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Type: op-ed snap

  • Right To Privacy

    Issue of withdrawal of Personal Data Protection Bill

    op-ed snap | Governance | Mains Paper 2: Executive & Judiciary,Governance, Transparency & Accountability, Citizens Charters

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: MEITY

    Mains level: Paper 2- Need for data protection law

    Context

    The Minister for the Ministry of Electronics and IT withdrew the Personal Data Protection Bill, 2019. The reasons for the withdrawal were circulated in a note to MPs, which stated that,“considering the report of the JPC (Joint Parliamentary Committee), a comprehensive legal framework is being worked upon…”.

    Background of Personal Data Protection Bill

    •  An expert committee headed by Justice (retd) A P Shah recommended in October, 2012,“a detailed framework that serves as the conceptual foundation for the Privacy Act”.
    • This did not come to fruition, with proposals buried by 2014 due to objections from the intelligence establishment on surveillance reforms.
    • While petitions on the constitutionality of Aadhaar and the right to privacy were pending before the Supreme Court, the Union government constituted an expert group headed by Justice (retd) B N Srikrishna in July, 2017.
    •  In August, a nine-judge bench unanimously pronounced the Puttaswamy judgment that reaffirmed the fundamental right to privacy for the autonomy, dignity and liberty for every Indian.
    • Justice D Y Chandrachud, who authored the majority opinion, noted the formation of the Srikrishna Committee as a positive obligation on the government to enact a law for informational privacy.
    • In December 2019, government introduced the Personal Data Protection Bill, 2019 in Parliament.
    • The draft law was referred to a JPC of 30 MPs that submitted a report after two years.
    • With the withdrawal in Parliament on August 3, it almost seems institutional processes, in which all three branches of government worked for years, are being jettisoned in favour of “a comprehensive legal framework”.

    Issues with reasons given for withdrawal of the Bill

    • The JPC has nowhere suggested a withdrawal in favour of a “comprehensive legal framework”.
    • The proper course was to consider the JPC’s recommendations including the dissent notes and expert analysis, redraft and introduce a new Data Protection Bill.
    • Compliance burden concern of government: With the government setting the goal of a one trillion dollar digital economy, fears of a compliance burden can impede innovation and growth.
    • Date protection is needed for innovation: Here, detailed reasoning is available in the Srikrishna Committee’s report as well as a growing international consensus suggesting that next-generation innovation in technology needs data protection.
    • Regulatory intervention will improve business practices requiring engineering decisions that focus on user trust.
    • Imperfections in law argument: With the imperfections within the Personal Data Protection Bill, 2019 and even the JPC report, there exists a reasonable argument that if passed into law, it may institutionalise bad privacy practices.
    •  Such a line of reasoning fails to recognise that institutional memory develops through reasonable due diligence and experience.
    • Legislative foresight is limited and no law is perfect, which is why there exist parliamentary amendments and judicial review.

    Conclusion

    Today, there is a relentless pace of digitisation that relies on gathering personal data in all spheres of our lives. All of this is done in a legal vacuum without any oversight or remedy. This underscores the urgent need for data protection law.

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  • Demographic dividend

    op-ed snap | Economics | Mains Paper 3: Inclusive Growth & Issues

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 3- Population dividend

    Context

    The UN report, World Population Prospects 2022, forecasts that the world’s population will touch eight billion this year and rise to 9.8 billion in 2050. What is of immediate interest to India is that its population will surpass China’s by 2023 and continue to surge.

    India’s potential workforce and growth as projected by consulting firms

    •  Deloitte’s Deloitte Insights (September 2017) expects “India’s potential workforce to rise from 885 million to “1.08 billion people over the next two decades from today”, and “remain above a billion people for half a century,” betting that “these new workers will be much better trained and educated,” than their existing counterparts.
    • McKinsey & Company’s report, ‘India at Turning Point’ (August 2020), believes the “trends such as digitisation and automation, shifting supply chains, urbanisation, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety are accelerating” to “create $2.5 trillion of economic value in 2030 and support 112 million jobs, or about 30% of the non-farm workforce in 2030.”
    • Four pillarsIn its May 14, 2022 issue, The Economist had this to say about India, “As the pandemic recedes, four pillars are clearly visible that will support growth in the next decade. The four pillars are:
    • 1) The forging of a single national market.
    • 2) An expansion of industry owing to the renewable-energy shift and a move in supply chains away from China,
    • 3) Continued pre-eminence in IT.
    •  4) High-tech welfare safety-net for the hundreds of millions left behind by all this.
    • The Financial Times in an article, ‘Demographics: Indian workers are not ready to seize the baton’, believes that India’s bad infrastructure and poorly skilled workforce will impede its growth.

