Category: Burning Issues

 

1. Missiles and Missile Defence Systems

There are 2 kinds of Missiles, Ballistic and Cruise.

Ballistic Missiles	Cruise Missiles
It follows a ballistic trajectory with the objective of delivering one or more warheads to a predetermined target.	It is a guided missile that remains in the atmosphere and flies the major portion of its flight path at approximately constant speed.
Target is predetermined. Fit for large targets.	Target can be mobile. More appropriate for small mobile targets.
Guided only during relatively brief periods of flight and the rest of its trajectory is unpowered and governed by gravity.	Are self-navigating
High altitude. Easy to track	Able to fly in extremely low-altitude trajectory. Makes it difficult to track

 

The speed of Missiles are measured in Mach Number.

Mach Number = Object Speed/Speed of Sound.

 

The following is a very comprehensive chart describing the various kinds of classifications that exist of missiles.

 

 

Integrated Guided Missile Development Program(IGMDP)

Timeline of India’s Missile Development Program

http://www.thehindu.com/news/national/timeline-of-indias-missile-development-programme/article18708216.ece

 

Ballistic Missile Defence

A 2-tier system, being developed by DRDO, that provides a multi-layered shield against ballistic missile attacks.

 

Surveillance Technologies 

NETRA – It is a first indigenously developed airborne early warning and control system (AEW&C), mounted on a Brazilian Embraer-145, developed by Defense Research and Development Organization (DRDO).

• AEW&C is also called eye-in-the-sky which is capable of long-range surveillance and a force multiplier.
• India is only 4th such nation after United States, Russia and Israel that have such technology on their own.

Important features of NETRA are:
• Range of 200 kms (Capability to detect aerial threats from incoming aircraft and missiles).
• 240 degrees coverage (simultaneously scan the area on both sides of aircraft)
• State of the art active electronically scanned radar and Secondary surveillance radar.
• Electronic and communication counter measures.
• Line of sight and beyond line of sight data link.
• Voice communication system and self-protection suit.

 

Rustom-2 – Rustom-2 is medium-altitude long-endurance drone (MALE) designed and developed by Aeronautical Development Establishment (ADE) of the DRDO, Hindustan Aeronautics Ltd and Bharat Electronics.

• It can fly up to an altitude of 22,000 feet and has endurance of over 20 hours.

• It can carry variety of payloads like Electronic Intelligence (ELINT), Synthetic Aperture Radar (SAR), Communication Intelligence (COMINT) and Situational Awareness Payloads (SAP) for performing missions even during the night.

• It will be used by all three services of Indian armed forces, primarily for intelligence, surveillance and reconnaissance (ISR) operations.

• Rustom 2 can fly missions on manual as well as autonomous modes.

 

2. NAVY SHIPS 

Submarines 

 

Very good article on how ships are named

https://indianexpress.com/article/explained/indian-navy-ships-submarine-names-ins-chennai-4618680/

 

3. Aeronautical Mechanisms

 

4. Armaments

 

 

INSTITUTIONAL FRAMEWORK

Ministry of Defence

The primary responsibility is to counter insurgency and ensure external security of India.

• It comprises of 4 departments:
  • Dept. of Defence: It deals with the three services(Army, Air Force, Navy & Coast Guard) and various Inter-Service Organisations
  • Dept. of Defence Production: It deals with framing of policy directions on defence and security related matters and communicating them for implementation to Service Headquarters and other organisations
  • Dept. of Defence Research and Development: It advises the Govt. on scientific aspects of military equipment and logistics
  • Dept. of Ex-Servicemen Welfare: It deals with resettlement, welfare and pensionary matters of Ex-Servicemen

 

Defence Research and Development Organisation(DRDO)

• Design, develop and lead to production of state-of-the-art sensors, weapon systems, platforms and allied equipment for our Defence Services.
• Provide technological solutions to the Services to optimise combat effectiveness and to promote well-being of the troops.
• Develop infrastructure and committed quality manpower and build strong indigenous technology base.
• It works under the Dept. of Defence Research and Development

 

Defence Production

1. Hindustan Aeronautics Limited(HAL)

• It is engaged in the design, development, manufacture, repair and overhaul of aircrafts, helicopters engines and their accessories
• It is responsible for the development of Dhruv, an Advanced Light Helicopter(ALH)

2. Bharat Electronics Limited(BEL)

• It is engaged in the design, development and manufacture of state-of-the-art electronics equipment components for the use of Defence Services

3. Mazagon Dock Limited(MDL)

• It is the premier defence shipyard in the country located in Mumbai.
• It is engaged in the production of warships, submarines, missile boats, destroyers etc.
• Scorpene-class Submarines are being developed here under the Project 75I. Other defence production units include Bharat Earth Movers Ltd., Goa Shipyard Ltd., Bharat Dynamics Ltd. etc.

Why in news?

Lok Sabha has passed The Right of Children to Free and Compulsory Education (Second Amendment) Bill, 2017 to abolish the ‘no detention policy’ in schools.

Key Features of Bill

• The Bill amends provision related to no detention policy in the parent Act to empower central or state government to allow schools to hold back child in class 5, class 8, or in both classes.
• It mandates conducting, regular examination in class 5 and class 8 at end of every academic year.
• In case, the child fails class 5, class 8 examinations, he will be given additional instruction and opportunity for a re-examination (within two months from the declaration of the result). If the child fails again in re-examination, he may be held back in class 5, class 8, or in both classes.
• The Bill empowers Union and State governments to decide whether to not hold back the child in any class till completion of elementary education. Further, Union or State governments will decide manner and conditions subject to which child may be held back.

What is ‘No-Detention’ policy?

• As per the No-Detention Policy under the Right to Education Act, no student can be failed or expelled from school till the completion of elementary education covering classes 1 to 8. All the students up till Class 8 will automatically be promoted to the next class.
• The essence of the policy is that children should not be ‘failed’ and detained up to Class 8. There are no “examinations” in the narrow traditional sense of the word up to Class 8. Instead, the Act mandates a process of Continuous and Comprehensive Evaluation (CCE) to assess and evaluate the student’s learning.

Reasons why ‘no-detention policy’ is criticized

• Negative impact on the standard of education: Most of the schools in interior places are running without any teachers. Hence, if the ‘no-detention policy’ continues, it will leave a negative impact on the standard of education in India and force the children to face more harsh future.
• No reward for hard work: This policy has led to students developing a lackadaisical attitude, with there being no risk of failing. It also makes no distinction between good and bad students, and between those who work hard and those who don’t. Thus, it makes no effective way to implement a good level of teaching and learning.
• Apathy from teachers: With the policy in place, the Education Department does not take steps to revamp itself and the teachers do not take the pain to ensure a good education for the children.
• Dark future of students: Students coming from poor economic background face problem in their coming life because of no good education in the schools.
• Will affect the women empowerment programs: The girls especially will face a major problem if not getting a proper education in the schools.
• Zero academic outcomes: If no merit is checked while giving promotion to another class, the children will never learn the importance of studying and acquiring knowledge. It will lead to a poor academic outcome in classes.

Reasons why ‘no-detention policy’ is supported

• Detention policy doesn’t guarantee improvement in quality of education as long as exams can be passed by mugging the content. Exams should assess the overall development of students.
• Will increase drop-out ratio: Detention policy will increase the number of drop outs. Drop outs percentage was 10% in 2005-06 academic year, whereas it was 4% in 2015-16 academic year. The major reason for this success can be attributed to no-detention policy.
• No-detention policy is not the only villain: The reason for the lack of quality education in India is not just no-detention policy, many schools in India do not have qualified teachers, basic facilities and infrastructure. Teachers retraining at regular intervals is not followed at all. All these things results in the decreasing quality of education. Punishing children for this by not promoting them to the next class will be our society’s failure.
• Detention policy will create stress in students: Many private schools put too much pressure on students to get good grades so that they can market their schools by showing off their ranks and marks. We are witnessing student suicides as a result of this pressure. Children of primary schools will also have to undergo this stress due to detention policy.

Will scrapping the no-detention policy solve all problems?

• Flawed teachers’ training (the eye of many scams), social indifference to the plight of school teachers, rampant use of ad hoc teachers in small towns and villages, etc. have all substantively contributed to a failing school system. Only scrapping the policy is not going to drastically improve the standard of education in the country.
• According to some educationists, the policy was wrongly interpreted to create an environment in which the significance of evaluating a school-goer’s learning outcome was undermined.
• Continuous Comprehensive Evaluation (CCE), that aimed to assess the child’s understanding of what was being taught in class at periodic intervals, proved to be a non-starter in many schools. The policy alone cannot be blamed for poor results.
• The teachers were not given adequate training to undertake this reform. They had no idea of what was to be evaluated, and how. In several schools, CCE was reduced to “project work”, which parents resented. The RTE’s provisions regarding the upgrading of school infrastructure and an increase in the teacher-student ratio — that would have created an enabling environment for the policy — were given a short shrift. Hence, the poor performance can be linked to a variety of other factors rather than just the no detention policy.

Way ahead

The phenomenon of poor learning outcomes is the product of many factors which influence learning and should not be conveniently pinned to the door of the no-detention policy. The steps that can be taken to improve learning outcomes can be:

• measuring learning level outcomes of all children on a regular basis,
• catalysing a “performance-driven culture” and rewarding high performers at every level,
• changing stakeholders’ mindset and preparing them for new provisions, in which parents were made responsible or accountable for full attendance of their children.
• The policy should be implemented in a phased manner and a scale-up to all classes should be undertaken only after the critical infrastructural, teacher strength and teachers’ skill-set requirements were fully met.

Conclusion

• Rather than addressing the core issues that affect the quality of education in the country, the entire focus seems to be shifting to bring back the pass/fail model.
• A greater level of seriousness on all sides is the need of the hour. It is high time steps are taken to remove the other flaws that exist.
• Hence, the policy should either be renovated with adequate changes to neutralize the ill effects or replaced with a new policy that would take a balanced approach. The prime objective should be to effect an all-round development of children and equipping them with life skills.

Context

• President Ram Nath Kovind’s choice of Vietnam as the first Southeast Asian country to visit in his capacity as the President is not surprising. A close ‘ally’ of India for over 70 years, and not limited to official diplomatic ties, Vietnam is critical for India’s foreign policy at the regional and systemic levels.

Background

• Bilateral ties between India and Vietnam have strengthened in recent years with a focus on regional security issues and trade. Mutual trust, threats emerging from a rising China and a convergence of strategic interests have contributed to the deepening of ties between the two nations to an extent that Vietnam now engages India at the level of a ‘comprehensive strategic partner’,  which is a clear indication of importance both the nations put in this critical partnership.
• There has been a rapid institutionalisation of this bilateral partnership. The two states promulgated a Joint Declaration on Comprehensive Cooperation in 2003 in which they envisaged creating an “Arc of Advantage and Prosperity” in Southeast Asia and have initiated a strategic dialogue since 2009.

