000 people from the adjoining Chin State of Myanmar are said to have crossed over to Mizoram, fearing a military crackdown.
    • The Mizoram government favours providing refuge to the Chins that are ethnically related to the majority Mizos in the State.
    • However, the Ministry of Home Affairs has made it clear that “India is not a signatory to the 1951 UN Convention relating to the Status of Refugees and the 1967 Protocol theron”.

    When did the refugees start arriving?

    • Mizoram began feeling the heat a month after the military coup when three police personnel crossed over to Lungkawlh village in Serchhip district.
    • The influx of Myanmar nationals was reported from Hnahthial, Champhai, Saitual and Serchhip districts.
    • Most of the refugees waded across the Tiau River that runs along much of Mizoram’s 510-km border with Myanmar.

    Try answering this:

    The cross-border movement of insurgents is only one of the several security challenges facing the policing of the border in North-East India. Examine the various challenges currently emanating across the India-Myanmar border. Also, discuss the steps to counter the challenges. (15 Marks)

    Is this the first time this has happened?

    • Extremism, counter-insurgency and sectarian violence have driven people out of Myanmar into India in the past as well.
    • More than 1,200 Buddhists and Christians from Myanmar’s Arakan State had taken refuge in Mizoram’s Lawngtlai district in 2017.
    • They fled their homes after the Myanmar Army clashed with the extremist Arakan Army.
    • The refugees stayed back for more than a year. Thousands of Chins are said to be living in Mizoram for more than 40 years now.

    How porous is the border?

    Unlike India’s border with Pakistan and Bangladesh, much of the border with Myanmar is without any fence.

    • The Assam Rifles personnel guard the border but a tough terrain comes in the way of maintaining airtight vigil.
    • There have been calls to fence the border. Fencing the border would also help in checking the movement of extremist groups to and from Myanmar.
    • Some are against the idea, insisting that a fence would make the “free movement” of border residents into each other’s country difficult.
    • The two countries had in 2018 agreed to streamline the movement of people within 16 km of the border on either side.

    Note: Myanmar has indefinitely stalled the agreement to streamline the free movement of people within 16 km along the border citing domestic issues.

    Mizoram welcomes the refugees

    • As a humanitarian gesture, the Mizoram government has issued a standard operating procedure (SOP) to Deputy Commissioners of border districts to facilitate the entry of refugees and migrants.
    • The SOP stated that all Myanmar nationals entering Mizoram in connection with the political developments in the country shall be properly identified.
    • The government said those facing a threat to their lives should be treated as refugees, given medical care, relief and rehabilitation and security.

    Where do the Centre and Mizoram stand now?

    • The SOP was revoked on March 6 after the Centre conveyed its displeasure to the State over the development.
    • The State governments have no powers to grant “refugee status to any foreigner”.

  • Mounting counter challenge to China through Quad

    The article discusses the outcomes of the recently concluded first Quad Summit in the context of India.

    Message to China after Quad summit

    • The first Learders’ Summit of the Quadrilateral Framework was held on March 12.
    • This Summit conveyed a three-pronged message to China:
    • 1) Under the new U.S. President, “America is back” in terms of its desire to play a leading role in other regions.
    • 2) It views China as its primary challenger for that leadership.
    • 3) The Quad partnership is ready to mount a counter-challenge, albeit in “soft-power” terms at present, in order to do so.
    • For both Japan and Australia the outcomes of the summit, both in terms of the “3C’s”working groups established on COVID-19 vaccines, Climate Change and Critical Technology and in terms of this messaging to the “4th C” (China) are very welcome.

    4 Outcomes of Quad Summit for India

    • For India the outcomes of the Quad Summit need more nuanced analysis.

    1) COVID-19 Vaccine

    • India is not only the world’s largest manufacturer of vaccines (by number of doses produced, it has already exported 58 million doses to nearly 71 countries.
    • It is also manufacturing a billion doses for South East Asia (under the Quad), over and above its current international commitments.
    • India has also planned to vaccinate 300 million people as originally planned by September.
    • All this comes down to total 1.8 billion doses which will require a major ramp up in capacity and funding, and will bear testimony to the power of Quad cooperation, if realised.
    • However, the effort could have been made much easier had India’s Quad partners also announced dropping their opposition to India’s plea at the World Trade Organization.
    • India had filed the plea along with South Africa in October 2020, seeking waiver from certain provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights for the prevention, containment and treatment of COVID-19.