    Comparing India’s preparedness with China’s in 1970s

    • China is enduring an ongoing population implosion, which by 2050, will leave it with only 1.3 billion people, of whom 500 million will be past the age of 60.
    • India’s population, by contrast, would have peaked at 1.7 billion, of whom only 330 million will be 60 years or older.
    • Simply put, India is getting a demographic dividend that will last nearly 30 years.
    • There is so much going on for India today compared to China, the only country it can be reasonably compared to.
    • It is still a young country and in a much better position to transform itself compared to China of the 1970s.
    • It is still an open society where mass protest matters and produces results.
    • Indians have not been traumatised as Chinese were at the time of Mao Zedong’s death.
    • IT backbone: The IT technologies now available in India, and most importantly the Internet they run on have matured exponentially.
    • Many things right from video conferencing to instantaneous payments and satellite imaging are getting better and cheaper by the day.
    • Better administrative system: Creaky and inadequate as they are, India’s administrative systems manage to deliver and its infrastructure is in far better shape today than it was for China at the start of its reforms.
    • No rural urban divide: India does not have a Hukou system which in China tethers rural folk to rural parts creating a deep divide between a small and prosperous urban China and a much larger, very deprived rural China.

    Way forward for India

    • To wring the best out of its demographic dividend, India needs to invest massively in quality school and higher education as well as healthcare across India on an unprecedented scale, literally in trillions of rupees between now and 2050 when it would have reached the apogee of its population growth.

    Conclusion

    India must seize the moment and not be incremental in its approach. Given the will it can initiate and see through a transformation that will stun the world, even more than China’s has so far.

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  • Foreign Policy Watch: India-China

    Taiwan between giants

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 2- Taiwan issue

    Context

    The US House of Representatives Speaker Nancy Pelosi visited Taiwan evoking strong protest from China.

    Brief history of China-Taiwan Tensions

    • Taiwan is an island about 160 km off the coast of southeastern China, opposite the Chinese cities of Fuzhou, Quanzhou, and Xiamen.
    • It was administered by the imperial Qing dynasty, but its control passed to the Japanese in 1895.
    • After the defeat of Japan in World War II, the island passed back into Chinese hands.
    • After the communists led by Mao Zedong won the civil war in mainland China, Chiang Kai-shek, the leader of the nationalist Kuomintang party, fled to Taiwan in 1949.
    • Chiang Kai-shek set up the government of the Republic of China on the island, and remained President until 1975.
    • Beijing has never recognised the existence of Taiwan as an independent political entity, arguing that it was always a Chinese province.

    The US and One-China Principle

    • With the shifting geopolitics of the Cold War, the PRC and the U.S. were forced to come together in the 1970s to counter the growing influence of the USSR.
    • This led to the US-China rapprochement demonstrated by the historic visit of then US President Richard Nixon to PRC in 1972.
    • The same year, the PRC displaced ROC as the official representative of the Chinese nation at the UN.
    • Diplomatic relations with the PRC became possible only if countries abided by its “One China Principle” — recognizing PRC and not the ROC as China.

    Why does China have a problem with Pelosi visiting Taiwan?

    • For China, the presence of a senior American figure in Taiwan would indicate some kind of US support for Taiwan’s independence.
    • This move severely undermined China’s perception of sovereignty and territorial integrity.

    China’s reaction

    • Increased military exercises around Taiwa : Military exercises around Taiwan have been expanded, with Chinese aircraft intruding more frequently across the informal median line which defines the zone of operations on each side.
    • Increased naval presence: Chinese naval ships are cruising within the Taiwan Straits and around the island itself.
    • Economic sanctions have been announced, prohibiting imports of a whole range of foodstuffs from Taiwan.
    • One item which will be left out is semi-conductors, a critical import for a range of Chinese high-tech industries.
    • Taiwanese firms like the Taiwan Semi-Conductor Manufacturing Company (TSMC) are world leaders in the most sophisticated brands of chips imported by a large number of countries.
    •  The main target of China’s escalating response will be Taiwan.
    • Taiwan is indeed caught in the crossfire between China and the US and being a proxy in a fight between giants.

