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Type: Op-ed

  • Judicial federalism

    The article discusses the idea of judicial federalism and autonomy of the High Courts.

    Issue of transfer of cases from High Courts to Supreme Court

    • Under Article 139A of the Constitution, the Supreme Court does have the power to transfer cases from the High Courts to itself if cases involve the same questions of law.
    • In Parmanand Katara v. Union of India (1989), the Supreme Court underlined that the right to emergency medical treatment is part of the citizen’s fundamental rights.
    • As such, constitutional courts owe a duty to protect this right.
    • In the face of a de facto COVID-19 health emergency, the High Courts of Delhi, Gujarat, Madras and Bombay, among others, have done exactly that.
    • These High Courts among others have directed the state governments on various issues related to COVID-19 health emergency.
    • However, Supreme Court issued an order asking the State governments and the Union Territories to “show cause why uniform orders” should not be passed by the Supreme Court.
    • Therefore, the Supreme Court indicated the possibility of the transfer of cases to itself.

    Issues with the SC’s move

    • According to the Seventh Schedule of the Constitution, public health and hospitals come under the State List as Item No. 6.
    • There could be related subjects coming under the Union List or Concurrent List.
    • Also, there may be areas of inter-State conflicts.
    • But as of now, the respective High Courts have been dealing with specific challenges at the regional level, the resolution of which does not warrant the top court’s interference.
    • In addition to the geographical reasons, the constitutional scheme of the Indian judiciary is pertinent.
    •  In L. Chandra Kumar v. Union of India (1997), the Supreme Court itself said that the High Courts are “institutions endowed with glorious judicial traditions” since they “had been in existence since the 19th century”.
    • Even otherwise, in a way, the power of the High Court under Article 226 is wider than the Supreme Court’s under Article 32.
    • This position was reiterated by the court soon after its inception in State of Orissa v. Madan Gopal Rungta (1951).
    • Judicial federalism has intrinsic and instrumental benefits which are essentially political.
    • The United States is an illustrative case.
    • The U.S. Supreme Court reviews “only a relative handful of cases from state courts” which ensures “a large measure of autonomy in the application of federal law” for the State courts.
    • The need for a uniform judicial order across India is warranted only when it is unavoidable — for example, in cases of an apparent conflict of laws or judgments on legal interpretation.
    • Otherwise, autonomy, not uniformity, is the rule.
    • Decentralisation, not centrism, is the principle.

    Consider the question “Under Article 139A of the Constitution, the Supreme Court does have the power to transfer cases from the High Courts to itself if cases involve the same questions of law. However, transferring such cases should not impinge on judicial federalism. Comment.”

    Conclusion

    In the COVID-19-related cases, High Courts across the country have acted with an immense sense of judicial responsibility. This is a legal landscape that deserves to be encouraged. To do this, the Supreme Court must simply stay away.

  • A WTO waiver on patents won’t help us against covid

    There has been growing clamour across the world for waiver of intellectual property protection for Covid-19 vaccines under TRIPS. The article suggests alternatives to achieve the desired production of vaccines without setting the precedent for a waiver.

    Waiver from TRIPS

    • Last October, India and South Africa moved a motion at the WTO asking its council on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to provide a waiver on intellectual property protection for pharmaceutical patents.
    • Many developing countries have since supported the joint move.
    • While most advanced countries, home to the world’s major pharmaceutical companies, have opposed it.
    • Nobel economist Joseph Stiglitz, along with activist Lori Wallach, penned an opinion piece making a case for such a waiver.

    Voluntary licensing

    • Alternative to waiver could be voluntary licensing arrangements between pharmaceutical companies and countries that wish to make vaccine doses for their own use.
    • This is exactly what has occurred in India’s case, with a licensing agreement between AstraZeneca and Serum Institute of India.
    • The recent difficulties with this arrangement are a result of India diverting some doses intended for export (or for Covax) to its domestic vaccination drive.
    • But India will soon begin making other important global vaccines under similar licence arrangements, and a waiver would do nothing to speed up this process.

