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Type: Op-ed

  • Tackling the problem of bad loans

    Context

    The newly-created National Asset Reconstruction Company (NARCL) in the public sector offers hopes for the faster clean up of lenders’ balance sheets.

    Features of National Asset Reconstruction Company (NARCL)

    • The newly-minted ARC, NARCL is not a bank, but a specialised financial institution to help resolve the distressed assets of banks.
    • Faster aggregation: Its greatest virtue lies in the faster aggregation of distressed assets that lie scattered across several lenders.
    •  Soverign assurance: Its securitised receipts (SRs) carry sovereign assurance.
    • This is of particular comfort to PSU banks as price discovery would not be subject to later investigations.
    • Focus on large accounts: It would initially focus on large accounts with debts over Rs 500 crore.
    • IDRCL: All eyes will be focused on IDRCL (Indian Debt Resolution Company), the operating arm, which would be in the private sector.

    Past policy measures to resolve the bad debts

    • Institutional measures include BIFR (Board for Industrial and Financial Reconstruction, 1987), Lokadalat, DRT (Debt Recovery Tribunal, 1993), CDR (Corporate Debt Restructure, 2001), SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement, 2002), ARC (Asset Recovery Company, 2002).
    • The RBI has also launched a slew of measures during 2013-14 to resolve, reconstruct and restructure stressed assets.

    Why the measures to resolve the bad debt failed?

    • Of the 28 ARCs (private sector) in operation, many are bit players.
    • Dominance of few ARC: The top five ARCs account for over 70 per cent of the asset under management (AUM) and nearly 65 per cent of the capital.
    • Restructuring as an exception: Financial and business restructuring appears to be more an exception than the norm.
    • Nearly one-third of debts are rescheduled.
    • This is not much value addition to what lenders would have otherwise done at no additional cost.
    • Success and shortcomings of IBC: The IBC, introduced in 2016, was landmark legislation and marked a welcome departure from the earlier measures, with a legally time-bound resolution.
    • The focus is on resolution rather than recovery.
    •  It nearly put an end to evergreening.
    • Even though there are delays under this newfound promise, they are counted in terms of days and not years and decades.
    • The NCLT (National Company Law Tribunal)  is the backbone of the IBC, but lamentably is starved of infrastructure and over 50 per cent (34 out of 63) of NCLT benches were bereft of regular judges.
    •  Even the parliamentary committee has expressed indignation on a large number of positions left vacant.
    • This lack of adequate infrastructure, coupled with the poor quality of its decisions, has proved to be the IBC’s Achilles’ heel.
    • We need judicial reforms for early and final resolutions.
    • Issue of delayed recognition and resolution: Forty-seven per cent of the cases referred to the IBC, representing over 1,349 cases, have been ordered for liquidation.
    • Against the aggregate claims of the creditors of about Rs 6.9 lakh crore, the liquidation value was estimated at a paltry Rs 0.49 lakh crore.

    Suggestions to make IBC more effective

    • Delayed recognition and resolution: Lenders and regulators need to address the issue of delayed recognition and resolution.
    • Business stress and/or financial stress needs to be recognised even prior to regulatory norms on NPA classification.
    • Dealing with anchoring bias: The tendency to make decisions on the basis of first available information is called “anchoring bias”.
    •  The first available information in bidding for distressed assets is the cost of acquisition to ARCs.
    • Potential bidders would quote prices nearer to this anchor.
    • Nobel Laureate Daniel Kahneman has suggests a three-step process to mitigate anchor bias: One, acknowledge the bias; two, seek more and new sources of information, and three, drop your anchor on the basis of new information.

    Way forward for NARC

    • Forbid wilful defaulters from taking back distressed asset: The IBC has made considerable progress in bringing about behavioural change in errant and wilful defaulters by forbidding them to take back distressed assets.
    • Otherwise, the credit culture suffers.
    • The NARC should uphold this principle, not dilute it
    • Introduce Sunset clause: It should have a sunset clause of three to five years.
    • This will avoid the perpetuation of moral hazard and also encourage expeditious resolution.
    • Deal with anchor bias: Anchor bias needs to be mitigated by better extrinsic value discovery.
    • Avoid selling to other ARCs: It should avoid selling to other ARCs.

    Conclusion

    The RBI has recently released (November 2) a report on the working of ARCs and makes 42 recommendations to improve the performance of ARCs. This article incidentally makes an effort to identify some constraints and offer solutions to improve the performance of ARCs.