Points of Convergence and Cooperation

• One of the most significant drivers of the deepening strategic partnership between India and Vietnam is their shared apprehension of an aggressive China. This growing assertiveness of China is slowly transforming into the build-up of weapons systems, including anti-aircraft and anti-missile systems, in the artificial islands in the South-China Sea, which is clearly a major concern for both the nations.
• In Vietnam, China’s growing assertiveness is a matter of direct security concern, while India has been closely scrutinizing with apprehension China’s maritime expansion into the Indian Ocean Region.
• In the South China Sea and the Eastern Pacific, India is gradually treating Vietnam just as China views Pakistan in South Asia: as a strategic heft. Indian strategists had for long suggested that New Delhi should leverage Vietnam’s conflicts with Beijing to her advantage.
• Ever since the two countries signed a Joint Declaration on Strategic Partnership in November 2007, raising their bilateral relationship to a strategic partnership, India-Vietnam security cooperation has accelerated.
• It has provided Vietnam with a $100 million concessional line of credit for the procurement of defence equipment. And, in a first of its kind sale, it sold four offshore patrol vessels to Vietnam that are likely to be used to strengthen the country’s defences in the energy-rich South China Sea.
• In August 2017 Vietnam indicated it had bought Brahmos anti-ship cruise missiles, a weapon the country has long cherished, from India. India, however, claimed that the reports about the deal were “incorrect.”  Nevertheless, there is no doubt that Hanoi is increasingly coming to be at the centre of India’s “Act East” policy.
• The two nations have a stake in ensuring the security of sea lanes, and share concerns about China’s access to the Indian Ocean and the South China Sea. Hence, India is helping Vietnam build its capacity for repair and maintenance of its defence platforms.
• At the same time, their armed forces have started cooperating in areas such as information technology and English-language training of Vietnamese army personnel. The two countries potentially share a common friend—the US.
• New Delhi has a burgeoning relationship with Washington, with the two sides signing a logistical support agreement this week, while Vietnam has been courting America as the South China Sea becomes a flashpoint. As the three countries ponder how to manage China’s rise, they have been drawn closer together.
• Finding compatibility between the ‘Indo-Asia-Pacific’ and the U.S. driven ‘Indo-Pacific’ necessitates a more nuanced approach whereby regional concerns of ASEAN centrality can be assuaged while accounting for diverse approaches to maintaining regional stability. In pursuance of this, the two countries have planned a bilateral level maritime security dialogue in early 2019.
• India is now among Vietnam’s top ten trading partners and during Modi’s 2016 visit, the two nations agreed to explore substantive and practical measures, like the Joint Sub-Commission on Trade, to achieve the trade target of US$15 billion by 2020.
• They also signed a civil nuclear agreement in 2016, which is expected to further boost bilateral trade between them. The two countries also expanded cooperation in areas such as space exploration and cyber security.
• An area of potential convergence for both Vietnam and India is health care. The 12th National Congress of the Communist Party of Vietnam, in 2016, highlighted the importance of linking economic growth to universal health care, whereby 80% population would be covered by health insurance.
• With Indonesia ratifying the India-ASEAN Services agreement on November 13, New Delhi is a step closer to signing the Regional Comprehensive Economic Partnership, bringing India to the forefront of the services sector globally. A potential area of convergence in the realm of health care through joint public-private partnership agreements can be explored by the two countries.
• Vietnam and India both looks at sub-regionalism and regionalism as priority avenues to pursue its foreign policy. The India-Vietnam Joint Statement of March 2018 reiterates the focus given to sub-regionalism and the Mekong Ganga Cooperation framework.
• However, another area is emerging in the CLV, or Cambodia-Laos-Vietnam growth triangle sub-regional cooperation, bringing these three countries together. India and Vietnam can jointly explore the potential for enhancing capacity building and providing technical assistance and training within this sub-regional grouping.

Why Vietnam is at the centre of India’s policy to counter China

• It is instructive that India entered the contested region of the South China Sea via Vietnam. India signed an agreement with Vietnam in October 2011 to expand and promote oil exploration in the South China Sea and stood by its decision despite China’s challenge to the legality of Indian presence.
• New Delhi was told it required Beijing’s permission for the Oil and Natural Gas Videsh Ltd. to explore the Vietnamese blocks 127 and 128 in those waters. But Vietnam cited the 1982 United Nations Convention on the Law of the Sea to claim its sovereign right over the two blocks in question.
• Hanoi has been publicly sparring with Beijing over claims to the South China Sea for some years now, so such a response was expected.
• What was new, however, was New Delhi’s aggression in taking on China. It immediately supported Hanoi’s claims. By accepting the Vietnamese invitation to explore the two blocks, the Oil and Natural Gas Videsh Ltd. not only expressed India’s desire to deepen its friendship with Vietnam, but also ignored China’s warning to stay away. This display of strength stood India in good stead with Vietnam.
• If China wants to expand its presence in South Asia and the Indian Ocean region, the thinking in New Delhi goes, India can do the same thing in East Asia. If China can have a strategic partnership with Pakistan ignoring Indian concerns, India can develop robust ties with states on China’s periphery such as Vietnam without giving China a veto on such relationships.

President’s visit insight

• President Ramnath Kovind and his Vietnamese counterpart Nguyen Phu Trong agreed to effectively implement the Joint Vision Statement on Vietnam—India Defence Cooperation for the period of 2015-2020.
• They agreed to step up cooperation in human resources training, and promote collaboration between the Army, Air Force, Naval and Coast Guard of the two countries, as well as cooperation in cyber security and information sharing.
• Vietnam appreciated India’s offer of the USD 500 million line of credit to defence industry.
• The two sides agreed to step up experience sharing in the training of personnel for participation in the UN peace-keeping operations and cooperation in addressing war legacies in Vietnam, and to strengthen criminal information exchange and law enforcement experience sharing.
• They agreed to actively support each other and step up coordination at multilateral defence and security cooperation frameworks.
• In the spirit of the proposal for an ASEAN-India Strategic Dialogue on maritime cooperation made at the commemorative summit held in New Delhi in January, they agreed to hold the first Maritime Security Dialogue on issues related to maritime domain and further encouraged port calls of each other’s naval and coast guard ships.
• India and Vietnam also agreed to continue promoting bilateral investment, including cooperation projects between Vietnam Oil and Gas Group PVN and Oil and Natural Gas Corporation in oil and gas exploration on land, continental shelf and Exclusive Economic Zone (EEZ) of Vietnam.

The Way Forward

• In the coming 5 years, it can be expected that political relations get further cemented. This would also coincide with the completion of 50 years of diplomatic relations between the two nations.
• But India needs to improve economic ties with Vietnam- the target that India and Vietnam have set up for 2020- that of $15 Billion is not very ambitious. Also, in the defence arena, India must help Vietnam inbuilding their own defence industry, and give them the defence systems that they need to maintain a balance in the South China Sea (SCS) region.
• In the next 5 years, the tri-lateral highway linking India, Myanmar, and Thailand would be ready. Further, the extension of this highway can potentially also open up a scenario where one could drive from Indian soil to Vietnam.
• Further, scholars have now been saying that with SAARC getting stalled, and with India defining its immediate neighbourhood with an eastward tilt, probably the time has come for BIMSTEC to consider extending itself to Vietnam, Laos and Cambodia. Then it will be a very powerful body and lasting link between India and ASEAN.

Conclusion

• Based on the three legs of regional security, defence and trade engagements, India and Vietnam have managed to build a strong partnership over the last few years. Given their mutual convergence, it is likely that this relationship will only grow stronger in the coming years as well.
• This is a relationship that is poised to take off in the coming years, led by political leadership in the two countries determined to make this relationship truly “strategic” in orientation.
• While the ties have progressed under the Look East and Act East Policies, going forward they need to factor in pragmatism, helping relations to move forward. India’s ability to look beyond the prism of optics will remain a core challenge.

Why in News?

1. In early 2018, Supreme Court stressed the need for providing inbuilt safeguards within the SC/ST (prevention of atrocities) Act to plug its misuse and struck down some provisions and gave some guidelines.
2. Following a widespread protest from Dalits against the verdict, the Union Cabinet had given its nod to the Amendment Bill to restore the original provisions of Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989.

SC/ST (Prevention of Atrocities) Act, 1989

1. SC/ST (prevention of atrocities) Act is a standalone legal protection granted to the depressed classes against casteist slurs, abuses and violence.
2. It is a comprehensive law which not only defines atrocities against SCs and STs but also makes several rules, regulations etc. for proper protection of these vulnerable sections.
3. One of the provisions of the law states that public servant neglecting his duties with respect to SCs/STs will be punished with jail term of 6 months to 1 year.
4. Ministry of social justice and empowerment is the nodal ministry to enforce the provisions of the Act.

Why does the act need to be amended?

1. The 1989 Act penalises casteist insults and even denies anticipatory bail to the suspected offenders.
2. There was “acknowledged abuse” of the power to arrest under the Act.
3. The law is used to rob a person of his personal liberty merely on the unilateral word of the complainant.
4. Public administration has been threatened by the abuse of this Act.
5. Public servants find it difficult to give adverse remarks against employees for fear that they may be charged under the Act.
6. Parliament could not allow arrest without a fair procedure and Article 21 has to be read into every provision of law.
7. Hence the Supreme Court had struck down some original provisions of the Act and issued some guidelines to protect people against arbitrary arrests under the Act.

SC guidelines

1. It directed that public servants could be arrested only with the written permission of their appointing authority.
2. In the case of private employees, the Senior Superintendent of Police concerned should allow it.
3. A preliminary inquiry should be conducted before the First Information Report (FIR) was registered.
4. This was to check if the case fell within the ambit of the Act, and whether it was frivolous or motivated.

Arguments against the verdict

1. The verdict faced sharp criticism from Dalit leaders across the country and political parties. Dalit groups claimed that the court’s order diluted the true spirit of the law.
2. Article 338 clause 9 stipulates: The Union and every State Government shall consult the National Commission for Scheduled Castes on all major policy matters affecting Scheduled Castes. This has not been followed by the court.
3. The court appears to have mistaken a large number of acquittals in atrocities cases to be false cases.
4. But the general consensus is that police apathy, the social and the economic might of the accused and the dependence of SC/STs on those accused is the reason for those acquittals.
5. Furthermore, there is no precise data on the scale and extent to which the Act has been misused by SC/ST employees.
6. The call for new guidelines to deal with accused persons is hence likely to dilute the act and provide scope for offenders to escape.
7. More significantly, it seems to convey that the act is being misused considerably by the depressed classes to blackmail and frame innocents.
8. Moreover, there are already provisions within the “Indian Penal Code”, which prescribe punishments for falsifying evidence. The court’s verdict doesn’t specify on why these were found insufficient to deal with the falsified SC/ST atrocity cases too.
9. On the whole, the judgement is likely to make the depressed class more vulnerable to abuse and further their victimisation.

Features of the amendment bill

1. The Amendment Bill seeks to insert three new clauses after Section 18 of the original Act.
2. A preliminary enquiry shall not be required for registration of an FIR against any person
3. The arrest of a person accused of having committed an offence under the Act would not require any approval
4. provisions of Code of Criminal Procedure on anticipatory bail shall not apply to a case under this Act, “notwithstanding any judgment or order of any Court”
5. The Centre’s decision to amend the provisions of the Act appears both reasonable and unavoidable at this juncture.

