Comprehensive News Analysis - 02 June 2016

A. GS1 Related

Nothing here today folks! J

B. GS2 Related

1. Police stations to be graded on performance

Topic: Governance

Category: Police

Location: The Hindu

Key points:

• Police stations would be graded on the basis of their performance. The Bureau of Police Research and Development (BPR&D) has developed parameters on which the police stations would be graded and proposals have been sent to States for their suggestions said the Union Home Minister
• The Minister said a new concept of “tourism police” was being considered
• “The Central Industrial Security Force (CISF) has prepared a concept paper on it and it is being examined in the Ministry,” said the minister
• A database of 20 lakh policemen was created, he said
• “A new thing which started this year is the exchange of marching contingents of the State police forces during the Republic Day parade. So far, 21 States have exchanged marching contingents with one another,” he said
• A new task force on “technology,” comprising police officers from each State, was constituted, and it would soon begin its work
• “We will be collating the best practices followed by the police in each State and will send advisories to other States to follow the model. This is being done so that the States can know about the best available model for policing,” the minister said

• He said rules had been framed to improve investigation techniques of the police. “Capabilities like fingerprint scan is being upgraded for police stations and steps are also being taken to check cybercrimes,” he said.
• All seven Union Territories, which report directly to the Ministry, had already implemented the 33 per cent reservation for women in the police forces

2. Maldives opposition forms shadow govt. in London; seeks help from India

Topic: India’s Neighbourhood

Category: Maldives

Location: The Hindu

Key points:

• A new multi-party opposition platform was launched in London that pledged to lead the fight for the restoration of democracy in the Maldives.
• Former Vice-President of the Maldives, now living in exile in the United Kingdom, Dr. Mohamed Jameel Ahmed will head the Shadow Cabinet of the newly formed Maldives United Opposition. The Deputy Leader is Ali Waheed, currently Chairperson of the Maldivian Democratic Party (MDP).Mr. Nasheed, the first democratically elected leader of the Maldives who was recently given political asylum in the UK, chose to take a back seat in the Shadow Cabinet with the post of Advisor
• In his time as Vice-President in the Yameen regime, DrJameel Ahmed said he noted with concern how Mr. Yameen’s foreign policy “contradicted our long-standing ties with India. I was worried at the way he purposefully tried to alienate India by giving a more undemocratic nation limitless access.” The Maldivian opposition has been critical of the growing economic footprint of China in the Maldives, which they believe Mr. Yameen has encouraged to counter India’s influence in the Indian Ocean region

3. ‘No Saudi-Pak. nuclear cooperation’

Topic: India’s Neighbourhood

Category: Pakistan

Location: The Hindu

Key points:

• Given Saudi Arabia’s difficulty in developing an indigenous nuclear weapons capability, speculation has turned to the possibility of the Kingdom receiving support from a foreign power, usually Pakistan, which received generous financial support from Saudi Arabia in acquiring its own nuclear arsenal
• However senior Saudis and Pakistanis deny such an understanding exists. If it does exist, the Saudis would find it hard to rely on such an assurance now, especially in the wake of Islamabad’s rejection of the Saudi request to take part in the Yemen campaign-says the study done by Brookings experts Robert Einhorn and Richard Nephew
• Critics had argued that the Iran nuclear deal would encourage other countries in the region to develop their own nuclear capabilities

C. GS3 Related

1. Proposal to hire private sector talent in PSUs wins approval

Topic: Governance

Category: miscellaneous

Key points

• The cabinet gave its nod for the selection of candidates from state public sector enterprises and the private sector as “non-internal candidates for a period of five years for appointment in Central Public Sector Enterprises (CPSEs)
• The Cabinet approved the signing of three memoranda of understanding (MoU) between India and Qatar for cooperation in skill development and ‘recognition of qualifications.’ It will strengthen ties in the field of tourism, and provide cooperation and mutual assistance in matters related to customs.
• Another MoU approved by the Cabinet was one between the United States of America and India to enhance cooperation in wildlife conservation and combating wildlife trafficking
• The Cabinet was also apprised of the signing of an MoU between India and Brunei Darussalam in the field of youth and sports affairs. The MoU was signed on February 2, 2016 in Brunei
• The Cabinet also gave its ex-post facto approval for an MoU signed between the Directorate General of Civil Aviation and France’s Civil Aviation Authority Direction Generale de l’AviationCivile (DGAC) in a bid to enhance skills and expertise of India’s aviation officials
• The Union Cabinet on Wednesday granted its approval to set up India Post’s payments bank, 650 branches of which will be made operational by September 2017