    Compulsory licensing

    • In the event that India needs to ramp up production more than is feasible via licences from global manufacturers, there is another alternative available, which is ‘compulsory licensing’.
    • Such an approach would not permit the export of vaccine doses made under a compulsory licence.
    • This approach should be taken by any developing country, if, for some reason, global pharmaceutical companies are unwilling to license a life-saving vaccine for domestic manufacture and distribution in that nation.

    Why TRIPS waiver won’t help

    • India’s limiting factors are a shortage of raw materials and low production capacity, neither of which would be cured with the supposed magic bullet of a WTO waiver.
    • Not only would a WTO waiver not do anything to address the real bottlenecks that constrain the global production and distribution of vaccines, it would also set a bad precedent.
    • It is true that governments, including the US and others, have significantly subsidized or incentivized in other ways the research and development activities of private pharmaceutical companies that now hold patents for major covid vaccines.
    • Yet, these governments required the ingenuity of private enterprise to invent these vaccines.

    Consider the question “What are the legal provisions to ensure the accessibility of life-saving drugs in the country?”

    Conclusion

    While it may seem appealing, a WTO waiver on intellectual property protection is an inappropriate priority. It’s a distraction from the heavy lifting needed to create the capacity to fight the scourge of covid.

  • India-Japan relations

    The article discusses the areas in which India-Japan are cooperating and also highlight the areas in which both countries can expand cooperation.

    Issues discussed in US-Japan summit

    • The discussion focused on their joint security partnership given the need to address China’s recent belligerence in territorial disputes in the South and East China Seas as well as in the Taiwan Strait.
    • Both sides affirmed the centrality of their treaty alliance, for long a source of stability in East Asia, and pledged to stand up to China in key regional flashpoints such as the disputed Senkaku Islands and Taiwan.
    • Both sides acknowledged the importance of extended deterrence vis-à-vis China through cooperation on cybersecurity and space technology.
    • Discussions also touched upon Chinese ambitions to dominate the development of new age technologies such as 5G and quantum computing.
    • Given China’s recent pledge to invest a mammoth $1.4 trillion in emerging technologies, Washington and Tokyo scrambled to close the gap by announcing a Competitiveness and Resilience Partnership, or CoRe.
    • Both sides have also signalled their intent to pressure on China on violations of intellectual property rights, forced technology transfer, excess capacity issues, and the use of trade-distorting industrial subsidies.
    •  Both powers repeatedly emphasised their vision of a Free and Open Indo-Pacific.

    Issues that need to be discussed in Japan PM’s visit to India

    1) Continuation of balancing security policy

    • First, one can expect a continuation of the balancing security policy against China that began in 2014.
    • Crucially, India’s clashes with China in Galwan have turned public opinion in favour of a more confrontational China policy.
    • In just a decade, New Delhi and Tokyo have expanded high-level ministerial and bureaucratic contacts, conducted joint military exercises and concluded military pacts such as the Acquisition and Cross-Servicing Agreement (ACSA) logistics agreement.
    • Both countries need to affirm support for a Free and Open Indo-Pacific and continued willingness to work with the Quad.
    • Both countries need to take stock of the state of play in the security relationship while also pushing the envelope on the still nascent cooperation on defence technology and exports.

    2) Expanding cooperation in various sectors

    • The two powers will look to expand cooperation in sectors such as cybersecurity and emerging technologies.
    • Digital research and innovation partnership in technologies from AI and 5G to the Internet of Things and space research has increased between the two countries in the recent past.
    • There is a need to deepen cooperation between research institutes and expand funding in light of China’s aforementioned technology investment programme.
    • Issues of India’s insistence on data localisation and reluctance to accede to global cybersecurity agreements such as the Budapest Convention may be discussed in the summit.

    3) Economic ties

    • Economic ties and infrastructure development are likely to be top drawer items on the agendas of New Delhi and Tokyo.
    • Though Japan has poured in around $34 billion in investments into the Indian economy, Japan is only India’s 12th largest trading partner.
    • Trade volumes between the two stand at just a fifth of the value of India-China bilateral trade.
    • India-Japan summit will likely reaffirm Japan’s support for key manufacturing initiatives such as ‘Make in India’ and the Japan Industrial Townships.
    • Further, India will be keen to secure continued infrastructure investments in the strategically vital connectivity projects currently under way in the Northeast and the Andaman and Nicobar Islands.