Way forward

1. Considering the implications, it would’ve been prudent for the bench to have sought larger consultations before pronouncing its verdict.
2. Article 338 stipulates that governments should consult the “National Commission for SC” on all major policy matters affecting Scheduled Castes.
3. Similarly, article 338 A mandates all major policy decision affecting STs to be taken in consultation with “National Commission for Scheduled Tribes”.
4. Considering this, Supreme Court is also bound to hear these commissions before pronouncements that are likely to impact SC/STs on a whole.
5. But in its urge to weed out the misuse of SC/ST atrocities act, the court seems to have subdued constitutional prudence and overlooked the commissions.
6. Some argue that SC’s verdict doesn’t constitute a major impactful policy decision and that it merely tweaked the existing act.
7. But spontaneous protests that erupted in the aftermath indicate otherwise, and the verdict was definitely seen as a major affront on social justice.
8. However, it is important for the bill or ordinance to provide in clear terms the reasons for reversing the SC order by pondering on the logic applied by the court.
9. In this case, the SC order was based on the argument that the SC/ST Act was being misused, which needs to be decried for lack of substantiated evidence.
10. Hence the task of balancing the rights of innocent persons facing false accusations and the need to accord legitimacy to the Atrocities Act requires compassion, reverence for the Constitution and awareness.

Practice question

1. Discuss the key features of the SC/ST prevention of atrocities Act of 1989 and explain why the Supreme Court had struck down some provisions of the Act. Do you think that SC’s verdict had diluted the true spirit of the law?

Introduction

• The manufacturing landscape is ever-changing. One of the most significant drivers of this change is the emergence of advanced manufacturing technologies that are enabling more cost-effective and resource-efficient small-scale production.
• In combination with other prominent trends such as servitisation, personalisation and presumption, the emergence of Additive Manufacturing (commonly known as 3D printing) as a direct manufacturing process is leading companies to rethink where and how they conduct their manufacturing activities.
• The adoption of additive manufacturing (AM) and other advanced manufacturing technologies appears to herald a future in which value chains are shorter, smaller, more localised, more collaborative, and offer significant sustainability benefits.
• The Industrial revolution somehow bypassed India, but we have a unique opportunity to catch the wave of the manufacturing revolution if we can learn to surf.

3D printing

• 3D printing is a phrase coined by the media and is often used to refer to all types of additive manufacturing.
• However, 3D printing is defined as “fabrication of objects through the deposition of a material using a print head, nozzle or other printer technology”.
• Industrial 3D printing has begun to transform manufacturing in Western countries. The 3D printing has not yet entered our everyday lexicon, and even people who have heard of it view it as a toy technology that geeks play with, creating prototypes of robots using small machines.
• By eliminating the need to hold a large inventory of parts, set up an assembly line and purchase costly machines, 3D printing and adaptive manufacturing reduces capital and space requirements as well as the carbon footprint.

What is Additive Manufacturing?

Additive manufacturing which was defined by the industry as “making objects from 3D data, usually layer upon layer”.

In additive manufacturing, the physical object to be built is first designed in software. This design is fed to computerised machines, which build that object layer by layer.

In practice, the phrases 3D printing and additive manufacturing may be used interchangeably by some sources so it’s important to understand the process which is actually being discussed.

• Additive manufacturing is the industrial version of 3-D printing that is already used to make some niche items, such as medical implants, and to produce plastic prototypes for engineers and designers.
• And while 3-D printing for consumers and small entrepreneurs has received a great deal of publicity, it is in manufacturing where the technology could have its most significant commercial impact.
• There are in fact a number of different subtypes of additive manufacturing including 3D printing, but also rapid prototyping and direct digital manufacturing (DDM). Recent advances in this technology have seen its use become far more widespread and it offers exciting possibilities for future development.
• Additive manufacturing machines work directly from a computer model, so people can devise completely new shapes without regard for existing manufacturing limitations.
• Breaking with traditional manufacturing techniques, such as casting and machining material, Additive Manufacturing product gives designers far greater flexibility.

 

Evolution of 3D Printing:

The process of 3D Printing

• 3D printing starts by making a virtual design of the object to be created. Virtual design can be made using a 3D modelling program such as CAD (Computer Aided Design) or 3D scanners.
• The 3D digital copy is then put into a 3D modelling program. The model is then sliced into hundreds or thousands of horizontal layers in preparation for printing.
• This prepared file is thus uploaded in the 3D printer which reads each slices in 2D format and then proceeds to create the object layer by layer and the resulting object has no sign of layering visible, but a 3 dimensional structure.

Advantages/ Benefits of 3D printing

1. Low cost: 3D printing is cheaper than traditional method of manufacturing. Cost of producing or manufacturing products using 3d printing technology is equal for small-scale and mass manufacturing. For example: China was able to able to construct 10 one storey houses at less than $5000 per house
2. Less Time: Printing of the 3D object can be done directly, differing from the traditional manufacturing where different components had to be joined to form the final product.
3. Efficiency: Generating prototypes with 3D printers is much easier and faster with 3D printing technology.
4. Increased Productivity:  It enables quick production with a high number of prototypes or a small-scale version of the real object
5. Flexibility: Different materials can be used in the 3D models. This makes it very easy to create construction models or prototypes for a wide variety of projects within many industries.
6. Customization:  Every item can be customized to meet a user’s specific needs without impacting the manufacturing costs.
7. Quality assurance: the technology builds robust products with superior functionality
8. Employment opportunities: The widespread use of 3d printing technology will increase the demand for engineers who are needed to design and build these printers and design blueprints of products.
9. Reduced wastage: AM process produces less waste in comparison with other traditional manufacturing techniques

Disadvantages/ Issues with 3D Printing

1. Limited size: The size of objects created with 3d printers is currently limited
2. Limited Raw Materials: With 3D printing being an additive method (layer after layer), the materials available suited for it are limited- ceramics, resin, plastics, etc.
3. Effect on employment: Jobs in manufacturing will be rendered obsolete which will have a negative impact on developing economies.
4. Concerns over copyright infringements: There is concern over counterfeit printing of copyrighted or patented products. Anyone who gets a hold of a blueprint will be able to counterfeit products easily
5. Production of dangerous items: There are concerns over deterring or controlling people from 3D printing potentially dangerous items. Example: International regimes such as the Nuclear Suppliers Group, Missile Technology Control Regime and the Wassenaar Agreement that control technology have been concerned about the proliferation of high-performance 3-D printers, which have the capability to print parts for missile or nuclear weapon.
6. Cybersecurity concerns: Studies have shown that the 3-D printer connected to the online network is vulnerable to cyber attacks.
7. Ethical concerns associated with use of 3D technology in healthcare:

• justice in access to health care: One major concern about the development of personalised medicine is that it might increase cost of treatment and widen the disparity between rich and poor in terms of access to healthcare
• Testing for safety and efficacy: second concern is how it is to tested that the treatment is safe and effective before it is offered as a clinical treatment.

Results of Successful Utilization of Additive Manufacturing

• Additive manufacturing (AM) creates opportunities for improving sustainability.
• Opportunities are being realised across the product and material life cycles.
• AM can improve resource efficiency and enable closed-loop material flows.
• Established organisations are focusing on product and process redesign.
• New ventures are exploring niches and growing the AM ecosystem.

Applications of 3D Printing

1. Defence and Aerospace: At present, AM technology in the aerospace and defence sector is broadly used for prototyping, repair of small parts and component manufacturing. Examples: The UK Royal Air Force and Navy use AM for repairing spare parts.

2. Health:

• Hearing aids have been made using 3D printing technology.
• Bio printers: Organ printing or body part printing is being printed and some parts being used as implants of actual body parts. Example: Titanium pelvic, plastic tracheal splint, titanium jaws
• Tissue engineering: Tissue engineering made remarkable progress with printing of 3D blood vessels. This was achieved 3D bio-printing technology and biomaterials through vascularisation of hydrogel constructs.
• Dentistry: Dental Implants are being made on a commercial level using 3D printing technology
• Prosthetics: 3D printing is being used to make surrogate body parts
• Artificial organ: Additive manufacturing of stem cells has also led to various possibilities in printing artificial organs, although most of the work is still in the experimental stage

3. Manufacturing: 3D printing can be used to manufacture varied forms of products- from car or plane parts to sport goods, toys etc. Customised products are able to be manufactured as customers can edit the digital design file and send to the manufacturer for productions.

4. Domestic Usage: 3D printers can be used in the home to make small objects such as ornamental objects, small toys etc.

5. Architecture, housing: The technology can be used for a variety of housing projects with application in custom luxury designer homes, large scale development projects, to temporary housing projects. It could also enable engineers to design and build stiffer and safer geometries for houses. Further, can also help engineers to rebuild and restore old heritage designs quickly yet accurately.

6. Food: 3D printing enables fast automated and repeatable processes, freedom in design, as well as allowing large and easy variability of the cooking process which can be customized.

7. Education: Affordable 3D printers in schools may be used for a variety of applications which can aid students with learning better.

3D Printing in India

• The government has launched several initiatives such as ‘Make in India’, ‘Digital India’ and ‘Skill India’ to improve investment opportunities and to enhance manufacturing capabilities in the country.
• Given the government’s interest in boosting manufacturing, major manufacturers have established 3-D printing assembly lines and distribution centres in partnership with foreign technological firms.
• A PwC report titled ‘The Global Industry 4.0’ in 2016 shows that in India, 27% of industries have either already invested or will be investing in AM technology within the next five years

Opportunities for India

Fortunately, this manufacturing paradigm has several features that play to the strengths of the Indian ecosystem.

• First, it eliminates large capital outlays. Machines are cheaper, inventories can be small and space requirements are not large.
• Thus, jump-starting manufacturing does not face the massive hurdle of large capital requirement and the traditional small and medium enterprises can easily be adapted and retooled towards high technology manufacturing.
• Second, the Indian software industry is well-established, and plans to increase connectivity are well under way as part of ‘Digital India’. This would allow for the creation of manufacturing facilities in small towns and foster industrial development outside of major cities.
• Third, it is possible to build products that are better suited for use in harsh environmental conditions. Products that required assembly of fewer parts also implies that they may be better able to withstand dust and moisture prevalent in our tropical environment and be more durable.
• Fourth, in a country where use-and-throw is an anathema, maintaining old products is far easier because parts can be manufactured as needed and product life-cycles can be expanded.
• Finally, maintaining uniform product quality is far easier because the entire system is built at the same time and assembly is not required.

Consequences

• It decreases reliance on assembly workers and bypasses the global supply chain that has allowed countries like China to become prosperous through export of mass-produced items.
• This may lead to the creation of software-based design platforms in the West that distribute work orders to small manufacturing facilities, whether located in developed or developing countries, but ultimately transfer value creation towards software and design and away from physical manufacturing.
• This would imply that labour-intensive manufacturing exports may be less profitable.
• For countries that have already invested in heavy manufacturing, this shift to adaptive manufacturing will be difficult and expensive.

Challenges for India

1. Lack of domestic manufacturers of 3D printer: Though, there has been some attempts in producing 3D printers domestically they are not of industrial grade and industries largely depend on imports
2. High cost of imports: There is a lack of clarity relating to the import of 3-D printers that attract close to 30–40% customs duty, over and above the shipping cost. The huge cost associated with importing industrial grade 3-D printers is too much for the medium and small-scale industries in India.
3. Employment: 3D printing carries dangerous implications for employment scenario in developing nations such as India as it decreases reliance on assembly workers. It may lead to the creation of software-based design platforms in the West that distribute work orders to small manufacturing facilities, whether located in developed or developing countries, but ultimately transfer value creation towards software and design and away from physical manufacturing.
4. Awareness: Due to lack of awareness many business entities do not opt for design-prototyping-manufacturing assistance which largely reduces the reach of 3D printing.
5. Research: Research involving AM and its allied technologies in India is inadequate for competing in the global arena. Lack of a centralised approach to AM has been constraining Indian institutions from undertaking intense research on AM-related technologies.

