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Type: Op-ed

  • Shift in the US trade politics and opportunities for India

    The article focuses on the changes in the US trade politics fueled by the corona pandemic. Also there has been a growing demand for abandoning the WTO. So, amid this shift in the US politics, what are the opportunities for India at the global level?

    What went wrong with the WTO: The US point of view

    • Latest opposition to the WTO was expressed in a forceful article by a US senator, Josh Hawley.
    • In his opinion, corona pandemic expresses the hard truth about the modern global economy: it weakens American workers and empowers China’s rise.
    • So, what went wrong?
    • Capital and goods moved across borders easier than before but so did jobs. And too many jobs left America’s borders for elsewhere.
    • As factories closed, workers suffered, from small towns to the urban core.
    • So, he wants US to abandon the WTO.

    Rise of trade politics in the US

    • Under Trump, the Republican Party has turned from the champion to a critic of free trade.
    • The Democratic Party, which embraced globalisation since the early 1990s, has seen the erosion of working-class support.
    • Elections this year could reveal if the shifting alignments on trade are now cast in stone or if anti-trade sentiment in America is deep and wide.

    What alternatives are suggested by the senator?

    • In replacing the WTO, Hawley suggests the following two measures-
    • 1) The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty.
    • 2) This, in turn, involves building a new network of trusted friends and partners to resist Chinese economic imperialism.

    How this matters for India?

    • India will have to take a fresh look at the global economy battered by the coronavirus.
    • India should pay close attention to Hawley’s theme on working with “trusted friends and partners” to restructure international trade.
    • Hawley is not alone in articulating this view.
    • Reuters reported from Washington that the Trump Administration is “turbocharging” an initiative to rearrange the global supply chains currently centered on China.
    • This rearrangement of the global supply chain offers an opportunity for India to lead the future global supply chains.

    Consider the question, “Critically analyse the opportunities presented to India by the changes in trade politics in the US”.

    Conclusion

    Hobbled as it was by shaky political coalitions and preoccupied by multiple domestic challenges, India in the mid-1990s struggled to cope with the profound changes in the global economic order. As the world trade system arrives at a contingent moment a quarter of a century later, India is hopefully better prepared.

  • Seven trends in the geopolitics of the world

    The article examines 7 trends that have been emerging in the global order for quite some time now. The corona crisis has only accentuated these trends. So, what are these trends? read to know more.

    1. The rise of Asia

    • The first trend which became clear in the aftermath of the 2008 global financial crisis is the rise of Asia.
    • Economic historians pointed to its inevitability, recalling that till the 18th century, Asia accounted for half the global GDP.
    • The Industrial Revolution accompanied by European naval expansion and colonialism contributed to the rise of the West, and now the balance is being restored.
    • The 2008 financial crisis showed the resilience of Asian economies.
    • And even today, economic forecasts indicate that out of the G-20 countries, only China and India are likely to register economic growth during 2020.
    • Asian countries have also demonstrated greater agility in tackling the pandemic compared to the United States and Europe.
    • This is not limited to China but a number of other Asian states have shown greater responsiveness and more effective state capacity.
    • Consequently, Asian economies will recover faster than those in the West.

    2. Decline of the US

    • The second trend is the retreat of the U.S.after a century of being in the forefront of shaping the global order.
    • The U.S. played a decisive role in shaping the world, from the World Wars to the leadership of the western world during the Cold War, molding global responses to threats posed by terrorism or proliferation or climate change.
    • But recent examples show that interventions in Afghanistan and Iraq have become quagmires that have sapped domestic political will and resources.
    • President Donald Trump called for “America first” and during the current crisis, the U.S.’s efforts at cornering supplies of scarce medical equipment and medicines and acquiring biotech companies engaged in research and development in allied states, shows that this may mean “America alone”.
    • Moreover, even as countries were losing trust in the U.S.’s leadership, its mishandling at the home of the pandemic indicates that countries are also losing trust in the U.S.’s competence.

    3. Weakening unity of the EU

    • A third trend is the European Union’s continuing preoccupation with internal challenges.
    • This internal disruption is generated three factors: 1) EU’s expansion of membership to include East European states 2) Impact of the financial crisis among the Eurozone members 3) Ongoing Brexit negotiations.
    • Threat perceptions vary between old Europe and new Europe making it increasingly difficult to reach agreement on political matters e.g. relations with Russia and China.
    • Rising populism has given greater voice to Euro-sceptics and permitted some EU members to espouse the virtues of “illiberal democracy”.
    • Adding to this is the North-South divide within the Eurozone.
    • This divide was seen when austerity measures were imposed on Greece, Italy, Spain and Portugal a decade ago by the European Central Bank.
    • These austerity measures were persuaded by the fiscally conservative Austria, Germany and the Netherlands.
    • The EU lacked solidarity when Italy was battling the pandemic alone.
    • Further damage was done when Italy was denied medical equipment by its EU neighbours who introduced export controls.
    • Schengen visa or free-border movement has already become a victim to the pandemic.
    • The EU will need considerable soul searching to rediscover the limits of free movement of goods, services, capital and people, the underlying theme of the European experiment of shared sovereignty.

    4. Rise of China

    • China’s growing economic role has been visible since it joined the World Trade Organization in 2001.
    • Its more assertive posture has taken shape under President Xi Jinping’s leadership with the call that a rejuvenated China is now ready to assume global responsibilities.
    • In recent years, the U.S.-China relationship moved from cooperation to competition; and now with trade and technology wars, it is moving steadily to confrontation.
    • A partial economic de-coupling had begun and will gather greater momentum.
    • The Belt and Road Initiative involves investing trillions of dollars in infrastructure building as a kind of pre-emptive move against any U.S. attempts at containment.
    • Even if Mr Xi’s leadership comes under questioning, it may soften some aggressive policy edges but the confrontational rivalry with the U.S. will remain.

