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Type: Op-ed

  • India-UK ties

    Context

    When Delhi thinks of technological cooperation with major powers, the US, Europe and Japan come to mind. The missing link in India’s technological mind space, however, is the United Kingdom.

    How India can benefit from technology partnership with Britain

    • Britain was the first nation to industrialise and has a long tradition of scientific research and technological development.
    • With top-ranking universities and the golden triangle of science and innovation — London, Oxford and Cambridge — Britain is one of the world’s top technology powers.
    • WIPO ranking: This year, the World Intellectual Property Organisation ranked Britain fourth in the global innovation index.
    • India is far behind at the 46th position.
    • India, then, could gain in a technology partnership with Britain.

    Overview of the India-UK bilateral ties

    • Pakistan angle: India’s foreign policy community can’t shake off the Pakistan prism in viewing London.
    • To be sure, London’s advocacy of Pakistan has always irritated Delhi.
    • Instead of complaining about London’s South Asian policy, Delhi now simply ignores London’s claims for a special role in India’s political disputes with Pakistan.
    • By focusing on the positive, Delhi is betting it can reduce the traditional negative elements in the engagement with the UK.
    • At the same time, Delhi recognises the enormous strategic possibilities with Britain and is willing to invest political capital to build on those synergies.
    • Meanwhile, the steady relative decline of Pakistan — its economy is now about a tenth of India’s — and Delhi’s deepening strategic partnership with Washington are also encouraging London to rethink its past approach to the Subcontinent.
    • India is fully conscious of UK’s enduring global salience.
    • External Affairs Minister Subrahmanyam Jaishankar has often highlighted Britain’s continuing weight in the world as the fifth-largest economy, a permanent member of the UN Security Council, a major financial centre, and a leading hub of higher education and technology.
    • Britain also enjoys a global maritime reach and a measure of political influence across the world.

    Possibilities for partnership in the technological domain

    • While a trade agreement between Delhi and London is said to be imminent, it is in the technological domain that the prospects are immense but under-explored.
    • There is insufficient awareness in India’s strategic community of the British moves to put science and technology at the very heart of its political, economic, security and foreign policies.
    •  London announced a raft of measures this year starting with a major report on “Global Britain in a Competitive Age: An Integrated Review of Security, Defence, Development, and Foreign Policy”.
    • One of the broad themes stand out from these initiatives, which is forming a coalition of like-minded countries.
    • London wants to build a coalition of like-minded countries to reshape the global governance of technology.
    • This includes strengthening technological ties with the traditionally close partners in the Anglosphere — US, Canada, Australia, and New Zealand — as well as other partners like Japan and India.
    • All these elements of British policy mesh with India’s own economic, political, and security interests.
    • The British technology initiatives are also aligned with the technological agenda of the Quad — or the Quadrilateral forum that brings together Australia, India, Japan, and the US.

    Consider the question “In India’s partnership with the UK, it is the technological domain where prospects are immense but underexplored. Comment.”

    Conclusion

    For Delhi, the essence of the new alliance with Britain is fourfold — generate domestic prosperity, enhance national security, climb up the global technology hierarchy, and contribute to the construction of a free, open, and democratic global technological order.

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    Back2Basics: Major themes of the policy report on “Global Britain in a Competitive Age”

    • [1] Leverage technology to “level up” the regional and social inequalities in Britain.
    • [2] Ensure Britain’s privileged position as a leading science power.
    • [3] Focus on technological innovation to drive Britain’s future economic growth.
    • [4] Build internal security resilience against new technological threats.
    • [5] Modernise the intelligence apparatus with the help of new technologies.
    • [6] Integrate technology into the national defence strategy as new capabilities like AI become as consequential as battle-tanks, ships and fighter jets.
    • [7] Project technological power to counter malevolent actors in the international system.
    • [8]A coalition of like-minded countries.

  • The stepping stones in the post-pandemic world

    Context

    The COVID-19 pandemic has profoundly impacted lives and livelihoods across the world. Governments, global institutions, industry, academia and non-profit organisations around the world have joined hands to tackle the global challenge and help countries rebuild their economies.