    2) Climate change

    • On climate change, India has welcomed the return of the U.S. to the Paris accord.
    • Mr. Biden has promised to restart the U.S.’s funding of the global Green Climate Fund, which Mr. Trump ended.
    • India still awaits a large part of the $1.4 billion commitment by the U.S. to finance solar technology in 2016.
    • Mr. Biden might also consider joining the International Solar Alliance, which the other Quad members are a part of, but the U.S.

    3) Critical technology

    • India will welcome any assistance in reducing its dependence on Chinese telecommunication equipment and in finding new sources of rare-earth minerals.
    • India would oppose Quad partners weighing in on international rule-making on the digital economy, or data localisation.
    • Such a move had led New Delhi to walk out of the Japan-led “Osaka track declaration” at the G-20 in 2019.

    4) Dealing with China

    • On this issue, it is still unclear how India can go on the Quad’s intended outcomes.
    • While India shares the deep concerns and the tough messaging set out by the Quad on China, especially after the year-long stand-off at the Line of Actual Control (LAC) and the killings at Galwan that India has faced, it has demurred from any non-bilateral statement on it.
    • India is the only Quad member not a part of the military alliance that binds the other members.
    • India is also the only Quad country with a land boundary with China.
    • And it is the only Quad country which lives in a neighbourhood where China has made deep inroads.
    • Indian officials are still engaged in LAC disengagement talks and have a long way to go to de-escalation or status quo ante.

    3 long term impacts on strategic planning

    • The violence at the LAC has also left three long-term impacts on Indian strategic planning:
    • First, the government must now expend more resources, troops, infrastructure funds to the LAC and ensure no recurrence of the People’s Liberation Army April 2020 incursions.
    • Second, India’s most potent territorial threat will not be from either China or Pakistan, but from both i.e. “two-front situation”.
    • Third, that India’s continental threat perception will need to be prioritised against any maritime commitments the Quad may claim, especially further afield in the Pacific Ocean.

    Consider the question “The Quad’s ideology of a “diamond of democracies” can only succeed if it does not insist on exclusivity in India’s strategic calculations given that India shares a special place among the Quad members when it comes to its relationship with China. Comment”

    Conclusion

    Despite last week’s Quad Summit, India’s choices for its Quad strategy will continue to be guided as much by its location on land as it is by its close friendships with fellow democracies.

  • [pib] US India Artificial Intelligence (USIAI) Initiative

    The US India Artificial Intelligence (USIAI) Initiative was recently launched.

    USIAI Initiative

    • This initiative focuses on AI cooperation in critical areas that are priorities for both countries.
    • It has been launched by the Indo-U.S. Science and Technology Forum (IUSSTF).
    • The IUSSTF is a bilateral organisation funded by the Department of Science & Technology (DST), the GOI and the U.S. Department of States.
    • USIAI will serve as a platform to discuss opportunities, challenges, and barriers for bilateral AI R&D collaboration, enable AI innovation, help share ideas for developing an AI workforce etc.
    • AI R&D is being promoted and implemented in the country through a network of 25 technology hubs working as a triple helix set up under the National Mission on Interdisciplinary Cyber-Physical Systems (NM-ICPS).

    Back2Basics: Artificial intelligence (AI)

    • Artificial intelligence (AI) refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions.
    • The term may also be applied to any machine that exhibits traits associated with a human mind such as learning and problem-solving.
    • The ideal characteristic of artificial intelligence is its ability to rationalize and take actions that have the best chance of achieving a specific goal.
    • A subset of artificial intelligence is machine learning, which refers to the concept that computer programs can automatically learn from and adapt to new data without being assisted by humans.
    • Deep learning techniques enable this automatic learning through the absorption of huge amounts of unstructured data such as text, images, or video.

  • A robust economic relationship between India and U.S.

    The article outlines the potential for India-U.S. collaboration in certain ares of trade which will bring many gains.

    India-U.S. bilateral trade

    • In the five years to 2019, bilateral trade grew at a CAGR of 7.7% per year to $146 billion.
    • If we assume the same rate of growth, the $500 billion target will be achieved by 2036.
    • To ensure this, the CAGR would need to be set at 11.9%.
    • This is doable if the right policy actions are taken.