    5. Failure of multinational institutions

    • With COVID-19, international and multilateral bodies are nowhere on the scene.
    • The World Health Organisation (WHO) was the natural candidate to lead global efforts against the health crisis but it has become a victim of politics.
    • The UN Security Council (UNSC), the G-7 and the G-20 are paralysed when the world faces the worst recession since 1929.
    • The reality is that these institutions were always subjected to big power politics.
    • During the Cold War, U.S.-Soviet rivalry blocked the UNSC on many sensitive issues and now with major power rivalry returning, finds itself paralysed again.
    • Agencies such as WHO have lost autonomy over the decades as their regular budgets shrank.
    • Budget constraints forced them to increasingly rely on voluntary contributions sourced largely from western countries and foundations.
    • The absence of a multilateral response today highlights the long-felt need for reform of these bodies but this cannot happen without collective global leadership.

    6. The oil prices

    • The two trends were changing energy markets: 1)Growing interest in renewables and green technologies on account of climate change concerns. 2) The U.S. emerging as a major energy producer.
    • Now, a looming economic recession and depressed oil prices will exacerbate internal tensions in West Asian countries which are solely dependent on oil revenues.

    7. Stability of West Asia

    • Long-standing rivalries in the region have often led to local conflicts but can now create political instability in countries where regime structures are fragile.

    Consider the question “The Corona crisis contributed to speeding the failure of a global order which had been faltering before the pandemic afflicted the world. Examine the trends that have been accentuated by the pandemic.”

    Conclusion

    The vaccine may end the corona crisis when it comes, but the unfolding trends in the geopolitics have been altering the world even before the corona crisis and continue to do so after a pandemic is over.

     

  • New approach to economic revival: SNAP

    In this article the author suggests a new approach to deal with multiple bankruptcies and stressed assets that would come up post COVID. So, what is the new approach and how it is different from the existing IBC? Read further.

    Why is speed of resolution important?

    • First, because it is the only way to revive the economy.
    • As revenues have dried up cash flow problems have cascaded down the supply chain.
    • Firms will consequently be unable to restart production unless they first get credit to pay their suppliers and workers.
    • But impaired firms cannot get credit and impaired banks cannot provide it.
    • So, the entire economy will be stuck unless the balance sheet problem is sorted out.
    • Second, speed will also minimise the losses from the COVID crisis.
    • The value of bankrupt firms decays rapidly over time, and the bill for this loss will have to be borne ultimately by the government.
    • So, speed is necessary to contain the damage to the government’s financial position, which has been badly eroded by the COVID crisis.
    • But moving quickly will be difficult.
    • The only real mechanism that currently exists to handle stress and bankruptcy is the Insolvency and Bankruptcy Code (IBC) system, which has been suspended for six months.

    Why the IBC cannot help much?

    • Many have therefore argued for bringing the IBC back into operation as soon as possible.
    • Why such a strategy would not be very effective? The system is slow, with many cases taking two years or more; it could easily become overwhelmed completely if it is forced to absorb a large new set of bankrupt firms.
    • In addition, the IBC envisages that banks maximise their recoveries by auctioning off the bankrupt firms to the highest bidder.
    • But in a nation and indeed a world, where all balance sheets are damaged, it is not obvious who would be able to buy these firms, or at what prices.
    • So recovery rates from sales could be low, undermining the objective of the exercise.
    • Even if strong bidders could be found, there is a fundamental political, even philosophical, question of whether it is really right to take these firms away from their promoters.
    • After all, many of these firms did nothing wrong; they got into financial difficulties because of the corona crisis.

    So, what is the solution?

    • What is needed is a new set of procedures that can utilise much of the existing IBC framework, but are simple, straightforward, and prompt, with a built-in expiry clause.
    • Let’s Call them Special Non-Adversarial Procedures (SNAP).
    • As soon as the lockdown is largely over, the IBC creditor committees (CoCs) could meet to assess the new wave of NPAs.
    • The largest, most complex cases — say, those with debts exceeding Rs 10,000 crore — would be sent to the IBC for regular treatment.
    • But all other cases would be eligible under SNAP
    • After all, the wider the set of companies that are put back on their feet quickly, the stronger the recovery will be.

    How would the SNAP work?

    • Under SNAP, CoCs would, over the next three months, examine delinquent firms’ financial records, checking to see whether they are actually viable.
    • If so, these firms would be designated as Lockdown Affected Enterprises (LAEs), eligible under SNAP.
    • Since the basis of the designation would be that the firm is fundamentally sound but because of COVID impact, an Insolvency Professional (IP) appointed by the CoC would work with existing management (who would continue to run the firm) to arrange for interim finance.
    • Then, the IP would assess how much of a debt reduction the firm needs, and within three months would present a specific proposal to the CoC.
    • If the CoC can reach a two-third majority in favour of the proposal, the promoter would keep the firm, while the firm would be granted immediately released from bankruptcy.
    • Since the National Company Law Tribunal (NCLT) is already overloaded, it would not be involved at all in SNAP.
    • If the CoC cannot reach agreement within the three-month deadline, or if at any subsequent point the firm defaults on its newly reduced debt, it would be sent to the IBC for resolution.
    • SNAP would be disbanded by end-December 2020.

    Checks and balances under SNAP

    • Such a system would have a series of checks and balances, to prevent firms from securing undeserved debt reductions.
    • Banks would need to certify that defaulters are truly LAEs.
    • IPs would need to certify the size of the debt reduction.
    • A large majority of creditor banks would need to agree to the IP’s proposal.

    What should be the role of the government in SNAP?