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  • China’s missile tests could have Sputnik-like effect

    Context

    On October 27 Chairman of the Joint Chiefs of Staff of the US, reacted to China testing its nuclear-capable hypersonic weapons system by drawing an analogy with a Sputnik moment.

    How US’s Ballistic Missile Defence led to the recent Sputnik moment

    •  Since the US withdrawal from the Anti-Ballistic Missile (ABM) treaty in 2002, both Russia and China have been wary of Washington’s Ballistic Missile Defence (BMD) programme.
    • It undermines strategic stability: Missile defence is inherently destabilising — it undermines “strategic stability”.
    • A robust BMD would compromise the second strike capability of the adversary by neutralising the surviving incoming missiles in case of a near-decapitating first strike
    • Both Russia and China thus view the US BMD as undermining their deterrence and have sought ways to restore their retaliatory strike capability by investing in new technologies such as Hypersonic Glide Vehicles (HGVs).
    • HGVs can escape the missile defence systems.
    • HGVs fly at lower altitudes than ballistic missiles, which means they could potentially escape early warning systems, aided by the earth’s curvature.

    Implications of Chinese test

    • It can set off competition: The Chinese tests have the potential to set off an aggressive competition among the nuclear powers to modernise their nuclear arsenals and add new, potentially destabilising capabilities to their arsenal.
    • Global and regional arms race: In the present era of minimal arms control measures, the Chinese hypersonic missile system test will trigger an intense arms race both at the global and regional levels.
    • With the Chinese test, the US may be forced to expand its hypersonic programme and further modernise its missile defence systems.

    What should be the course of action for India

    • China’s nuclear-tipped hypersonic weapon systems, though not particularly India-focused, could nudge New Delhi to adopt two courses of action.
    • Missile program: First, accelerate its hypersonic missiles programme.
    • Develop missile defence system: Second, consider erecting an equally robust missile defence.
    • Chinese advancement in stealth technologies will drive New Delhi to seek similar capabilities but also develop effective countermeasures.
    • This can then set off a regional arms race, a sign that is not particularly encouraging for regional peace.

    Consider the question “Examine the implications of recent hypersonic missile test by China for the region and global arms race control efforts? What should be the course of action for India? “

    Conclusion

    China’s hypersonic missile test may not have come with a Sputnik-like surprise, but it has the potential to set off a post-Sputnik-like arms race that does not augur well for the strategic stability both at the global and regional level.

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    Back2Basics: Hypersonic Glide Vehicles (HGVs)

    • A hypersonic missile is a vehicle that achieves a speed five times faster than the speed of sound, crossing Mach 5.
    • These missiles travel at a speed of around 6,115 km per hour, with a combination of technology and manoeuvrability of ballistic missiles and cruise missiles.

    Fractional Orbital Bombardment System (FOBS)

    • A Fractional Orbital Bombardment System is a warhead delivery system that uses a low earth orbit towards its target destination.
    • Just before reaching the target, it deorbits through a retrograde engine burn.

  • Why India’s pro-rich, anti-poor taxation policies must change

    Context

    To develop their renewable energy capacities poor countries may well have to help themselves to make the transition that society urgently needs. One source of funding could well be the well-off citizens of India, who are getting richer and richer.

    Growing inequality in India

    • A 2018 Oxfam report revealed that 10 per cent of the richest Indians garnered 77.4 per cent of the nation’s wealth.
    •  In fact, according to the report, 58 per cent of India’s wealth was in the hands of one per cent of the country’s population.
    • The combined income of this handful of people in 2017 was almost as much as India’s budget that year.
    • In 2017, the fortune of India’s 100 richest tycoons leaped by 26 per cent.
    •  According to Crédit Suisse, the number of dollar millionaires in India has jumped from 34,000 in 2000 to 7,59,000 in 2019 — in other words, the country has one of “the world’s fastest-growing population of millionaires”.
    • The average wealth of these millionaires has increased by 74 per cent over this period.

    Issues with taxation policies

    • The taxation policy of the government, instead of making the exchequer benefit from this trend, has actively strengthened the trend of growing millionaires.
    • Replacing wealth tax by increasing income tax: The government replaced the wealth tax by an income tax increase of two per cent for households that earned more than 10 million rupees annually.
    • Corporate tax was reduced: The corporate tax was lowered, for existing companies from 30 per cent to 22 per cent, and for manufacturing firms incorporated after October 1, 2019 that started operations before March 31, 2023, from 25 to 15 per cent — the biggest reduction in 28 years.
    • Increase in income tax exemptions: In the 2019-20 budget, the income tax exemption limit jumped from Rs 2,00,000 to 2,50,000 and the tax rate for incomes up to Rs 5 lakh was reduced from 10 to 5 per cent.

