Gist of EPW January Week 5, 2022

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analyzed and explained in a simple language, all from a UPSC perspective.
TABLE OF CONTENTS

1. The All India Services and Cadre Deputation
2. Online Trading of Cryptocurrency

1. The All India Services and Cadre Deputation

Context

The Union government has proposed to introduce amendments to the Indian Administrative Service (Cadre) Rules 1954, to exercise greater control in the central deputation of IAS officers.

All India Services (AIS)

• The federal operating framework in India is institution­alised by bureaucracy. 
• The federal division of legislative and executive offices and responsibilities are divided into three distinct categories of administration in India. 
  • Central services of the union government
  • State services of the state governments 
  • All India Services (AIS)
• All India Services is a unique cadre of administrative officers who are recruited and trained by the Union Public Service Commission, an autonomous constitutional commission, and then allocated to the state governments with occasional deputations to the central government. More on All India Services here.
• The officers serve both the centre and the state governments. 
• The services of these officers are significant as they hold together the administrative setup of a diverse and vast country like India.
• Based on the level of government they are serving at a specific time, the officers function under the jurisdiction of those respective governments. 
• It is mandatory to refer to the Union Home Minister regarding their suspension and dismissal.

Rule 6(1) of the IAS (Cadre) Rules, 1954

• The existing convention under Rule 6(1) related to the deputation of an officer by the union government requires the agreement of the concerned states. 
• In the event of any disagreement between the centre and state, the centre’s decision would prevail. 
• The concurrence of an AIS officer is also required for their deputation.
• The procedure is that an officer in the Department of Personnel and Training (DoPT) should invite nominations of the officer from state governments.
• Post the nomination, the scrutiny of eligibility is undertaken by a panel.
• Post the scrutiny, an offer list is prepared in the presence of the state government.
• From this list of officers, the central ministers and offices choose candidates.

Excessive control by the Union Government

• A look at the functioning of the services reveals that the AIS enables the union to influence the pan-India administration. 
• It endorses the fact that with a powerful bureaucracy at its disposal, the union executive effectively controls administration in the country. 
• The officers are employed by the centre, which gives the power to the union government to transfer them from one state to another. 
• This implies that, although the officers function under the jurisdiction of state governments, they are employed by the centre.

Proposed amendments to Rule 6

• If the States delay relieving a State cadre officer to the Centre, “the officer shall stand relieved from cadre from the date as may be specified by the Central government.”
• The Centre will determine the actual number of officers to be deputed to the Central government in consultation with the State. The States list the eligible names of such officers.
• In case of any disagreement between the Centre and the State, the matter shall be decided by the Central government.
• In a situation where the services of cadre officers are essential for the Central government in “public interest”, the State should give effect to the Centre’s decisions within a specified time.

Critical Analysis

• Two of the amendments demand that if there is any delay in posting a state cadre officer to the centre by the state government, the officer would be relieved from the cadre from the date as decided by the union government. 
  • Thereafter, the officer need not take any no-objection certificate from the state government for central deputation. 
• Additionally, from now on, the centre itself would decide the number of officers required to be deputed and the states would have to ensure this number. 
  • However, the problem with such proposed amendments is that they would hamper the existing fabric of cooperative federalism. 
  • The state governments would be compelled to send officers on deputations against the wishes of the officers.
• Further, the states would be compelled to release any officers whose services could be required by the union government in emergent situations. 
  • As history suggests, there is a high possibility that these provisions may be misused for political considerations.

Key Concerns of State Governments

• Proposed amendments are a threat to their rights in deploying the officers as they consider best.
  • As most of the policies are implemented at the state level, the amendments would affect their functioning.
• The state governments lose their autonomy as they would be compelled to make the number of AIS officers available for deputation as prescribed under the Central Deputation Reserve (CDR).
• The amendments facilitate the unilateral imposition of mandatory fulfilment of responsibility from the state.
• The appointment of the AIS officers without the consent of the state government would be against the constitutional spirit of federalism. 
• As the existing deputation rules are already tilted towards the centre, the amendments would further introduce stringency in cadre deputation.
• The states have concerns about the independence, security, and overall morale of the AIS officers. 
• The implementation of the proposed amendments would only create uneasiness in the completion of the duties of officers. 
• There is a high possibility of political interference, especially during elections, which ultimately affects the administrative machinery in the state governments. 
• Political interference is expected to be high in states which are administered by parties that are in opposition to the ruling party at the centre.