    • With these checks and balances in place, the government should then commit to two things.
    • First, it should provide some legal cover, ensuring that bankers would not be subject to investigations by the anti-corruption agencies, as long as they followed the LAE rules.
    • Second, the public sector banks would be compensated for the costs of the reduction in the value of the asset, automatically and fully.

    Major advantage of SNAP

    • Besides speed, SNAP would have one further major advantage.
    • It would reduce the adversarial nature of the IBC process, arising because promoters are forced to cede their firms.
    • Under the proposed system, promoters would not only have incentives to cooperate; they would actually want to take the initiative, applying for LAE designation themselves, in the hopes that they could get back to business as soon as possible.
    • Such a system might seem difficult to envisage, but it is certainly feasible: It is a design feature under Chapter 11 of the American bankruptcy act.
    • If SNAP succeeds, some of the special procedures could be introduced permanently into the IBC framework, adding a new dimension: Not just liquidation and rehabilitation under new promoters but rehabilitation under existing management.

    Way forward

    • After SNAP, repair of the financial system would have to go back to addressing the long-standing problems, which will have been aggravated by the crisis.
    • Firms that were unviable even before the COVID crisis would be sent directly to the IBC, but with the IBC reformed.
    • The government should issue guidelines focusing on the following three-
    • 1. Focusing the COCs on the goal of maximising value, disregarding non-commercial objectives.
    • 2. Directing the NCLT courts to focus on the CoCs’ adherence to the procedure rather than on the merits of their decisions.
    • 3. Increasing competition in the auction by allowing promoters to bid for their assets, as long as they have not been declared wilful defaulters.
    • For the power and real estate sectors, a sui generis approach via the creation of a bad bank is still the best way forward.
    • Real estate resolutions need to take into account the interests of home-owners, something that is almost impossible to do under the IBC.

    Consider the question, “Economic revival after the pandemic would require some tweaks in the IBC as it was not designed to handle such situations. Suggest the ways to handle the bankruptcies more effectively and changes that are desired in the IBC.”

    Conclusion

    Introducing three-pronged strategy quickly would set the stage for the economic recovery of India:  1) Special, expedited, non-adversarial and time-bound bankruptcy procedures (SNAP) for COVID-affected firms 2) A reformed IBC focused squarely on loss-minimisation 3)Bad banks for stressed assets in the power and real estate sectors.

    Back2Baciscs: What is Insolvency and Bankruptcy Code-2016?

    1. The Code creates time-bound processes for insolvency resolution of companies and individuals.  These processes will be completed within 180 days.  If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
    2. The resolution processes will be conducted by licensed insolvency professionals (IPs).  These IPs will be members of insolvency professional agencies (IPAs).  IPAs will also furnish performance bonds equal to the assets of a company under insolvency resolution.
    3. Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
    4. The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies.  The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
    5. The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.

  • Economy and the challenges ahead

    Various projections of growth paint a grim picture of the Indian economy as well as the global economy. This article analyses the sector-wise impact and comes with the GVA projections for 2020-21. The government has to deal with serious challenges like financing huge fiscal deficits. So, what will be the growth rate for 2020-21 and what will be the size of GVA? Read to know!

    Projections of growth and uncertainty

    • Various institutions have assessed India’s growth prospects for 2020-21 ranging from 0.8% (Fitch)to 4.0% (Asian Development Bank).
    • This wide range indicates the extent of uncertainty and tentative nature of these forecasts.
    • The International Monetary Fund (IMF) has projected India’s growth at 1.9%, China’s at 1.2%, and the global growth at (-) 3.0%.
    • The actual growth outcome for India would depend on: 1) the speed at which the economy is opened up 2) the time it takes to contain the spread of virus, and, 3) the government’s policy support.

    Health of India economy before the crisis

    • India slid into the novel coronavirus crisis on the back of a persistent economic downslide.
    • There was a sustained fall in the saving and investment rates with unutilised capacity in the industrial sector.
    • In 2019-20, there was a contraction in the Centre’s gross tax revenues in the first 11 months during April 2019 to February 2020, at (-) 0.8%.
    • These trends continue to beset the Indian economy in this crisis.

    Growth prospects for 20-21 from the output side

    • In 2019-20, which would serve as the base year, India may show GVA growth of about 4.4%,
    • This is well below the Central Statistics Office’s second advance estimate of 9%.
    • The IMF’s GDP growth estimate for 2019-20 is at 2%.
    • GVA is divided into eight broad sectors. Although all sectors have been disrupted, some may be affected less than the others. We divide the output sectors in four groups.
    • Group A- This group is likely to suffer minimum disruption.
    • Agriculture and allied sectors, and public administration, defence.
    • Despite some labour shortage issues, agriculture sector may show near-normal performance.
    • The public and defence services have been nearly fully active, with the health services at the forefront of the the COVID-19 fight.
    • For the group A sectors, it may be possible to achieve 90% of the 2019-20 growth performance.
    • Group D- This group is likely to suffer maximum disruption.
    • This includes, trade, hotels, restaurants, travel and tourism under the broad group of “Trade, Hotels, Transport, Storage and Communications”.
    • This sector may be able to show 30% of 2019-20 growth performance.
    • Group B
    • This comprises sectors which may suffer average disruption showing 50% of 2019-20 growth performance.
    • These sectors are mining and quarrying, electricity, gas, water supply and other utility services, construction, and financial, real estate and professional services.
    • Group C
    • In this group come manufacturing which has suffered significant growth erosion in 2019-20.
    • It is feasible to stimulate this sector by supporting demand.
    • In this case a 40% performance factor on the average growth of the preceding three years is applied.

    So, what are the estimates for 2020-21 GVA?