    4) Joint strategy toward key third countries

    • In years past, India and Japan have collaborated to build infrastructure in Iran and Africa.
    • Both countries have provided vital aid to Myanmar and Sri Lanka and hammer out a common Association of Southeast Asian Nations outreach policy in an attempt to counter China’s growing influence in these corners of the globe.
    • However, unlike previous summits, the time has come for India and Japan to take a hard look at reports suggesting that joint infrastructure projects in Africa and Iran have stalled with substantial cost overruns.
    •  Tokyo will also likely try to get New Delhi to reverse its decision not to join the Regional Comprehensive Economic Partnership.

    Consider the question “Changes on the geopolitical horizon offers India-Japan relations multiple avenues to deepen their ties. In light of this, discuss the areas of cooperation and shared concerns for India and Japan.” 

    Conclusion

    Writing in 2006, Shinzo Abe, expressed his hope in his book that “it would not be a surprise if in another 10 years, Japan-India relations overtake Japan-U.S. and Japan-China relations”. Thus far, India has every reason to believe that Japan’s new Prime Minister is willing to make that dream a reality.

  • Don’t worry about the deficit

    The devastation caused by the second wave calls for the government to shed its worry over the fiscal deficit. The article deals with this issue.

    Role of fiscal policy to support economy through second wave

    • As India battles to contain the surge in COVID-19 cases, several states have already imposed severe restrictions at the local level.
    • The services sector has been hit the most as a consequence of these lockdowns and it would be difficult for India to deliver on this optimistic growth projection.
    • Against this background, the role fiscal policy can play to support the economy needs consideration.
    • The monetary policy is already accommodative and may not have enough room to further boost the economy.
    • With headline as well as core inflation inching up in recent months, the RBI may not be in a position to further cut the policy rate.
    •  As per the latest Union Budget, the fiscal deficit is estimated to moderate from 9.5 per cent of GDP in FY21 to 6.8 per cent of GDP in FY22.
    • This expected decline in fiscal deficit is not on account of lower fiscal spending but because of expectations of sharper revenue growth.
    • The revenue receipts are estimated to grow by 15 per cent and fiscal spending by 1 per cent this financial year.
    • With the debt to GDP ratio already more than 90 per cent, additional fiscal expansion will not be an easy choice for the government.

    Government need to create fiscal space

    • Extraordinary times call for extraordinary measures and the government will have to find ways to create fiscal space.
    • This has become especially important as the economy is yet to shrug off the impact of the previous lockdown.
    • Under these difficult circumstances, immediate measures must aim at providing the requisite social safety net to the poor and the vulnerable.
    • The central government has already announced it will distribute an additional five kg of grain to the 800 million beneficiaries of the National Food Security Act, which is welcome.
    • However, given the unprecedented uncertainty brought about by this COVID wave, the ration support under the PDS should be raised further.
    • The government should also consider transferring cash to the bank accounts of the poor, just as it did last time.
    • This becomes important as MGNREGA  may not provide the safety cushion that it is indeed to as long as lockdown measures remain in place.
    • The best stimulus perhaps would be to provide free vaccinations to the population as the benefits of faster and wider vaccine coverage more than outweighs its monetary cost.
    •  Immunisation is a public good. As we get over this crisis, the government must increase its outlay on physical and human health infrastructure.

    How to finance additional cost?

    •  Part of this additional cost may be financed by reducing non-essential government expenditures and use it for COVID-related expenditure.
    • The government may need to resort to additional borrowings from the market than budgeted earlier.
    • The RBI may allow inflation above the upper bound of 6 per cent only in the short run.
    • The plausible rise in interest rates may also be crucial to prevent capital outflows, given the global “economic outlook” when the US economy adopts an easy monetary policy combined with a huge fiscal stimulus.