    Criticality of international cooperation and role for India

    • The novel coronavirus pandemic has once again highlighted the criticality of international cooperation in combating current and future challenges.
    • Areas of cooperation: Key among these include economic growth, building competitiveness of the investment climate, ensuring sustainable development paths and adapting to technology acceleration.
    • Strengthening global partnership: Building resilience to cope with the threats posed by pandemics and other man-made and natural disasters has necessitated strengthening global partnerships now more than ever.
    • Global partnerships help in building mutual trust and understanding by agreeing upon common rules and standards and sharing of best practices.

    Areas to focus on

    [1] Challenge of long term sustainability of growth process

    • While the world economy is rebounding strongly, the long-term sustainability of the growth process needs to be strengthened.
    • Exit from the massive stimulus packages itself may pose risks of economic and financial instability.

    [2] Challenges of supply chain management:

    • The pandemic severely disrupted global supply chains and set the global trade trajectory on a downward path.
    • Even as the world emerges from the pandemic, facilitating medical supplies and essentials will continue to remain a top priority and for this, supply chains will need to be kept flowing.
    • For this year, the United Nations Conference on Trade and Development (UNCTAD) indicates an increase of 22.4% in the value of global merchandise trade compared with 2020.
    • World trade is expected to stand about 15% higher than before the COVID-19.
    • FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of 2021.
    •  Cooperation on trade facilitation for enhancing open and transparent markets, technical assistance and reduction of complex process and arrangements must be promoted.

    [3] Increasing competitiveness

    • Competitiveness will be key in facilitating growth and inclusive development.
    • New opportunities and avenues across potential high growth sectors such as manufacturing and start-ups must be leveraged.
    • An ecosystem of entrepreneurship and innovation with targeted policies and interventions will contribute to enhancing productivity and generating employment.

    [4] Structural changes with the emergence of digital economy

    • Certain structural changes are likely to become permanent in the future and this is especially true of the digital economy
    • Equitable adaptation: The rise of telemedicine, remote work and e-learning, delivery services, etc. necessitates equitable adaptation to advanced technologies and tools, building robust infrastructure, and occupational transitions.
    • Skill development and worker training, investments in education and vocational training, and capacity building would be some key areas of focus for filling technology gaps and nurturing new and existing talent.
    • Investment in innovation: At the same time, investments in innovation will be crucial, especially during a crisis.

    [5] Climate change

    • Matter of urgency: Climate change has now acquired urgency from policymakers around the world, as seen in the recent COP26 at Glasgow.
    • International alliances and cooperation on building sustainable solutions, green technology, resource efficiency, sustainable finance, etc., must be promoted to fast-track meeting the sustainable development goals and for ensuring all-round development.

    Opportunities for India

    • Attaining faster growth path: India’s recent reforms, role in combating the pandemic, and startup vibrancy, among other factors, have attracted global attention and can help it attain a faster growth path, provided its integration with the world economy and trade gains strategic intensity.
    • Reliable and trusted player: With multiple strategic shifts, India’s role as a reliable and trusted player in the comity of nations stands enhanced.

    Way forward

    • In the post-pandemic world, it will be critical for India to improve on its investment climate and systematically target its export capabilities across sectors and regions.
    • Ease of doing business and new free trade agreement with major markets will help it integrate closely with the world through trade and investment partnerships.

    Conclusion

    The time for India is here and it must leverage international partnerships for ensuring a robust and sustained economic growth path.

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  • The challenges in being a chip hub

    Context

    India is aiming to manufacture silicon semiconductor chips.

    Efforts to set up chip fabrication plant

    • India has intensified efforts to set up a semiconductor fabrication plant with the help of Taiwan, the market leader.
    • For this the government is investing over $7.5 billion.
    • The Tata Group is in talks with three States — Tamil Nadu, Telangana and Karnataka — to invest over $300 million to set up a semiconductor manufacturing facility.
    • In 2014, NASSCOM wanted to promote a National Technology Corridor along coastal A.P. stretching through the Visakhapatnam, Rajahmundry and Vijayawada region.
    • Given the abundance of water, sand (raw material for making silicon ingots), road, rail, ports and airport connectivity, the industry body wanted to push and promote the design and manufacturing of electronic chips.