2. India, EU aim to break Free Trade Agreement impasseTopic: Economy

Category: India-EU FTA

Key points

• Commerce Minister of India will meet the European Union Commissioner for Trade on the sidelines of an Organisation for Economic Co-operation and Development’s Ministerial Council Meeting in Paris to discuss revival of the India-EU Free Trade Agreement negotiations
• During the meeting, the EU is likely to raise its concern over what it called India’s “unilateral termination” of existing Bilateral Investment Treaties (BITs) with “a significant number of” EU-member countries.India has inked 83 BITs, including with several EU member countries
• India had put on hold new BITs as investors have dragged it to international courts with an aim to seek huge compensation for “losses” suffered due to reasons such as changes in government policies
• The EU urged India “not to take further steps towards denouncing the BITs concluded with the EU Member States, but allow these BITs to be replaced in a mutually agreed framework.”
• The EU’s key demands include India to drastically cut or eliminate duties on automobiles and wines and spirits, while India’s main demands pertain to data security status (crucial for India’s information technology sector to do more business with the EU firms) and easier temporary movement of skilled professionals
• On the sidelines of the OECD meeting, the commerce minister will also attend a meeting of trade ministers of the World Trade Organisation (WTO) member countries on ways to take forward the “Nairobi Package” adopted in December 2015

3. Difficult to give timeline for conclusion of FTA talks with India: Australian High Commissioner

Topic: Economy

Category: Trade

Key points

• Though there was a deadline of December 31, 2015 for concluding the FTA talks between India and Australia, it was missed due to differences on some issues. While India is seeking greater market access in services sector, auto parts, textiles, jewellery and fresh fruits including mangoes, Australia is demanding the same in dairy, fresh fruit, pharma, meats and wines
• India and Australia are also taking part in the ongoing negotiations for a mega regional FTA called Regional Comprehensive Economic Partnership (RCEP)

4. Farmers unhappy over ‘meagre’ hike in paddy MSPTopic: Economy

Category: Agriculture

Location: The Business Line

Key points

• Farmers associations and agri-economists are angry over the “meagre” hike in the minimum support price (MSP) for paddy, pulses and other crops
• The government on Wednesday announced a hike in the MSP of ₹60 a quintal for paddy and ₹425 for pulses, far below the farmers’ expectations
• The hike in the MSP falls well short of the recommendations of the National Commission on Farmers, headed by Prof MS Swaminathan, which had recommended that the MSP by 50 per cent more than the weighted cost of production

5. PM releases UN-backed National Disaster Management PlanTopic: Disaster Management

Category: Policy

Location: The Business Line

Key points

• To make the country disaster-resilient and reduce loss of lives, the Prime Minister Narendra released a National Disaster Management Plan (NDMP)
• The plan is based on four priority themes outlined by the United Nation’s ‘Sendai Framework,’ — understanding disaster risk, improving disaster risk governance, investing in disaster risk reduction (through structural and non-structural measures) and disaster preparedness, early warning and building back better in the aftermath of a disaster
• The Framework was adopted by member-states on March 18, 2015, at the third UN World Conference on Disaster Risk Reduction in Sendai, Japan
• The plan, designed to be scalable at all levels, will cover disaster prevention, mitigation, response and recovery. It provides for horizontal and vertical integration among all the agencies and departments of the government, the official statement read
• “The plan has a regional approach, which will be beneficial not only for disaster management but also for development planning,” it added.

D. GS4 Related

E. Important Editorials: A Quick Glance

The Hindu

1. Shell shock at Pulgaon

Topic: Governance

Category: Defence

Key points

• Roughly 130 tonnes of ammunition blew up in the fire at the Army’s Central Ammunition Depot in Pulgaon, in Maharashtra’s Wardha district, in the early hours of Tuesday
• The cause is unclear, and the high toll of life and material at India’s largest ammunition dump calls for not merely an inquiry, which has already been ordered by the Army, but also a thorough appraisal of the standard operating procedures for storage and inventory
• The CAD Pulgaon is a 7,100-acre facility that is in effect the main ammunition cupboard for the Army. From standard-issue bullets to Brahmos missiles, virtually all types of ammunition purchased by the Army are stored here, feeding 14 ammunition depots and field ammunition depots across the country. These 14 depots further distribute the ammunition to field formations. The brave operation by the small group of men, at risk to their own lives, has saved India’s nuclear-armed military from a much bigger setback
• The officially sanctioned requirement is that War Wastage Reserve (WWR) equivalent to 40 days of intense war be held by the Army. However, a CAG audit in 2015 pointed out that the Army itself was procuring ammunition based on ‘Minimum Acceptable Risk Level’ (MARL) requirements, which averaged to WWR for 20 days of intense war. Even this MARL level was not being maintained, the audit found, with availability of ammunition, as on March 2013, below the MARL for 125 out of a total of 170 types of ammunition the Army was using
• Significantly, the audit pointed to serious concerns regarding fire safety, transportation and storage. In violation of prescribed safety standards, the Army continued to transport explosives in ordinary vehicles, not enough had been done to ensure environmentally friendly and timely disposal of expired explosives, and the storage facilities were poor. Even today in Pulgaon there are sheds covered with tarpaulin
• This tragedy must be a wake-up call, for the government and the military, to improve the safety of ammunition dumps and to accident-proof the transport of ammunition. Even the slightest lapse can have a devastating effect, as we are finding out this week.

