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Type: op-ed snap

  • Issue of undertrials

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Article 21

    Mains level: Paper 2- Addressing the issue of undertrials

    Context

    After the death of Stan Swamy, questions about the conditions of jails and treatment of the incarcerated have been raised anew.

    Issue of deaths of prisoners

    • The NCRB data reports the death of over 1,800 prisoners in the year 2018. An estimated 70 percent of prison inmates are undertrials.
    • Despite constitutional provisions like Article 21, which says, no person shall be denied life or liberty except by the due process of law, the number of undertrials is increasing.

    How prisoners are subjected to additional torture

    • Overcrowding, delayed medical attention, unhygienic conditions and malnutrition exist in all Indian prisons.
    • It is the responsibility of the State and the judiciary to ensure that they are only deprived of their liberty and are not exposed to any additional torture in the form of medical deprivation, unhygienic conditions, bad or inadequate food, etc.
    • Yet, thousands are dying every year and the prison authorities are not made accountable.

    Way forward

    • Acts of extreme neglect that could result in the death of inmates should be acknowledged as extrajudicial torture and made an offense.
    • The SC in Sunil Batra (I) v. Delhi Administration (1978), held that “the humane thread of jail jurisprudence that runs right through is that no prison authority enjoys amnesty for unconstitutionality”.
    • ARC Recommendations on Prison Reforms: The Union and State Governments should work out, fund and implement at the
      earliest, modernization and reforms of the Prison System as recommended by the All India Committee on Jail Reforms (1980-83).
      b. The attendant legislative measures should also be expedited.
      c. Rules regarding Parole and Remission need to be reviewed.
    • Infrastructure: Prisoner Information System, Biometric Identification, facilities for pregnant women, up-gradation of hospitals, etc is needed.
    • Strengthening the Open Prison System.

    Conclusion

    The government needs to take urgent measures to address the issue of additional torture in various forms and the death of prisoners.

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  • Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

    What the new Ministry of Cooperation needs to achieve

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Ministry for Cooperation

    Mains level: Paper 3- Performance of cooperative movement

    Context

    Two weeks ago, the government created a new Ministry for Cooperation. India is, perhaps, the first country to have such a ministry. The Ministry can play an important role in the transformation of cooperatives in the country.

    How 1991 economic reforms benefited agriculture

    • On July 24, 1991, India decided to unshackle the spirit of private sector entrepreneurship through the move to de-license industry and reduce tariffs on a host of commodities.
    • Trade policy changes improved the terms of trade for agriculture and benefitted millions of farmers.
    • Agri-exports increased, but this led to higher domestic prices.

    The success story of dairy sector in India

    • In 1991, Manmohan Singh, then finance minister wanted to delicense the dairy sector as well, but there was stiff opposition from Verghese Kurien.
    •  It was after 10 years in 2002 that the dairy sector was fully de-licensed.
    • The competition between cooperatives and corporate dairy players has benefitted millions of farmers around the country.
    • With the entry of the private sector, the growth of the dairy sector accelerated at double the speed.
    • Today, both procure roughly the same quantities and growth in the organised private sector is faster than in cooperatives.

    Performance of cooperative movement in India

    • India’s experience with the cooperative movement has produced mixed results — few successes and many failures.
    • There are cooperatives in the financial sector, be it rural or urban.
    • But the performance of these agencies when measured in terms of their share in overall credit, achievements in technology upgradation, keeping NPAs low or curbing fraudulent deals has been poor to average.
    • Sugar cooperatives of Maharashtra initially touted as exemplars of the movement, are in the doldrums now.
    • Many are being sold to the private sector.

    Performance of cooperatives in dairy sector

    1) Amul

    • The performance of the cooperative champion, Gujarat Cooperative Milk Marketing Federation (GCMMF) — with its poster brand, Amul — has been most successful.
    • During Operation Flood, it received a lot of capital at highly concessional terms.
    • But its success is also the result of professionalism, business and, therefore, keeping politics away.
    • But despite the grand success of Gujarat’s milk cooperatives in Gujarat, the model did not spread to other states as successfully.