    Challenges

    • IP and design: While welcoming such moves by the government and technology experts, local players in the segment say that chip making itself will not be enough.
    • Other aspects such as designing and Intellectual Property are required to make a mark.
    • Designing is what brings value to the chips.
    • If the Intellectual Property lies with the foreign entity, we end up manufacturing the basic material which does not serve the purpose.
    • Need to promote SoCs: Rather, we need an ecosystem to promote SoCs (System on a Chip) which makes more sense.”
    • There are several firms in India which are now making SoCs, which is a good sign.
    • Connect related industries: The bigger challenge and immediate need for the Indian government is to connect related industries in India to create the ecosystem, industry players say.

    Consider the question “What are the challenges India may face as it aims to manufacture silicon semiconductor chips?”

    Conclusion

    The initiative is an uphill task as many factors need to come together for India to make a mark in the niche chip making and designing industry. Also, upcoming firms should be able to sustain themselves in the market when subsidies from the government are withdrawn.

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  • Judges cannot be shielded from citizens’ questions

    Context

    Recently, the Chief Justice of India, in his own mild way, protested against the attack on judges. One can understand his pain and agony, but he too knows that judges do not, and should not live in ivory towers.

    Questioning and analysing actions of the judiciary

    • As the judiciary is one of the pillars of democracy, and the Constitution entrusts judges with the task of protecting the constitutional rights of the people, especially the right to life and liberty, the consumer of justice has every right, and would be fully justified in critically examining, and commenting upon each and every word of the judges spoken or written, howsoever unpalatable it may be.
    • It appears that it is in the above spirit that MP Shashi Tharoor, speaking in Parliament on the High Court and Supreme Court Judges (Salaries and Conditions of Service) Amendment Bill said that the judiciary had failed to stem the tide of militant majoritarianism.
    • He alleged that the “judiciary’s inaction almost always favours those in power”. 
    • He has raised pertinent questions, and has brought out the glaring failings of the judiciary in matters concerning the protection of the constitutional rights of citizens. 
    • Pendency of important cases such as the abrogation of Article 370 of the Constitution, the Citizenship Amendment Act, electoral bonds, and many petitions under the preventive detention laws highlights this issue.

    Issues in functioning of collegium system

    • As regards the functioning of the collegium system, judges are transferred without any seeming justification, and in some cases re-transferred, justifying neither their initial transfer nor the re-transfer.
    • Some elevations of judges raise eyebrows, while some are ignored.
    • Should the collegium not be more transparent than it has been in the past in the matter of the elevation and transfers of judges?

    Conclusion

    Judges cannot be shielded from citizens’ questions. After all, as a consumer of justice, the citizen has a right to know.

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  • Why crypto currency legislations needs careful consideration

    Context

    The government has decided to introduce a bill that seeks to prohibit all private cryptocurrencies in India.

    Background of the bill

    • In 2018, the three-judge bench of the Supreme Court set aside the RBI circular that prevented crypto exchanges from dealing with the formal financial system on grounds of proportionality.
    • Purpose of the bill: The current bill now attempts to define the rules of the game so that the RBI, tax authorities, SEBI and other agencies have much better legal guidance in deciding the course of action with respect to VCs in their respective domains.
    • The rules can, therefore, range from a ban to controlled interaction with the formal financial system.

    Issues involving cryptos

    • Issues involving cryptos can be seen at three levels, each of which is equally important.
    • The first is its impact on sovereignty.
    • The second is its interaction with financial markets.
    • Third is the value proposition that the entire concept of crypto brings to the economic debate.
    • Incorporation of price stability mechanism: Some of the variants of cryptos such as the stable coin clearly indicate that these are attempts to create systems of money that incorporate features of price stability that imply a parallel monetary system.
    • Diluting the sovereign function of money creation: Unrestricted co-opting of VC clearly dilutes the sovereign function of money creation, clearly impacting the revenues of RBI.
    • Concerns pertaining to money laundering, terrorist threats and narco-trading also come under this category given the high value and anonymity offered by cryptocurrencies.