2. The challenge of sustaining growth

Topic: Economy

Category: State of Indian Economy

Key points:

• The latest GDP growth data released by the Central Statistics Office show that India’s economy expanded by 7.9 per cent in the three months ended March, a sharp acceleration from the marginally downsized 7.2 per cent achieved in the preceding quarter
• Significantly, that this growth has been achieved despite a prolonged and widespread drought, which would certainly have dampened rural demand, is noteworthy. Even if it is assumed that this provisional figure is likely to be revised downward by about 10 basis points, in line with the revisions for recent quarters, the number would still end up keeping India at the top of the heap among the world’s fastest-growing major economies
• The result of the strong fiscal fourth-quarter performance is that growth for the full year was lifted to 7.6 per cent, from 7.2 per cent in 2014-15. And the wind in the sails was clearly the robust private consumption expenditure, which increased 7.4 per cent last fiscal compared with 6.2 per cent the year earlier. But then, different statistics offer different perspectives, and some of the other data released by the CSO paint a more modest picture of the economy
• Gross Value Added at basic prices provisionally grew 7.2 per cent for the full year, barely nudging up from the 7.1 per cent pace posted in 2014-15, and slower than the Reserve Bank of India’s projection for 7.4 per cent growth
• The GVA figure is significant because it strips the impact that taxes and subsidies have on the overall GDP number. Thus a substantial 5.6 per cent contraction in the amount the government spent on subsidies helped inflate GDP, and by extension the pace of growth
• The outlook for the current quarter and the rest of this year may then hinge a lot on this year’s monsoon: firstly, in terms of the volume of rainfall, and then critically in its geographical and seasonal distribution
• Heavy rains in areas that faced flooding last year or with crops standing in the fields ready for harvest can do more damage to the rural economy than help provide the widely expected demand fillip
• And with the CSO data revealing private sector investment having slowed and showing barely any signs of revival, the onus of providing some investment stimulus may rest squarely with the government — through increased public expenditure outlays
• RBI Governor also has his task cut out as he is to present the bi-monthly monetary policy statement on June 7. Given the growth data, the forecast for a normal monsoon, and the global uncertainties, he would be justified if he opts to hold interest rates and wait and watch instead

3. Bit of a bumpy rideTopic: International Relations

Category:  Indo-US Economic Relations

Key points:

• When Prime Minister Modi visits the U.S. this month, one of his high-agenda items will be the bilateral investment treaty (BIT) between the two countries. BITs impose obligations under international law on host states to protect foreign investment from the other state
• The negotiations that started in 2009 lost steam because both countries were busy updating their model BITs. The U.S. adopted one in 2012 replacing the 2004 model. India adopted a new model BIT in 2015 as a reaction to foreign corporations suing the country under different BITs, and perhaps with the objective to immunise itself from claims of foreign corporations under international law
• A balanced BIT that protects foreign investment without unduly compromising the host state’s right to regulate will benefit both India and the U.S. It will send a positive signal to U.S. investors who are concerned about legal certainty in India. It will also protect Indian investment in the U.S
• According to a 2015 report prepared by the Confederation of Indian Industry (CII) and Grant Thornton, 100 Indian companies such as Tata, Wipro, Cipla, Tech Mahindra and Infosys have invested more than $15.3 billion in the U.S.
• However, there is a huge gap between the two sides on core foreign investment protection standards, as reflected in their respective model BITs, which makes BIT negotiations really difficult. Let us look at some of these differences.
• First, the U.S. model BIT contains a Most Favoured Nation (MFN) provision — a cornerstone of non-discrimination in international economic relations — which is missing in the Indian model. It will be very difficult for India to convince the U.S. to have a BIT without a MFN provision. From the U.S.’s perspective, this would mean that American businesses would have no remedy under international law, if the latter were discriminated against in India. The same argument would apply for Indian investment in the U.S
• Second, the Indian model completely excludes taxation from the purview of the BIT — a direct response to Vodafone and Cairn Energy bringing BIT claims against India for imposing taxes retrospectively. However, in the U.S. model, foreign investors can assert claims that taxation measures, such as confiscatory taxation, involve an expropriation (the act of taking of privately owned property by a government to be used for the benefit of the public) of foreign investment. Given India’s recent record in administering its taxation laws that has made foreign investors jittery, it will be quite difficult for it to convince the U.S. to agree to completely exclude taxation from the BIT
• Third, the Indian model completely excludes issuance of compulsory licenses (CLs) and revocation of intellectual property rights (IPR) from its purview. On the other hand, the U.S. model BIT excludes issuance of CLs and revocation of IPR only from the purview of the expropriation provision. In other words, while the foreign companies, including pharmaceutical companies, cannot challenge issuance of CLs and revocation of IPR as expropriation, they can surely challenge it as violation of other BIT provisions such as fair and equitable treatment (FET) — a pretty stretchable investment protection provision that has often been abused by foreign corporations. Complete exclusion of issuance of CLs and revocation of IPR from the purview of the BIT might not be acceptable to the U.S. for two reasons: first, it would not allow U.S. companies to sue India directly for issuance of CLs or revocation of IPR; second, the U.S. continues to place India, along with China and Russia, on a ‘priority watch list’ for IPR violations, and thus would not like to foreclose opportunities for challenging India’s IP laws internationally. India’s recently unveiled IPR policy has cut no ice with the U.S
• Fourth, the major difference between the two models is on the issue of investor state dispute settlement (ISDS) provisions. ISDS provision in BITs allows foreign investors to directly bring claims against the host state under international law, without the approval of the investor’s home state. The Indian model BIT, unlike the U.S. model, mandatorily requires foreign investors to litigate in domestic courts for five years before pursuing a claim under international law. This is not at all an attractive proposition for U.S. companies in India because of the overstretched Indian judicial system where more than three crore cases are pending. One is unsure to what extent the Commercial Courts Act, 2015, aimed at speedy resolution of commercial disputes, will be able to restore investor confidence in the Indian judicial system
• The issue of BIT negotiations cannot be isolated from the larger economic issues between the two countries, especially the trade battle at the World Trade Organisation. The U.S. continues to accuse India for stalling the trade talks at WTO, which India vehemently counters. Also, India and the U.S. have been involved in a spate of trade disputes at the WTO. In 2015, India lost the case on ban of poultry imports to the U.S. at the WTO. Currently, India and the U.S. are holding consultations at the WTO to resolve India’s complaint over increased visa fees by the U.S. This comes immediately after India lost the solar panel case to the U.S. in the WTO. This, in turn, perhaps prompted the government to inform Parliament that India plans to file as many as 16 disputes against the U.S. in the WTO challenging the U.S.’s renewable energy programmes
• All these developments might have soured the environment for healthy bilateral economic engagement, which could impact BIT negotiations. Consequently, notwithstanding the top leadership expressing commitment, a BIT looks difficult in the present circumstances unless one of the sides blinks. Will India blink first?