    • Considering these four groups together, a GVA growth of 2.9% is estimated for 2020-21.
    • Realising this requires strong policy support, particularly for the manufacturing sector which has a weight of 17.4%.
    • It is also based on the assumption that the Indian economy may move on to positive growth after the first quarter.
    • In the first quarter, GVA growth will be negative.

    Policy support for the growth

    • Monetary policy initiatives undertaken so far include a reduction in the repo rate to 4.4%, the reverse repo rate to 3.75%, and cash reserve ratio to 3%.
    • The Reserve Bank of India has also opened several special financing facilities.
    • These measures need to be supplemented by an appropriate fiscal stimulus.
    • Cash-constrained central and State governments have taken expenditure reducing measures by announcing freezing of enhancements of dearness allowance and dearness relief.
    • This may result in savings of ₹37,000 crore for the Centre and about ₹82,000 crore for the States, together amounting to 6% of GDP.
    • There is also talk of substantially reducing non-salary defence expenditure.
    • With lower petroleum prices, fertilizer and petroleum subsidies may be reduced.
    • These expenditure cuts are contemplated to keep the fiscal deficit under some control.

    Fiscal stimulus and fiscal deficit

    • Fiscal stimulus can be of three types:
    • 1) Relief expenditure for protecting the poor and the marginalised.
    • 2) Demand-supporting expenditure for increasing personal disposable incomes or government’s purchases of goods and services, including expanded health-care expenditure imposed by the novel coronavirus, and,
    • 3) Bailouts for industry and financial institutions.
    • The Centre had earlier announced a relief package of ₹1.7-lakh crore.
    • The Centre’s budgeted fiscal deficit of 3.5% of GDP may have to be enhanced substantially to 1) make up for the shortfall in budgeted revenues; 2) account for a lower than projected nominal GDP for 2020-21, 3) provide for a stimulus.
    • Thus, the Centre’s fiscal deficit may increase to 6.0% of GDP.
    • Expenditure on the construction of hospitals, roads and other infrastructure and purchase of health-related equipment and medicines require prioritisation.
    • These expenditures will have high multiplier effects.
    • Similar initiatives may be undertaken by the State governments which may also enhance their combined fiscal deficit to about 0% of GDP to account for 3.0% of GDP under their respective Fiscal Responsibility Legislation/Law and to provide for the shortfall in their revenues and some stimulus.

    Challenges

    • Financing of the fiscal deficit poses a major challenge this year.
    • On the demand side, the Central (6.0%) and State governments (4.0%) and Central and State public sector undertakings (3.5%).
    • These together present a total public sector borrowing requirement (PSBR) of 13.5% of GDP.
    • Against this, the total available resources may at best be 9.5% of GDP.
    • The gap of 4.0% points of GDP may result in increased cost of borrowing for the Central and State governments.

    Consider the question, “Examine the sector-wise damage caused to the economy due to Covid-19 pandemic. What were the fiscal and monetary measures taken to mitigate the damage and challenges faced by the government in meeting the required revenue demands.”

    Conclusion

    The gap in requirement of resources and availability may be bridged by enhancing net capital inflows including borrowing from abroad and by monetising some part of the Centre’s deficit. The monetisation of debt can at best be a one-time effort. This cannot become a general practice. 

    Back2Basics: What is GVA?

    • GVA it is a measure of total output and income in the economy.
    • It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
    • It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
    • While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
    • Both measures need not match because of the difference in treatment of net taxes.
    • GDP = GVA + taxes on products – subsidies on products

  • Opportunity for India in changing global order

    The world is going through a transition phase. We are experiencing the rise of new powers and the decline of the old. India has to navigate its path through this changing order keeping its interests in mind. The double opportunity in current scenario for India is explained in the article. To know more about it, continue reading.

    The changing global stage

    • The world today is fragmenting and slowing down economically.
    • Asia-Pacific is the new economic and political centre of the world with the rise of China, India and other powers — Indonesia, South Korea, Iran, Vietnam.
    • Rapid shifts in the balance of power in the region have led to arms races and the US’s “America First” attitude has led to rising uncertainty.
    • China-U.S. strategic contention is growing, uninhibited so far by their economic co-dependence.
    • As China seeks primacy in a world so far dominated by the U.S., the world faces a destabilising power transition which may or may not be completed.

    What should India’s response be to the new situation?

    Alliance with the US?

    • Many experts advocate that India should enter into an alliance with the U.S in the wake of rising China.
    • But India is much greater and more resilient than these people think.
    • Also, the aim of foreign and security policies of India has been the pursuit of strategic autonomy for India.
    • Thus, in the present situation, India should retain the above initiative and not get entangled in others’ quarrels. (i.e. the US-China quarrel)
    • Also, India should focus on pursuing its own national interest in this disorganized and uncertain world by creative diplomacy and flexibility.
    • An alliance seems to be exactly the wrong answer.

    China challenge

    • One way to handle China could be to see whether the two countries can evolve a new modus vivendi.
    • This new modus vivendi shall replace the one that was formalised in the 1988 Rajiv Gandhi visit.
    • The old framework is no longer working and the signs of stress in the relationship are everywhere.
    • The more India rises, the more it must expect Chinese opposition.
    • So, India will have to work with other powers to ensure that its interests are protected in the neighbourhood, the region and the world.
    • The complexity of India-China relations suggests there is a scope for new modus vivendi.
    • This would require a high-level strategic dialogue between the two sides about their core interests, red lines, differences and areas of convergence.

    What India can do to keep the region multi-polar?

    • As U.S. is withdrawing from the world, it will no longer be the upholder of international, economic and political order.
    • There is uncertainty over how the US will choose to deal with China.
    • India must work with other powers to ensure that this region stays multi-polar and that China behaves responsibly.