International best practice

China had launched the first national plan for 3-D printing, called ‘Additive Manufacturing Industry Promotion Plan 2015–2016’. Later, a new additive manufacturing Action Plan (2017-2020) for the further development of the technology in the country was launched. The Plan focuses on strengthening research and development, as well as accelerating applications of 3D printing and its adoption in the industry.

Way Forward

1. There is a need for strong support from the government and business houses for AM-related studies and R&D for the growth of the technology in India
2. Research in India with regard to AM technology needs to be significantly scaled up if it is to emerge as a competitive player in this field.
3. It is important to create an environment that is conducive for industry to form collaborations with foreign firms to co-create the technology
4. Training and skilling is another important aspect which requires considerable attention. There is huge scope under the ‘Skill India’ initiative to reach out to the many technical institutes in the country to sensitise them regarding the opportunities in 3D printing
5. The “Make it the Indian Way” approach needs public-private partnership and multi-pronged efforts.
6. There is a need to accelerate research at our premier engineering schools on manufacturing machines and methods and encourage the formation of product design centers so that the products built to suit the Indian environment and consumers.
7. There is a need for government support to provide incentives for distributed manufacturing in smaller towns, and for the IT industry to work on creating platforms and marketplaces that connect consumer demands, product designers and manufacturers in a seamless way.

Conclusion

• In the past, the limitations of production have all too often influenced design, ruling out ideas because they weren’t practically achievable.
• The introduction of this technology and its development means the process has been spun on its head, with design now driving the production.
• If ‘Make in India’ is to succeed, it needs to encompass ‘Make it the Indian Way’. It need not emulate mass production technologies, fuelled in Detroit by massive capital investment or in Beijing by cheap labour.
• We are fortunate to be in a historic moment when the manufacturing sector is about to go through a transformation wrought by disruptive technologies.
• A combination of science and art, with a pinch of Indian entrepreneurship thrown in, will allow us to develop a manufacturing ecosystem that will not only allow India to compete with global manufacturing, it will also create products that are uniquely suited to Indian conditions.
• We have to find a way of making it work in India’s favour rather than against it.

Background

• A public-private partnership is a government service or private business venture that is funded and operated through a partnership of government and one or more private sector companies.
• PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project
• Public Private Partnerships (PPPs) in infrastructure refer to the provision of a public asset and service by a private partner who has been conceded the right (the “Concession”) for the purpose, for a specified period of time, on the basis of market determined revenue streams, that allow for commercial return on investment.
• PPPs in infrastructure represent a valuable instrument to speed up infrastructure development in India. This speeding up is urgently required for India to grow rapidly and generate a demographic dividend for itself and also to tap into the large pool of pension and institutional funds from aging populations in the developed countries.
• India offers today the world’s largest market for PPPs. It has accumulated a wealth of experience in getting to this premiere position. As the PPP market in infrastructure matures in India, new challenges and opportunities have emerged and will continue to emerge.

Models of PPP

Following are the main models of PPPs.

(a) Build Operate and Transfer (BOT): This is the simple and conventional PPP model where the private partner is responsible to design, build, operate (during the contracted period) and transfer back the facility to the public sector. Role of the private sector partner is to bring the finance for the project and take the responsibility to construct and maintain it. In return, the public sector will allow it to collect revenue from the users. The national highway projects contracted out by NHAI under PPP mode is a major example for the BOT model.

(b) Build-Own-Operate (BOO): This is a variant of the BOT and the difference is that the ownership of the newly built facility will rest with the private party here.The public sector partner agrees to ‘purchase’ the goods and services produced by the project on mutually agreed terms and conditions.

(c) Build-Own-Operate-Transfer (BOOT): This is also on the lines of BOT. After the negotiated period of time, the infrastructure asset is transferred to the government or to the private operator. This approach has been used for the development of highways and ports.

(d) Build-Operate-Lease-Transfer (BOLT): In this approach, the government gives a concession to a private entity to build a facility (and possibly design it as well), own the facility, lease the facility to the public sector and then at the end of the lease period transfer the ownership of the facility to the government.

(e) Lease-Develop-Operate (LDO): Here, the government or the public sector entity retains ownership of the newly created infrastructure facility and receives payments in terms of a lease agreement with the private promoter. This approach is mostly followed in the development of airport facilities.

(f) Rehabilitate-Operate-Transfer (ROT): Under this approach, the governments/local bodies allow private promoters to rehabilitate and operate a facility during a concession period. After the concession period, the project is transferred back to governments/local bodies.

(g) DBFO (Design, Build, Finance and Operate): In this model, the private party assumes the entire responsibility for the design, construction, finance, and operate the project for the period of concession. The private party assumes the entire responsibility for the design, construct, finance, and operate or operate and maintain the project for the period of concession.

(i) Management contract: Here, the private promoter has the responsibility for a full range of investment, operation and maintenance functions. He has the authority to make daily management decisions under a profit-sharing or fixed-fee arrangement.

(j) Service contract: This approach is less focused than the management contract. In this approach, the private promoter performs a particular operational or maintenance function for a fee over a specified period of time.

(h) Swiss Challenge– Under this method the government keeps an unsolicited bid in public domain and invites others to come up with better or improved ones within a given time-frame. The unsolicited bidder is a private player who approaches the government for development of a new infrastructure project.

(k) Joint Venture (PPP): Under this model the infrastructure is co-owned and operated by the public sector and private operators instead of fully privatise the project. The public and private sector partners can either form a new company (SPV) or assume joint ownership of an existing company through a sale of shares to one or several private investors.

Why is PPP needed?

• The ever-increasing growth in population has imposed tremendous pressure on State resources. In this situation, public-private partnership (PPP) can offer a solution to resource scarcity by taking an associated risk of infrastructure.
• It intends to bring expertise and efficiency in terms of human resources, technology and innovation.
• It can provide the room for the government to focus on essential service delivery such as education and health.
• PPP as long-term investment build the internal competition amongst the private players, thereby promoting the economic growth in long run.

Issues with PPPs

Over the past few years, a number of public private partnership (PPP) projects across various sectors have been in a stalled state (Economic Survey 2015). Further, private investment under the PPP investment model has failed to come by due to various reasons. An examination of various reasons for issues plaguing PPPs is as follows:

• According to Economic Survey-2015, many companies have been “over-leveraging” i.e. bidding beyond capacity and expecting government to redraw contracts
• Finance-The long term finance for PPP projects has dried up due to excessive dependance on banks and lack of proper corporate bond market in the country. Banks are further stressed due to high NPAs and governance issues.
• Clearance issues for projects – land acquisition and environmental clearances for projects have been difficult to come by
• According to Economic Survey 2015, PPPs have certain inherent flaws in design due to which they have been stalled eventually- no re-negotiation structures; wrongful risk allocation; lack of focus of efficient service provision
  • Focus on fiscal benefits rather than efficient service provision; no measures to penalise the providers for poor service
    • Bidders giving highest revenue share to govt win the contract
  • Neglect the principle of allocating risk to the agency best able to manage it eg traffic risks
  • No ex-ante renegotiation structures; failed projects don’t lead to investigations against bureaucrats while re-negotiated projects might do so.

Vijay Kelkar Committee on PPP

Recommendations of the committee

• Ministry of Finance should develop and publish a national PPP Policy document and 3PI institution which can function as a centre of excellence, enable research, and review and roll out activities to build capacity.
• Infrastructure PPP Project Review Committee (“IPRC”) and Infrastructure PPP Adjudication Tribunal (“IPAT”) should be established to ease the bottlenecks in PPP projects.
• Amend the Prevention of Corruption Act, 1988 to distinguish between genuine errors in decision-making and acts of corruption.
• Encouraging the banks and financial institution to issue Deep Discount Bonds or Zero Coupon Bonds (ZCB) for PPP.
• Monetisation of viable projects that have stable revenue flows after EPC delivery should be considered.
• Concession agreement should stipulate important commercial parameters like return on equity, treatment of land for noncommercial purposes.
• Open the avenues for long-term investors, including overseas institutional investors as long-term liabilities are best suited for PPP.
• Protection against ‘Obsolescing Bargain’ – loss of bargaining power by private players in PPP over the long time-frame of the project due to abrupt changes in policy or economic environment

Problems and Solutions- Sector specific problem of PPP, highlighted by CAG and its solution recommended by Kelkar Committee

Sectors	Issues highlighted by CAG	Kelkar Committee solutions
Port	Delays in majority of projects due to time taken in finalization of tenders, security clearances, concession agreement and tender process Delays in obtaining environmental clearance Delays in handing over of project sites and back up area.	Urgent need to focus on strengthening the systems to speed up the overall environmental clearance process. More institutions are required to be given authorization for conducting Coastal Regulation Zone demarcation. Need to provide support infrastructure such as land, utilities, dredging, rail and road evacuation infrastructure through enforceable obligations
Road	Inconsistency in adopting carrying capacity/tollable traffic as yardstick for determining the Concession Period by NHAI resulted in fixing higher concession period and higher toll burden on road users. Projects were approved despite the known late realization of minimum threshold traffic. The Total Project Cost (TPC) worked out by the concessionaires was higher as compared to TPC worked out by the NHAI. In 25 projects, TPC worked out by concessionaire was higher by 50 %	In the case of BOT toll projects, focus on projects with longer concession period. NHAI, concessionaire can opt for revenue share on a case to case basis In case of projects that are not viable on BOT toll basis, options to fund through hybrid models, grant of VGF, part annuity, O&M grants, and debt instruments, maybe explored. The concessioning authority may undertake detailed project development activities including demand assessment, soliciting stakeholder views on project structure and financial viability analysis to estimate a shadow bid, which could be used to compare actual bids received
Railways	Lack of promotion aspect in attracting the PPP for railways projects. Majority of approved project had been halted due to technical glitch.	Take up simpler projects first to build credibility. Such projects can be brownfield monetisation of existing stations or, greenfield development of new stations. Set up regulatory authority to settle technical issues such as track-access charges.
Airports	The success of PPP in airport are comparatively good however there is lack of comprehensive policy to deal with negative returns. Fluctuation cost of aviation turbine fuel had generate the negative trade-off for private entities.	Prepare a policy that addresses the expected growth parameters of the sector and promotes PPPs Concession agreement should stipulate important commercial parameters like return on equity, treatment of land for noncommercial purposes Develop brownfield and greenfield airports with defined structure, revenue sharing mechanisms.

Other government interventions

Hybrid annuity model

• The hybrid model is actually a mix of Engineering, Procurement and Construction(EPC) and BOT models
• In the annuity type, the concessionaire gets a fixed and assured payment from the government. The assured return balances the risk of insufficient revenues for the developer. Further, the government shoulders the responsibility of revenue collection.
• Also, the government pays 40% of the project cost to the concessionaire during the construction phase in five equal instalments of 8% each
• The government will provide 90% of land and the related environmental and forest clearance
• The operation and maintenance of the toll road rests with the concessionaire.
• The model goes a long way in shielding the risks for the developer and attracting funding to the infrastructure sector which is facing shortfall of funds in the recent years.
• The model has achieved considerable success, leading to increase in the average bidders for projects by 3 times.