    2) Karnataka Milk Federation

    • In its eagerness to please milk farmers, the Karnataka Milk Federation (KMF), which sells its products under the brand name of Nandini, gives them Rs 5 to Rs 6 extra per litre.
    • This subsidy, given by the state government, cost the exchequer Rs 1,260 crore till 2019-20.
    • KMF procures a lot of milk and then dumps it at lower prices in the market for consumers.
    • This depresses prices in adjoining states like Maharashtra, affecting the fortunes of Maharashtra milk farmers.
    • If Maharashtra and Karnataka were two different countries, Maharashtra would be challenging Karnataka at the WTO.

    Way forward

    • The new Ministry of Cooperation can work towards ironing out distortions in state price policies due to subsidization such as in Maharastra and Karnatak milk prices.
    • Cooperatives desperately need technological upgradation. 
    • The Ministry of Cooperation can give them soft loans for innovation and technology upgradation.
    • But such loans should also be extended to the private sector to ensure a level playing field.
    • The Ministry of Cooperation needs to ensure the least political interference in the operation of cooperatives.

    Conclusion

    The new Ministry of Cooperation can work towards bringing in professionalism in cooperatives and make them more competitive.

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  • Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

    Need for social security to migrant and informal workers

    op-ed snap | Governance | Mains Paper 2: Schemes For Vulnerable Sections

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Recommendation 202

    Mains level: Paper 2- Social security for migrant labour

    Context

    The migrants’ crisis after the two covid waves compelled policy-makers to make certain provisions for them in the schemes announced for the assistance of the poor.

    Supreme Court judgement on the issue

    • On June 29, the Supreme Court finally delivered its judgment on the plight of migrant labour.
    • The judgement was notable for two main reasons.
    • First, it recognised that there was the large-scale exclusion of migrant workers and other informal workers from existing schemes due to the lack of their registration and outdated eligibility lists.
    • It noted that no benefits will be denied to migrant workers for want of an Aadhaar card and that food assistance will be provided for migrants who were not covered by the National Food Security Act.
    • Second, it connected informal workers and migrant workers, both of whom experience exclusion, and mandated that the portal for registration of all informal/migrant workers should be fully operational before July 31.

    Advantages of providing social protection

    • Investment in social protection is not charity, it is an investment in workers’ productivity and in equitable growth.
    • Providing social protection is, as the UN mooted in 2009 when it spelt out the social protection floor (SPF) initiative after the global financial crisis, the surest way out of a crisis by boosting demand at the bottom of the pyramid.
    • The report of the Advisory Committee of the ILO, in which India was represented by its labour secretary, provides a strong rationale for instituting a universal SPF during economic crises.
    • As a result, all constituents of the ILO adopted Recommendation 202 on social protection floors at the International Labour Conference in 2012.

    Inadequate provisions by government

    • The Unorganised Workers’ Social Security Act, was approved by Parliament in December 2008.
    • But it lacks the mandatory elements of the NCEUS’s proposals and included neither a National Minimum Social Security Package, nor the provision for mandatory registration.
    • Estimates show that the central government’s expenditure on all major social protection programmes declined from 1.96 per cent of GDP in 2008-09 to 1.6 per cent in 2013-14 and to only 1.28 per cent in 2019-20.

    Way forward

    • The National Commission for Enterprises in the Unorganised Sector (NCEUS) had pointed out that the circular migrant workers were a disadvantaged segment among informal workers.
    • Comprehensive law: The NCEUS had advocated a comprehensive law for the protection of the rights of all informal workers, including migrants, home workers, and domestic workers.
    • Universal registration: NCEUS had also recommended a universal registration mechanism based on self-declaration, with the issuance of a smart social security card, and a National Minimum Social Security Package.
    • Guaranteed social security/social protection: We need the provision of a minimum level of guaranteed social security/social protection for all informal workers and their households within a definite time frame.
    • More public spending: Guaranteed social protection would involve a clear framework and a commitment to greater public resources being spent on social protection as a large class of workers in India do not have an identifiable employer and a contributory social insurance framework will not work for them.
    • Recommendation 202: Government should embrace ILO’s Recommendation 202 and work towards these in a time-bound manner.