    Impact of pro-rich taxation policy

    • Deprives the state of resources: This taxation policy deprived the state of important resources.
    • Increase in indirect taxes: To (partly) compensate for the decline of direct taxes, the government has increased indirect taxes, unfairly so, because they affect all Indians irrespective of their income.
    • The share of indirect taxes in the state’s fiscal resources has increased to reach 50 per cent of total taxes in 2018.
    • Taxes on petroleum products are a case in point.

    High taxes on petroleum products

    • About two-thirds of the cost of a litre of petrol now goes towards taxes.
    • The tax collected on petrol and diesel has increased by 459 per cent in the past seven years — from Rs 52,537 crore in 2013 to Rs 2.13 lakh crore in 2019-2020.
    • Given that petrol is a less elastic good, people are bound to consume it even at higher prices.
    • This also explains why the government sees fuel sale in India as a safe “revenue collection” medium.
    • In 2018-19, excise duty on petroleum products alone accounted for roughly 24 per cent of the indirect tax revenue.

    Consider the question “India’s taxation policies are criticised for being pro-rich. In the context of this, discuss the issues with the taxation system and suggest the measure to deal with these issues.”

    Conclusion

    The government’s taxation policy will probably continue to prevail depriving the exchequer of some of the resources it needs for dealing with issues as important as climate change.

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  • Economic, political implications of repeal of farm laws

    Context

    In a surprise move, Prime Minister Narendra Modi announced that the government will repeal the farm laws in the Winter Session of Parliament.

    Economic impact

    • Agri-growth rate to remain constant: The agri-GDP growth has been 3.5 per cent per annum in the last seven years.
    • One expects this trend to continue — there might be minor changes in the agri-GDP depending on rainfall patterns.
    • Cropping pattern to remain skewed: Cropping patterns will remain skewed in favour of rice and wheat, with the granaries of the Food Corporation of India bulging with stocks of grain.
    • Increase in food subsidy: The food subsidy will keep bloating and there will be large leakages.
    • Environmental impact: The groundwater table in the north-western states will keep receding and methane and nitrous oxide will keep polluting the environment.

    Suggestion on increasing farmers income

    • Average agri-household income: The latest Situation Assessment Survey of the NSO reveals that the income of an average agri-household in India was only Rs 10,218 per month in 2018-19.
    • This is not a very happy situation and all out measures need to be taken to increase rural incomes in a sustained manner.
    • How to increase farmers income: Given that the average holding size stands at just 0.9 ha (2018-19), and has been shrinking over the years.
    • Efficient functioning value chain: Unless one goes for high-value agriculture — and, that’s where one needs efficient functioning value chains from farm to fork by the infusion of private investments in logistics, storage, processing, e-commerce, and digital technologies — the incomes of farmers cannot be increased significantly.
    • Reforms: This sector needs reforms, both in the marketing of outputs as well as inputs, including land lease markets and direct benefit transfer of all input subsidies — fertilisers, power, credit and farm machinery.

    Implications

    • Demand for legal status to MSP could strengthen: Farmer leaders are already asking for the legal guarantee of MSPs for 23 agri-commodities.
    • Their demand could increase to include a larger basket of commodities.
    • Demand for privatisation: There could be demands to block the privatisation reforms of public sector enterprises — Air India, for instance — or to scuttle any other reform for that matter.
    • The net result is likely to be slowing down the economic reforms that are desperately needed to propel growth.

    Consider the question “The latest Situation Assessment Survey of the NSO reveal the low average agri-household income in India. All out measures need to be taken to increase rural incomes in a sustained manner. In the context of this, suggest the measures to increase the farmers’ income and challenges in it.

    Conclusion

    The most important lesson from the repeal of the farm laws is that the process of economic reforms has to be more consultative, more transparent and better communicated to the potential beneficiaries. It is this inclusiveness that lies at the heart of democratic functioning of India.

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  • The heavy lifting on climate action must begin

    Context

    Glasgow’s success was that it finished building the scaffolding for climate action initiated through the Paris Agreement. But true success depends on whether countries are receptive to these nudges.

    What were the Glasgow climate meeting’s (COP26) successes and failures?