    Conclusion

    The government should not be deterred by a worsening fiscal deficit in the short run as the additional growth that it generates may make debt consolidation easier when things normalise.

  • Supreme Court must oversee vaccination to protect the right to life

    The article highlights the role the Supre Court can play in universal vaccination in India.

    Why Supreme Court needs to step in

    • Amid raging debate over the vaccination strategy, the role the Supreme Court of India can play to safeguard the right to life guaranteed under Article 21, for which it is duty-bound to exercise jurisdiction under Article 32 needs consideration.
    • In this regard, universal vaccination is a glimmer of hope.
    • The Supreme Court of India can facilitate speed and deeper penetration of universal vaccination, which is now commonly accepted as the only possible solution to the pandemic in the long run.

    Issue of patent of vaccine

    • It is time to question patents claimed by vaccines that have been developed with aid from the state in research and development.
    • These patents, if established, must be immediately acquired with just and adequate compensation and made accessible to all manufacturers.
    • This was done for medicines for AIDS and it can be done again under the Patents Act.
    • The Court can also issue mandamus to undertake this exercise on an emergency basis.
    • Thereafter, all pharmaceutical companies with Good Manufacturing Practices (GMP) as per the Drugs and Cosmetics Act must be allowed to manufacture vaccines at a pre-approved price of cost + 6 per cent return on investment.
    • States can also be directed to incentivise the setting up of new manufacturing facilities as a possible third wave, periodic booster doses and the need for ancillary vaccines make it a long-term phenomenon.
    • All this has to be ensured in addition to the free import of vaccines approved by advanced nations.

    Free for all

    • The availability of all the vaccines, whether indigenous or imported, must be free for all the recipients to be paid by GoI.
    • The vaccines can be distributed to states on a pro-rata basis as per population and price adjusted as part of general revenue sharing in GST.

    Vaccine administration

    •  The vaccine administration needs to be ramped up both in state and private facilities.
    • For vaccine hesitancy, we need to incentivise the vaccination through a direct deposit of Rs 500 in Jan Dhan accounts for each vaccinated member of BPL families.
    • This vaccination can be made compulsory for identifiable categories of persons from MGNREGA beneficiaries to Aadhaar Card holders to income-tax payers to bank account holders to driving-licence holders.
    • There must be a strict penalty to be recovered from those who do not get vaccinated without medical reasons.
    • Private efforts can be made eligible for reimbursement of cost.

    Conclusion

    The Supreme Court can steer us, with greater emphasis on the right to life. The pandemic may leave nothing and nobody behind to bicker about.

  • Antimicrobial resistance

    The article highlights the challenges posed by anti-microbial resistance (AMR) and suggests ways to deal with it.

    Understanding the severity of challenges posed by AMR

    • Antimicrobial resistance (AMR) is the phenomenon by which bacteria and fungi evolve and become resistant to presently available medical treatment.
    • AMR represents an existential threat to modern medicine.
    • Without functional antimicrobials to treat bacterial and fungal infections, even the most common surgical procedures, as well as cancer chemotherapy, will become fraught with risk from untreatable infections.
    • Neonatal and maternal mortality will increase.

    How AMR will affect low and middle-income countries

    • All these effects will be felt globally, but the scenario in the low- and middle-income countries (LMICs) of Asia and Africa is even more serious.
    • LMICs have significantly driven down mortality using cheap and easily available antimicrobials.
    • In the absence of new therapies, health systems in these countries are at severe risk of being overrun by untreatable infectious diseases.

    Factors contributing to AMR

    • Drug resistance in microbes emerges for several reasons.
    • These include the misuse of antimicrobials in medicine, inappropriate use in agriculture, and contamination around pharmaceutical manufacturing sites where untreated waste releases large amounts of active antimicrobials into the environment.

    Stagnant antibiotics discovery

    •  The Challenge of AMR is compounded by fact that no new classes of antibiotics have made it to the market in the last three decades.
    • This has happened on account of inadequate incentives for their development and production.
    • A recent report from the non-profit PEW Trusts found that over 95% of antibiotics in development today are from small companies, 75% of which have no products currently in the market.
    • Major pharmaceutical companies have largely abandoned innovation in this space.