    Challenges in cryptocurrencies interaction with the formal system

    • As of now cryptos have been recognised as assets or commodities and as a medium of exchange. Their role as units of account or legal tender is rather limited.
    • They may offer a store of value given their short supply. From a banking point of view, certain issues do arise.
    • Since VCs are not legal tenders, they cannot be used in the discharge of debt.
    • Thus, banks cannot accept VCs to close a loan account.
    • Second, can banks lend in fiat by accepting VCs as collateral assuming the VC is an asset?
    • Incompatible with the fractional system of banking: At a deeper level, the very idea of VCs and the way they are designed are incompatible with the fractional system of banking.
    • The fluctuations in interbank liquidity require that money supply adjusts to system requirements.
    • If money supply undergoes compositional change in favour of VCs, this ability will be curtailed thus accentuating the crisis.
    • In financial markets, crypto such as ICOs bring another set of issues.
    • The ICO is a creature that disrupts the very concept of limited liability in corporate finance.
    • ICOs are, at times, designed in such a way that the beneficial owner identity is concealed.
    • SEBI is yet to convey a position on various issues surrounding this idea.
    • Issues with making VCs medium of exchange: VCs have emerged as a medium of exchange and many countries have permitted VC ATMs.
    • But how does this proposition fare given that considerable advances have been made in the payment systems domain in India.
    • Is it worthwhile that additional competition is introduced in a market that is hyper-competitive?
    • It will have impact on existing investments in mobile payment and UPI technology.
    • Impact on poor states: It is well known that the Indian population exhibits significant behavioural divergences in their savings and credit behaviour across regions.
    • Such wide behavioural changes have profound implications on bank strategies and product designs.
    • In the past, there have been several instances of states having low per capita income being more prone to chit fund investments that have negatively impacted the savings of many poor households.
    • The issue of consumer protection needs to be addressed and the current laws may have to be reviewed considering this innovation.

    Conclusion

    The bill must meet many important objectives. While there are obvious concerns of money laundering and benami transactions, there are equal concerns with respect to company laws, payment systems and banking, securities and other commercial laws.

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    Back2Basics: About Stablecoin

    • Stablecoins bridge the worlds of cryptocurrency and everyday fiat currency because their prices are pegged to a reserve asset like the U.S. dollar or gold.
    • This dramatically reduces volatility compared to something like Bitcoin and results in a form of digital money that is better suited to everything from day-to-day commerce to making transfers between exchanges.

    What is ICO?

    • ICO stands for “initial coin offering,” and refers to a formerly popular method of fundraising capital for early-stage cryptocurrency projects.
    • In an ICO, a blockchain-based startup mints a certain quantity of its own native digital token and offers them to early investors, normally in exchange for other cryptocurrencies such as bitcoin or ether.

  • What true MSP means

    Context

    Amid the demand for a guarantee of MSP, many commentators fail to understand the true spirit of the demand for a legal MSP.

    How demand for legal backing for MSP is misinterpreted?

    • Mandatory enforcement of price above MSP: The demand has been interpreted as a mandatory enforcement of trade in agricultural produce, including private trade to be necessarily at or above the MSP for that crop.
    • Nationalisation of agricultural trade: Another interpretation is the nationalisation of agricultural trade whereby the government promises to buy all the crop produced at MSP.
    • Commentators have been using these two interpretations to project large estimates of government expenditure needed to implement.
    • They fail to understand the true spirit of the demand for a legal MSP.

    Current nature of MSP

    • It is not an income support program: By definition MSP is not an income support programme.
    • Intervention to stabilise prices: It is designed to be used as government intervention to stabilise prices, to provide remunerative prices to farmers.
    • Public procurement program to meet requirements of NFSA: Currently, it is no more than a public procurement programme to meet the requirements of the National Food Security Act (NFSA).
    • Only rice and wheat procured: As against the official announcement of MSP for 23 crops, only two, rice and wheat are procured as these are distributed in NFSA.