    • Strengthened Paris Agreement mechanism: Glasgow strengthened the Paris Agreement mechanism of eliciting pledges from countries and ratcheting them up over time.
    • It requested countries to update and strengthen 2030 emission targets in their NDCs by the end of 2022, earlier than previously expected.
    • Success at Glasgow was explicitly defined around ‘keeping 1.5 degrees alive’ through such pledges.
    • There are two problems with this interpretation.
    • First, the Paris, and Glasgow, approach focusing on target-setting gives insufficient importance to the challenge of implementing those targets.
    • A focus on shorter term targets and their implementation — which India to its credit has been highlighting — will be important.
    • Second, by calling on countries to strengthen targets to align with the Paris Agreement objectives without explicitly considering that countries have different roles and responsibilities in doing so risks side-stepping, again, the long-standing issue of climate equity.

    Phase-down clause for thermal power and implications for India

    • Phasing down coal power: A specific high profile clause calls for the ‘phase down of unabated coal power and phase out of inefficient fossil fuel subsidies’.
    • It was the Indian Minister who read out an amendment modifying ‘phase-out’ to ‘phase-down’ for coal.
    • India’s concerns: India’s real concerns included not precluding subsidies for social purposes, such as for cooking gas; querying whether from an equity point of view, all countries should be asked to limit coal use at the same time; and noting the lack of mention of oil and gas.
    • A positive for all from environmental point of view: From an environmental point of view, more explicit discussion of coal, but ideally all fossil fuels, is a positive, including for India.
    • Concerns on developmental view: From a developmental view, however, India is concerned that explicit mention of coal constrains us in our choice of fuel.
    • Way out for India: A possible way out is for India to explicitly seek global support for an accelerated transition away from coal, an approach taken by South Africa.

    Challenges and achievements at COP26

    [A] Measures for adaptations

    • Adaptation has long been neglected in global negotiations, reflecting a global power imbalance that places less weight on the concerns of vulnerable nations.
    • In this context, it was a partial win that Glasgow set up an explicit two year work programme for a ‘global goal’ on adaptation.
    • No development on agenda of loss and damage: The important complementary agenda of ‘loss and damage’ – compensating for unavoidable impacts that go beyond adaptation — received at most lip service.
    • Even though there was discussion of a specific mechanism, backed by funding, to the dismay of small, vulnerable nations, only a ‘dialogue’ was established.

    [B] Climate finance commitment issue not addressed

    • Commitment on climate finance not met: Climate finance promised to be the central issue of COP26, with considerable frustration from developing countries that the decade-long commitment of $100 billion had not been met.
    • Glasgow did no more than establish a work programme on post-2025 financing and continue tracking progress on the $100 billion.
    • The exception was a call to double adaptation finance by 2025.
    • Mobilising private finance: Former Bank of England Governor Mark Carney indicated that companies committed to net zero initiatives could marshal a scarcely believable $130 trillion, suggesting growing efforts to mobilise private finance.
    • Developing countries have long insisted that publicly funded climate finance is a right devolving from the ‘polluter pays’ principle rather than aid.

    [C] Paris rulebook

    • Completion of two elements of Paris Rulebook: There were two particularly important elements of what is called the ‘Paris Rulebook’ that were completed in Glasgow.
    • Transparency framework: First, the transparency framework was completed, which includes reporting rules and formats for emissions, progress on pledges and finance contributions.
    • Rules for carbon market: The second key was completion of agreed rules for carbon markets, the complexities of which had stymied agreement for four years.
    • Rules were put in place to limit the scope for ‘double-counting’ of credits by more than one country.

    Way forward for India

    • The real determinant of success or failure rests on national politics and popular support for climate change within countries — how countries use the scaffolding.
    • For India, these politics are complex because they revolve around simultaneously balancing concerns over whether our policy space will be limited by inequities embedded in the global mitigation efforts, and our own interests as a vulnerable country in enhancing and accelerating climate action.
    • A balanced view requires consideration of both objectives.

    Consider the question “Why climate finance continues to be a contentious issue in the negotiations over climate change? Suggest the way to balance the concerns over development with the efforts at climate action.”

    Conclusion

    The meeting hit many, but not all, of its procedural benchmarks by building scaffolding for the future. But the real determinant of success or failure rests on national politics and popular support for climate change within countries.

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  • More a private sector primer than health-care pathway

    Context

    NITI Aayog recently published a road map document entitled “Health Insurance for India’s Missing Middle”.