    Areas of collaboration

    1) Healthcare exchanges

    • A collaborative response to the pandemic would contribute to global containment of the virus.
    • Business partnerships are already taking place in the supply chain.
    • As India becomes the hub of global vaccine distribution, building confidence in the Indian IPR regime, reviving the U.S.-India Health Dialogue, and mutually recognising standards and approvals will help drive healthcare exchanges.

    2) Improving the macro trade architecture

    • The macro trade architecture can be strengthened with a broad trade agreement focusing on resolving the low-hanging fruit.
    • The U.S.-India Trade Policy Forum meetings can be revived along with a cross-sector track-2 group to look at convergence on issues such as market access.
    • There is potential for flexibility from both sides for restoring the Generalised System of Preferences.
    • The two countries should consider initiating discussions on a free trade agreement.

    3) Trade in services

    • Recent regulations in the U.S. have impacted labour mobility which can be addressed through immigration reforms for employment-based visa backlogs and smooth and timely processes.
    • The MoU on labour cooperation signed in 2011 could be updated in line with India’s recent labour regulatory changes.
    • This may also be a good time to reconsider a totalisation agreement pertaining to social security, given that both have already entered into such agreements with many of the same partner countries.

    4) Defence industry ties

    • Defence industry ties can be stepped up in coordination with industry.
    • A defence dialogue including the private sectors of both sides could help in co-production and co-development in the defence and aerospace sectors.

    5) Stepping up engagement of SMEs

    • Five, engagement of small and medium enterprises (SMEs) can be stepped up.
    • Smaller U.S. companies can find significant new opportunities for investments in India and sourcing from India.
    • A U.S.-India SME CEOs Forum can be set up to catalyse such partnerships.

    6) Clean energy and climate change

    • The U.S.-India Strategic Energy Partnership should be geared towards joint investments in industrial decarbonisation, carbon dioxide removal and green hydrogen.
    • The programmes of Partnership to Advance Clean Energy Research, Partnership to Advance Clean Energy Deployment and Promoting Energy Access through Clean Energy must be relaunched.

    7) Digital economy partnership

    • India has proved its ability in this space with new opportunities opening up in robotics, space, AI and electric vehicles.
    • It is also important to disseminate information on India’s IPR regime improvements and work towards taking India off the U.S. Trade Representative IPR priority watchlist.

    8) Other areas

    • Other opportunities in the bilateral economic relationship include education, innovation and R&D, and agricultural trade and technology.

    Conclusion

    A closer economic partnership would bring gains to both sides in terms of GDP, employment, and productivity, given the complementary natures of their economies.

  • UK turns to Indo-Pacific  

    Britain wants to expand its influence among countries in the Indo-Pacific region to try to moderate China’s global dominance.

    Seems like QUAD is getting attention from other democratic nations for the big-brother role!

    What is the news?

    • A document laying out post-Brexit has highlighted foreign defence policy priorities of the UK.

    Britain’s post BREXIT plan

    • This document is Britain’s biggest foreign and defence policy review since the end of the Cold War.
    • It sets out a planned increase to Britain’s nuclear arsenal to weigh against evolving global security threats and underlines the importance of strong ties with the US while naming Russia as the top regional threat.
    • It sets out how PM Boris Johnson wants to be at the forefront of a reinvigorated, rules-based international order based on cooperation and free trade.

    Focus on Indo-pacific

    • China and the U.K. both benefit from bilateral trade and investment, but China also presents the biggest state-based threat to the U.K.’s economic security, the report said.
    • Calling the Indo-Pacific increasingly the geopolitical centre of the world, the government highlighted a planned British aircraft carrier deployment to the region.
    • Britain, the world’s sixth-largest economy, is dwarfed economically and militarily by China.
    • The UK believes, through soft power and strategic alliances, it can help persuade Beijing to play by the rules of a new, more dynamic international system.

    Content over Hong Kong

    • The Sino-British ties have tensed since over issues including Beijing’s security crackdown on former British colony Hong Kong.