    Implications for East Asia and South East Asia

    • Forced into making a choice: Just as Taiwan is caught in a crossfire between the US and China, so are the East Asian and South East Asian countries.
    • Prefer US military presence: They feel reassured by the considerable US military presence deployed in the region and tacitly support its Indo-Pacific strategy.
    • Strong economic ties with China: However, their economic and commercial interests are bound ever tighter with the large and growing Chinese economy.
    • This having it both ways strategy is beginning to fray at the edges with the escalating tensions between the US and China.
    • Most do not wish to be forced into making a choice.

    What should be India’s approach?

    • Advantageous for India: In one sense, China’s preoccupation with its eastern ocean flank of the Yellow Sea, the Taiwan Strait and the South China Sea is good for India.
    • It diminishes Chinese attention toward the Indian Ocean, India’s primary security theatre.
    • Adhere to One China Policy: Prudence demands that India hew closely to its consistent one China policy even while maintaining and even expanding non-official relations with Taiwan.
    • For the US, Japan and Australia, members of the Quad, Taiwan is a key component of the Indo-Pacific strategy.
    • It is not for India.

    Conclusion

    One should use the opportunity to expand India’s naval capabilities and maritime profile in this theatre before the Chinese begin to look to our extended neighbourhood with renewed interest and energy.

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  • Making sense of the ‘freebies’ issue

    op-ed snap | Governance | Mains Paper 2: Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Finance Commission

    Mains level: Paper 2- Freebies issue

    Context

    Concern over ‘freebies’ in Indian politics has recently been expressed by those in the highest offices in the country.

    Issue of irrational freebies

    • Challenge in defining freebies: There is often confusion on what constitutes ‘freebies’, with a number of services that the Government provides to meet its constitutional obligations towards citizens also being clubbed in this category.
    • Distortion of electoral process: A Bench headed by the Chief Justice of India recently heard a public interest litigation in which the petitioner argued against the promise of ‘irrational freebies’ by claiming that these distort the electoral process.
    • The bench asked the Central government to take a stand on the need to control the announcement of ‘freebies’ by political parties during election campaigns.
    • The Court also suggested that the Finance Commission could be involved to look into the matter and propose solutions.
    • The basic argument is that these are a waste of resources and place a burden on already stressed fiscal resources.
    • Discussions on ‘freebies’ not only include the free distribution of what may be considered ‘club goods’ such as televisions but also welfare schemes such as free or subsidised rations under the Public Distribution System (PDS) and work provided through the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

    Can we term foodgrain distribution under PDS as freebies?

    • It ensures food security: Subsidised foodgrains distributed under the PDS not only contribute to ensuring basic food security but also act as an implicit income transfer allowing the poor to afford commodities that they otherwise could not.
    • Price support for farmers: Further, the PDS also plays an important role in our country where public procurement at minimum support prices (MSPs) is one of the main instruments of support to farmers.
    • The PDS allows foodgrains to be available for cheap for consumers while assuring remunerative prices to farmers.
    • Food security during emergency: The PMGKAY is probably what kept many away from the brink of starvation during the novel coronavirus pandemic.
    • From around the mid-2000s, the PDS increasingly became a political issue, with State governments expanding coverage and reducing prices.
    •  This ultimately led to the National Food Security Act being passed by Parliament unanimously in 2013.
    • Despite its shortcomings, it cannot be denied that the PMGKAY and the support that it provided during the pandemic would have been impossible had it not been for the NFSA which expanded the coverage of the PDS to about two thirds of the population.
    • In its absence, a much smaller number of people would have had ration cards with high errors in identification.

    Other welfare schemes

    •  At a time when there are few employment opportunities, working under MGNREGA can guarantee some assured wages; if implemented in the true spirit of the legislation this is also demand-based and, therefore, responds to as much need as there is.
    • Similarly, mid-day meals in schools have been proven to contribute to increased enrolment and retention in schools and addressing classroom hunger.
    • A number of other schemes such as old age, single women and disabled pensions, community kitchens in urban areas, free uniforms and textbooks for children in government schools, and free health-care services play a critical role in providing social security and access to basic entitlements in our country.