Way forward

• The Vijay Kelkar committee on PPP restructuring suggests some forward-looking and viable steps for the regime. Some of the recommendations such as encouraging 3PI to be a centre of excellence, model concession agreements, optimum risk allocation and independent regulators for each sector will go a long way in addressing the problems plaguing the PPP projects.
• Further, there is dire need for a independent project renegotiation structure for negotiating stalled PPP projects.
• The Kelkar committee has suggested exploring various mechanisms for finance of PPP projects. Some other measures maybe to simplify corporate debt market regulation and explore other financing alternatives- corporate bonds; pension funds etc
• Further, there is a need for better exit options- bankruptcy codes, asset reconstruction etc
• Also, according to economic survey 2015, Highway tolls should have correlation between
  • reasonable profit for the private player
  • users’ capacity to pay
  • measures such as traffic triggers and re-equilibrium discount should be employed to ensure quality service at the same time.

The draft National PPP policy sets several objectives for PPPs

1. Harnessing private sector efficiencies in asset creation, maintenance, and service delivery
2. Providing focus on a lifecycle approach for development of a project, involving asset creation.
3. Creating opportunities to attract innovations and technological improvements.
4. Availability of affordable and improved services to the users in a responsible and sustainable manner.

CONCLUSION

A mature PPP framework, along with a robust enabling ecosystem shall enable the Government to accomplish, to a considerable extent, what our Prime Minister, Shri. Narendra Modi has said “The Government has no business to do business” and thereby promote private sector investments and participation towards the nation building.

Context

• The conflict between people and wildlife has attained serious dimensions in many regions of the country to the detriment of conservation. Wild animals often stray in villages and farms in and around protected areas and sanctuaries, causing bloody conflicts.
• And now increasingly we are seeing wild animals wander into urban areas causing human-animal conflicts.

What is a man-animal conflict?

• It refers to the interaction between wild animals and people and the resultant negative impact on people or their resources, or wild animals or their habitat.
• It occurs when wildlife needs overlap with those of human populations, creating costs to residents and wild animals.

Causes of Man-Animal Conflicts

• Habitat fragmentation and shrinking of habitat give rise to shrinking of space, food etc. in the forest which is required for the wild animals which result in animals stray out of habitat in search of food, water or shelter.

This habitat fragmentation may be result of many reasons, for example, Construction of roads especially big Highways and canals passing through dense jungles and the big mines.

• Encroachment in the forest lands by local people has resulted in shrinkage of wildlife habitats especially on the fringes which has increased the pressure on the limited natural resources in the forest areas.
• Increased disturbance due to collection of fuel wood, fodder, NTFPs, water etc. from the forests has also increased the incidences of man-animal conflict.
• Increase in area under cultivation around wildlife habitats and changed cropping pattern have also contributed to increased man-animal conflict. People have started growing commercial crops like sugarcane and banana, which provide good hiding place for the wild animals like wild boar, sloth bear and panther.
• It is observed that the local people have to go deeper and deeper, year by year for fetching firewood and other forest produce for their bonafide use, because of degradation of forests in the fringes. This has increased the number of incidences of man-animal conflict.
• Infestation of wildlife habitat by the invasive exotic weeds like Lantana, Eupatorium and Parthenium have resulted in decreased availability of edible grasses for the wild herbivores. As a result, herbivores come out of forest area and cause depredation of agricultural crops on the fringes.
• Monoculture of teak in the large scale forest plantations raised by the Forest Development Corporation of Maharashtra Ltd (FDCM) has also adversely affected the wildlife habitat value of the forest areas.
• Most incidences of man-animal conflicts are noticed during summer when water becomes scarce. The livestock and wild animals have to share the limited water sources on the fringes or inside forest. Human interference with the natural drainage system in forest areas and diversion of water towards habitation has further complicated the issue.
• In some forest areas, the number of wild animals especially prolific breeders like wild pig has increased beyond the carrying capacity of the habitat concerned. Hence wild animals stray out of forests cause man-animal conflict.
• Decreased prey base caused by poaching of herbivores has resulted in carnivores moving out of forest in search of prey and indulge in cattle lifting.
• Sometimes the wild animals and human come in sudden contact and out of fear of each other, they harm each other accidently.

Results of Human-Wildlife Conflict

• Scientists at Bengaluru’s Centre for Wildlife Studies, who analysed cases of compensation for crop raiding, livestock loss and human injury and death reported to the government between 2010 to 2015, find that wildlife that caused losses in 29 States included elephants that raid crop fields, tigers and leopards that preyed on cows and goats, and other species ranging from crocodiles to monkeys that cause injury and property damage. Twenty-two States compensated people for crop loss.
• While a majority of the States awarded compensation for loss of livestock, human injury and death, only 18 (62%) did so for property damage. The complete data for 18 States in 2012-2013 alone reveals that people reported a total of 78,656 cases, for which payments totalled to about ₹ 38 crores.
• Yet, even these numbers are an underestimate of the extent of conflict: many people do not report their losses, some States lack compensation policies, and the team did not have access to the five-year compensation details of 11 other States.
• When the team compared the compensation patterns in detail, they found that despite a significant mandate to address human-wildlife conflict, there exist numerous inconsistencies in eligibility, application, assessment, implementation and payment procedures across States.
• For instance, although the majority of claims countrywide were related to crop loss, seven States — including Gujarat and Rajasthan — still do not provide crop compensation.
• The ramifications of losses in arid States where farmers rely on just a single crop for survival would be high. Such discrepancies in eligibility and procedure, by promoting selective tolerance and protection of wildlife, could be detrimental to conservation efforts,

Mitigation measures of Man-Animal Conflict

• To control poaching: Poaching of wild animals should be stopped so that the no of wild animals can stabilize at its carrying capacity which would reach equilibrium in the ecosystem and this equilibrium between the numbers of prey animals and predators in the forest ecosystem would be maintained.
• To undertake SMC works in the habitat: To stop soil erosion and to increase water availability in the forests, soil and moisture conservation measures (SMC) like vegetative checks dams, loose boulder check-dams, cement plugs, Nala bunding, water tanks, should be taken in the forest so that water regime of the forest is increased in a natural way which will increase the productivity of the forests as well as water availability in the habitat. Then the sufficient food and water for wildlife will be available and the number of animals straying out of forest will be controlled.
• To stop monoculture and increase number of edibles miscellaneous species: Plant monoculture of species like teak should be avoided. Instead mixed plantations of miscellaneous, bamboo and fruit species can be considered. This will provide more food for animals in the forest, hiding shelter to animals as well as provide food for most herbivores.
• Stop fragmentation of wildlife habitat and wildlife corridors: While going for construction of dams, long canals for irrigation and Highways through the forest areas, the fragmentation of wildlife habitat should be avoided and proper care should be taken so that the connectivity through wildlife corridors is not disturbed.
• Animals cannot pass these canals and roads easily and they are localized and their natural balance is disturbed. Big mines can also fragment the habitat hence to be avoided. The corridors of wildlife joining one habitat with nearby habitat which is essential for their sustenance should be maintained.
• Providing LPG to villagers: LPG should be provided to those villagers who frequently go to the forest areas specially wildlife habitats to fetch fuel wood for their chullahs so that they may stop penetrating into forest and stop inviting Man- Animal Conflicts. These people are most vulnerable to Man-Animal Conflicts.
• Maharashtra Forest Department has started in big way to distribute LPG to villagers residing on the fringes under Joint Forest Management Program and Village Eco-development Program which will go a long way simultaneously to conserve forests and wildlife o and to reduce man animal conflicts.
• Awareness Raising: People should be made more and more aware through meetings and pamphlets etc. that they should avoid going deep into the forest areas. If they have to go in any case they should go in groups and they should keep talking to each other to detract the wild animals. School children in vulnerable villages should be educated about the importance of wildlife and human co-existence with it.
• Solar Fencing around agriculture fields: Agriculture fields situated near wildlife habitat/forest areas can be protected by stone fencing or solar fencing. Solar fencing has been tried with quite good effect in Wardha District of Maharashtra. The District Planning and Development committee is ready to give financial support to the farmers for erecting solar fencing.
• Controlling crop pattern: Crops like sugarcane, Banana, Bajra, tuhar should not be allowed to be grown near forest areas. These crops attract wildlife for food as well as good hiding place.
• Paying Ex-gratia/Compensation to the people: Ex-gratia /compensation should be paid promptly to the victims of wildlife attack so that the people will not become enemy of the wild animals. Otherwise people tend to take revenge from the wild animals by killing them by poison, trap, hacking or shooting as has been noticed in many cases.
• Relocation/Rehabilitation of problematic and disadvantaged wild animal: If a wild animal like tiger, panther, or bear has become disadvantaged or problematic, this fact to be doubly confirmed and then only such animal should be caught either by tranquilization or by trapping cages, safely. Then it should be relocated in suitable habitat or be kept in a zoo or rescue centers for all its remaining life.
• However, it is not advisable to keep the stressed problematic animal to be released near the problem area where people may harm that animal. It is better to relocate this kind of animals by following the prescribed protocols in this regard.

What’s being ignored?

Enough attention has not always been given on the mental health of people who are the victims of the human-wildlife conflict. Given that incidents of human-wildlife conflict occur in such large numbers across India, its impact on the mental well-being of victims has largely been peripheral to the conservation discourse.

• However, these conflicts often magnify pre-existing financial problems or untreated mental disorders. In some cases, they may even generate new psychiatric morbidities or impact maternal health.
• Both experts emphasize the need for a sustained interaction between conservationists and public health professionals as a way forward.

Way ahead

The solutions are often specific to the species or area concerned and are often creative and simple. Solutions should lead to mutually beneficial co-existence.

Apart from the above-mentioned measures, the WWF report ‘Common Ground’ identifies themes that can be used to compose a common ground or a basic list of available and tested solutions.

These include:

• A united effort: In order to be truly effective, prevention of human-wildlife conflict has to involve the full scope of society: international organizations, governments, NGOs, communities, consumers and individuals. Solutions are possible, but often they also need to have financial backing for their support and development.
• Community-based natural resource management: The local community is key since they are the ones who may wake up in the morning with a tiger or bear in their back yard. But they are also the people who can benefit the most from this. If people are empowered to manage their relationship with wild animals, these “unwanted” neighbours can become allies in bringing income and promoting a better quality of life for all.
• Payment for Environmental Services: Payment for Environmental Services (PES) is a concept that has recently gained popularity in the international development and conservation community. The most popular of these is financial reward for the sequestering of carbon, but it is also seen as a potential solution for human-wildlife conflict.
• Wildlife friendly products: Consumers is distant countries also have a role to play. Always look for products that are environmentally friendly and recognized by serious organizations.
• Field based solutions: There are a number of practical field-based solutions that can limit the damage done both to humans and human property, and to wildlife, by preventing wildlife from entering fields or villages. However, such solutions can only be applied on a case-by-case basis. What people see as solution in one place, they may resist in another. And what works in one place, may have the opposite effect somewhere else.

CONTEXT

• India’s non-banking financial companies (NBFC) sector — also known as the shadow banking system that provides services similar to traditional commercial banks but outside normal banking regulations — is passing through a turbulent period following a series of defaults by Infrastructure Leasing and Financial Services (IL&FS) and the subsequent liquidity crunch.
• The liquidity squeeze faced by NBFCs has led to a conflict between the government and the Reserve Bank of India, with the Finance Ministry pushing for easier fund flows while the RBI insists there’s enough money available in the system.