    UK needs India for this juncture

    • UK PM Boris Johnson has called ”India is an increasingly indispensable partner for the United Kingdom.”
    • India’s skilled labour, technological assistance and the vibrant market will open a lot of avenues for Britain which has recently parted ways with the European Union.
    • India is not the world’s largest telecom market; it is also the fastest-growing.
    • According to a study on India’s telecom sector, an increase in telecom subscriptions often touches 20 million a month.
    • India also offers the cheapest data compared at current market exchange rates. As per cable.co.uk, the price per GB data in India to be $0.09.
    • Along with the world, India is now steering towards 5G. The UK will need India’s help to marginalize China in the telecom market.

    What else?

    • The report categorised India as “an international actor of growing importance”
    • Earlier the British government has approached Washington about a “D10” club of democratic partners, based on G7 plus Australia, South Korea and India.

  • A giant leap forward for the Quad

    The first-ever Quad summit is an important milestone in the geopolitics of the region. The article highlights its significance.

    Significance of the first Quad summit

    • The maiden Quadrilateral Security Dialogue summit of the leaders of Australia, India, Japan and the U.S. on March 12 was a defining moment in Asian geopolitics.
    • That it was a meeting at the highest political level, occasioned a productive dialogue, and concluded with a substantive joint statement is indicative of its immediate significance.
    • If it leads to tangible action and visible cooperation, it will impact the whole region.

    Brief background of the Quad

    • The Indian Ocean tsunami of 2004 triggered cooperation among the navies and governments of the Quad powers.
    • They sought to forge diplomatic cooperation on regional issues in 2006-08.
    • But gave up mainly because China objected to it and the hostility to China was not yet a potent enough glue.
    • This began to change in 2017 when Beijing’s behaviour turned hostile, climaxing in multiple challenges in 2020.
    • This time, U.S. President Joe Biden moved swiftly to host a virtual summit, drawing immediate response from the other three leaders.

    5 highlights of the summit

    • A more sophisticated approach is being invented, with enhanced emphasis by the U.S. on carrying its allies and strategic partners together.
    •  The summit’s outcome, therefore, merits close attention for at least five reasons.

    1) Compromise over vision of Indo-Pacific

    • Past debates over diverse, even differing, visions of the Indo-Pacific are over.
    • The joint statement struck a neat compromise:
    • To please the U.S. and Japan, it refers to a “free and open” Indo-Pacific, but in the very next sentence it offers an elaboration – “free, open, inclusive, healthy, anchored by democratic values, and unconstrained by coercion” – that amply satisfy India and Australia.

    2) Alignment of approach towards China

    • The summit leaders have secured an adequate alignment of their approaches towards China.
    • Senior officials gave sufficient hints on this score, reinforced by phrases such as “security challenges” and “the rules-based maritime order in the East and South China Seas” in the joint statement.
    • Instead of unidimensional antagonism, the Quad members have preferred a smart blend of competition, cooperation and confrontation.

    3) Quad’s commitment development and well being of the region

    • The Quad has placed a premium on winning the battle for the hearts and minds of people in the Indo-Pacific region.
    • This explains the special initiative to ensure equitable access to COVID-19 vaccines for every person in need in the region from the western Pacific to eastern Africa.

    4) Working groups

    • The establishment of three working groups on vaccine partnership; climate change; and critical and emerging technologies and their new standards, innovation and supply chains is a welcome step.
    • All this should get the four national establishments into serious policy coordination and action mode, creating new capacities.
    • The careful choice of themes reflects a deep understanding of the long-term challenge posed by China and has global implications.

    5) Quad working together in future

    • The March 12 summit will not be a one-off.
    • The leaders have agreed to meet in-person later this year, possibly at an international event within the region.
    • Foreign ministers will gather at least once a year; other relevant officials, more often.
    • Thus, will grow the habits of the Quad working together for a common vision and with agreed modalities for cooperation.

    How ASEAN and China will react

    • The summit has been watched closely by the ASEAN capitals. A few of them may express cautious welcome.
    • Beijing seems rattled but resigned to the Quad’s new momentum.
    • The Chinese see it in negative terms, targeting New Delhi in particular.

    Consider the question “With the first-ever summit, the Quad is moving towards a strong coalition. In light of this, examine the challenges India faces as it deepes its engagement in the grouping.” 

    Conclusion

    The summit and ‘The Spirit of the Quad’ – the inspired title of the joint statement – represented a giant leap forward. Now is the time to back political commitment with a strong mix of resolve, energy, stamina and the fresh ideas of stakeholders and experts outside of government to fulfil the promise of the Quad.