1. How India learnt to promote, and regulate, competition 

Topic: Governance

Category: competition regulation

Key points

• In 1998, a proposal to have a new competition law was floated. By then, several years had passed since India had removed almost all restrictions on industrial licensing by the famous 1991 Cabinet decision which came a little before the celebrated 1991 Budget
• Yet, despite the early burst of reforms in the early 1990s and partly in the 80s, and much talk of promoting competition and private enterprise, the age-old Monopolies and Restrictive Trade Practices Act or the MRTP Act, which had been designed for an era when the public sector occupied most core sectors, was still in force
• Even countries as small as Malawi, which too had opened up in the early 1990s, had, by 1997, introduced a competition law on the lines of many other countries including the US and Canada, which had enacted such laws over a hundred years earlier
• So, in the 1999 Budget, the then finance minister announced the government’s intention to introduce a modern competition law for India — suitable for domestic conditions, to shift focus from curbing monopolies to promoting competition, and looking at global developments
• S V S Raghavan, who headed the State Trading Corporation, was then appointed by the government to head a high-level committee to work on a competition law and policy
• There was enough economic rationale for such a law. One, of course, was to discourage and prevent anti-competitive behaviour and practices, while protecting the interests of consumers
• The Committee, which submitted its report in August 2000, while making out a case for a law, flagged a few major concerns that it said had to be kept in mind. It pointed out the prospect of quantitative restrictions or QRs being phased out by April 2001, and the danger of greater competition from abroad, given India’s low tariffs. And it wasn’t just the consumer goods industry that could be in trouble, the Committee said. There could be toymakers, plastic processors, textile firms and other manufacturers too. But more importantly, there was a clear argument for a competition law to prevent global cartels from indulging in anti-competitive practices in the country
• The government set up of a Group of Ministers headed by the then Finance Minister to work on the draft of the proposed new competition law, and also on a framework for the Competition Commission
• The report of the Group of Ministers was approved by the Cabinet, and the Competition Bill was approved in 2002. By January 2003, India’s Competition Act was notified, with a 10-member Competition Commission envisaged. The Competition Commission was seen in the same way as SEBI and TRAI, regulators which had been empowered by then, and which had powers to issue orders directing firms in the sectors that they regulated. The Commission was formed in October 2003.For the next several years, the Commission had a single member — or, like in the early days of SEBI, just a senior official in the form of the chairman, and a few staffers
• By 2007, a formula was devised under which the Commission would have 7 members, while a 3-member Appellate Body which would hear appeals against the orders of the Commission, would be headed by a judge. That paved the way finally for the functioning of a full fledged Competition Commission or an anti-trade abuse agency in India
• Substantive provisions were introduced in 2009, and a former civil servant, Dhanendra Kumar, was appointed Chairman. His successor, former Finance Secretary Ashok Chawla, got a full five-year term
• As early as 2002, the first expert group made the point that it was important to ensure that the competition legislation does not become anti-competitive. That was the real danger, it said — making it all the more important to ensure that the law was precise, and discretion was kept to the minimum
• The Commission will be tested on that. Earlier this month, while delivering the Commission’s annual day lecture, the Finance Minister had a few pertinent points to make. Russia, he said, upon opening up, had plumped for privatisation without promoting competition, leading to the creation of oligarchs. Being pro-business alone was not enough. “If you are pro-business without being pro-competition, the consequences could be very dangerous,” he warned. Indian policymakers ought to keep that in mind

1. PIB

a) Dr Jitendra Singh to award the Certificate of Appreciation to Ministries and Departments based on performance in CPGRAMS The Ministries/Departments/Organizations will be awarded Certificate of Appreciation based on their performance in the Centralized Public Grievance Redress and Monitoring System (CPGRAMS) during the two Quarters, – Oct-Dec.2015 and Jan-March, 2016.

The Certificate of Appreciation is for greater motivation towards redress of public grievances and also for introducing the sense of competitiveness among the officers for public grievances belonging to different Ministries/Departments

b) PM greets the people of Telangana on Statehood DayTelangana was formed on 2^nd June 2014

c) Cabinet approves setting up of India Post Payments Bank The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has given its approval for setting up the India Post Payments Bank (IPPB) as a Public Limited Company under the Department of Posts, with 100% Government of India (GOI) equity.

The total expenditure involved in this project is Rs 800 Crore. All citizens, especially 40% of the country’s population that is outside the ambit of formal banking in the country will benefit from this project. The project will be rolled out in the entire country in a phased manner.

The IPPB will obtain banking licence from RBI by March 2017 and by September 2017, its services will be available across the country through 650 payments bank branches, linked post offices and alternative channels riding on modern technology including mobiles, ATMs, PoS/ m-PoS devices etc and simple digital payments

d) Ministry of Corporate Affairs issues notification for constitution of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT); Hon’ble Justice S.J. Mukhopadhaya, Judge (Retd.), Supreme Court of India joins as the Chairperson of the NCLAT while Hon’ble Justice M.M. Kumar, Judge (Retd.) joins as the President of the NCLTWith the constitution of the NCLT, the Company Law Board constituted under the Companies Act, 1956 stands dissolved.

Initially, NCLT will have eleven Benches, two at New Delhi and one each at Ahmedabad, Allahabad, Bengluru, Chandigarh, Chennai, Guwahati, Hyderabad,Kolkata and Mumbai.