    Measures to deal with the challenge of AMR

    •  In addition to developing new antimicrobials, infection-control measures can reduce antibiotic use.
    • A mix of incentives and sanctions would encourage appropriate clinical use.
    • To track the spread of resistance in microbes, surveillance measures to identify these organisms need to expand beyond hospitals and encompass livestock, wastewater and farm run-offs.
    • Finally, since microbes will inevitably continue to evolve and become resistant even to new antimicrobials, we need sustained investments and global coordination to detect and combat new resistant strains on an ongoing basis.

    Way forward

    •  A multi-sectoral $1 billion AMR Action Fund was launched in 2020 to support the development of new antibiotics.
    • The U.K. is trialling a subscription-based model for paying for new antimicrobials towards ensuring their commercial viability.
    • Other initiatives focused on the appropriate use of antibiotics include Peru’s efforts on patient education to reduce unnecessary antibiotic prescriptions.
    • Australian regulatory reforms to influence prescriber behaviour, and initiatives to increase the use of point-of-care diagnostics, such as the EU-supported VALUE-Dx programme.
    • Denmark’s reforms to prevent the use of antibiotics in livestock have led to a significant reduction in the prevalence of resistant microbes in animals and improved the efficiency of farming.
    • Finally, given the critical role of manufacturing and environmental contamination in spreading AMR there is a need to curb the amount of active antibiotics released in pharmaceutical waste.
    • Regulating clinician prescription of antimicrobials alone would do little in settings where patient demand is high and antimicrobials are freely available over-the-counter in practice, as is the case in many LMICs.
    • Efforts to control prescription through provider incentives should be accompanied by efforts to educate consumers to reduce inappropriate demand, issue standard treatment guidelines.
    • Solutions in clinical medicine must be integrated with improved surveillance of AMR in agriculture, animal health and the environment.
    • AMR must no longer be the remit solely of the health sector, but needs engagement from a wide range of stakeholders, representing agriculture, trade and the environment with solutions that balance their often-competing interests.
    •  International alignment and coordination are paramount in both policymaking and its implementation.

    Consider the question “Anti-microbial resistance (AMR) represents an existential threat to modern medicine. What are the factors contributing to AMR? Suggest the measures to deal with it.”

    Conclusion

    With viral diseases such as COVID-19, outbreaks and pandemics may be harder to predict; however, given what we know about the “silent pandemic” that is AMR, there is no excuse for delaying action.

  • Centre notifies GNCT Act that gives more powers to Delhi L-G

    GNCT Act comes into effect

    • The Ministry of Home Affairs (MHA) issued a gazette notification stating that the provisions of the Government of National Capital Territory (GNCT) of Delhi (Amendment) Act, 2021, would be deemed to have come into effect from April 27.
    • The Act defines the responsibilities of the elected government and the L-G along with the “constitutional scheme of governance of the NCT” interpreted by the Supreme Court in recent judgements regarding the division of powers between the two entities.

    What the Amendment seeks to achieve

    • The Act will clarify the expression Government and address ambiguities in legislative provisions.
    • It will also seek to ensure that the L-G is “necessarily granted an opportunity” to exercise powers entrusted to him under proviso to clause (4) of Article 239AA of the Constitution.
    • Clause (4) of Article 239AA provides for a Council of Ministers headed by a Chief Minister for the NCT to “aid and advise the Lieutenant Governor” in the exercise of his functions for matters in which the Legislative Assembly has the power to make laws.
    • Now Act will also provide for rules made by the Legislative Assembly of Delhi to be “consistent with the rules of the House of the People” or the Lok Sabha.

  • How IPR served as barrier to the right to access healthcare

    Request for waiver

    •  Last year, India and South Africa requested WTO for a temporary suspension of rules under the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
    • A waiver was sought to the extent that the protections offered by TRIPS impinged on the containment and treatment of COVID-19. 
    • The request for a waiver has, since, found support from more than 100 nations.
    • But a small group of states — the U.S., the European Union, the U.K. and Canada among them — continues to block the move.
    • These countries have already secured the majority of available vaccines.
    • But for the rest of the world mass immunisation is a distant dream.