Conclusion

According to the judgement of the Supreme Court in the S R Bommai v Union of India case, state governments have a significant existence, and function independently to fulfil a crucial constitutional role in shaping the sociopolitical and cultural lives of the people in the union of India. 

Powerful and centralised bureaucracies disrupt the harmonious functioning of Indian federalism. The sooner this is realised, the better it is for the cooperative federalism of the country.

2. Online Trading of Cryptocurrency

Context

Since their introduction, cryptocurrencies are in the limelight in the stock market as an investment and trading option.

Cryptos are neither currency nor asset

• Cryptocurrencies do not possess characteristics to categorise them either as currency or as assets.
• For an instrument to be classified as a currency, it must be a promissory note wherein a certain value is promised by the issuer to the holder, the instrument must be backed by a sovereign nation.
• For an instrument to be classified as an asset, the printing of the currency is based on a tangible asset or when it has a tangible value or tangible benefits.
• The virtual currencies are neither backed by a sovereign agency nor can they be used as legal tender to buy or sell goods and services. Yet, there has been a massive surge in the price of cryptocurrencies.

Crypto industries’ view

• Leading cryptocurrencies players do not accept the argument that cryptos can neither be considered as currency nor assets.
• They claim that prices of virtual currencies fluctuate due to the choices made by the market participants.
• They state that choices are affected due to;
  • Loss of confidence in the currency
  • Increase in press coverage, stimulating speculative demand
  • Fear of uncertainty
  • Old-fashioned irrational exuberance and greed
• Just like other currencies, goods, or services within an economy, prices of virtual currencies depend on the speculated value and supply and demand.
• People invest in cryptos when they think that the value will rise in the future. 

Reasons for rising investments in Cryptos

• The advent of mobile phones and advancement in digital penetration in society has given wide exposure to the public about cryptocurrencies.
• The popularisation of ways of investing through trading platforms has resulted in an increased population investing directly and indirectly in the stock markets across the world. 
• With online trading platforms opening Demat accounts for free, switching fiduciary money with cryptocurrency, crediting the user’s account with seed money, etc, trading and investing in cryptocurrencies become easier. 
• With platforms offering trade and investing options starting from as low as Rs. 100, investing in cryptocurrency has gained wide exposure, and people from low-income groups have also started trading and investing, meaning that more people are getting involved, which translates into an increased supply of money that inflates the demand.

A case of 2007-08 financial crisis

• Until there is a constant flow of money, virtual currency rates will keep increasing. However, as soon as the money supply falls short, the value crashes, something which happened in the 2007–08 financial crisis.
• The 2007-08 crisis was caused due to the lending of a collection of collateralized debt obligation [CDO] loans to institutional investors. 
• Since the CDOs were a collection of subprime loans, the risk was diversified and the credit rating agencies had to rate them as low-risk financial instruments, and hence these instruments were being traded in huge numbers.
• The situation changed as home ownership reached its saturation point and homes saw a dip in their value. 
• Houses could not be sold without owing money to the lenders, this resulted in reduced money in the system because of which borrowers were unable to pay their debts. 
• This created a spiral and a majority of institutions dealing with subprime loans filed for bankruptcy. Thus, the shortfall of money in the system resulted in the financial crisis of 2007–08.
• It can be inferred that the presence of money, low-interest rates, and rating malpractices became the breeding ground for a financial crisis.

Cause of concern

• The aggressive promotion of virtual currency by online trading platforms is aimed towards popularising virtual currencies.
• This influences the masses to be attracted to participate in trading. 
• This has increased the number of participants, the flow of money, and has fuelled the crypto bubble. 
• Hence there is an increase in the number of people who want to own virtual currencies, and with its limited supply, the prices are bound to increase. 
• The current rise in the stock market owing to virtual currencies shall give way to profit-taking and panic among the participants, leading to a crash in the stock market as seen in the crisis of 2007-08. 
• It can be said that aggressive marketing, convenient participation, and the addictive nature of trading and investment offered by online trading platforms will become the reasons for the crash in the value of cryptos causing losses worth millions.

Conclusion

The issues with digital currencies have been pointed out by the Reserve Bank of India, and the Government of India has also proposed a bill to prohibit the use of virtual currency. 

However, this has not stopped the activities of online trading platforms as they offer lucrative deals that lure high investments. Thus, strict regulation of online trading platforms that offer trade and investing in virtual currencies is urgently required.

Know more about Cryptocurrencies

Read previous EPW articles in the link.

Gist of EPW January Week 5, 2022:-Download PDF Here