    Conclusion

    To end the silent, painful, and enduring crisis for the workers, as well as the crisis for the economy, the government must urgently recognise the right to social security, embedded both in the Indian Constitution and international covenants.

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  • Can India invoke state sovereignty in Cairn Energy case?

    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: BIT

    Mains level: Paper 2- State sovereignty

    Context

    Last year, an arbitration tribunal indicted India for breaching its obligations by imposing taxes retrospectively on Cairn. As a result, Cairn Energy has been attempting to seize Indian assets in several jurisdictions to recover $1.7 billion due from India.

    How asset seizure order affects India?

    • This episode projects India as an unfriendly country for investors at a time when it wishes to project itself as a prime destination for foreign investment.
    • This episode puts India in the league of countries like Pakistan, Congo, Venezuela, Russia and Argentina, who have been part of attachment proceedings overseas due to their failure to comply with international arbitral awards.
    • Fighting cases will consume an enormous amount of time, money, and resources, in addition to attracting bad press internationally.

    Understanding the doctrine of state immunity

    • State immunity is a well-recognised doctrine in international law.
    • It safeguards a state and its property against the jurisdiction of another country’s domestic courts.
    • Despite the universal acceptance of this doctrine, there is no international legal instrument in force administering its implementation.
    • Attempts are underway to create binding international law on the application of the rules of state immunity such as the United Nations Convention on Jurisdictional Immunities of States and Their Property (UNSCI).
    • However, this convention is yet to be ratified by 30 countries — the minimum number required to bring it in force, as per Article 30(1) of UNSCI.
    • India has signed the convention, but not ratified it.
    • The doctrine of state immunity has progressed from absolute immunity to restrictive immunity in which immunity is only for the sovereign functions of the state.

    Can India invoke state immunity?

    • Most prominent jurisdictions follow the concept of restrictive immunity.
    • State immunity can be invoked to resist the seizure of sovereign assets, but not commercial properties. 
    • In the context of the execution of the investment treaty arbitration awards, properties serving commercial functions are available for seizure.
    • In the case of India, the most popular commercial property that foreign investors would target for attachment are the global assets of India’s public sector undertakings such as Air India.

    Way forward

    • If India wishes to continue the case, it needs to carefully study the laws on state immunity in different jurisdictions where attachment proceedings are likely to come up.
    • A better option would be to admit that amending the tax law retrospectively was a mistake and comply with the international ruling.

    Conclusion

    At the time when India seeks to project itself as an attractive investment destination, such cases could be a setback. India needs to avoid such disputes in the future.

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  • Police Reforms – SC directives, NPC, other committees reports

    Interference an investigating officer can do without

    op-ed snap | Polity | Mains Paper 2: Executive & Judiciary

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Not much

    Mains level: Paper 2- Judicial interference in investigation

    Context

    Instances of judiciary directing the investigating officer point to the need for restraint from the judiciary.

    Challenging the discretion of investigating officer

    • There have been growing instances of subordinate judicial officers, and even High Courts sometimes, directing the investigating officer to effect the arrest of a particular individual.
    • To deal with the issue, the Supreme Court of India recently made the observation that courts have no authority to direct an investigating officer to in turn direct the arrest of any particular individual connected with a crime
    • This points to the need for a slightly kindlier view of police conduct and more latitude to them in the standard operating procedures which they follow, especially when they investigate a complicated crime.
    • The Code of Criminal Procedure (CrPC) vests sufficient discretion in the investigating officer to take such decisions as arrests and searches.

    Issues with court’s directions

    • Court observations that smack of a lack of faith in police ability and integrity will make grass-root level policemen even more arbitrary than now and force them into carrying out questionable actions that will cast aspersions on an officer’s ability to think for himself.
    • Court interference in the day-to-day investigation is not only undesirable but is also not sanctioned by law.
    • Only the Supreme Court, has been vested with enormous authority and discretion by the Constitution, the lesser courts shall not give directions in the matter of arrests and searches.