    About missing middle and provision in the NITI Aayog report

    • The Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), aims to extend hospitalisation cover of up to ₹5 lakh per family per annum to a poor and vulnerable population of nearly 50 crore people.
    • Left out segment: Covering the left out segment of the population, commonly termed the ‘missing middle’ sandwiched between the poor and the affluent, has been discussed by the Government recently.
    • Towards this, NITI Aayog recently published a road map document entitled “Health Insurance for India’s Missing Middle”.
    • Primary role for private commercial health insurer: The report proposes voluntary, contributory health insurance dispensed mainly by private commercial health insurers as the prime instrument for extending health insurance to the ‘missing middle’.

    Issues with the provision in the NITI Aayog report

    • Narrow coverage: Government subsidies, if any at all, will be reserved for the very poor within the ‘missing middle’ and only at a later stage of development of voluntary contributory insurance.
    • This is a major swerve from the vision espoused by the high-level expert group on UHC a decade ago, which was sceptical about such a health insurance model.
    • No country has ever achieved UHC by relying predominantly on private sources of financing health care.
    • Contributory insurance not best way: Evidence shows that in developing countries such as India, with a gargantuan informal sector, contributory health insurance is not the best way forward and can be replete with problems.
    • Issues with low premium model: For hospitalisation insurance, the report proposes a model similar to the Arogya Sanjeevani scheme, albeit with lower projected premiums of around ₹4,000-₹6,000 per family per annum.
    • This model is a little different from commercial private insurance, except for somewhat lower premiums.
    • Low premiums are achieved by reducing administrative costs of insurers through an array of measures, including private use of government infrastructure.
    • This model is vulnerable to nearly every vice that characterises conventional private insurance.
    • Insufficient measures to deal with adverse selection: The report suggests enrolment in groups as a means to counter adverse selection.
    • The prevailing per capita expenditure on hospital care is used to reflect affordability of hospital insurance, and thereby, a possible willingness to pay for insurance.
    • Both these notions are likely to be far-fetched in practice, and the model is likely to be characterised by widespread adverse selection notwithstanding.
    • OPD insurance on a subscription basis: The report proposes an OPD insurance with an insured sum of ₹5,000 per family per annum, and again uses average per capita OPD spending to justify the ability to pay.
    • However, the OPD insurance is envisaged on a subscription basis, which means that insured families would need to pay nearly the entire insured sum in advance to obtain the benefits.
    • Clearly, this route is unlikely to result in any significant reduction of out-of-pocket expenditure on OPD care.
    • Role of government:The NITI report defies the universally accepted logic that UHC invariably entails a strong and overarching role for the Government in health care, particularly in developing countries.

    Consider the question “What are the challenges in achieving universal health coverage? What are the issues with private sources  financing health care to achieve UHC?”

    Conclusion

    The National Health Policy 2017 envisaged increasing public health spending to 2.5% of GDP by 2025. Let us not contradict ourselves so early and at this crucial juncture of an unprecedented pandemic.

  • Formal sector and fine print

    Context

    A recent study by SBI has reported that the Indian economy witnessed accelerated formalisation under the distressed conditions of the pandemic and the lockdown last year. The study estimates that the share of the informal economy has fallen to a mere one-fifth of GDP — a figure comparable to many advanced economies.

    Understanding informality

    • ILO definition: The ILO’s globally accepted framework for definitions is as follows: Informal sector enterprises are defined as private unincorporated enterprises owned by individuals (or households) that are not constituted as separate legal entities independently of their owners.
    • They are not registered under specific national legislation (such as Factories’ or Commercial Acts).
    • Definition of a formal worker in India: Formal workers in India, on the other hand, are defined as those having access to at least one social security benefit such as a provident fund or healthcare benefits.

    What explains the decline of informal sector in GDP

    • Significance of informal sector: In 2017-18, as per the latest official statistics, India’s informal sector accounted for approximately 52 per cent of its GDP, employing 82 per cent of the total workforce.
    • These ratios have broadly remained unchanged over the last decade.
    • Most affected due to pandemic: As the informal (unorganised) sector bore much of the brunt of the economic contraction during 2020-21, a decline in its share in GDP is unsurprising.
    • Lack of financial strength: The sector had neither the financial strength nor the technical wherewithal to face the Covid shock.
    • Inadequate policy support: Additionally, policy support, mostly supply-side measures, was mainly focused on firms in the formal sector, with the informal sector left to fend for itself.