  • Maritime border dispute between Kenya and Somalia

    In a move that is set to further undermine stability in East Africa, Kenya has said that it will not take part in proceedings of the International Court of Justice (ICJ) over its maritime border dispute with neighbouring Somalia.

    Can you recall the terms like “Scramble for Africa”, “Paper Partition of Africa”? If yes, then you know very well the malady of the present-day Continent of Africa.

    What is the news?

    • Nairobi has accused the top UN body of bias.
    • The move comes after Somalia’s decision to sever diplomatic relations with Kenya in December after it accused Nairobi of meddling in its internal affairs.
    • The maritime dispute is said to form a crucial part of the diplomatic quarrel between the two countries.

    The disputed area

    • The main point of disagreement between the two neighbours is the direction in which their maritime boundary in the Indian Ocean should extend.
    • According to Somalia, the sea border should be an extension of the same direction in which their land border runs as it approaches the Indian Ocean, i.e. towards the southeast.
    • Kenya, on the other hand, argues that the territorial southeast border should take a 45-degree turn as it reaches the sea, and then run in a latitudinal direction, i.e. parallel to the equator.
    • Such an arrangement would be advantageous for Kenya, whose coastline of 536 km is more than 6 times smaller than Somalia’s (3,333 km).

    Why is this area important?

    • The triangular area thus created by the dispute is around 1.6 lakh sq km large and boasts of rich marine reserves.
    • It is also believed to have oil and gas deposits.
    • Both Somalia and Kenya have accused each other of auctioning off blocks from this area, Al Jazeera reported.

    How have Kenya and Somalia tried to resolve the dispute?

    • After negotiations to resolve the issue bilaterally failed, Somalia in 2014 asked the ICJ to adjudicate.
    • Kenya resisted, arguing that the world court did not have jurisdiction to hear the case.
    • In 2009 both countries had a commitment to settle the dispute out of court.
    • However, in February 2017, the ICJ ruled that it did have the right to rule in the case, and in June 2019 said that it would begin public hearings.
    • These hearings never took place, as Kenya successfully applied to have them postponed thrice– the last one being in June 2020, when it cited difficulties due to the Covid-19.

  • [pib] Mission Sagar-IV

    As part of Mission Sagar-IV, Indian Naval Ship Jalashwa has arrived at Port Anjouan, Comoros to deliver 1,000 Metric Tonnes of rice.

    Mission SAGAR, unlike other missions, can create confusion with the name and its purpose. It is not a military exercise. Make note of such special cases. UPSC can ask such questions as one-liner MCQs.

    Also note the location of the island country Comoros and its geostrategic significance.

    Mission Sagar

    • SAGAR is a term coined by PM Modi in 2015 during his Mauritius visit with a focus on the blue economy.
    • It is a maritime initiative that gives priority to the Indian Ocean region for ensuring peace, stability and prosperity of India in the Indian Ocean region.
    • The goal is to seek a climate of trust and transparency; respect for international maritime rules and norms by all countries; sensitivity to each other`s interests; peaceful resolution of maritime issues; and an increase in maritime cooperation.
    • It is in line with the principles of the Indian Ocean Rim Association.

    Earlier such missions

    • This is the second visit of an Indian Navy ship to the island country within a span of one year.
    • Earlier, as part of Mission Sagar-I, in May-June 2020, the Indian Navy had delivered essential medicines to the nation.
    • Mission Sagar-II was undertaken in May-June 2020, wherein India reached out to Maldives, Mauritius, Seychelles, Madagascar and Comoros, and provided food aid and medicines.
    • Sagar-III was undertaken in Sihanoukville Port, Cambodia.

  • The Quad’s importance to India’s strategic autonomy

    India is a member of both the Quad and the BRICS. Is not it the contradiction? The article answers this question and maps the transformation of India’s relation with the U.S. over the years.

    Is India’s participation in BRICS and Quad contradictory?

    • Global Times, the Chinese newspaper last week speculating on the implications of the historic Quad summit for the BRICS.
    • In calling the Quad a “negative asset” for the BRICS the Global Times was highlighting what it sees as a contradiction in India’s participation in both the forums.
    • The paper argues that India has worsened “India-China and India-Russia relations” and halted progress “in the development of BRICS and SCO”.
    • Global Times warns that if India continues to get closer to Washington, India “will eventually lose its strategic autonomy”.