    Safeguard against police misconduct

    • We need to educate the Executive and the common man that it is now well-established law that the police have to register an FIR.
    • It is mandatory that every police station in the land should register a complaint under the relevant sections of a statute the moment a cognisable offence is made out in the complaint
    • There is another safeguard against police misconduct.
    • The CrPC makes it obligatory for the investigating officer to write a diary that details the action taken every day following registration.
    • When in doubt, the competent court, which already has a copy of the first information report, can demand to see the case diary.
    • Courts should remember that the police are a well-established hierarchy that is obligated to ensure objectivity during a criminal investigation.
    • Every investigation is supervised by at least two immediate senior officers.

    Conclusion

    Judicial interference in an investigation is counterproductive to the idea of justice. Therefore, there is a need for allowing more freedom to the investigating officers in the standard operating procedure that they follow.

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  • Addressing claims of backwardness by various politically powerful castes

    op-ed snap | Polity | Mains Paper 2: Executive & Judiciary,Government Scheme/Policies

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Social backwardness

    Mains level: Paper 2- Claim of backwardness and challenges

    Context

    Two rulings of the Supreme Court have frayed nerves in Maharashtra on the broader question of “reservation”. The other pertains to OBC reservation in local bodies. Both issues have relevance beyond Maharashtra.

    Challenges in addressing the demand for reservation

    • Lack of quantitative data: The issue of actual numbers or population share of OBCs has been talked about for over a decade.
    • Besides, there is a need to understand the socio-economic situation of different backward communities.
    • In the last instance, we have to decide which groups are backward and what needs to be done for them.
    • The political class have consistently avoided the juridical reality.

    Consensus between judiciary and political class

    • That consensus after implementation of Mandal commission recommendation had three dimensions:
    • 1) Accepting that caste is the main cause of tradition-born backwardness among a large section of the population.
    • 2) Resorting to “reservation” as the easiest policy response.
    • 3) Recognising and accommodating the political aspirations of the backward sections by expanding the social base of the political elite.
    • But this resulted in the current deadlock on the question of social justice.
    • Today, not only the Marathas, but Jats and Patidars, too, claim that vast numbers among them have been left behind in the contemporary economy.
    • These demands have deflected attention from two matters.
    • 1) That the enabling provision of the Constitution aims at social backwardness (caused by societal location).
    • 2) That the causes of economic distress originating in development policies are distinct from backwardness primarily originating in caste location.
    • Granting reservations on an economic basis seems to have complicated matters.

    Five reservation-related issues gaining renewed urgency

    • Intra-OBC differentiations: This issue was already raised by a member of the Mandal Commission itself.
    • Most states have failed to come up with an effective arrangement to addressing the issue.
    • The Centre is currently waiting for a report on this question.
    • Intra-caste stratification: Intra-caste stratification is increasing — something that was rather limited at the time of Mandal.
    • What sociologist D L Sheth called as classification is now becoming the central issue, with many complications.
    • Advantages and logic: The third question is about the specific advantages and logic of reservation in the three different arenas of employment, education and political representation.
    • Limits of reservation: There is need to discuss the limits of reservation and the need to think of additional measures to augment the policy of social justice.
    • Setting boundaries: With such widespread poverty and suffering, how do we distinguish between backwardness primarily caused by a group’s social location in traditional social order and backwardness resulting from distortions of the political economy?
    • Unless we grapple with this question, reservation is bound to remain a contentious issue.

    Way forward

    • The above questions are best left ideally to a third backward classes commission whose time has come.
    • Removing the 50 per cent cap legislatively needs to be considered.

    Conclusion

    We need to devise a mechanism to verify the claims of backwardness to address the increasing demands for reservation from the politically strong section of society.

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  • Issues with coercive Population Policy

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Right to reproductive freedom

    Mains level: Paper 2- Coercive policy measures to control population

    Context

    Recently, the government of Uttar Pradesh released a “Population Policy” in which it stated its intention to bring the gross fertility rate in the State down from the existing 2.7 to 2.1 by 2026.