    Issues with decline

    • Undeniably, the informal sector’s share in GDP is likely to have shrunk due to the Covid shock.
    • However, alarmingly, the purported decline in the informal sector’s share in GDP has not been accompanied by an expected reduction in its employment share. 
    • Data from the official annual Period Labour Force Survey (PLFS) 2017-18 and 2019-20, where the latter includes the period of the Covid shock from April to June 2020, shows that the employment share in non-agricultural informal enterprises has increased from 68 per cent in 2017-18 to 69.5 per cent in 2019-20.
    • These figures do not include the agricultural sector, where employment is almost entirely in the informal sector.
    • The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.
    • The increasing share of the formal sector in terms of GDP but declining share in employment only widens the schism (or dualism) between the two sectors.

    Implications

    • Impact on investment and growth: The lack of remunerative jobs for the vast majority of Indian consumers implies that eventually the lack of growth in demand will adversely impact investment and economic growth.
    • After all, a mere 17-18 per cent of the workforce in the organised sector cannot sustain growth of the economy in the long run.
    •  Squeezing out informal enterprises: The increase in the formal sector’s share in GDP due to Covid-19 is a result of large, formal enterprises squeezing out informal enterprises.
    • It is important to note here that the increase in formalisation is not a consequence of micro and small informal firms transitioning to formality.

    Increasing productivity: A way forward to formalisation

    • Promoting formalisation: Over the last five years, the economy has officially witnessed a significant drive towards formalisation.
    • Multiple reasons for avoiding formalisation: It is crucial to recognise that firms exist in the informal sector for various reasons and not simply to evade regulations and taxation.
    • Significance of productivity: Many own account enterprises and MSMEs cannot afford to survive in the formal sector due to their low productivity.
    • It is essential to view the process of formalisation as a development strategy that requires stepping up investment in physical and human capital to boost productivity and the extension of social security benefits for all workers, not just a registration strategy on myriad portals.

    Consider the question “Informal sector has been affected disproportionately in the wake of the pandemic. What are the implications of this for the economy? Suggest the way forward for the formalisation.”

    Conclusion

    The informal sector will come back to life as much of it represents the survival efforts of the working poor. Celebrating formalisation based on the misery and devastation of poor informal workers (and their meagre productive assets) is not just misplaced but also callous.

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  • A collaborative tech vision for US, UAE, Israel and India

    Context

    Last month’s meeting between the foreign ministers of India, the US, Israel, and the UAE has set foreign policy circles in India abuzz with talks of the potential emergence of another quadrilateral grouping or as analysts term it, a “new Quad”.

    Significance of the new Quad meeting

    • Collaboration in various areas: The grouping discussed technology collaboration along with the joint infrastructure projects in transportation, enhancing political and economic cooperation and maritime security matters.
    • Forum for economic cooperation: They have agreed to set up an international forum for economic cooperation.
    • Collaboration on technology: Amongst all the issues discussed, the technology dimension of this partnership promises a far greater potential for collaboration.
    • The four countries are uniquely placed to shape an innovation-based partnership, which can conjoin the technology hubs of Silicon Valley, Dubai, Tel Aviv, and Bengaluru.
    • Such potential collaboration can benefit from the existing robust cooperation between these countries.
    • Collaboration in fintech: The agreement between Start-Up Nation Central, an Israeli non-profit that connects the tech ecosystem, and Dubai International Financial Centre, the UAE’s financial hub, will create regulatory sandboxes and accelerators for start-ups and provide them with market access opportunities.
    • India and the US have been separately working with the two countries on multiple projects.

    New Quad’s technology cooperation

    • Tech-based collaboration: Given the synergies in the innovation and startup sector, it is logical that the “new Quad” works towards tech-based collaboration.
    • The agenda for the new Quad’s technology cooperation can begin by selecting three technologies — quantum science, blockchain, and 3D printing.
    • Collaboration in quantum technology: Israel and the US, too, have made research on quantum technology a priority by allocating $91 million and $1.2 billion respectively to this sector.
    • India is also fast catching up through its National Mission on Quantum Technologies and Applications and joining hands with countries like France to work on this technology.
    • Collaboration in the blockchain:  in blockchain, India and the UAE can leverage the American and Israeli expertise in cyber and cryptography to craft customised applications for use in banking, fintech and trade financing.
    • Collaboration in 3-D printing: In 3D printing, which promises to transform the manufacturing process radically, Israel has taken the lead in manufacturing about 40 per cent of 3D printers worldwide.
    • India, in contrast, has been slow in getting onto the 3D printing bandwagon. But it can certainly benefit from the expertise of the US, Israel and the UAE.
    • Opportunity for India: From the Indian perspective, such partnerships can leverage Silicon Valley’s venture capital funding, Tel Aviv’s close-knit organic linkages between start-ups, industry, and academia, and UAE’s funding and focus on innovation.
    • To this mix, Bengaluru — and potentially Hyderabad — can add opportunities for scaling up and manufacturing.
    • The startup community in the US, Israel and the UAE have already reached an advanced research and development stage providing an opportunity for India to build expertise and offer the scale to the development and applications of these technologies.