What is a Non-Banking Financial Company (NBFC)?

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property.

A non-banking institution which is a company and has a principal business of receiving deposits under any scheme or arrangement in one lump sum or in instalments by way of contributions or in any other manner is also a non-banking financial company (Residuary non-banking company).

Features of NBFCs

• NBFC cannot accept demand deposits.
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs.

Major difference between Banks and NBFCs

Basic	NBFCs	Banks
Meaning	They provide certain banking services without holding Bank License.	It is government authorized financial intermediary which provides banking services to the public.
Regulated under	Companies Act 2013	Banking Regulation Act 1949
Demand Deposit	Cannot be Accepted	Can be Accepted
FDI	Allowed up to 100%	Allowed up to 74% for Private Sector Bank
Payment and Settlement system	Not a part of the System	An Integral part of the System
Maintenance of Reserve Ratios	Not Required	Mandatory
Deposit Insurance Facility	Not Available	Available
Transaction Services	Cannot be provided by NBFC	Provided by Bank

Importance of NBFCs

• NBFCs help attain the objective of macroeconomic policies of creating more jobs in the country by promoting Small and Medium scale Enterprises and private industries through lending them loans.
• The financial market relies heavily on non-banking financial institutions for raising capital. The start-ups and small-sized businesses are dependent on funds offered by NBFCs.
• NBFCs extend long-term credits to infrastructure, commerce and trade companies. The traditional banks expect timely, schedules and short-term repayment of loans that may not always suit the requirements of these industries.
• Non-banking financial companies help in rotation of resources, asset distribution and regulation of income to shape the economic development. They enable converting savings into investments and thus, helps in the mobilisation of funds/resources in the economy.
• NBFCs play an important role in promoting inclusive growth in the country, by catering to the diverse financial needs of bank-excluded customers. And very importantly, they also reach out to areas inaccessible to regular banking.
• As NBFCs aim to build capital for several industries – private and otherwise – they aid in accumulating a capital stock for the country. This directly adds on to the National Income and results in the progression of Gross Domestic Product (GDP).
• With quicker decision-making ability and prompt provision of services, NBFCs act as not just complements but also substitutes to banks.

How big is the NBFC industry?

• NBFCs have been slowly moving into the space of commercial banking. When banks slowed down their lending business in the wake of huge bad loans, NBFCs continued to grow at a higher pace.
• As of March 2018, there were 11,402 NBFCs registered with the RBI, of which 156 were deposit accepting NBFCs (NBFCs-D), and 249 systemically important non-deposit accepting NBFCs (NBFCs-ND-SI).
• The aggregate balance sheet size of the NBFC sector as of March 2018 was Rs 22.1 lakh crore. There was a deceleration in share capital growth of NBFCs in 2017-18 whereas borrowings grew at 19.1%.
• NBFCs in India include not just finance companies, but also a wider group of companies that are engaged in investment, insurance, chit fund, nidhi, merchant banking, stock broking, alternative investments etc. as their principal business.
• NBFCs being financial intermediaries are supposed to play a supplementary role to banks. NBFCs, especially those catering to the urban and rural poor — including the micro-finance institutions (NBFC-MFIs) and asset finance companies — have a complementary role in the financial inclusion agenda of the country.
• Further, some of the big NBFCs — infrastructure finance companies — are engaged in lending exclusively to the infrastructure sector, and some are into factoring business, thereby giving a fillip to the growth and development of various sectors. In short, NBFCs bring diversity to the financial sector.

What’s the fund source of NBFCs?

• NBFCs were the largest net borrowers of funds from the financial system, with gross payables (loans) of around Rs 717,000 crore and gross receivables of around Rs 419,000 crore in March 2018.
• A breakup of gross payables indicates that the highest funds were received from banks (44%), followed by mutual funds (33%) and insurance companies (19%). HFCs were the second largest borrowers with gross payables of around Rs 528,400 crore and gross receivables of only Rs 31,200 crore.
• As of March 2018, HFCs’ borrowing pattern was quite similar to that of NBFCs except that financial institutions also played a significant role in providing funds to HFCs. Like NBFCs, long-term debt, loans and CPs were the top three instruments through which HFCs raised funds from the financial markets.
• Now with the system facing a liquidity crunch, mutual funds, insurance companies and other big investors are unlikely to invest in NBFCs in a big way. The exposure of banks to NBFCs had shot up by 27%, or over Rs 1 lakh crore, to Rs 496,400 crore in a span of six weeks in March 2018.
• However, banks started cutting their exposure since April this year, leading to a 4.6% decline in their exposure to NBFCs, according to RBI data. The outstanding credit of banks was at Rs 391,000 crore in March 2017. The sudden spike in bank exposure to NBFCs prompted the RBI to direct banks to bring down the exposure.

What is the crisis in the NBFC sector?

• Several corporates, mutual funds and insurance companies had invested in short-term instruments such as commercial papers (CPs) and non-convertible debentures (NCDs) of the IL&FS group that has been defaulting on payments since August.
• This has stoked fears that many of them could have funds stuck in IL&FS debt instruments which, in turn, could lead to a liquidity crunch in their own backyard. Liquidity conditions had tightened, with a deficit of Rs 1.37 lakh crore on October 22, 2018, though this has declined since.
• There are rising fears that the funding cost for NBFCs will zoom and result in a sharp decline in their margins.

Problems Plaguing NBFCs

• The decline in asset quality for select NBFCs has stemmed from cases where underwriters (a person or company that underwrites an insurance risk) are inexperienced, or with limited understanding of the local situation and dynamics that drive the demand for credit.
• Misalignment in product offerings with customer needs: Small NBFCs, in an effort to capture markets, have expanded into new geographic locations and diversified their product portfolio but are misaligned with consumer needs. When products can’t get associated with consumer needs, they become outmoded.
• Asset-liability mismatch: Several NBFCs are faced with a liquidity crunch (a time when cash resources are in short supply and demand is high), liabilities maturing and coming up for payment faster than loans in the same tenure.
• Lack of a strong regulator, except for housing finance companies, is also one of the challenges faced by NBFCs.

There are three primary drivers of the current risk aversion for NBFCs

The first driver relates to short-term funding being used to finance long-term assets—an asset-liability mismatch (ALM).

• For micro-finance, the average loan tenure ranges from eight to nine months, for commercial vehicle finance it is 16 to 18 months, while for small business finance it is 12 to 16 months. Thus, the asset side duration for these businesses is very short.
• On the liabilities side, the duration either mirrors the asset side, or is longer, and generally ranges from one to two years. Thus, these small to mid-sized NBFCs run a positive ALM mismatch.
• Even in the case of affordable housing finance, where one would expect a wide ALM mismatch, low asset duration for affordable housing financiers reduces the ALM gap to negligible. This is further aided by low leverage (debt to equity ratio) and high capital adequacy.

The second cause of current risk aversion towards NBFCs has to do with refinancing or rollover of short-term capital market borrowings.

• This concern is linked to the ALM issue, as a smooth rollover of shorter duration liabilities when assets are of longer duration is key for business continuity.

The third cause for concern has to do with asset quality.

• • This primarily pertains to exposure of NBFCs to the real estate sector—either as builder funding or loan against property (LAP).

What did the RBI do to provide liquidity?

• The Reserve Bank of India (RBI) has decided to increase the single-borrower exposure limit of banks for non-banking finance companies (NBFCs) which do not finance infrastructure, to 15% from the existing 10% of their capital funds.
• This would be effective till December 31. This is taken in the context of the IL&FS imbroglio-induced liquidity crisis in the system.

  The Reserve Bank has also permitted banks to use government securities, equal to their incremental outstanding credit to NBFCs, over and above their outstanding credit to them as on October 19th to meet the liquidity coverage ratio requirement.

Way Forward

• Efficient engagement of customers: NBFCs must distinguish between active and inactive customers to develop a focused engagement methodology and allocate resources efficiently.
• Building effective reward and loyalty programmes to minimise bad debts: NBFCs must increase customer retention by building a strong loyalty programme, with discount, cashback benefits. The program must be customised according to the customer type and factor in the right data variables to provide meaningful incentives and value for customer loyalty.
• Over the years, NBFCs have played an important role in providing growth capital to various sectors of the economy
• A concerted effort across stakeholders is required to prevent a market contagion that can cut off the critical supply of capital to the grassroots of the nation.

Context

• Tshering Tobgay will be new Prime Minister of Bhutan. Druk Nyamrup Tshogpa Party has won the recent general elections in Bhutan.
• The National Assembly is the lower house of Bhutan Parliament. This is the third general election after democracy was adopted in Bhutan in 2008.

BHUTAN ELECTION BACKGROUND

• Election to the House of Representatives also called the National Assembly, occurs in two rounds: the Primary Round and the General Round.
• The first round, called the Primary Round, is contested by multiple parties. This year, four parties contested, two of which have existed from the first parliamentary elections.
• The People Democratic Party (PDP) was led by a Harvard-educated former civil servant who was viewed as a popular political leader.
• Opposing him was the Druk Phuensum Tshogpa (DPT), which formed the first democratic government, and was the opposition party in the last parliament.
• The two new parties were the Druk Nyamrup Tshogpa (DNT), which was led by a popular medical doctor and social activist, and Bhutan Kuen-nyam Party (BKP), which is headed by the former chairperson of the Anti-Corruption Commission.
• The parties did not vary substantially in terms of ideology or manifestos, but they represented their respective party leaders’ expertise and personal values.

India Bhutan Relations

• India and Bhutan have had long-standing diplomatic, economic and cultural relations
• Bhutan and India relations are governed by a friendship treaty that was renegotiated only in 2007, subjecting the Himalayan nation’s security needs to supervision.
• Treaty of Friendship in 2007, which brought into the India-Bhutan relationship “an element of equality.”
• The Treaty provides for perpetual peace and friendship, free trade and commerce, and equal justice to each other’s citizens.

India-Bhutan treaty of Friendship timeline

• On August 8, 1949, Bhutan and India signed the Treaty of Friendship, calling for peace between the two nations and non-interference in each other’s internal affairs.
• India re-negotiated the 1949 treaty with Bhutan and signed a new treaty of friendship in 2007.
• The new treaty replaced the provision requiring Bhutan to take India’s guidance on foreign policy with broader sovereignty and not require Bhutan to obtain India’s permission over arms imports.
• Under the 2007 India-Bhutan Friendship Treaty, the two sides have agreed to “cooperate closely with each other on issues relating to their national interests.”
• Neither Government shall allow the use of its territory for activities harmful to the national security and interest of the other
• A scheme titled “Comprehensive Scheme for Establishment of Hydro-meteorological and Flood Forecasting Network on rivers Common to India and Bhutan” is in operation.
• The network consists of 32 Hydro-meteorological/ meteorological stations located in Bhutan and being maintained by the Royal Government of Bhutan with funding from India. The data received from these stations are utilized in India for formulating flood forecasts.