    Double opportunity for India

    • 1. Opportunity in the US-China contention
    • US-China contention will continue in future. Hence, both China and the U.S. will look to put other conflicts (eg: conflicts with India on trade or border issue) and tensions on the back burner.
    • This effect is already perceptible in the Wuhan meeting between China’s President Xi Jinping and Mr. Modi in early 2018.
    • And the apparent truce and dialing back of rhetoric by both India and China.
    • 2. Opportunity to Change national security Structures
    • Today, India is more dependent on the outside world than ever before.
    • It relies on the world for energy, technology, essential goods like fertilizer and coal, commodities, access to markets, and capital.
    • Adding the new security agenda and the contested global commons in outer and cyberspace and the high seas to India’s traditional state-centred security concerns gives India a sense of insecurity.
    • So, India needs to adapt to the changes and avoid imitating China.

    Consider the question-“The global order is experiencing geopolitical churn, new powers are rising and older are staring at the decline. In such a scenario, examine the opportunities India can explore in the context of the US-China contention”.

    Conclusion

    India risks missing the bus to becoming a developed country if it continues business and politics as usual. The most important improvement that India needs to make concerns its national security structures and their work — introducing flexibility into India’s thinking and India’s structures. For change is the only certainty in life.

  • Judiciary’s tryst with technology

    COVID pandemic has been changing many aspects of our life and forcing us to innovate or embrace the novel changes. The judiciary is not immune to this change. This article advocates for the adoption and popularization of online court. But there were several attempts at the adoption of technology in the working of courts even before the pandemic. Time has now come to its adoption on a wider scale.

    Three types of courts in our justice delivery system

    • First, conventional courts located in court complexes where judges, lawyers and litigants are physically present.
    • Second, online courts where the judge is physically present in the courtroom but the lawyer or litigant is not.
    • This is the present arrangement, except that now the courtroom is the residential office of the judge, due to the lockdown.
    • Third, virtual courts where there is no judge, lawyer or litigant and a computer takes a decision based on the inputs of the litigant.

    Pilot project with Tihar Jail

    • The pilot was for dealing with routine remand cases of prisoners.
    • The procedure postulated prisoners being produced in court, not physically but through video conferencing (VC), hence an online court.
    • The pilot project started tentatively with some hiccups but proved to be a success.
    • Now several courts have adopted the online process with varying degrees of commitment.

    District courts and High Courts’ adoption of online route

    • A few district judges have taken a step forward and recorded the statement of parties in cases of divorce by mutual consent.
    • As of now, several such cases, including those involving NRIs, are dealt with through VC in online courts.
    • Punjab and Haryana judges have gone even further ahead. The online courts record the expert evidence of doctors from PGIMER through VC.
    • This has freed the doctors from time-consuming trips to the courts and has resulted in savings of several crores for the exchequer.
    • A determined and concerted effort is necessary to popularise online courts at the district level.
    • Some high court judges in Delhi and Punjab and Haryana have completely dispensed with paper.
    • In these high courts, everything is on a soft copy, through e-Filing and scanned documents.
    • Lawyers and judges have made necessary adjustments to the new regime and the cases are conveniently heard and decided in “paperless courts”.
    • A few other high courts initiated similar steps, but have yet to institutionalise “paperless courts”.

    What are the problems?

    • Unfamiliarity with the medium of communication is the major issue. Judges are simply not used to consciously facing a camera generally and in particular while hearing a case.
    • Similarly, lawyers find it difficult to comfortably argue while seated.
    • Body language, facial expressions, the tone and tenor, both of the judge and the lawyer, make for important signals and clues which cannot be captured in VC.
    • Some technical problems in conducting online hearings have also surfaced. The bandwidth is not adequate or stable enough.
    • The picture sometimes breaks or gets frozen and the voice often cracks.
    • Consultations are also a problem. Lawyers occasionally need to consult their client or the instructing advocate; judges also need to consult each other during a hearing.
    • Attention needs to be paid to these real-time issues otherwise lawyers will harbour misgivings about a fair hearing.
    • The chairman of the Bar Council of India has voiced a concern that 90 per cent of the lawyers are not computer literate or tech-savvy.

    eCourts Project: A virtual court

    • A virtual court is a unique contribution of the eCourts Project.
    • A pilot virtual court was launched in August 2018 in Delhi for traffic offences and it has been a great success.
    • Virtual courts have been successfully tried out in Delhi, Haryana, Maharashtra and Tamil Nadu.
    • A virtual court is a simple programme through which a person can find out if a challan has been issued to him or her through a search facility.
    • If a challan has been issued, the details are available online and the person may plead guilty or not guilty.
    • On a guilty plea, the minimum fine is imposed and on a not-guilty plea, the case is electronically transferred to the traffic court for trial.
    • At the end of the day, a judge reviews the cases and disposes of them electronically depending on the option exercised.
    • One judge is all it takes to manage the virtual court for Delhi or an entire state.
    • With the launch of virtual courts, the daily footfalls to the courts have drastically reduced and thousands have pleaded guilty and paid the fine electronically.

    Potential of the virtual courts

    • The virtual court system has the potential of being upscaled and other petty offences attracting a fine such as delayed payments of local taxes or compoundable offences can also be dealt with by virtual courts.
    • This will ease the burden on conventional courts and therefore must be strongly encouraged.

    Consider the question- “Covid-19 pandemic has been forcing judiciary for faster adoption of technology. Discuss the issues and advantages of the adoption of technology such as video conferencing by the judiciary”

    Conclusion

    Post lockdown, justice delivery will certainly undergo a transformation. And judges, lawyers and litigants will need to adapt to the new normal. Several countries and courts have made adjustments not only for the period of the pandemic or lockdown but also for the future. We should certainly not be left behind but must also make a roadmap to meet the challenge.