    Way forward

    • Security cooperation: The collaborative and customisation possibilities offered by these technologies and their dual-use nature offers the potential to give a technological edge to the four countries’ militaries.
    •  This, in turn, can add the security cooperation element to the grouping’s agenda.
    • Broaden the base: If the four countries plug their innovation ecosystems in this collaboration to shortlist, fund and develop technologies, it will also help to broaden the base of cooperation for this grouping, rather than restrict it to the government-to-government domain.
    • Government push will be the essential catalyst to unlock this space for cooperation through seed-funding, academic collaborations, industrial partnerships and MoUs.
    • China factor: By collaborating with Russia, and domestic flagship initiatives like “Made in China 2025”, Beijing has pursued emerging technologies and successfully reduced the capability gap with Washington.
    • These developments make it imperative for the US, Israel, UAE, and India to strengthen their newly established cooperation.

    Conclusion

    Each country with its unique advantage in the field of science and technology, innovation and start-ups can make a significant contribution to advance shared technological goals.

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  • Issues with ordinance that extend the tenure of the Director of the CBI

    Context

    The Central government’s decision to give a five-year tenure to heads of the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) has drawn a lot of flak.

    Background

    • Apex court’s directive giving a mandatory two-year tenure to the Director of the CBI was a fallout of the Hawala scandal.
    • Prior to that, the government was arbitrary and capricious in choosing the Director.
    • It was not rare to see temporary appointments given to favour some individuals.
    • Seniority was often ignored in appointments and Directors were removed frequently.

    Why tenure matters

    • Short tenure: A two-year tenure for a CBI head is too short for any officer to make an impact on the organisation.
    • Longer provides the much-needed continuity that a Director needs in an outfit charged with the task of conducting highly sensitive investigations, which sometimes impinge on the longevity and stability of a democratically elected government.
    • The Federal Bureau of Investigation chief in the U.S. gets a 10-year term.

    Suggestions

    • Need to avoid government interference: Any blatantly dishonest interference in the working of the organisation is bound to raise the hackles of those who believe in and carry out straightforward investigations.
    • The government will therefore have to show enormous restraint in its interactions with the head of the CBI.
    • Balancing accountability with autonomy: Of course, as a measure of accountability, the Director will have to keep the government informed of all major administrative decisions.
    • He or she should inform the executive but not take orders from it.
    • Need for CBI Act: Successive chiefs have suggested the drafting of a CBI Act to ensure that the organisation is not dependent on the State governments, many of which have withdrawn consent for the CBI to function in that State.
    • Eight States — West Bengal, Maharashtra, Kerala, Punjab, Rajasthan, Jharkhand, Chhattisgarh, and Mizoram — have withdrawn the general consent.
    • The CBI should be made to derive its authority for launching investigations from its own statute instead of depending on the Criminal Procedure Code, which makes the CBI a police organisation.

    Issue with ordinance

    • The only problem with the latest ordinance is that, at the end of the mandatory two-year tenure, the government will have to issue orders granting one-year extensions at a time. 
    • The rule about three annual extensions can be misused by a tendentious government.
    • It may be construed as a reward for ‘good behaviour’, which is a euphemism for an obliging Director.

    Consider the question “What are the challenges facing Central Bureau of Investigation? Suggest the measures to make the organisation more effective.” 

    Conclusion

    We will have to wait for a few years to gauge the impact of the change in tenure rules. It is preposterous to probe the intentions of this major move.

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    Back2Basics: General Consent

    • A “general consent” is normally given by states to help the CBI in seamless investigation of cases of corruption against central government employees in their states.
    • Almost all states have traditionally given such consent, in the absence of which the CBI would have to apply to the state government in every case, and before taking even small actions.
    • Section 6 of The DSPE Act (“Consent of State Government to exercise of powers and jurisdiction”) says: “Nothing contained in section 5 (“Extension of powers and jurisdiction of special police establishment to other areas”) shall be deemed to enable any member of the Delhi Special Police Establishment to exercise powers and jurisdiction in any area in a State, not being a Union territory or railway area, without the consent of the Government of that State.”