    Larger context of demand for legal backing to MSP

    • Droughts and declining commodity prices: In addition to the twin droughts of 2014 and 2015, farmers have also suffered from declining commodity prices since 2014.
    • Impact of demonetisation and GST: The twin shocks of demonetisation and hurried rollout of GST, crippled the rural economy, primarily the non-farm sector, but also agriculture.
    • Impact of pandemic: The slowdown in the economy after 2016-17 followed by the pandemic has ensured that the situation remains precarious for majority of the farmers.
    • Increased input prices: Higher input prices for diesel, electricity and fertilisers have only contributed to the misery.
    • In this context, the demand for ensuring remunerative prices is only a reiteration of the promise by successive governments to implement the Swaminathan Committee report.

    What should be the true nature of MSP?

    • Intervene to stabilise price: A true MSP requires the government to intervene whenever market prices fall below a pre-defined level, primarily in case of excess production and oversupply or a price collapse due to international factors.
    • It does not require the government to buy all the produce but only to the extent that creates upward price pressures in the market to stabilise prices at the MSP level.

    Way forward

    • Mechanism for market intervention: What is needed is a mechanism to monitor the prices.
    • While such a mechanism already exists, a policy for requisite market intervention is missing.
    • Use MSP as incentive to achieve nutritional security and reduce import dependence: MSP can also be an incentive price for many of the crops which are desirable for nutritional security such as coarse cereals, and also for pulses and edible oils for which we are dependent on imports. 
    • Include pulses, edible oil and millets in PDS: Despite repeated demands from food activists, there has not been any progress in including pulses, edible oils and millets in PDS.
    • A guaranteed MSP then is nothing more than restoring the true spirit and functions of MSP, applicable to a broad range of crops and all sections of farmers.

    Issues

    • The current MSP regime has no relation to prices in the domestic market.
    • Its sole raison d’être is to fulfil the requirements of NFSA making it effectively a procurement price rather than an MSP. 
    • It is basically a lack of understanding of what agriculture needs and above all a lack of political commitment to ensure remunerative prices to farmers.

    Conclusion

    An efficient and functional MSP is certainly the least that the government can do to protect a sector which remains the largest employer and a refuge for the poor and vulnerable as was seen during the pandemic.

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  • Goods and Services Tax as an unfinished agenda

    Context

    Seen purely from a revenue point of view and as a fiscal policy tool, India’s GST is still on a rocky road.

    Background

    • The GST was launched by India on the midnight of July 1, 2017.
    • Benefits of GST: Hailed as a landmark reform in India’s tax history, it was expected to improve tax-GDP ratio, end tax cascading, enhance efficiency, competitiveness, growth, and ensure lower prices.
    • Fiscal federalism: It was also projected as a watershed in India’s fiscal federalism.
    • the States have forgone a substantial part of their own tax revenue.
    • States were in turn guaranteed a GST compensation assuring 14% growth in their GST revenue during the initial five years.
    • India’s GST architecture: India’s GST architecture is built on the firm foundations of a GST Council and the GST Network (GSTN).
    • GST Council as due federal process: The first is the key decision-making body, chaired by the Union Finance Minister with a Minister of State in charge of Finance and the Finance Ministers of States as members.
    • This is envisaged as a due federal process to protect the interests of the States.

    Unresolved issues

    [1] Revenue neutrality not achieved

    • India’s GST paradigm stands on two key pillars: revenue neutrality and GST compensation for the States.
    • The assured revenue neutrality remains a mirage and many States have experienced a declining tax-GDP ratio.
    • Decline in tax to GDP ratio of state: In the case of major 18 States, the ratio of own tax revenue to GDP has declined.
    • While the share of the Centre in total GST increased by 6%, that of States put together lagged behind with only a 4.5% increase.
    • Stark differences between the Revenue Neutral Rates (RNR) for the producing States and consumption State have been observed. States producing exempted food grains also lost out.
    • Since the rates were lower under GST vis-à-vis the VAT regime, revenue neutrality was not adhered ab initio.
    • The problems were compounded with massive evasion following the dismantling of check posts, and later on fake invoices, that grew by leaps and bounds.
    • Experience of other countries: The South African experience illustrates how zero-rating and large exemptions have defeated revenue goals.
    • Canadian experience shows that GST could be improved by limiting zero rating, tax-exemptions and harmonising tax rates.
    • The resilience of the economy at the time of rolling out of GST is critical for its wider reception as the Australian experience shows.