  • Transforming the Military

    The COVID blaze caused economic disruption and now even the military is feeling the heat. The military is grappling with multiple issues like freezing of fresh capital acquisition and delay in procurement. But this could also be considered as an opportunity to transform the Indian military. 4 areas where this transformation could start are discussed in this article. Read to know more.

    The difference in approaches to security

    • Pakistan’s approach: Pakistan stagnates in an existential-threat-based and India-centric approach to national security.
    • What is China’s approach? China’s expansive global strategy and unbridled capability-based development surge have overcome the dangers of direct competition with the US.
    • It has closed the gap through an “indirect approach to international security”.
    • This indirect approach looks at building on strengths in areas such as cyberspace, non-contact warfare, economic and diplomatic coercion.

    So, what should be India’s approach to security?

    • Strategic guidelines for India’s must shift from a threat-based methodology to a multi-disciplinary capability.
    • An outcome-based orientation to fit with the nation’s power aspirations.

    4 most critical means to kick-start the transformation:

    1. Creation of indigenous defence capability

    • Doing this without brushing away the short and medium-term requirement of selective imports will be the key to a calibrated march to self-sufficiency.

    2. Leadership

    • India’s military leadership is very hierarchical and sequential in its approach.
    • However, this same leadership has superb operational skills and possesses a quick understanding of technology, tactics, techniques and procedures.
    • Consequently, strategic leaders need to be identified and their transition towards becoming more than mere executors of operational plans and campaigns needs to be enabled.
    • Multi-disciplinary thinking, lateral assimilation and a world-view are among the specific skill-sets that need to be nurtured.

    3. Training and Education

    • Training and education form the next two silos in the process of transformation.
    • The US example: Several military officers at the colonel level — fresh out of war colleges and the university environment where they spend a year of education (not training) — are posted at the Pentagon and NATO HQ.
    • Here, they work alongside civilians, politicians, lawmakers, not forgetting their own joint leadership.
    • In such an environment, it is not difficult to mark, train and recognise talent in ways that go beyond the mere rank structure.
    • It is high time India goes down that road because even though economic globalisation may be on hold for a while post-COVID-19, there is going to be a flattening of the world from a security perspective.
    • There will be common threats that would need to be fought jointly by nations.
    • The three pre-requisites in these silos will be an amalgam of 1)service-centric and joint operations expertise, 2) operational acumen in a global environment, and 3) broad-based education that develops intellectual capital.
    • Training in the Indian military is top-notch and needs a little tweaking to help officers and men understand the rules of engagement in a Volatile, Uncertain, Complex and Ambiguous (VUCA) world.
    • It is diversified education at all levels of leadership that is a weak area.

    4. Jointness and integration

    • Finally, the silo of jointness and integration without losing identities and compromising competencies is an outcome that needs to be chased down with focus and determination.

    Consider the question based on the issues discussed in the article “Strategic guidelines for India’s security managers must shift from a threat-based methodology to a multi-disciplinary capability and outcome-based orientation to fit with the nation’s power aspirations. Based on some expert committee reports, discuss the ways which the Indian military follow to achieve the transformation to satisfy the nation’s power aspirations.”

    Conclusion

    Some difficulties caused to the military due to COVID pandemic should be considered as an opportunity. It should be an opportunity to evolve a transformational culture in the Indian military. This should be based on clear political guidelines driven by existing and futuristic capabilities, expected strategic outcomes and anticipated strategic challenges.

     

  • Is the perpetual bond a suitable option to raise money?

    The government is exploring ways to raise money to deal with the destruction caused by COVID pandemic. One of the suggestion is the monetisation of fiscal deficit. But this article looks into an alternative approach of issuing bonds based on the idea of Consol bond issued by the British government during WW 2. So, how much amount needs to be raised? and why a perpetual bond like Consol bond is a suitable option for India? Read to know!

    A gathering financial storm

    • India projected a deficit of ₹7.96-lakh crore in the Budget before the pandemic.
    • Adding to the above concern: 1) Off-balance sheet borrowings of 1% of GDP. 2) The overly excessive target of ₹2.1 lakh crore through disinvestments.
    • Thus, financial deficit number is set to grow by a wide margin owing to corona crisis.
    • There will be revenue shrinkage from the coming depression that will most certainly be accompanied by a lack of appetite for disinvestment.

    Need for stimulus package and measures taken by the RBI

    • In addition to the expenditure that was planned, the government has to spend anywhere between ₹5-lakh crore and ₹6-lakh crore as a stimulus package.
    • The stimulus provided by the government so far and recent announcements by the Reserve Bank of India (RBI) achieved little.
    • All the RBI’s schemes are contingent on the availability of risk capital, the market for which has completely collapsed.
    • The government and the RBI have tried several times to increase lending to below investment grade micro, small and medium enterprises, but have come up short each time.
    • Furthermore, while the 60% increase in ways and means limits for States is a welcome move, many States have already asked for doubling the limits due to the shortages in indirect taxation collections from Goods and Services Tax, fuel and liquor.
    • The government and the central bank need to understand that half measures will do more harm than good.

    What is the Consol Bond?

    • Consol bond is a form of British government bond that has no maturity and that pays a fixed coupon.
    • Consols are basically rare examples of actual perpetual bonds.
    • The bonds were issued in 1917 as the government sought to raise more money to finance the ongoing cost of the First World War.

    So, why bond like Consol Bonds is a good option for India?

    • There is no denying the fact that the traditional option of monetising the deficit by having the central bank buy government bonds is one worth pursuing.
    • Citizens’ active participation is ensured in Consol Bond type alternative.
    • Furthermore, with the fall of real estate and given the lack of safe havens outside of gold, the bond would offer a dual benefit as a risk-free investment for retail investors.
    • When instrumented, it would be issued by the central government on a perpetual basis with a right to call it back when it seems fit.
    • An attractive coupon rate for the bond or tax rebates could also be an incentive for investors.
    • The government can consider a phased redemption of these bonds after the economy is put back on a path of high growth.