  • Kabul, Kashmir and the return of realpolitik

    Context

    In a rather unfriendly neighbourhood, New Delhi’s attempts at forming a regional consensus to stabilise Afghanistan, albeit wise and timely, will only achieve limited success thanks to the China-Pakistan coalition and its interests at play in and over Afghanistan.

    Role played by China and Pakistan in Afghanistan and its implications for India

    • China’s long-term vision for Afghanistan revolves around the Belt and Road Initiative (BRI) project of which Afghanistan has been a part since May 2016.
    • The China-Pakistan Economic Corridor (CPEC) is also viewed as a key component within the larger Chinese BRI project and Afghanistan could eventually become part of CPEC if and when the Taliban regime stabilises itself in the country.
    • Role of Pakistan in keeping India away from Afghanistan: While Pakistan lobbies the international community to help prevent Afghanistan slide into further turmoil, it is determined to keep India as far away from Kabul as possible.
    • Pakistan has always been deeply suspicious of growing India-Afghanistan relations no matter who was/is in charge in Kabul.
    • Implications for India: It is likely that the more India gets close to the Taliban, the more the Pakistani side will increase the ‘attacks’ in Jammu and Kashmir.
    • By maintaining ties with the Taliban and convening the regional security meeting in New Delhi, India has indicated that this is an acceptable risk.
    • Regional Security Dialogue: The recently-held Delhi Regional Security Dialogue on Afghanistan was an important initiative to help Afghanistan stabilise, the reality is that the two countries that are key to stabilising Afghanistan — China and Pakistan — decided to stay away from it.
    • Scope for other powers: Russia or the Central Asian states have neither the ability nor the desire to pursue a role in Afghanistan autonomous from the larger Chinese or Pakistani designs there.

    The dilemma facing the international community

    • Taliban and Pakistan refer to the U.S.-led coalition as ‘colonisers’ who just vacated the Afghan territory; and in the same breath, they seek assistance from those very ‘former colonisers’.
    • But perhaps what might bother the West the most is that if they stabilise the country, they would still be called former colonisers, and Pakistan and China will benefit out of it geopolitically, making it, in that sense, a thankless job for the West.
    • So the question before the western leaders is how to offer structured incentives to the Taliban, and when.

    The dilemma facing India

    • To engage the Taliban or not: The first one was to decide whether to engage the Taliban or not.
    • The successive governments in Afghanistan, including the current Taliban regime, have sought relations with India which has upset Pakistan.
    • The Taliban want India to engage and help the country stabilise, but Pakistan resents that.
    • Catch-22 situation for India: If the Taliban regime is stabilised in Kabul without India’s assistance to the country, the more it is likely to do Pakistan’s bidding vis-à-vis India.
    • On the other hand, the more India helps the Taliban-led Afghanistan, the more Pakistan will up the ante in Kashmir.
    • This is a catch-22 situation that India finds itself in.
    • And yet, India has little choice but to engage the Taliban.

    How Taliban victory led to change in Pakistan’s Kashmir policy

    • The earlier Pakistani willingness to be conciliatory towards India on Kashmir before and in the run-up to the Taliban takeover of Kabul in August 2021 seems to have disappeared for now.
    • This is at least partly due to the Pakistani triumphalism about the Taliban takeover of Afghanistan.
    • Since then, violence data show that the backchannel understanding is withering away with violence in Jammu and Kashmir (J&K) spiking along all three indicators albeit gradually.
    • Sentiments from across the border also indicate that the earlier Pakistani stand that it would accept the Indian decision to withdraw the special status to Kashmir in lieu of New Delhi restoring Statehood to Kashmir and allowing political activity in the State has now change.
    • It now demands that India fully reverts to the pre-August 5, 2019 position on Kashmir.

    Way forward

    • No possibility of cooperation with China and Pak: Any possibility of India-Pakistan cooperation in Afghanistan would be very hard to achieve.
    • Beijing will play along; so will Iran and the Central Asian countries, for the most part.
    • Coordinate with other powers: For India, the options are to coordinate its Afghan policy with Moscow, Washington and the various western capitals while steadfastly engaging the Taliban.

    Consider the question “Return of Taliban in Afghanistan and consequential geopolitical changes in the region are bound to have implications for India-Pakistan relation. Comment.” 

    Conclusion

    India’s advances to court the Taliban and attempts to evolve a regional consensus on Afghanistan might deteriorate India-Pakistan relations and pose challenges for India in Kashmir.

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