    Way forward

    • Building public pressure towards making welfare delivery an electoral issue is the need of the hour.
    • It is important to recognise that most welfare schemes contribute to improving human development outcomes, which also results in higher economic growth in future.
    • As suggested by the Supreme Court, the Finance Commission could be tasked with formulating the criterion to come up with the criterion for freebies.
    • Sometimes, this process throws up initiatives that seem ‘wasteful’ — while these must be discussed, one cannot deny them completely.

    Conclusion

    There are a number of lacunae in these programmes which call for expansion in coverage, allocation of greater resources, along with putting in place mechanisms for greater accountability and grievance redress.

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  • RTI – CIC, RTI Backlog, etc.

    RTI Act

    op-ed snap | Governance | Mains Paper 2: Governance, Transparency & Accountability, Citizens Charters

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: CIC

    Mains level: Paper 2- Challenges facing RTI

    Context

    Amidst renewed concern over its functioning across states, the Right to Information Act (RTI) is set to complete 17 years this October.

    Issues facing RTI

    • Backlog of appeals: Issues include a huge backlog of second appeals, lengthy wait time for hearings, hesitancy in posting penalties and increasing opacity in the working of the commissions.
    •  As on June 30, 2021, 2.56 lakh appeals were pending with 26 information commissions in the country.
    • CICs downgraded rank: Any serious RTI query or one which concerns more than one government department requires intervention by higher officials, but it is the PIOs from junior ranks who attend hearings and are often clueless.
    • Often, it requires a notice to higher authorities, in some cases, the secretary of the department, to elicit the right answer.
    •  With CICs downgraded in rank, there will be fewer and fewer notices served to the heads of departments and senior officers to appear and answer queries.
    • Vacancies: The commissions have been plagued with vacancies, poor choice of commissioners, untrained staff and a non-cooperative set of public information officers (PIOs).
    • Threat to some RTI activists: Apart from the PIOs’ general inexperience and unprofessionalism, comes the threat to some RTI activists who seek information to expose corruption.
    • According to the Commonwealth Human Rights Initiative (CHRI), across India, 99 RTI activists have lost their lives, 180 assaulted and 187 were threatened since 2006.
    • Political proclivity: The attitude of a few commissioners going public with their political proclivities is another cause for concern.

    Way forward

    • Training of officials: The Indian information law, rated as one of the strongest in the world, needs to be bolstered by raising awareness amongst the people and organising rigorous training of government officials.
    • Code of conduct: A code of conduct must be evolved for the central and state information commissioners.
    • It is imperative for the commissioners to keep a strict distance from government heads and officialdom.
    •  A strong political system is a must for the RTI regime to flourish.
    • It is imperative to ensure freedom of the press and democratic institutions, punish errant officials and maintain complete autonomy of the information commissions, in the interest of the people and the nation at large.

    Conclusion

    As India emerges as a global power, the implementation of legislation like the RTI Act will be under the constant scrutiny of the comity of nations.

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  • Pharma Sector – Drug Pricing, NPPA, FDC, Generics, etc.

    Drugs, Medical Devices and Cosmetics Bill 2022

    op-ed snap | Economics | Mains Paper 3: Awareness in various sc and tech fields

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Schedule H drugs

    Mains level: Paper 3- E-commerce for medical drug

    Context

    A draft law to replace the 1940 Drugs and Cosmetics Act with a Drugs, Medical Devices and Cosmetics Bill 2022 was uploaded by the Union health ministry in early July, seeking public comments and objections.