    Understanding India’s strategic autonomy

    • “Strategic autonomy” is the framework that guided Delhi’s international relations since the Cold War.
    • In the early 1990s, strategic autonomy was about creating space for India against the overweening American power.
    • Why the space was needed? It was mainly because of the U.S. stance on two important aspects: Kashmir issue and nuclear program.
    • President Bill Clinton had questioned the legitimacy of Jammu and Kashmir’s accession to India and declared the US’s intent to resolve Delhi’s Kashmir dispute with Pakistan.
    • Washington insisted that rolling back India’s nuclear and missile programmes was a major objective of US foreign policy.
    • All that changed over the last three decades.

    8 elements of  transformation of India’s relations with the U.S and China

    • A rising China has emerged as the biggest challenge to India and the US is increasingly an important part of the answer.
    • A few elements stand out.
    • First, China has become more assertive on the contested boundary, therefore, the support from the US and its Asian allies has been valuable.
    • Second, on the Kashmir question, China raises the issue at the UNSC while the US is helping India to block China’s moves.
    • Third, on cross-border terrorism, the US puts pressure on Pakistan and China protects Rawalpindi.
    • Fourth, the US has facilitated India’s integration with the global nuclear order while Beijing blocks Delhi’s membership of the Nuclear Suppliers Group.
    • Fifth, the US backs India’s permanent membership of the UNSC, China does not.
    • Sixth, India now sees the trade with China hollowing out India’s manufacturing capability.
    • Its objective on diversifying its economy away from China is shared by the US and the Quad partners.
    • Seventh, India opposes China’s Belt and Road Initiative as a project that undermines India’s territorial sovereignty and regional primacy.
    • India is working with Quad partners to offer alternatives to the BRI.
    • Finally, India sees China’s rising military profile in the subcontinent and the Indian Ocean as a problem and is working with Washington to redress the unfolding imbalance in India’s neighbourhood.

    India’s approach to BRICS and SCO

    • The BRICS was part of India’s strategy in the unipolar moment that dawned at the end of the Cold War.
    • India’s current enthusiasm for the Quad is about limiting the dangers of a unipolar Asia dominated by China.
    • But India will continue to attach some value — diplomatic if not strategic — to a forum like the BRICS.
    • After all, the BRICS forum provides a useful channel of communication between Delhi and Beijing at a very difficult moment in the evolution of their bilateral relations.
    • The BRICS is also about India’s enduring partnerships with Russia, Brazil, and South Africa.
    • India also values its ties with the Central Asian states in the SCO.
    • The BRICS could certainly become a productive forum someday — when Delhi and Beijing mitigate their multiple contentions.

    Consider the question “A rising China has emerged as the biggest challenge to India and the US is increasingly an important part of the answer. Examine the elements that support this underlying transformation of India’s relationship with the two countries.”

    Conclusion

    No amount of words in a BRICS declaration can hide the sharpening contradictions between India and China today. The absence of joint statements did not mask the growing strategic congruence among the Quad nations in recent years.

  • Explained: The Cairn Tax Dispute

    In December 2020, a three-member tribunal at the Permanent Court of Arbitration in the Netherlands ruled against India in its long-running tax dispute with the U.K.-based oil and gas company Cairn Energy.

    PCA Ruling against India

    • The tribunal ordered India to pay about $1.4 billion to the company.
    • Following this, Cairn Energy has successfully moved courts in five countries, including the US and the UK to recognise its claim as per the arbitration award.
    • The Netherlands, France, and Canada are the other three countries.
    • Such recognition by courts opens the door for Cairn Energy to seize assets of the Indian government in these jurisdictions by way of enforcing its claim, in case the latter doesn’t pay its dues.

    What is the dispute about?

    • The dispute started in early 2014 when Indian tax authorities started questioning Cairn Energy requesting information on the group’s reorganization in the financial year 2006-07.

    Issue over the tax due

    • This escalated, and by 2015, the authorities had sent the company a draft assessment order, assessing in the process that there was a principal tax amount of $1.6 billion that was due.
    • The year in reference, 2006-07, was one in which big corporate changes and developments took place in Cairn Energy.