    The solution of bond offered here could be a valuable addition in points to the answer to the question which asks about the ways to raise money. Consider the question, “Economic devastation caused by the COVID pandemic has forced the government to explore the various ways to raise the money. Discuss the options available with the government and issues associated with the options.”

    Conclusion

    Politicians and epidemiologists across the world have used the word “war” to describe the situation the world is currently in. So, to raise the money to fight this war against Covid-19, we can take the cue from past and issue bond based on the Consol bond.

    Back2Basics: What is fiscal deficit?

    • A fiscal deficit is a shortfall in a government’s income compared with its spending.
    • The government that has a fiscal deficit is spending beyond its means.
    • A fiscal deficit is calculated as a percentage of gross domestic product (GDP).
    • There can be different types of deficit in a budget depending upon the types of receipts and expenditure we take into consideration. Accordingly, there are three concepts of the deficit, namely-
    • Revenue deficit = Total revenue expenditure – Total revenue receipts.
    • Fiscal deficit = Total expenditure – Total receipts excluding borrowings.
    • Primary deficit = Fiscal deficit-Interest payments.
    • Primary deficit shows how much government borrowing is going to meet expenses other than interest payments.
    • Thus, zero primary deficits mean that the government has to resort to borrowing only to make interest payments.
    • To know the amount of borrowing on account of current expenditure over revenue, we need to calculate the primary deficit.
    • Thus, the primary deficit is equal to fiscal deficit less interest payments.

    Perpetual Bonds

    • A perpetual bond, also known as a “consol bond” or “prep,” is fixed income security with no maturity date.
    • This type of bond is often considered a type of equity, rather than debt. One major drawback to these types of bonds is that they are not redeemable.
    • However, the major benefit of them is that they pay a steady stream of interest payments forever.
    • Perpetual bonds exist within a small niche of the bond market.
    • This is mainly due to the fact that there are very few entities that are safe enough for investors to invest in a bond where the principal will never be repaid.
    • AT-1 bonds which were recently in news due to YES bank failure is an example of a perpetual bond.

     

  • Stimulus package conundrum

    There are many suggestions and expectations around the stimulus package deal to revive the economy crippled post corona pandemic. While everyone agrees over the need of stimulus but there are several opinions and suggestion around the various aspects of the package like size, time, source of revenue etc. But we must be mindful of the pitfalls and constraints while thinking about the stimulus package. So, what are the suggestion and expectation and what are the limitations? Read to know!

    1. Supply-side constraints on stimulus

    • It is argued that a fiscal stimulus package has to follow the timeline.
    • But you cannot ‘stimulate’ an economy during a supply-side lockdown.
    • And that there are ‘announcement effects’ — both good and bad — that go with the stimulus.
    • So, any ‘good stimulus’ can only come into effect post lockdown and extensive consultations are on with everyone for that.

    2. What should be the size of the stimulus package?

    • While thinking about the stimulus, we cannot forget that government revenues too will be seriously hit.
    • The government revenue will be hit by 2-3% of GDP, given that disinvestment target itself is 1% of GDP and the realisation is likely to be close to zero in the current financial year.
    • So, the effective fiscal deficit is going to be somewhere around 7.5 % if you take into account all the off-balance sheet borrowings.
    • The U.S. government has set aside $2 trillion for bailouts or 9% of its GDP.
    • India’s starting point is going to be at around 7.5% of GDP fiscal deficit, then how much more can we afford on top of that?
    • On top of this is all the ‘merit expenditure’ on health and direct income support to the poor cannot be reduced.
    • Can we still formulate a stimulus package comprising 10% of GDP, to be footed by the Central government alone?

      Monetising the deficit and debt-to-GDP ratio

    • From 1947 to 1997, the Central government always routinely monetised its deficit, without leading to high rates of inflation, much less hyperinflation.
    • The Fiscal Responsibility and Budget Management (FRBM) limits are hardly a success and routinely all governments have broken the barrier.
    • Other countries with huge debt-to-GDP ratios like Japan (>200%) and U.S. (125%) get away with barely a rap on the knuckles.
    • But India is pulled up for minor slippages on a 70% debt-GDP ratio.

    3. Should we pay attention to needs and forget about affordability?

    • Some have argued that bailouts should be based on need and not affordability.
    • Can printing money be a solution out of this situation?
    • Possible dangers of printing money: The currency could plunge, inflation soar high and rating agencies could downgrade us to junk.
    • So, shouldn’t there be a more nuanced approach to what constitutes a ‘good’ stimulus?

    4. The problem of low credit flow despite high liquidity

    • There is a lot of liquidity in the economy, but limited credit is flowing due to anaemic lending.
    • Thus, another mantra being espoused is that bank managers should be incentivised to lend and the government should indemnify loans given during this period.
    • This could well lead to bogus companies springing up overnight to grab the stimulus in collusion with banks.
    • The government owes about ₹1 lakh crore on tax refunds and also had promised to make up for any difference to the States, if the GST did not grow by 14% per annum.
    • This is the time for it to transfer this to the States as a grant, for one year, to offset the revenue loss to States.

    5. Should we go to the IMF?

    • There is talk of going to the International Monetary Fund (IMF).
    • Do we really need the IMF’s bailout which comes with conditions when there is no foreign exchange crisis for financing rupee expenditure?
    • Moreover, there is a perceived global stigma attached to doing so.
    • Won’t the conditionality-led cure be worse than the disease?