    Major provisions of the Bill

     1] E-commerce for medical drugs

    • Presently, online sales of medicines account for a fraction of the total pharma sales in India but are forecast to grow exponentially.
    • The first major feature in the new Bill that affects consumers relates to e-commerce.
    • Like all online shopping, the consumer gets the advantage of discounts and the comfort of shopping from home.
    • In normal times, e-commerce can surmount three uniquely Indian disadvantages.
    • Storage condition: The first relates to climatic conditions, which require medicines to be stored at below 30 degrees Celsius and 70 per cent relative humidity — unattainable in most of India.
    •  It can mandate establishing a back-end brick and mortar store for drug supply having good storage conditions.
    • Compliance with regal provision: The second advantage of e-commerce could be fulfilling a legal requirement — providing a bill to the consumer and retaining one copy bearing the batch numbers and expiry dates of the drugs.
    • In addition, the practice of accessing prescription drugs over-the-counter would reduce.
    • In the case of e-commerce, registration of a pharmacy can require enrollment with the central and state drug control organisations and the practice of uploading a prescription from a registered medical practitioner can be enforced.
    • Concern: Shopping for medical drugs on the internet could encourage overuse or incomplete use of drugs, increase dependency on habit-forming medicine — for example, sleep-inducing drugs or self-medication with products for weight loss, male enhancement, even treating mental illness — which is fraught with dangerous consequences.
    •  A greater focus on medical devices: The draft law also proposes according a greater focus on medical devices, which include thousands of engineered apparatuses like stents, joint implants, pacemakers, catheters, etc, which require quality regulation.
    • Provision for advisory board: Rules for medical devices were notified in 2017 but now it is proposed to establish a statutory Medical Device Technical Advisory Board, with experts from the fields of atomic energy, science and technology, electronics, and related fields like biomedical technology to guide the process.
    • This is a welcome move that will bring in the required expertise.

    Issues not addressed in the Bill

    • Mismanagement of trade: What the Bill does not address is the need to stop the continued mismanagement of the wholesale and retail drugs trade in India.
    • Requirements for drug license not changed: Rule 64 (2) of the Drugs and Cosmetics Rules 1945 lays down that a wholesale drug licence can be given to a qualified pharmacist or one who has passed the matriculation examination or its equivalent or a graduate with one year’s experience in dealing with drug sale.
    • This is a relic from 80 years ago.
    • When the country is reported to have over 7,00,000 pharmacists, this anachronism must be discarded.
    •  It is essential to introduce a binding and enabling provision to only licence qualified pharmacists and put the safety of millions of citizens before the self-preservation of a few thousand wholesalers and stockists.

    Way forward

    • There is need for ensuring digitisation of procurement, inventory control and accountability for dispensing drugs into a digital trail.

    Conclusion

    The debate should not be between e-commerce and retail sale. It should be between being compliant and non-compliant.

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  • WTO and India

    MC12 over, it’s ‘gains’ for the developed world

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: TRIPS waiver

    Mains level: Paper 3- WTO and India

    Context

    The 12th Ministerial Conference (MC12) of the World Trade Organization (WTO) was concluded recently. A cursory examination of the outcomes of the meeting leaves us in no doubt that the European Union (EU) and some other developed countries are the overwhelming winners, while India finds itself on the losing side.

    Background of TRIPS waiver for Covid related  treatment

    • On October 2020, India and South Africa put forth a proposal seeking to temporarily suspend the protection of intellectual property rights such as patents, copyrights, industrial designs and trade secrets, so that the production of vaccines, therapeutics and diagnostics could be ramped up to help overcome the crisis and fight the COVID-19 pandemic.
    • The opponents of the proposal, i.e,. Germany, the United Kingdom, Japan, Switzerland and the United States, found themselves on the wrong side of the global opinion on this issue.
    • In June-July 2021, the U.S. gave its support to the proposal, but limited it to vaccines.
    • Pushed into a corner, the European Union (EU) made a counter-proposal to undermine the proposal made by India and South Africa.
    • This counter proposal provided a cosmetic simplification in certain procedural aspects of compulsory licensing in patent rules.
    • By March 2022, India and South Africa were corralled into accepting the EU’s proposal.
    • This formed the basis of the final outcome at the MC12.

    Gain for EU at MC12

    • The ministerial outcome on the so-called TRIPS waiver represents the biggest gain for the EU.
    • The ministerial outcome adds very little to what already exists in the WTO rulebook.
    • The final outcome is almost unworkable; a big public relations victory for the EU.
    • Change in institutional architecture: In the name of WTO reform, the EU sought to make fundamental changes to the institutional architecture of the WTO.
    • It also sought to give a formal role to the private sector in WTO.
    • Environmental issues: The EU has also managed to create a window to pursue negotiations on issues related to trade and environment at the WTO, an issue of concern for many developing countries.