    [2] Not conducive to co-operative federalism

    • While the States collectively forewent 51.8% of their total tax revenue, the Centre surrendered only 28.8%.
    • Yet, GST is shared equally between the Centre and States despite two expert committees recommended for a higher share for the States.
    • Given the revenue neutrality failure and the host of other issues, many of the States are left with no option except to depend on GST compensation.
    • This is not conducive to sustainable co-operative federalism.

    [3] Need for revenue sharing formula for IGST

    • Although IGST is a key source of revenue for many of the States, the clearing house mechanism and the process therein remains unknown territory.
    •  It was pointed out that GST is discriminatory to manufacturing States, indicating the need for a revenue sharing formula that duly incentivises exporting States by sharing IGST revenue among three parties instead of two.

    [4] Other issues

    • Swift functioning of Input tax credit: The Malaysian experience demonstrates the need for swift and transparent functioning of the input tax credit system through a flawless IT infrastructure.
    • We operate in an almost information vacuum especially with respect to IGST along with several glitches in the digital architecture.
    • GSTN is now in the doldrums.
    • Data monopoly: It neither makes effective use of the massive and invaluable data being generated nor shares them to enable others to make use of them.
    • Such practice in “data monopoly” was a fact of history in India’s statistical system and has to go sooner rather than later.
    • Australia, having several similarities with India, in terms of Centre and the subnational units, and destination-based, multi-stage tax with input credit provisions, has not been revenue-buoyant.
    • It is a matter for consideration whether widening exemptions and the replacing of income-tax by GST in the case of small and medium enterprises are advisable measures in the Indian context.

    Consider the question “What are the challenges facing the GST in India? What India can learn from the experience of other countries’ experience.”

    Conclusion

    Despite many years of efforts in evolving an Indianised GST system and over 50 months of adjustments with over a thousand notifications, with accompanying uncertainties in the first year and the novel coronavirus pandemic and the lockdown still in the saddle, GST continues to be an unfinished agenda. But how far and how long?

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  • AFSPA and the challenges ahead

    Context

    The death of civilians in Nagaland in a security operation has revived the debate about AFSPA.

    Demand for repeal of AFSPA

    • Some years ago, all the northeastern states had come together to demand the annulment of this Act.
    • That remained in the realm of yet another “demand”.
    • In 1997, after Nagaland’s most enduring insurgent outfit, the National Socialist Council of Nagalim (NSCN), led by Isak Swu and T H Muivah, first decided to talk peace with the Indian government, the Naga Peoples’ Movement for Human Rights (NPMHR) had approached the Supreme Court for revocation of the Act.
    • Enabling legislation: The apex court had then upheld its constitutionality and said it was an enabling legislation that confers minimum powers on the army to operate in situations of widespread internal disorder.

    Way forward

    • Talk to the other groups: Many are wondering if the peace talks between the NSCN (IM) and the government of India now lie in tatters.
    • The media has focussed exclusively on the NSCN (IM) and ignored the other Naga National Political Groups (NNPGs), who have been brought on board because they are Nagaland-based and speak exclusively for Nagaland.
    • The NNPGs and the Gaon Bura Association of Nagaland doubt NSCN(IM)’s ability to bring lasting peace in Nagaland.
    • Since 2015, the Nagaland Gaon Bura Association, the apex body of Nagas which includes all the 16 recognised tribes and the NNPGs barring the NSCN (IM), have sent several memorandums to the government.
    • These representatives of the Naga people do not demand a separate flag or constitution because they understand these are tenuous demands.
    • These groups have also never raised the sovereignty issue.
    • The working committee of the seven NNPGs, roped in to join the peace talks, are also opposed to the idea of changing interlocutors as and when the NSCN (IM) decides.
    • Reconsider use of AFSPA: There is a need to reconsider the use of the army and AFSPA when killings have reduced considerably.
    • The apex body has specifically mentioned that they want to be delivered from the gun culture.
    • Check the misuse of FMR: Countering insurgency in the Northeast is fraught also because of the Free Movement Regime (FMR) between India and Myanmar.