2. The Financial Express: India gets ultimatum from RCEP countries to cut tariffs or leave blocTopic: Economy

Category: Trade

Key Points

• According to reports, India got an ultimatum from the RCEP countries to either cut tariffs or leave the bloc. The pact has already missed its 2015 deadline and members expect to seal the deal by the end of this year. In the next round, in Auckland, between June 12-18, India may face enormous pressure to reduce tariff rates beyond the initial offer it made in Busan last year
• RCEP is a proposed free trade agreement (FTA) between 10 ASEAN countries and their six FTA partners, namely Australia, China, India, Japan, Korea and New Zealand. It accounts for 25% of global GDP, 30% of global trade, 26% of FDI flows and 45% of the total population
• After submitting the initial offer on goods trade, India is now reluctant to further dismantle tariff rates unless some of its demands are met. The reason for India’s aggressive stance is largely due to its past experiences with other trade agreements, where it did not gain much
• What are India’s pain points? Based on its learnings from previous FTAs, it wants to strike a fair deal for its domestic industry. It has raised concerns related to quantum of tariff elimination, threat of cheap Chinese imports, market access for services, rules of origin requirement and a stricter IPR regime
• First, opening its domestic industry for Chinese imports is the biggest concern. India’s trade deficit with China has risen thirteen-fold in the past decade. In fact, China now accounts for over 40% of India’s trade deficit, as imports have grown at an annual rate of 30% while exports have risen only by 14%. India Inc. claims that cheap Chinese imports have hurt domestic players. This is evident from the fact that India has registered the maximum number of anti-dumping cases against China (134/545 cases). Under RCEP, India has negotiated a different tariff liberalisation schedule with China, giving concessions only on 42.5% of the tariff lines. It is not comfortable reducing tariffs, especially on textiles, metals, etc. China, of course, is not very happy.
• Second, in the case of quantum of tariff elimination, India is reluctant to be aggressive. Historically, India’s trade balance with FTA partner countries has deteriorated post FTAs. For instance, trade deficit with ASEAN and Korea has almost doubled since 2010. With Japan, too, trade deficit has increased from $3.1 billion to $5.1 billion during the same period. Also, exports to (Regional Trade Agreement) RTA and non-RTA partner countries have grown at similar pace over the past decade (13% y-o-y).This points to the fact that India has not gained much in terms of exports as a result of FTAs. Due to its higher tariff regime, India has to reduce tariffs much more than other RCEP countries. Sharp reduction in tariff will mean huge revenue loss for India
• The commerce ministry estimates that RCEP will lead to a revenue loss of 1.6% of GDP. The average (Most Favoured Nation) MFN applied tariff rate for India is the highest amongst the RCEP countries (13.5%) followed by South Korea, Thailand and Cambodia. Agriculture is also highly protected with average MFN applied rate at 33.4%, next only to South Korea. While Singapore, Australia, Brunei & New Zealand are few countries that have low import duties
• Third, as India’s strength lies in services trade, negotiation on this is critical. India has been pushing for greater market access in services which has irked ASEAN members. India did not get a fair deal under the ASEAN–India Free Trade Area(AIFTA) services pact, after the goods agreement was signed. It expects greater liberalisation in Mode 4 services that facilitate movement of professionals from one country to the other. This could be critical for India’s IT sector. Apart from pushing for liberal visa regimes, India has backed greater liberalisation in Mode 3 (commercial presence) and Mode 2 (consumption abroad) services. However, member countries want tariff liberalisation for goods to precede services negotiations
• On the issue of rules of origin, India has suggested a change in HS code classification (Note:HarmonizedSystem (HS) of tariff nomenclature is an internationally standardized system of names and numbers to classify traded products) plus a 40% value addition as criteria for “origin” in a particular country, as it is worried about surge in imports from China. However, member countries feel it to be stringent criteria which may not do justice to the regional value chain
• Lastly, the IPR regime demanded by members like Japan and Korea are stricter than the level of protection India provides under TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement of the WTO. It has opposed some proposals initiated by members involving patent extensions, restrictive rules on copyright exceptions and other anti-consumer measures. This may limit access to affordable drugs and have serious implications for domestic pharma
• Initial offers for tariff reduction have been made under RCEP. India has followed a three-tiered approach to reduce tariffs from base rates. Base rates are basic customs duty as of January 1, 2014. For each tier, ‘thresholds’ are decided, based on the quantum of tariff lines and RCEP import value, on which customs duties will be eliminated
• For the 1st tier, with ASEAN countries, India’s threshold for tariff elimination is 80% which includes 65% at entry into force (EIF) and 15% over a decade. For the 2nd tier, with Japan and Korea, India has offered 65% tariff elimination threshold while the two countries have reciprocated with 80% threshold over a decade. For the 3rd tier, with Australia, China and New Zealand, India’s offer of 42.5% threshold has been reciprocated with a 42.5% threshold from China, 62.5% from New Zealand and 80% from Australia over a decade. However members, feel India should be more ambitious for their tariff liberalisation schedule
• India is negotiating an FTA with Australia. RCEP countries already constitute 27% of India’s total trade, 16% of its exports and 35% of its total imports. The trade deficit with RCEP has risen ten-fold, from $9 billion in FY05 to $93 billion in FY16, of which China accounts for 56% of the trade deficit ($53 billion)
• India’s trade deficit can be attributed to two reasons. First, exports are more sensitive to income changes than price. This is because the composition of export basket has moved away from traditional exports of textiles, leather and agri products to the export of engineering goods, pharma and petro products. The latter are much more sensitive to global demand than traditional exports.
• Secondly, in the case of multiple RTAs available for exporting to a particular country, exporters prefer the route where compliance is less cumbersome, even if the duty benefits are fewer. If the cost of obtaining benefits (applying for certificates of origin, waiting time and other administration cost) are higher than the benefit itself ( Margin of preference =MFN duty- preferential duty) exporter will use the MFN route instead of the preferential route. According to the Asian Development Bank, the utilisation rate of India’s FTAs varies between 5% and 25% (one of the lowest in Asia). This reflects India’s prevailing complex compliance and administration process
• In such a situation, Indian exporters may not benefit much from tariff cuts/liberalisation under an FTA. This is evident from India’s worsening trade deficit with most of its FTA partners. However, with upcoming mega trade pacts like TPP and TTIP expected to change the global trade landscape, India would not want to opt out of RCEP at this stage. Thus, India’s best bet would be to offset its loss on account of goods trade by greater benefits from market access in services and investment