    Disappointments for India

    • No solution to public stockholding issue: India, the issue of a permanent solution to public stockholding was identified by the Indian Minister of Commerce and Industry as being its top most priority.
    • Despite having the support of more than 80 developing countries, this issue has not found mention anywhere in the ministerial outcome.
    •  Instead, the WTO members have succeeded in diverting attention from India’s interest by agreeing that food security is multi-dimensional, requiring a comprehensive solution.
    • No taxing electronic transmission: India has also failed in many of its other objectives, such as securing the right to raise revenues by taxing electronic transmissions.
    • In the area of fisheries subsidies, it gets two years to have suitable regulatory mechanisms in place to monitor fish catch and reporting.
    •  Although it has secured a temporary reprieve to provide subsidies for enhancing its fishing fleets, it will have to fight an uphill battle on this issue in future negotiations.

    Conclusion

    Overall, the path ahead for India at the WTO is difficult. India’s negotiators need to undertake soul searching to learn lessons from the dynamics at the MC12, and make course corrections.

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    Back2Basics: Public stockholding issue

    • Under the WTO’s Agreement on Agriculture, government procurement for public stockholding programs is exempt from discipline if stocks are procured at current market prices.
    • If procured at pre-announced administered prices, however, those outlays would potentially be counted toward a country’s overall limits on trade-distorting support.
    • Some developing countries are concerned that their procurement of food at fixed prices under these programs may push outlays to exceed allowed limits, thus depriving them of the necessary policy space to meet domestic food security requirements.
    • In this context, India and other members of the G33 developing country coalition have called for WTO members to agree to a “permanent solution,” following the 2013 Bali decision to exempt these programs from legal challenge under certain conditions.

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  • RBI Notifications

    RBI and the rupee: To break a free fall or not to

    op-ed snap | Economics | Mains Paper 3: Indian Economy

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Foreign exchange reserves

    Mains level: Paper 3- Depreciation of rupee

    Context

    The Indian rupee has been in free fall. Some commentators have pointed out that it has fallen less against the US dollar than a lot of other currencies.

    Significance of foreign exchange reserves

    • Decline by 10 per cent: A large part of the current relative strength of the rupee vis-à-vis other currencies is due to the sale of dollars by the RBI — it has lost more than 10 per cent of its foreign reserves in the space of about nine months.
    • Why country needs foreign exchange: A developing economy needs foreign exchange to finance its international transactions for both the current account (goods and services) and capital account (assets) transactions.
    • Cost involved: The benefits of this stock are obvious, but there are also costs associated with the holding of these.
    •  The larger the stock, the more its reassuring value.
    • Typically, because of their “liquid” nature, the returns on these are low.

    How RBI manages the foreign exchange reserves?

    • How country accumulates foreign exchange reserves? A country can accumulate reserves by running current account surpluses that is, keeping its total expenditure below its gross national product, and/or by interventions in the foreign exchange markets.
    • India (usually) runs a current account deficit.
    • Its reserves are then accumulated solely through “sterilised” interventions.
    • When foreign entities want to invest in Indian assets (stocks and debt), the RBI gives them rupees in exchange for foreign exchange.
    • Mindful of the fact that this may cause a surge in inflation, the RBI then sells government bonds, sucking out the additional rupees.
    • The foreign exchange reserves rise, and are matched by an increase in government bonds outstanding.

    How outflow of foreign financial capital affects foreign exchange reserves?

    • When capital inflows were taking place, the RBI accumulated foreign exchange and allowed some currency appreciation.
    • As long as capital flows were strong, foreign reserves kept piling up and the currency (in real terms) was strong.
    • Depreciation of rupee: In recent months, we have witnessed an outflow of foreign financial capital, with reserves falling and the rupee depreciating.
    • International capital flows tend to be pro-cyclical, that is, they move with the world economic activity.
    • Unlikely to increase export: A depreciation of our currency is unlikely to see our exports rise very much because the world income levels are down.
    • Inflation: What this depreciation will cause is imported inflation and bankruptcies.