Importance of Bhutan

• Bhutan in a buffer state between India and china. Bhutan shares a 470 km long border with China.
• Strategic importance: The Chumbi Valley is situated at the trijunction of Bhutan, India and China and is 500 km away from the “Chicken’s neck” in North Bengal, which connects the northeast with rest of the country.
• To contain the insurgency in North-East: Bhutan has in the past cooperated with India and helped to flush out militant groups like United Liberation Front of Asom (ULFA) and National Democratic Front of Bodoland (NDFB) from the Himalayan nation.
• To check Chinese inroad in Bhutan: China is interested in establishing formal ties with Thimphu, where it does not yet have a diplomatic mission. Bhutan is strategically important for both India and China. Chinese territorial claims in western Bhutan are close to the Siliguri Corridor.
• Beijing is reportedly insisting on Bhutan establishing trade and diplomatic relations as a quid pro quo for a border settlement.
• A Joint Group of Expert (JGE) on Flood Management has been constituted between India and Bhutan to discuss and assess the probable causes and effects of the recurring floods and erosion in the southern foothills of Bhutan and adjoining plains in India and recommend to both Governments appropriate and mutually acceptable remedial measures.
• Bhutan is currently India’s only neighbour who has stayed away from joining China’s Belt and Road Initiative (BRI), but that may change if India can’t make itself an attractive ally and neighbour.
• In the aftermath of the Doklam incident, Chinese vice foreign minister visited Thimphu to discuss a range of issues. It was at this meeting that Bhutan was invited to join the BRI and reap the “development dividends” – surely a tempting offer for a country looking to diversify its heavily India-dependent economy.

Commercial Relations between India and Bhutan

• India is Bhutan’s largest trading partner. India and Bhutan have signed an Agreement on Trade, Commerce and Transit on 12^th November 2016, which provides for a free trade regime between the two countries aimed at boosting the bilateral trade for mutual benefit.
• The Agreement also aims at facilitating Bhutan’s trade with countries through an improved procedure for containerised cargo, striving towards use of electronic means to facilitate the movement of transit cargo, additional entry/exit points in India, etc.
• Imports from India were Rs5,650cr accounting for 80% of Bhutan’s total imports. Bhutan’s exports to India stood at Rs3,270 cr (including electricity) and constituted 90% of its total exports. One-third of Bhutan’s exports to India is electricity.
• Other items of export include minerals such as ferro-silica (the Bhutanese have been complaining that these exports have been declining), cement and dolomite.
• The Government is planning to build a mini dry port in the border town of Phuntsholing to promote exports, that are plagued by logistical difficulties due to the difficult terrain and poor connectivity. Bhutan sources the majority of its import requirements from India.

Impact of the election

India not a factor this time

• In contrast to the 2013 elections, Bhutan’s relations with India did not figure prominently during the campaign by the four parties.
• In the run-up to the 2013 polls, Bhutan was hit suddenly by high fuel prices, after India withdrew subsidies over kerosene and cooking gas. The Indian government claimed that the withdrawal was an “unfortunate technical lapse” due to the non-renewal of an agreement.
• Despite Indian denials, the perception persisted that New Delhi wanted to ‘punish’ the ruling DPT for taking steps like the meeting of then prime minister Jigme Thinley with Chinese premier Wen Jiabao at Rio de Janeiro in 2012.
• During that campaign, the PDP had accused the DPT of presiding over “deteriorating” ties with India. The DPT pushed back by asserting that relations with India should be kept “beyond and above party politics at all times”.
• Five years later, India did not figure at all in the elections, beyond the general political consensus that relations have to be strengthened. This despite Bhutan having witnessed the armies of China and India standing eye-ball to eye-ball on its border region for 73 days in 2017.
• In the DPT’s manifesto for the 2018 elections, the separate section on foreign policy mentions that the party “remains committed to maintaining and furthering the excellent relations with the people and the Government of India”.
• If elected, the DPT had also pledged to execute at least three hydropower projects and “pursue others with the government of India”, with an emphasis on more balanced regional distribution of the mega projects. It has proposed to ramp up electricity generation from 1606 MW to a minimum of 10,000 MW in 2030.
• The DPT had also stated that it would explore the “feasibility of using the Brahmaputra river port in India as a third-country exports and imports route for Eastern Bhutan”.
• The DNT’s manifesto does not have a separate section on external relations, but India gets mentioned several times, especially in the context of diversification of the economy.
• In the section on the economy, the DNT expressed concern over the export basket, with hydropower exports dominating this sector. The party claimed that since Bhutan’s economy is “driven by investments in the hydropower sector”, economic growth remains narrowly based and unable to create jobs for a young aspiring population. The party had also pointed out over 75% of Bhutan’s expanding external debt is accounted by hydropower loans.
• “We are determined more than any other party to diversify the economy by accelerating private sector growth and investing in agriculture, mining, manufacturing and service,” said the DNT manifesto.
• A similar concern in parallel with trade debt is the huge external debt, which currently stands at 170 billion BTN, or Bhutanese ngultrum, as of today. Of this amount, as per the State of the Nation Report (2018), hydropower loans comprise 132 billion BTN, while the rest is non-hydropower loan of 37 billion BTN. One ngultrum is worth one Indian rupee.
• The DNT pointed to India accounting for an 80% share of exports from Bhutan as a weak point for the economy, which made it “highly vulnerable to exogenous shocks”.
• The party also promised to review current fuel imports from India, so as to reduce dependence on fossil fuel and improve the balance of payment situation.
• All the parties were silent over the BBIN motor vehicles agreement in their manifestos. The PDP government had tried to pass the relevant legislation, but it was defeated in the National Council. With popular opposition against the agreement, Bhutan withdrew from the agreement.

China factor

• Until 2007, India had oversight over Bhutan’s relations with other countries. This changed after the two countries amended their friendship treaty, giving Bhutan full freedom to pursue ties with other countries.
• While people in Bhutan are appreciative of the country’s close ties with India, there are those who feel that Bhutan also needs to establish diplomatic links with China, which has been trying to make inroads into the small country.
• The debate on ties with China deepened following the Doklam crisis in June last year, which led to a standoff between India and China on the Doklam plateau.
• The row arose when Indian border guards intervened as China was building a road in an area claimed by both it and Bhutan, close to a narrow stretch of land in India known as the Siliguri corridor.
• The corridor connects seven north-eastern Indian states to the mainland. The issue was resolved after nearly a month.
• China, of course, has so far been frustrated in wanting to have close diplomatic ties with Bhutan. But sooner or later Bhutan, despite the traditional friendship (with India), has to chart its own course in international affairs.
• The sentiment echoes even today and Bhutan continues to dodge China’s courtship for formal diplomatic relations and a residential embassy in Thimphu. Bhutan’s leaders and policymakers are cautious about speaking openly about China.

Investing in trust

• Bhutan has always been India’s most trusted ally in South Asia and has often put India’s security at the forefront. Come to think of it, in December 2003, Bhutan’s fourth king personally led the army to throw out Indian militants living in Bhutan’s jungles.
• Bhutan was also the only South Asian country besides India not to attend China’s Belt and Road Initiative forum in May 2017. In other words, Bhutan has held its end of the bargain.
• Unsurprisingly then, belligerent messages from Indian officials only serve to anger the Bhutanese who are now openly questioning India’s level of trust in its so-called best friend. Indian officials who claim the Chinese influence is increasing in Bhutan are wrong.
• Bhutan’s contact with China remain the same, mainly to discuss the border issues. Bhutan, in fact, has never been tempted by the Chinese offers of development and technical assistance.
• What India gives Bhutan in development aid is there for all to see, but what Bhutan offers India in strategic benefit, as a buffer along the northern border, cannot be put in figures.
• Indeed, those in the corridors of power in Delhi do understand that Bhutan has saved India billions of rupees in defence spending.
• Yet, India has not invested in Bhutan and other smaller neighbours that modicum of trust which is critical in building genuine goodwill.
• This means not only increasing people-to-people contact but also being sensitive to Bhutan’s desire for a wider engagement beyond India’s borders. This means respecting Bhutan as an equal, sovereign nation state.

Conclusion

• Bhutan’s leadership regards the Indo-Bhutan friendship as one “built on shared values and aspirations, trust and mutual respect, and a common dream of peace and prosperity for the people of the two countries”.
• This means Bhutan’s foreign policy framework, which holds the relationship with India as being integral to its national interest, will not change no matter which party takes power in Thimphu.
• The Indian approach to Bhutan has necessarily to be tailored while being sensitive to the growing Bhutanese aspirations of being considered as an equal.
• The Bhutanese will also be loathed to be considered as just a pawn in the great game between India and China.
• In the years ahead, their aspirations to have an independent strategic opinion as a sovereign state will recur more often.
• Obviously, they will need to be treated as equals and as such integrated economically to ensure a better balance in mutual trade.

Context

• Voters in the Maldives delivered a stunning defeat for President Abdulla Yameen in a contentious presidential election, an outcome regarded as a victory for democracy over authoritarianism in the Indian Ocean island nation.
• The people of the small archipelago in the Indian Ocean voted for change and brought to power the Opposition candidate, Ibrahim Mohamed Solih. They came out in huge numbers with the turnout being 89.2%.

BACKGROUND

Crisis in the Maldives 

• In October 2008, a popular opposition movement instigated by a coalition of parties challenged the power of incumbent leader Maumoon Abdul Gayoom (half-brother of Yameen Abdul Gayoom), forcing him to hold the Maldives’ first multiparty presidential vote.

• In the country’s first free elections, Mohamed Nasheed, backed by a coalition of opposition parties, defeated Gayoom in a runoff and became the Maldives’ first freely elected president in 2008. Two years later, the international watchdog Freedom House listed the country as an electoral democracy for the first time.

• However, in 2012, Nasheed was forced to resign from the office following a police mutiny and a political turmoil in the country better known for its exotic honeymoon resorts.

• It was Yameen Abdul Gayoom’s election as President in 2013 that ended the political turmoil. However, this trouble only intensified under Yameen.

• Recently in February 2018, Yameen declared a 45-day state of emergency in the country, ordering security forces into the Supreme Court and got former president Maumoon Abdul Gayoom arrested. On his orders, Maldives police arrested Chief Justice Abdulla Saeed and another Supreme Court judge Ali Hameed.

• He had pulled the Maldives out of the Commonwealth in 2016 and fostered closer ties with China and Saudi Arabia over traditional allies India and the United Kingdom.

Importance of Maldives

• The Maldives, long a popular tourist destination, has grown in strategic importance in recent years as China and India to establish their influence in the region, and as Beijing pushes ahead with its global trade and infrastructure plan.
• Spread over nearly 1,200 islands spanning more than 90,000 sq km, key shipping lanes where Beijing and New Delhi compete to pursue their often-conflicting maritime strategies pass through this tiny Indian Ocean nation.
• Though small, the Maldives is India’s important neighbour. India’s Prime Minister Narendra Modi called the Maldives “a valued partner in the Indian Ocean neighbourhood”.
• India-Maldives “ties are built on a very strong foundation” the contours of which are defined by shared strategic, security, economic and developmental goals.

However, the bilateral ties are not without irritants, which can be seen in two broad areas: political and strategic.

How is China engaging with the Maldives?

• Beijing has made large investments in infrastructure projects in the Maldives during Yameen’s time in office.
• They include a US$830 million investment to upgrade the Maldives airport and build a 2km bridge to link the airport island with the capital Male, according to the Centre for Global Development.
• Chinese are also building a 25-storey apartment complex and hospital in the Maldives.
• Meanwhile, some 306,000 Chinese tourists visited the Maldives last year accounting for 21 per cent of the country’s total number of visitors. When three Chinese naval ships docked in Male in August last year, it only amplified India’s concerns.