    Conclusion

    The government need to reconsider the use of AFSPA and also focus on other measures to ensure peace and stability in these regions.

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  • Suspension of MPs for entire Winter Session is worrying

    Context

    Twelve members of the Rajya Sabha were suspended for their alleged involvement in the grave disorder in the House on the last day of the previous session.

    What do Rajya Sabha’s rules of procedure say about the suspension of a member?

    • Rule 256 of Rajya Sabha’s rules of procedure provides for the suspension of a member who disregards the authority of the chair or abuses the rules of the council by persistently and willfully obstructing the business of the House.
    • Persistent and willful obstruction of the business of the House is the crux of the offence.
    • What is the maximum period of suspension? Suspension can be for a period not exceeding the remainder of the session.
    • This would mean that if the member is suspended on the last day of the session, the period of suspension will be only a day.
    • So, even if a government would like to suspend such a member for a longer period. it would not be possible under the present rule.
    • Unless the House itself revokes the suspension nothing can be done about it.
    • The decision of the House is final.
    • Every legislature has the power to suspend its members if they cause disorder and obstruct the business of the House.
    • But the rule of suspension is rarely invoked in parliaments in mature democracies.

    Whether the existing rules permit such a course of action?

    • Rule 256 says that the chairman may, if he deems it necessary, name a member who either disregards the authority of the chair or abuses the rules of the House by persistently and willfully obstructing the business of the House.
    • Sub Rule 2 of this rule is of very great importance in the context of the main question, namely, whether a member can be suspended in the next session for creating disorder in the previous session.
    • No adjournment is allowed: It clearly says no adjournment is allowed, which means the matter of suspension cannot be adjourned to a later period.
    • It needs to be decided then and there.
    • A member who abuses the rules of the House by persistently and willfully obstructing its business needs to be punished swiftly.
    • No adjournment is allowed at all.

    The powers of the House to regulate its internal matters

    • It can be said that the rule under which the members were suspended does not actually permit it.
    • Absolute power to interpret rule: The House is supreme in these matters and the chair has absolute powers to interpret the rules.
    • The judiciary has time and again clarified that the House has absolute powers to regulate its internal matters.
    • Suspension of a member is such a matter.
    • The judiciary will intervene only when a patently unconstitutional act is done by the House.

    Conclusion

    The solution to disruptions does not lie in suspension. That is the lesson we should learn from past experience.

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  • RBI must tackle surplus liquidity on way to policy normalisation

    Context

    Monetary Policy Committee (MPC) voted to maintain status quo on policy rates, with one member continuing to dissent on the “accommodative” stance of policy.

    What is accommodative stance of policy?

    Accommodative monetary policy is when central banks expand the money supply to boost the economy. Monetary policies that are considered accommodative include lowering the Federal funds rate. These measures are meant to make money less expensive to borrow and encourage more spending.

    Overview of RBI policy measures during Covid-related lockdown

    • Cut in policy rates and injection of liquidity: The RBI had moved proactively to cut the repo and reverse repo rate and inject unprecedented amounts of funds into banks and other intermediaries.
    • The short-term interest rate at reverse repo level: a combination of the lower reverse repo rate and the large liquidity injection had resulted in a drop in various short-term rates down to (and occasionally below) the reverse repo rate, making it the effective operating rate of monetary policy.
    • Gap between repo and reverse repo increased to 65 bps: In addition, both the repo and reverse repo rates had been cut to 4.0 and 3.35 per cent, respectively, with the gap – the “corridor” – between the rates widening from the usual 25 basis points to 65 bps.