3.The Business Line: RBI and the liquidity question Topic: Economy

Category: Liquidity Management

Key Points

• The most important takeaway from the April bi-monthly monetary policy statement was the recognition and emphasis by the Reserve Bank of India of the need to supply ‘durable liquidity’ in the economy. The liquidity requirements, as the policy statement elaborates, are of two types — temporary and durable
• Short-term or temporary liquidity arises out of temporary mismatches between assets and liabilities. The first recourse to meet such a situation is for banks to approach the money market and, in India, the call money market. The call money market can, however, be the answer only in situations where some banks have excess liquidity and some others are in deficit. But there can be situations where the temporary need may be felt by the entire banking system. In that situation, the only recourse is to go to the central bank
• In India, the various types of repo facilities are meant to meet this requirement. The repo rate is also a policy rate giving a signal to the banking system. In performing this function, the RBI is fulfilling its role as a lender of last resort
• The fine-tuning of repo facilities is a welcome development. However, meeting the temporary liquidity does not exhaust the functions of a central bank. There is a need to augment durable liquidity to “facilitate growth and to meet the transaction needs of the economy”. The bi-monthly report states clearly that the RBI will meet the need for durable liquidity “by modulating the net foreign assets and net domestic assets growth over the course of the year”
• The key question is: How does one determine the quantum of durable liquidity that is required? In fact, in the earlier days, the term that was used for durable liquidity was simply ‘money supply’. The regulation of money supply was sought to be linked to the expected increase in real output and the income elasticity of demand for money
• Also, assuming a fixed relationship between money supply and reserve money, the RBI tried to regulate the extent of the creation of reserve money. So long as the interest rate structure was ‘administered’ by the RBI, regulation of money supply was the only option open to it. However, our own history prior to the launch of reforms in 1991 clearly shows that because of the automatic monetisation of fiscal deficit, the RBI was fighting a losing battle in controlling money supply. That is why one of the early actions in the reform process was to get away from the issue of ad hoc treasury bills(Treasury bills are instrument of short-term borrowing by the Government of India)
• However, there were other problems with regulating money supply. The estimation of the required growth of money rested on the assumption of a reasonably stable demand function of money. There have been doubts about this. Targeting money supply also required a stable relationship between money supply and reserve money which is under the control of the RBI
• Having said this, there has to be some way of assessing the required level of liquidity. In the April bi-monthly report, there is no mention of the change in money supply or any other liquidity metric
• There has been considerable discussion in recent months about the transmission mechanism. The repo rate changes have not so far been fully reflected in the lending rates of banks. For this, there could be several reasons
• The repo rate is a short-term rate and for that to get reflected in the long-term rate which is the relevant rate for influencing investment there has to be an increase in durable liquidity. In fact earlier, the RBI used to warn commercial banks not to use the borrowing from the call money market as a basis for lending. As the bi-monthly report itself says, the provision of short-term liquidity does not substitute fully the need for durable liquidity
• In the earlier days a major source of the expansion of reserve money(the portion of the banks’ reserves that are maintained in accounts with their central bank plus the total currency circulating in the public (which includes the currency, also known as vault cash))was RBI credit to government. This is no longer so. Changes in net foreign assets have become a major source of the creation of reserve money. This is what happens when the RBI buys foreign exchange from the market and builds reserves. The discretionary open market operations can be used to supplement and sometimes modulate the accretion of net foreign exchange assets. Of course, there have been occasions as in 2013 when there could be a sudden decline in the foreign exchange assets
• ‘Quantitative easing’, a term that has become popular since the 2008 crisis, is a recognition of the fact that there are occasions when the focus of the central banks has to be on ‘quantity’ rather than ‘price’. Even in normal circumstances, in equilibrium, quantity and price are simultaneously determined. Central banks cannot order interest rates to behave
• They must create conditions under which the desired changes in interest rate come about. The recent changes in policy repo rate might have had a more immediate effect if they had been coupled with a change in cash reserve ratio or with an explicit statement on injection of liquidity through open market operations
• Thus the assertion of the RBI in its April policy statement that it has decided to “smooth the supply of durable liquidity over the year using asset purchases and sales as needed” is welcome and is an important policy announcement
• However, there must be a methodology to assess the need for durable liquidity. If the old method is not tenable, what is the new one? The policy statements should share with the public the central bank’s perception on the extent of liquidity in the system and whether it is sufficient. This will help banks take the appropriate decisions