    Provisions in the Bill

    • This draft law, titled the Uttar Pradesh Population (Control, Stabilisation and Welfare) Bill, 2021, seeks to provide a series of incentives to families that adhere to a two-child norm.
    • The Bill also intends on disentitling families that breach the norm from benefits and subsidies.
    • It promises public servants who undergo sterilisation and adopt a two-child norm several benefits.
    •  The draft Bill also contains a list of punishments.
    • A person who breaches the two-child norm will be debarred from securing the benefit of any government-sponsored welfare scheme and will be disqualified from applying to any State government job.
    • Existing government employees who infringe the rule will be denied the benefit of promotion.
    • Transgressing individuals will be prohibited from contesting elections to local authorities and bodies.

    Issues with coercive population control policies

    1) Counter-productive measure

    • Through an affidavit filed in court, the central government argued that “international experience shows that any coercion to have a certain number of children is counter-productive and leads to demographic distortions”. 

    2) Against international obligations

    • India is committed to its obligations under international law, including the principles contained in the International Conference on Population and Development Programme of Action, 1994.
    • Foremost in those principles was a pledge from nations that they would look beyond demographic targets and focus instead on guaranteeing a right to reproductive freedom.

    3) Against right to reproductive freedom and privacy

    •  In Suchita Srivastava & Anr vs Chandigarh Administration (2009),  the Court found that a woman’s freedom to make reproductive decisions is an integral facet of the right to personal liberty guaranteed by Article 21.
    • This ruling was endorsed by the Supreme Court’s nine-judge Bench verdict in K.S. Puttaswamy vs Union of India (2017).
    • A reading of the plurality of opinions there shows us that the Constitution sees a person’s autonomy over her body as an extension of the right to privacy.
    • A simple reading of U.P.’s draft law will show us that, if enacted, it will grossly impinge on the right to reproductive freedom.
    • However, In Javed & Ors vs State of Haryana & Ors (2003), the Court upheld a law that disqualified persons with more than two children from contesting in local body elections.
    • But the present UP Bill is far more disproportionate, therefore, the judgment in Javed can no longer be seen as good law.
    • The UP government will likely argue that there is no violation of privacy here because any decision on sterilisation would be voluntary.
    • But, as we ought to by now know, making welfare conditional is a hallmark of coercion.
    • Therefore, the proposed law will fall foul of a proportionality analysis.

    4) Negative consequences

    • An already skewed sex ratio may be compounded by families aborting a daughter in the hope of having a son with a view to conforming to the two-child norm.
    • The law could also lead to a proliferation in sterilisation camps, a practice that the Supreme Court has previously deprecated.
    • In Devika Biswas vs Union of India (2016), the Court pointed to how these camps invariably have a disparate impact on minorities and other vulnerable groups.

    Way forward

    • Experiences from other States in India show us that there are more efficacious and alternative measures available to control the growth of population, including processes aimed at improving public health and access to education.

    Conclusion

    For one thing, the reasoning of the Bill goes against the Puttaswamy case.  But as rousing as the nine-judge Bench verdict is, its legacy depends on how its findings are applied.

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  • e-Commerce: The New Boom

    The proposed e-commerce rules shield vested interests

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Inventory model vs marketplace model

    Mains level: Paper 3- Issues with regulation of e-commerce

    Context

    The proposed Consumer Protection (E-Commerce) Rules, 2020, have been drafted ostensibly in the name of the consumer.  The rules are driven more by the desire to shield the traditional brick-and-mortar stores, and handicap e-commerce firms, especially the foreign ones.

    Issues with the provisions of draft Consumer Protection (E-Commerce) Rules, 2020

    1) Fall-back liability clause is unfair for those operating through marketplace model

    • Under this provision, e-commerce entities will be liable in case suppliers on the platform fail to deliver the goods to consumers, causing them a loss.
    • E-commerce firms in India operate through either the inventory model or the marketplace model.
    • As FDI is permitted only in the marketplace model.
    • Under the marketplace model, e-commerce platforms don’t hold inventory, but simply connect buyers and sellers.
    • Foreign players typically operate through this model. 
    • Considering that these platforms exercise little or no control over the inventory under this model, how can they be held liable for the sellers’ actions.