    Analysing the RBI’s role

    • Allowed outward remittances: The RBI threw caution to the winds and allowed outward remittances in foreign currency by Indian residents, with almost no questions asked (up to $2,50,000 annually). 
    • The RBI could have had a much larger supply of foreign exchange had they not generously handed out foreign currency to be frittered away.
    • While they have not restricted outward remittances, they are trying to shore up reserves by making FCNR (B) and FRE deposits more attractive.
    • It is not in any individual’s interest to bail out the RBI.
    • The RBI has also committed to using reserves to ensure an orderly depreciation.
    • Futility of RBI’s intervention: If the world financial markets want a depreciated rupee, the RBI’s intervention would not be able to prevent it.
    • But in spite of this, the RBI, with its commitment to inflation targeting, would try to prevent a depreciation (because it causes the price of imported goods to rise).
    • Possible impact on the poor: Having too open a capital account policy was always fraught with risks.
    • When countries are confronted with a crisis, the IMF is asked to provide assistance.
    • But assistance from IMF would involve a “structural adjustment”, including cutting back on subsidies for the poor and vulnerable.

    Conclusion

    We are standing at the edge of a precipice, but, hopefully, the world will pull back in the nick of time. If not, it would be the chronicle of a death foretold.

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    Back2Basics: FCNR(B) Account

    • An FCNR ( Foreign Currency Non-resident) account is a type of term deposit that NRIs can hold in India in a foreign currency.
    • FCNR (A) was introduced in 1975 to encourage NRI deposits.
    • The Reserve Bank of India (RBI) guaranteed the exchange rate prevalent at the time of a deposit to eliminate risk to depositors.
    • In 1993, the apex bank introduced FCNR (B), without exchange rate guarantee, to replace FCNR (A).

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  • INSTC

    op-ed snap | International Relations | Mains Paper 2: Bilateral, Regional and Global Groupings and agreements involving India

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: INSTC

    Mains level: Paper 2- Significance of INSTC for India

    Context

    Last week, two 40-ft containers of wood laminate sheets crossed the Caspian Sea from Russia’s Astrakhan port, entered Iran’s Anzali port, continued their southward journey towards the Arabian Sea, entered the waters at Bandar Abbas and eventually reach Nhava Shiva port in Mumbai.

    Launch of INSTC

    • The journey of containers signalled the launch of the International North South Transport Corridor (INSTC), a 7,200-km multi-modal transport corridor that combines road, rail and maritime routes connecting Russia and India via central Asia and Iran.
    • The legal framework for the INSTC is provided by a trilateral agreement signed by India, Iran and Russia at the Euro-Asian Conference on Transport in 2000.
    • Since then Kazakhstan, Belarus, Oman, Tajikistan, Azerbaijan, Armenia and Syria have signed instruments of accession to become members of the INSTC.
    • Once fully operational, the INSTC is expected to reduce freight costs by 30% and journey time by 40% in comparison with the conventional deep sea route via the Suez Canal.
    • The corridor is expected to consolidate the emerging Eurasian Free Trade Area.

    Significance for India

    • Geopolitical link: The INSTC’s launch provides missing pieces of the puzzle about India’s refusal to condemn Russia’s invasion of Ukraine.
    • India’s investment in the INSTC is exemplified by its involvement in Iran’s Chabahar port and the construction of a 500-km Chabahar-Zahedan railway line.
    •  The India Ports Global Limited, a joint venture between the Jawaharlal Nehru Port Trust and Kandla Port Trust, will develop the port along with Iran’s Aria Banader.
    • IRCON International will contribute to constructing the railway line.
    • A special economic zone around Chabahar will offer Indian companies the opportunity to set up a range of industries.
    • The INSTC, thus, provides an opportunity for the internationalisation of India’s infrastructural state, with state-run businesses taking the lead and paving the way for private companies.

    Geopolitical significance for India

    • Access to Afghanistan and Central Asia: Once completed, this infrastructure will allow India access to Afghanistan and central Asia, a prospect strengthened by the Taliban government’s support for the project.
    • India can now bypass Pakistan to access Afghanistan, central Asia and beyond.
    • North-South transport corridor: The INSTC can shape a north-south transport corridor that can complement the east-west axis of the China-led Belt and Road Initiative (BRI).
    • Non-alignment to multi-alignment: India’s founding role in both the INSTC and the Quad exemplify its departure from non-alignment to multi-alignment.
    • The INSTC offers a platform for India to closely collaborate with Russia, Iran and Central Asian republics. 
    • That two of its partners are subject to Western sanctions hasn’t prevented India from collaborating with the U.S., Japan and Australia as part of the Quad to create and safeguard a free and open Indo-Pacific.