    Grounds on which patent laws are justified

    • Patent laws are usually justified on three distinct grounds:
    • On the idea that people have something of a natural and moral right to claim control over their inventions.
    • On the utilitarian premise that exclusive licenses promote invention and therefore benefit society as a whole.
    • On the belief that individuals must be allowed to benefit from the fruits of their labour and merit.
    • These justifications have long been a matter of contest, especially in the application of claims of monopoly over pharmaceutical drugs and technologies.

    Patent laws in India

    • In 1959, a committee chaired by Justice N. Rajagopala Ayyangar objected to monopolies on pharmaceutical drugs through colonial-era patent law.
    • The committee found that foreign corporations used patents to suppress competition from Indian entities, and thus, medicines were priced at exorbitant rates.
    • The committee suggested, and Parliament put this into law through the Patents Act, 1970, that monopolies over pharmaceutical drugs be altogether removed, with protections offered only over claims to processes.
    • This change in rule allowed generic manufacturers in India to grow. 

    How TRIPS goes against the interest of developing countries

    • WTO has into its constitution a binding set of rules governing intellectual property.
    • Countries that fail to subscribe to the common laws prescribed by the WTO would be barred from entry into the global trading circuit.
    • It was believed that a threat of sanctions, to be enforced through a dispute resolution mechanism, would dissuade states from reneging on their promises.
    • With the advent in 1995 of the TRIPS agreement, this belief proved true.
    • The faults in this new world order became apparent when drugs that reduced AIDS deaths in developed nations were placed out of reach for the rest of the world.
    • It was only when Indian companies began to manufacture generic versions of these medicines as TRIPS hadn’t yet kicked in against India, that the prices came down.

     Argument in support of the patent regime

    • Two common arguments are made in response to objections against the prevailing patent regime.
    • One, that unless corporations are rewarded for their inventions, they would be unable to recoup amounts invested by them in research and development.
    • Two, without the right to monopolise production there will be no incentive to innovate.

    Issues with the argument in support of patent regime

    • Big pharma has never been forthright about the quantum of monies funnelled by it into research and development.
    • Moderna vaccine in the U.S. emanated out of basic research conducted by the National Institutes of Health, a federal government agency, and other publicly funded universities and organisations. 
    • Similarly, public money accounted for more than 97% of the funding towards the development of the Oxford/AstraZeneca vaccine.
    •  Therefore, the claim that the removal of patents would somehow invade on a company’s ability to recoup costs is simply untrue.
    • The second objection — the idea that patents are the only means available to promote innovation — has become something of a dogma.
    • The economist Joseph Stiglitz is one of many who has proposed a prize fund for medical research in place of patents.

    Consider the question “What are the issues with the patent regime under the TRIPS in the field of medicine?”

    Conclusion

    We cannot continue to persist with rules granting monopolies which place the right to access basic healthcare in a position of constant peril. In its present form, the TRIPS regime represents nothing but a new form of “feudal calculus”.

  • Need for diversity and propriety in judiciary

    The article highlights the issue of women representation and its implications for the role of the judiciary.

    Improving representation of women

    • Presently, the Supreme Court is left with only one woman judge, who is also going to retire next year, after which, the SC will be left without a woman judge.
    • The collegium failed to take timely steps to elevate more women judges in the SC.
    • In the 71 years of history of the SC, there have been only eight women judges — the first was Justice Fathima Beevi, who was elevated to the bench after a long gap of 39 years from the date of establishment of the SC.
    • In the submissions filed by the AG on the issue states that improving the representation of women in the judiciary could go a long way towards attaining a more balanced and empathetic approach in cases involving sexual violence.
    • The AG also brought up the fact that there has never been a woman Chief Justice of India (CJI).