    Consider the following question based on the issue “Economic crises accentuate the role of governments. Covid-19 has not been different. In light of the above statement, discuss the various issues that the government faced while coming up with a stimulus package to revive the economy. What are the sources of revenue to be tapped by the government?”

    Conclusion

    Fate is what happens to us. Destiny is what we make in spite of our fate. India’s destiny appears relatively safe, if we cast the mind’s eye around the globe. Lifting the lockdown will be the first step towards a good stimulus and one does need to un-handcuff a billion people to save their lives too.

  • Opportunity to strengthen the 73rd and 74th amendment

    The article brings to the fore untapped potential held by the panchayats and municipalities. However, there is a need for devolution in letter and spirit by the states to tap this potential. The article explains how the panchayats and municipalities could contribute effectively in the fight against Covid-19.

    Cooperative federalism amid COVID-19

    • An unintended but welcome consequence of the struggle against COVID-19 is that the “confrontational federalism” is on the decline with the revival of “cooperative federalism”.
    • There is a realisation that there is no way the COVID-19 situation can be tackled except through a measure of cooperation between the Centre and the states.
    • Consultative process: The Centre is offering flexibility to states to adopt guidelines to their respective circumstances and states are accepting guidelines from the Centre.
    • A principal reason for Kerala’s amazing performance in “flattening the curve” is their robust system of effective devolution. Such devolution helped the Kudumbashree programme to function in association with the panchayats.

    The concept of 3 tier devolution: Centre-State-Panchayats

    • Article 243G provides that state legislatures “may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government”. 
    • This means state governments cannot and must not treat panchayats as extensions of the state government but as “institutions of (local) self-government”.
    • The logic of “cooperative federalism” is that states must function not as implementation arms of the central government but as autonomous units within the federation.
    • By the same logic panchayats too must be conceived not as an extension of state governments but as “units of self-government”. 
    • It is thus that panchayats need to be brought into the three-tier devolution system envisaged in the Constitution: Centre-State-Panchayats (and municipalities).

    How could devolution help in the fight against Covid-19?

    • In line with the rising cooperation between the Centre and the states, the focus should be on further devolution in keeping with the constitutional obligations under the 73rd and 74th amendments.
    • The starting point could best be Entry 23 of the Eleventh Schedule that reads, “Health, sanitation, including hospitals, primary health centres and dispensaries”
    • Entry 23 is among the list of 29 subjects illustratively set out for devolution to the panchayats, subject to conformity legislation being enacted by state legislatures.
    • All state legislation has included this subject for devolution.
    • Therefore, empowering the panchayats in this regard with functions, finances and functionaries is now a statutory obligation under state law under Article 243G.
    • With the migrant workers returning to their native villages, it is important to fully involve village panchayats and municipalities as “institutions of self-government” – 243W in the anti-COVID-19 campaign.
    • Entry 28 of the Eleventh Schedule mentions the “public distribution system” as among the subjects for devolution.
    • There are many other entries in the Schedule that are relevant to this exercise.
    • There is an army of 32 lakh elected representatives in the panchayats and about two lakh more in the municipalities to contribute in the fight against Covid-19.
    • Well over a third of them, some 10-12 lakh, are drawn from the Scheduled Castes and Tribes and, therefore, in touch with the most destitute in every village and town.
    • There are some 14 lakh women who have established themselves by election as village leaders. 
    • Imagine a constructive role such women can play as “front-line workers” in the battle against the coronavirus.
    • The most important requirement is planning to receive the migrant labour influx.
    • Last-mile delivery can only be comprehensively ensured by empowered panchayats and municipalities reporting to their respective gram sabhas and ward sabhas mandated under Articles 243 A and 243 S.
    • Planning for withstanding the ingress of COVID-19 requires the full deployment of the mechanisms for district planning envisaged in Article 243 ZD.

    Consider the question asked by the UPSC in 2018-“Assess the importance of the Panchayat system in India as a part of local government. Apart from government grants, what sources the Panchayat can look out for financing developmental projects?”

    Conclusion

    As the cooperative federalism underlines India’s fight against Covid-19, devolution to the third tier –panchayats and municipalities would give a much needed fillip to the fight against Covid-19.

    Back2Basics: 73rd and 74th Amendments

    • 73rd and 74th Constitutional Amendments were passed by Parliament in December, 1992.
    • Through these amendments local self-governance was introduced in rural and urban India.
    • The Acts came into force as the Constitution (73rd Amendment) Act, 1992 on April 24, 1993 and the Constitution (74th Amendment) Act, 1992 on June 1, 1993.
    • These amendments added two new parts to the Constitution, namely, 73rd Amendment added Part IX titled “The Panchayats” and 74th Amendment added Part IXA titled “The Municipalities”.
    • The Local bodies–‘Panchayats’ and ‘Municipalities’ came under Part IX and IXA of the Constitution after 43 years of India becoming a republic.

    Salient Features

    • Basic units of democratic system-Gram Sabhas (villages) and Ward Committees (Municipalities) comprising all the adult members registered as voters.
    • Three-tier system of panchayats at village, intermediate block/taluk/mandal and district levels except in States with population is below 20 lakhs (Article 243B).
    • Seats at all levels to be filled by direct elections [Article 243C (2)].
    • Seats reserved for Scheduled Castes (SCs) and Scheduled Tribes (STs) and chairpersons of the Panchayats at all levels also shall be reserved for SCs and STs in proportion to their population.
    • One-third of the total number of seats to be reserved for women. Onethird of the seats reserved for SCs and STs also reserved for women. One-third offices of chairpersons at all levels reserved for women (Article 243D)
    • Uniform five year term and elections to constitute new bodies to be completed before the expiry of the term. In the event of dissolution, elections compulsorily within six months (Article 243E).