    Basis of the tax demand: Sale of Shares

    • It was the year in which it not only undertook a corporate reorganization but also floated an Indian subsidiary, Cairn India, which in early 2007 got listed on the Indian Stock Market.
    • Through the corporate reorganization process, Cairn Energy had transferred all of its India assets, which were until then held by nine subsidiaries in various countries, to the newly-formed Cairn India.
    • But the tax authorities claimed that in the process of this reorganization, Cairn Energy had made capital gains worth ₹24,500 crores.
    • This, the department asserted, was the basis of the tax demand.

    Is this case similar to Vodafone’s battle with the government?

    • The Vodafone case in 2007 was triggered by Hong Kong’s Hutchinson Telecommunications’ sale of its stake in India’s Hutchinson Essar to Vodafone based out of the Netherlands.
    • The Hong Kong firm made a capital gain on this, which the Indian tax authorities deemed fit to tax.
    • They held that Vodafone should have withheld the tax, and therefore imposed liability on it.
    • The Supreme Court quashed the taxman’s demand that the sale of shares, in this case, would amount to transfer of a capital asset within the meaning of Section 2(14) of the Indian Income Tax Act”.

    What governs the Sale of Shares?

    • In the Union Budget of 2012, the Income Tax Act, 1961 was amended to make sure that even if a transfer of shares takes place outside India, such a transfer can be taxed.
    • This was done when the value of those shares is based on assets in India. And this was applied retrospectively.

    Cairn won over Retrospection

    • The action against Cairn Energy was based on this move.
    • India lost its arbitration case against Vodafone as well, with the government being asked to fork out around ₹80 crores.

    What happened after the tax claims in the Cairn Energy dispute?

    • After receiving a draft assessment order from the tax authorities, Cairn UK Holdings Ltd. appealed before the Income Tax Appellate Tribunal.
    • The tribunal, while providing the company relief from back-dated interest demands, however, upheld the main tax demand.
    • The company had initiated proceedings of arbitration under the U.K.-India bilateral investment treaty.
    • But during this time, the government sold Cairn’s almost 5% holding and seized dividends totalling ₹1,140 crore due to it from those shareholdings and set off a ₹1,590-crore tax refund against the demand.

    What was the main argument of Cairn Energy during the arbitration?

    • The claimants, Cairn Energy and Cairn UK Holdings argued that till the amendment was made to tax retrospectively in 2012, there was no tax on indirect transfers.
    • Indirect transfers here meant transfer by a non-resident of shares in non-Indian companies which indirectly held assets in India.
    • The application of the 2012 amendments, they alleged, constituted “manifest breaches” of the U.K.-India bilateral investment treaty.

    What was India’s defence during the arbitration?

    • India’s counter to the main charge of Cairn Energy was that its 2006 transactions were taxable irrespective of the 2012 amendments.
    • It argued that “Indian law has long permitted taxation where a transaction has a strong economic nexus with India”.
    • It said even if it is retrospective, it is “valid and binding applying the longstanding constitutional, legislative and legal framework in which the claimants have invested”.

    What did the arbitration tribunal rule?

    • The tribunal said the tax demand violated the U.K.-India bilateral investment treaty.
    • The tribunal said India “failed to accord Cairn Energy’s investments fair and equitable treatment” under the bilateral protection pact it had with the United Kingdom.
    • It also ordered India to compensate Cairn Energy and its subsidiary for “the total harm suffered” as a result of the breaches of the treaty.

    India’s way ahead

    • It has been reported in the media that India will appeal against the tribunal’s decision.
    • If enforcement proceedings are initiated, India is confident of addressing them and will strongly defend its interests.

    Back2Basics: Permanent Court of Arbitration (PCA)

    • It is an intergovernmental organization located in The Hague, Netherlands.
    • It is not a court in the traditional sense but provides services of arbitral tribunal to resolve disputes that arise out of international agreements between member states, international organizations or private parties.
    • The cases span a range of legal issues involving territorial and maritime boundaries, sovereignty, human rights, international investment, and international and regional trade.
    • The PCA is constituted through two separate multilateral conventions with a combined membership of 122 states.
    • The organization is not a United Nations agency, but the PCA is an official United Nations Observer.