5. The Economic Times: Triple talaq, polygamy sap minority rightsTopic: Society

Category: Women’s Rights

Key points:

• Some 50,000 Muslim women and men have signed a petition asking that oral, unilateral divorce of a wife by the expedient of the husband pronouncing talaq three times be outlawed, along with polygamy. These practices should go. That they go against the Quran, or that many Islamic countries have done away with them, is incidental. They must go because they violate democratic rights guaranteed by the Constitution
• In practice, the rights of Muslim women are being subverted in the name of rights guaranteed to minorities by the Constitution. In the past, the court has used the opportunity accorded by cases relating to divorce, alimony and maintenance for Muslim women to urge the government to move to a uniform civil code. Such directives have fallen on deaf ears and, on occasion, proved to be counterproductive — with the political and electoral calculations taking precedence
• The issue is not whether a religious community has the right to live by its holy laws but whether any community has the right to live by rules that subvert the rights guaranteed to every citizen in the Constitution
• The Constitution guarantees minority communities the right to freely practise and propagate their religion, own property and establish places of worship and run educational institutions. This constitutional protection draws strength from a framework of liberal democracy
• Practices that violate democratic rights weaken democracy and dilute the protection minorities derive from constitutional democracy
• It is for Parliament to enact or amend laws, but the Supreme Court determines if laws violate democratic rights guaranteed by the Constitution. The court needs to step up and say that the Muslim Personal Law (Shariat) Application Act subverts the rights guaranteed to individuals

1. Some good news, some bad for 15 major cities on air quality front 

A Central Pollution Control Board (CPCB) report on air quality in 15 cities shows that most cities are breaching the national annual safe standard.The study also shows that most cities saw an improvement in 2015 compared to previous years.The report was compiled by the CPCB after the NGT in its February 9 order directed it to file an “analysis report” on pollution levels in all major cities identified by the tribunal.The report is also one of the documents on the basis of which the NGT is spearheading the efforts to reduce pollution in other major cities while an air pollution case pertaining to the Capital is being heard in the Supreme Court.The CPCB concludes in its report that improvement could be linked to implementation of stricter vehicle norms and better fuel quality

2. World Bank to change classification of countries; India will now be called ‘lower-middle income’ In its annual edition of world development indicators (which was released a fortnight ago), the World Bank has no longer distinguished countries as developing and developed. Till now, developing stood for low-and middle-income countries while high-income countries were called ‘developed’.

India — which till now found a place under the common umbrella with other ‘developing’ countries —will now be called ‘lower-middle income country/South Asia’

F. Concepts-in-News: Related Concepts to Revise/Learn:

G. Fun with Practice Questions 🙂

Question 1: Which of the following is/are issues on which the 6 WTO ministerial declarations were basedat Nairobi (2015)?

Question 2: Which of the following countries is/are members of Regional Comprehensive Economic Partnership (RCEP) ?

Question 3: Which of the following statements is/are correct?

Question 4: Which among the following is/are included in the priorities for action under the Sendai framework?

Question 5: Which of the following statements is/are correct?

H. Archives:

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