    2) Identifying goods based on country of origin and providing fair opportunity to domestic sellers

    • The draft rules also require e-commerce platforms to identify goods based on their country of origin.
    • And when goods are being viewed for purchase by consumers, the rules also mandate platforms to provide suggestions to ensure “fair opportunity” for domestic sellers.
    • This raises the question as to why the Make in India campaign is being pushed through the Consumer Protection Act.
    • Surely, if domestic manufacturers are competitive, consumers will automatically gravitate towards them.
    • Interests of consumers, not domestic manufacturers, should be at the core of the consumer protection framework.

    3) Overlapping/competing jurisdictions

    • Data protection: The draft rules have sought to safeguard consumer data by restraining e-commerce firms from sharing consumer data without consent.
    • But the data protection should be governed by the provisions under the Personal Data Protection Bill and not the Consumer Protection Act.
    • Considering the graded approach that is likely to be adopted under the Data Protection Bill, an e-commerce user’s data could be classified as per its vulnerability and be left under the jurisdiction of the data protection authority.
    • Dominant position: The rules also state that e-commerce entities are prohibited from abusing their dominant positions in the market. 
    • The “abuse of dominant position” has been given the same meaning as that prescribed under Section 4 of the Competition Act, 2002.
    • This will open the scope for new consumer protection authority to enter into issues of abuse of dominant position — the domain of the Competition Commission of India.

    Consider the question “Over-regulation tends to curb competition and create monopolies instead of ensuring its holistic growth dovetailed with fair competition. In light of this, examine the issues with the draft Consumer Protection (E-Commerce) Rules, 2020?”

    Conclusion

    The lines of demarcation that have been drawn up in the retail landscape — single brand vs multi-brand, online vs offline, domestic vs foreign — serve only to protect powerful vested interests, not benefit the consumer as is often proclaimed.

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  • The upcoming challenges to Indian federalism

    op-ed snap | Polity | Mains Paper 2: Federalism

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Federal structure

    Mains level: Paper 2- Challenges to India's federalism

    Context

    In 2026, there will be the challenge of addressing the conflict between the democratic principles and the federal principles, when there will be a reallocation of Lok Sabha seats. India needs to reimagine the current federal compact to address the challenges to federalism.

    Population freeze for Lok Sabha seats

    • Since 1976, seats in the Lok Sabha have reflected the 1971 census and have not taken into account changes in the population.
    • The primary reason for this has been unequal population growth among States.
    • India’s most highly developed and prosperous States have been successful at family planning, while the poorer States continue to expand.
    • The freeze was thus a chance to ensure that India’s most successful States are not punished politically for their success.
    • Therefore, the Indian Constitution may face an unprecedented crisis in 2026 when there will be a dramatic change in the composition of the Lok Sabha.

    Challenge of balancing the principle of democracy and federalism

    • As Article 1 of the Indian Constitution says, India is a Union of States.
    • However, the history of the linguistic reorganisation of States in 1956, and subsequent movements for Statehood afterwards demonstrates that States are distinct associative communities, within the federal structure of the Indian Union.
    • In a democratic set-up, all citizens are equal and are thus entitled to equal representation in governance.
    • But this would imply that bigger States are likely to dominate the national conversation over smaller States.
    • This leads us to an inherent contradiction between the principles of democracy and federalism when federal units are unequal in size, population and economics. 
    • The small States fear that they would get a smaller share of the pie economically, a much reduced say in national issues, and be irrelevant in the political governance of the country.

    How the US Constitution addresses the concerns of small states

    • When the Americans adopted their Constitution, they protected smaller States in four ways.
    • First, national powers over the States were limited.
    • Second, each State regardless of size had two seats in the Senate, giving smaller States an outsized role in national governance.
    • Third, Presidents are elected by electoral votes, which means they must win States rather than the total national population.
    • Fourth, the slave-owning states were allowed to count the slaves for purposes of representation, with each slave being counted as three-fifths of a person.
    • This essential structure remains the bedrock of the American Constitution today.

    How Indian Constitution deals with the issue?

    • India’s quasi-federal structure has always been sui generis.
    • Our founders knew that India’s diversity made federalism inevitable, but, fearing separatist tendencies among States that had never been a single political unit, they also created a strong centre.
    • However, the 1956 reorganisation of States on linguistic lines was a popular recognition of federal principles and yet did not result in separatist tendencies.
    • Since then, new States within the Union have been created in response to the demands of people for greater autonomy.