    Women representation in developed countries

    • The situation is not any different in developed countries such as the US, UK, Ireland, France and China.
    • According to the data collected by Smashboard, a New Delhi and Paris-based NGO, not only has no woman ever been appointed as the CJI, the representation of women across different courts and judicial bodies is also abysmally low.

    Way forward

    • In the last few meetings of the collegium, there has been some talk of promoting women to the apex court.
    • In this regard, if Justice B V Nagaratha of the Karnataka High Court is elevated to the Supreme Court, she could become the first woman CJI in February 2027.
    • But her elevation will lead to the supersession of 32 senior judges.
    •  Supersession itself is perceived as a threat to an independent judiciary
    • Seniority combined with merit is the sacrosanct criteria for promotion in the judiciary.
    • New CJI should secure the trust of members of his collegium to fill the backlog of 411 vacancies across high courts and six vacancies in the SC.

    Consider the question “What are the various structural issues faced by the judiciary in India? Suggest the measures to deal with them.”

    Conclusion

    A greater number of women in the Supreme Court would eventually lead to a woman CJI. This would be a gratifying change, which may mark the beginning of a new era of judicial appointments.

  • An idea on taxation that is worth a try

    The article highlights the issue of race among countries to offer low corporate taxes to attract global financial capital and its implications.

    What factors contributed to low corporate tax

    • When the Soviet Bloc collapsed in 1990, nations in east Europe were badly hit and needed capital infusion to overcome their economic woes.
    • To attract global capital, they cut their tax rates sharply. This resulted in a ‘race to the bottom’.
    • Global financial capital which is highly mobile has effectively used tax havens and shell companies to shift profits and capital across the globe.
    • This mobility has enabled it to extract concessions from countries by making them compete with each other to match the concessions given by another — that is the ‘race to the bottom’.
    • Nations in Europe were forced to cut their tax rates one after the other to not only attract capital but also to prevent capital from leaving their shores.
    • Also, any country facing economic adversity can cut its tax rates to attract capital and force others to follow suit.
    • India has also cut its tax rates since the 1990s.
    • Most recently in 2019 the corporation tax rate was cut drastically to match those prevailing in Southeast Asia.

    Implications of lower corporate tax rate

    1) Shortage of resources

    • The race to the bottom had global implications.
    • Nations became short of resources and cut back expenditures on public services and encouraged privatisation.
    • The developing countries followed suit even though private markets do not cater to the poor.
    • Thus, disparities increased within nations.

    2) Base Erosion and Profit Shifting

    • The world experienced Base Erosion Profit Shifting (BEPS).
    • Namely, companies shifted their profits to low tax jurisdictions, especially, the tax havens.
    • For instance, many of the most profitable companies like Google and Facebook are accused of shifting their profits to Ireland and other tax havens and paying little tax.
    • EU has levied fines on Google and Apple for such practices.
    • Since all the OECD countries have suffered due to cuts in tax rates and BEPS, initiatives have been taken to check these practices.
    • But they will not succeed unless there is agreement among all the countries.

    3) Regressive tax structure

    • Another implication of the reductions in direct tax rates has been that governments have increasingly depended on the regressive indirect taxes for revenue generation.
    • Value-Added Tax and Goods and Services Tax have been increasingly used to get more revenues.
    • This impacts the less well-off proportionately more and is inflationary.
    • Direct taxes tend to lower the post-tax income inequality.
    • The rising inequalities result in shortage of demand in the economy and to its slowing down which then requires more investment and that calls for more concessions to capital.

    Call for Global minimum tax rate

    • It is against this backdrop that United States Secretary of the Treasury Janet L. Yellen’s has proposed a global minimum tax rate.
    • But, without global coordination, corporation tax rates cannot be raised.
    • The U.S. is crucial to this coordination.
    • There will also have to be cooperation among countries to tackle the lure of the tax havens by enacting suitable global policies.

    Consider the question “What factors contributed to the race to bottom on the corporate taxes among the countries? What are its implications? Will the global minimum tax rate be able to deal with it?”

    Conclusion

    The impact of all this will be far-reaching impacting inequalities, provision of public services and reduction of flight of capital from developing countries such as India and that will impact poverty.