    Central bank’s role in modern monetary policy

    • Determining basic overnight interest rate: A central bank’s main role in modern monetary policy operating procedures is to determine the basic overnight interest rate, deemed to be consistent with prevailing macroeconomic conditions and their economic policy objectives, in balancing the ecosystem for sustained growth together with moderate inflation.
    • This is achieved through buying and selling very short-term (predominantly overnight) funds (mainly) from banks to keep a specified operating rate (the weighted average call rate in our case) very close to the policy rate.

    Liquidity management: Key pillar of monetary policy normalisation

    • Liquidity management: Liquidity management in the extended banking and financial system (which includes non-banking intermediaries like NBFCs, mutual funds and others) will now be the key pillar of normalisation.
    • This process is the domain of RBI and not MPC.
    • These operations will be conducted within RBI’s liquidity management framework.
    •  There are two sources of liquidity additions:
    • (i) Exogenous: which are largely due to inflows of foreign currency funds and outflows of currency in circulation (cash) from the banking sector.
    • (ii) Voluntary or endogenous: which is the result of the creation of base money by RBI through buying and selling of bonds, thereby injecting or extracting rupee funds.

    How RBI is managing liquidity surplus?

    • Stopped GSAP and OMOs: Post the October review, RBI had stopped buying bonds under the Govt Securities Asset Purchase (GSAP) and done negligible Open Market Operations (OMOs), thereby stopping addition of voluntary liquidity injection into the system, our own version of “tapering”.
    • Union government balances with RBI, arising from cash flow mismatches between receipts and expenditures, has hybrid characteristics and also impacts liquidity.
    • Use of reverse repo window: RBI has used the reverse repo window to absorb almost all this liquidity surplus from banks.
    • Allowed repaying TLRTOs: It has again allowed banks the option to prepay the outstanding borrowings from the Targeted Long Term Repo Operations (TLTROs), thereby potentially extracting another Rs 70,000 crores.

    How RBI is managing interest rate in the policy normalisation process

    • Increased rates and closed the gap between repo and reverse repo: RBI – post the October review – has gradually guided short-term rates up with a sure hand from near the reverse repo rate to close to the repo rate.
    • It has shifted its liquidity absorption operations from the predominant use of fixed rate reverse repos (FRRR) into (largely) 14-day variable rate reverse repo (VRRR) auctions to guide a rise in interest rates.
    • Since early October, these rates had steadily moved up in a smooth and orderly fashion up to 3.75-3.9 per cent.
    • The VRRR rates moving up have also resulted in various short-term funding interest rates like 90-day Treasury Bills, Commercial Papers (CP) and banks’ Certificates of Deposits (CD) moving up from the reverse repo rate or below in September to 3.5 per cent and higher since December.
    • The OMO and GSAP operations have also helped in managing medium- and longer-term interest rates in the yield curve.

    Way forward

    • There is a likelihood of further additions to exogenous system liquidity.
    • Other instruments to absorb surpluses: There might consequently be a need for other instruments to absorb these surpluses apart from VRRR auctions.
    • Liquidity surplus of non-banking intermediaries: Managing liquidity surpluses of the non-banking intermediaries, especially mutual funds, will be another challenge since they do not have direct access to VRRR operations.

    Consider the question “Since the onset of the Covid-related lockdowns, RBI had moved proactively to cut the repo and reverse repo rate and inject unprecedented amounts of funds into banks and other intermediaries. In this context, what are the challenges in monetary policy normalisation as RBI plans to absorb the excess liquidity and increase the interest rates ?”

    Conclusion

    The shift to the tightening phase, with hikes in the repo rate, is likely towards the late months of FY23, with shifts “if warranted by changes in the economic outlook”.

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    Back2Basics: Monetary Policy Corridor

    • The Corridor in monetary policy of the RBI refers to the area between the reverse repo rate and the MSF rate.
    • Reverse repo rate will be the lowest of the policy rates whereas Marginal Standing Facility is something like an upper ceiling with a higher rate than the repo rate.
    • The MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.