    Way forward on addressing the challenges to federalism

    • There is an urgent need to reimagine our national compact.
    • Following are the components of such a new balance that need to be fine-tuned to Indian realities.
    • Give more powers to States: The powers of States vis-à-vis the Centre contained in the Lists and in the provisions dealing with altering boundaries of States must be increased to assuage the fear of smaller States that they will be dominated by bigger ones.
    • More localised decision-making is bound to increase national prosperity.
    • Indeed, this was the entire goal of the creation of Panchayat governance through the 73rd and 74th Amendments to the Constitution.
    • Expand the role of Rajya Sabha: The role and composition of the Rajya Sabha, our House of States, must be expanded.
    • This would allow smaller States a kind of brake over national majoritarian politics that adversely impact them.
    • Consent of all states on financial redistribution: Constitutional change and the change in financial redistribution between the States must require the consent of all or nearly all States.
    • Constitutional provisions dealing with language and religion must also be inviolate.
    • Break the bigger States: Serious thought must be given to breaking up the biggest States into smaller units that will not by themselves dominate the national conversation.

    Conclusion

    The unity of India is, of course, the fundamental premise underlying this discussion; but this unity does not depend on an overbearing Centre for its survival.

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  • Capital Markets: Challenges and Developments

    SEBI needs to adopt dual approval system for independent directors

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

    Note4Students

    From UPSC perspective, the following things are important:

    Prelims level: Independent director

    Mains level: Paper 3- Dual approval system for independent directors

    Context

    While the regulators have taken giant strides to enhance board independence in India, one significant conundrum persists about appoint and removal process of the independent directors.

    How appointment and removal process affects the independence of independent directors?

    • Independent directors are appointed just like other directors through shareholder voting by a simple majority.
    • This confers a significant power in the hands of significant shareholders to handpick the independents.
    • In case of family-owned companies, it is not uncommon to appoint “friendly” independent directors.
    • As for public sector undertakings, there is a demonstrable affiliation between independent directors and the ruling political parties.

    Dual Approval System: Way forward

    • The above trends suggest that unless independent directors owe their allegiance to the shareholder body as a whole, independence is likely to remain largely in form and not function.
    • In its consultation paper, SEBI proposed a “dual approval” system.
    • Under this system, the appointment of an independent director required the satisfaction of two conditions:
    • First, the approval by a majority of all shareholders.
    • Second, the approval of a “majority of the minority”, namely the approval of shareholders other than the promoters.
    • SEBI recommended the same “dual approval” system for the removal of independent directors as well.
    • SEBI drew inspiration from Israel and the premium-listed segment of the United Kingdom, which confers greater power to minority shareholders in installing or dethroning independent directors.
    • SEBI has not yet made any mention of implementing the dual approval system.

    Issues with Dual Approval System

    • The first issue is that it militates against the majority rule principle that is intrinsic in a corporate democracy.
    • While understandable, that is hardly an immutable rule as corporate law does make exceptions in cases involving oppression of minority shareholders.
    • The second concern is that placing too much power in the hands of minority shareholders would be counterproductive, as it could result in a tyranny of the minority.
    • However, the dual approval system instead represents the best of both worlds. It does not negate the promoter’s involvement in the process of appointing or removing independent directors.
    •  Only consensus candidates would end up becoming independent directors.
    • The third issue is one of shareholder apathy: Will minority shareholders be motivated to exercise an informed and meaningful choice?
    • Minority shareholders tend to be passive when they are unable to influence the outcome of shareholding voting.
    • However, where they do have a significant say, like in the “majority of the minority” process, they are likely to be more active in exercising their franchise.

    Consider the question “How far has the provision of appointing independent directors to safeguard the interest of minority shareholders succeeded in its objectives? Suggest the changes to improve the challenges faced by the independent directors.”

    Conclusion

    In all, the appointment and removal system continues to undermine the independence and efficacy of corporate boards. The SEBI needs to implement the dual approval system at the earliest.

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