    Conclusion

    As a transcontinental multi-modal corridor that aims to bring Eurasia closer together, the INSTC is a laudable initiative in its own right. That it helps India consolidate its multi-alignment strategy sweetens the deal.

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  • Policy Wise: India’s Power Sector

    Government bailouts are not the answer to India’s energy sector woes

    op-ed snap | Economics | Mains Paper 3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: India's coal import

    Mains level: Paper 3- Issues with India's power sector

    Context

    Across several states, the fiscal situation is becoming increasingly challenging. Yet, the common thread that runs through these deficits — state ownership and control — remains unaddressed.

    State ownership: structural cause of India’s deficit

    • Coal India’s inability to raise production to meet growing demand contributed to the recent power crisis.
    • The state-owned power distribution companies have failed to bring down losses despite many schemes and packages.
    • The state control of these critical aspects of India’s power chain is central to a higher current account deficit and growing fiscal risks at the state level.

    Coal output fails to meet the demand

    • From 2013-14, the Indian economy has grown by around 50 per cent (in real terms).
    • But Coal India, which accounts for around 80 per cent of India’s total coal production, was able to raise its output by just 34 per cent over the same period.
    • Increased reliance on imported coal: India’s coal imports (thermal and cooking) rose to a staggering 230.3 million tonnes in 2020-21, up 37 per cent from 168.5 million tonnes in 2013-14.
    • Coal imports for thermal power alone have more than doubled in the first quarter, compared to the same period last year.
    • To put this in perspective — the value of coal imports in just the first three months of this year is likely to be around half of what was imported in all of last year.
    • Increase in current account deficit: This growing reliance on coal imports (along with crude and gold) is at the root of the country’s widening current account deficit.
    • An inability to ramp up production, to forecast demand accurately, as every episode of coal shortage over the years has exposed, is the hallmark of the coal sector that is still largely the preserve of a public sector monopoly.

    Problem of DISCOMS

    • No improvement in financial and operational issues: Despite repeated attempts to turn around their financial and operational positions, on key metrics, the divide between the public and private sector discoms is deepening.
    • In 2019-20, public sector discoms lost Rs 0.72 per unit of power sold, while private discoms made Rs 0.20 per unit.
    • High AT&C losses: Similarly, in 2019-20, the AT&C losses (due to operational inefficiencies) for state discoms were pegged at 21.7 per cent, while for the private sector, losses were at 8 per cent.
    • With deteriorating finances, the net worth of all public sector discoms put together stands at a negative Rs 61,757 crore, while for the private sector, it is a positive Rs 24,965 crore.
    • There have been several attempts to rescue state discoms.
    • In the early 2000s, the scheme for repayment of SEB dues amounted to Rs 41,473 crore.
    • In 2012, the financial restructuring plan added up to Rs 1.19 lakh crore.
    • In 2015, UDAY involved a transfer of Rs 2.01 lakh crore to state government balance sheets.
    • Notwithstanding various schemes to turn around their finances, the total debt of all discoms put together stood at Rs 5.14 lakh crore at the end of 2019-20.
    • Of this, Rs 4.87 lakh crore is owed by state discoms.
    • Impact on entire power chain: A deterioration in the financial position of discoms means that their dues to power generating companies start mounting, which in turn delay payments to coal miners, affecting the financial stability of the entire power chain.

    Declining cross-subsidisation

    • As tariffs charged by discoms are much higher than the cost of alternatives, a sizeable part of non-agricultural sales of discoms (industrial and commercial consumers) have already shifted towards captive and solar.
    •  And with the ministry of power recently reducing the threshold for green energy open access, more and more consumers will increasingly opt out.
    • This would mean that discom losses will rise as cross subsidisation from commercial and industrial consumers will decline, increasing their dependence on state subsidies.
    • In 2019-20, the total state subsidy claimed and released was around Rs 1.1 lakh crore or 17 per cent of total discom revenue.
    • This will only increase down the line, making future bailouts even more fiscally challenging.

    Conclusion

    Tackling these deficits requires addressing the issue of government control over critical aspects of India’s energy sector. Without shifting to market-determined prices — reforms are ultimately about price — little headway is likely to be made.

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