The tilt towards China

• Mr.Yameen’s China visit last year, the two nations signed 12 pacts, including a free trade agreement (FTA).
• Mr. Yameen not only fully endorsed China’s ambitious Maritime Silk Road initiative but also made the Maldives the second country in South Asia, after Pakistan, to enter into an FTA with China.
• The Yameen government pushed the FTA through the nation’s Parliament, the Majlis, stealthily, with the opposition not attending the parliamentary session.

Chinese Investments: Massive Debt trap, according to the opposition

• The opposition accused the Yameen government of allowing a Chinese ‘land grab’ of Maldivian islands, key infrastructure, and even essential utilities, which “not only undermines the independence of the Maldives, but the security of the entire Indian Ocean region.
• The massive infrastructure growth funded by Chinese debt was a key part of Mr. Yameen’s election campaign but the massive debt trap made it a difficult proposition to be accepted.

How have the Maldives ties with India fared under Yameen?

• Bilateral ties between India and the Maldives have deteriorated during Yameen’s time in power.
• In March 2015, Indian Prime Minister Narendra Modi cancelled his state visit to the island nation over the treatment of Mohamed Nasheed, the former pro-India Maldivian president who had been jailed.
• The Maldives also declined India’s invitation to take part in its biennial eight-day naval exercise, Milan, this year.
• Yameen’s government has also rejected visa renewals for Indians who were legally working in the Maldives, without giving any explanation.

Concern areas that need to be improved between India and Maldives 

• No FTA with India: Maldives and India do not have a Free Trade Agreement. However Maldives and China entered into Free Trade Agreement.
• Maldives growing “closeness” with China: Both China and Pakistan stepping up their strategic inroads into the Maldives
• Religious radicalization: The Maldives is being radicalized by the Saudi funds and influence
• ISIS threat: Growing Islamic radicalisation in the tiny island-nation of about four lakh people once known for its tolerant practices has many foreign governments, including India, deeply concerned.
• Yameen government had asked India to remove its Dhruv advanced light helicopters from Maldives(which India had gifted in 2013).
• Yameen government has alleged that tensions over the presence of the two Indian helicopters in two strategically important locations in the Laamu and Addu atolls have been growing.
• Work permits are not currently being issued to Indian Nationals.

By changing to more democratic form of government in Maldives, India can engage with Maldives to establish much more friendly relations than previous government era to protect the safety and security of entire Indian Ocean region. During his inaugural address, Solih outlined priorities-

1. On foreign policy, Solih said that he would work to “fortify” Male’s existing relationship with India, which had grown strained under Yameen, but has historically been strong.
2. The geopolitical overtones of the change in leadership in the Maldives were clear during the inaugural address, when Solih referenced the cause for the government’s poor fiscal state as the previous’ government’s decision to pursue “reckless mega development projects undertaken purely for political gains.”
3. Modi and Solih met, with Solih asking for Indian assistance on infrastructure development in the country.

What Solih means to India?

1. Ibrahim Mohamed Solih and Mohamed Nasheed are considered as brothers in arms in Maldivian politics. Nasheed is seen as pro-India unlike Yameen Abdul Gayoom, under whose reign, China has outpaced India in the island nation.
2. China was seen as dictating the foreign policy of Maldives under Yameen Abdul Gayoom making India’s strategic position vulnerable in the Indian Ocean.
3. During his door-to-door campaign, Ibrahim Mohamed Solih promised that he would repair relations with the neighbours and India First foreign policy would be reinstated.
4. His campaign was getting traction days ahead of the Sunday polls forcing Yameen Abdul Gayoom to say in his interviews that Maldives still maintained India First policy. Maldives was just opening up to other countries, Yameen Abdul Gayoom argued.
5. India has been critical of the Yameen Abdul Gayoom administration for suppressing human rights and crushing the opposition political forces. During his campaign, Solih said that he would promote human rights and follow the rule of law if elected to the office of the president.
6. India’s relations Maldives received a blow when Yameen Abdul Gayoom declared Emergency in the country in February this year.
7. The Maldivian Supreme Court had ordered the release of jailed Opposition leaders calling the trials as a sham. Yameen Abdul Gayoom refused to execute the Supreme Court order.
8. The Emergency was lifted 45 days later but the relations with India have suffered a lot since. With Ibrahim Mohamed Solih winning the majority in Maldives, the bilateral relations with India are expected to be restored and hawkish Chinese influence wane.

Way Forward

• Many of the challenges the Maldives faces linger. The opposition may have been united in its desire to oust Mr. Yameen but this unity will be tested in governance.
• Democratic institutions have been weakened and a fragile democracy can also be susceptible to radical ideologies if not effectively governed. Its economic presence in the Maldives is a reality that all governments will have to contend with.
• Mr. Yameen’s defeat has certainly produced a favourable outcome for New Delhi and it should seize the moment to rebuild ties with Male.
• If there is one lesson out of the Maldives crisis, it is that political elites in India’s neighbours will come and go.
• But if India can stand together with the aspirations of citizens of neighbouring countries, then the prospects of a long-term sustainable relationship will be much brighter.

CONTEXT

• India has declared that its nuclear triad, stated in its nuclear doctrine, is operational
• This was after indigenous ballistic missile nuclear submarine INS Arihant achieved a milestone by conducting its first deterrence patrol
• It essentially means that Arihant is now prowling the deep seas carrying ballistic missiles equipped with nuclear warheads
• The second submarine in the series, Arighat is now undergoing sea trials after which it will be inducted into service

Introduction

• Nuclear Triad means the capability of delivering nuclear weapons by aircraft, land based ballistic missiles and submarine launched missiles.
• Specifically, these components are land-based intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and strategic bombers.
• The purpose of having this three-branched nuclear capability is to significantly reduce the possibility that an enemy can destroy all of a nation’s nuclear forces in a first-strike attack. This, in turn, ensures a credible threat, and capability, of a retaliatory second strike, thus increasing a nation’s nuclear deterrence.

Nuclear Command

• India has put in place a robust nuclear command and control structure, effective safety assurance architecture and strict political control, under its Nuclear Command Authority.
• Operationally, the Command is headed by a three-star military officer, but the authority to launch it rests with the Prime Minister, the Head of the Government.
• It also means that the Prime Minister – and his Office – has the capability 24 x 7 to be in touch with the nuclear submarines irrespective of where they are, on India’s East or West coasts.
• However, India remains committed to the doctrine of credible minimum deterrence and No First Use, as enshrined in the decision taken by the Cabinet Committee on Security (CCS) in its meeting chaired by the then Prime Minister Vajpayee on January 04, 2003.

INS Arihant

• The Arihant is the lead ship of India’s Arihant class of nuclear-powered ballistic missile submarines.
• These will form a potent and formidable weapons system which will ensure national security.
• Arihant is India’s first indigenously designed and built nuclear-powered submarine.
• Arihant is armed with K-15 Sagarika missiles with a range of 750 km.
• It will carry the longer 3,500 km range K-4 missiles being developed by the Defence Research and Development Organisation (DRDO).
• This is the longest in the Navy’s fleet of submarines.
• The second submarine in the series, Arighat is now undergoing sea trials after which it will be inducted into service.
• INS Arihant is India’s first indigenous nuclear submarine. The Arihant was launched on 26 July 2009, the anniversary of Vijay Diwas (Kargil War Victory Day) by former Prime Minister Dr Manmohan Singh’s wife Gursharan Kaur.
• Russia has provided extensive design assistance in the development of the INS Arihant.
• INS Arihant is a part of Indian Navy’s secretive Advanced Technology Vessel (ATV) project operated under the supervision of the Prime Minister’s Office and closely monitored by agencies such as the Department of Atomic Energy and the Submarine Design Group of the Directorate of Naval Design.
• India has now become part of an elite club of countries – Russia, the US, China, France and the UK that possess nuclear ballistic missile submarines.

Reliability of INS Arihant

1. It comes directly under the Nuclear Command Authority headed by the Prime Minister
2. Given India’s stated position of ‘No-First-Use’ (NFU) in launching nuclear weapons, the SSBN is the most dependable platform for a second-strike
3. Because they are powered by nuclear reactors, these submarines can stay underwater indefinitely without the adversary detecting it. The other two platforms — land-based and air-launched are far easier to detect
4. This places India in the league of the few countries that can design, construct and operate SSBN

Significance

• INS Arihant, which is equipped with nuclear-tipped ballistic missiles completed a nearly month-long nuclear deterrence patrol.
• INS Arihant will enable India to assert its rights on water, besides land and air.
• It now joins a small group of countries — the United States, Russia, China, France and the United Kingdom — that have this capability.
• Arihant’s successful nuclear deterrence patrol signifies India’s attainment of complete mastery over all the highly complex systems and procedures.
• India’s nuclear deterrence 20 years after the country went nuclear is now secure as it rests on a triad of land, air and undersea vectors.
• The success of INS Arihant enhances India’s security needs.
• Given India’s ‘No-First-Use’ (NFU) in launching nuclear weapons, the SSBN is the most dependable platform for a second-strike.
• SSBNs are designed to prowl the deep ocean waters and carry nuclear weapons.
• Because they are powered by nuclear reactors, these submarines can stay underwater indefinitely without the adversary detecting it.
• The other two platforms — land-based and air-launched are far easier to detect.

Landmark Development

• It demonstrates that India, apart from its capability to deliver nuclear weapons both from land and from air, can now also do so from under water.
• It provides the ultimate credibility to nuclear deterrence.
• It sends out an unambiguous message that nuclear blackmail will not work.
• The nuclear deterrence patrol signifies India having come off age as a mature nuclear-armed state.
• This exercise is testimony to India’s technological prowess.
• It shows a high degree of engineering skill and workmanship with substantial indigenous component.

India’s Approach To Nuclear Weapons

• Arihant’s nuclear deterrence patrol does not constitute any shift in India’s approach towards nuclear weapons.
• India remains committed to “the goal of a nuclear weapon free world, through global, verifiable and non-discriminatory nuclear disarmament”.
• India follows no first use of nuclear weapons, and non-use of nuclear weapons against non-nuclear weapon states.
• In the absence of a nuclear-free world, India continues to regard nuclear weapons as a deterrent designed to prevent a nuclear attack against it.
• Accordingly, as per its doctrine, India has sought to ensure that its deterrent is “credible”.

NFU POLICY

• No first use (NFU) refers to a pledge or a policy by a nuclear power not to use nuclear weapons as a means of warfare unless first attacked by an adversary using nuclear weapons. Earlier, the concept had also been applied to chemical and biological warfare.
• India’s Nuclear Doctrine

1. Building and maintaining a credible minimum deterrent
2. Posture of ‘No First Use’, nuclear weapons will only be used in retaliation against a nuclear attack on Indian Territory or on Indian forces anywhere
3. Nuclear retaliation to a first strike will be massive and designed to inflict unacceptable damage d) Non-use of nuclear weapons against non-nuclear weapon states e) In the event of a major attack against India, or Indian forces anywhere, by biological or chemical weapons, India will retain the option of retaliating with nuclear weapons
4. “Credible minimum deterrent” and “no first use” — were first articulated by Prime Minister Atal Bihari Vajpayee on May 27, 1998, days after India had undertaken a series of five nuclear tests in Pokhran and declared it a nuclear weapon state.
5. India did not see nuclear weapons as weapons of war; that their role was to ensure that India is not subjected to nuclear threats or coercion

ISSUES

1. However, India’s nuclear sub is equipped to carry short-range missiles, which limits its deterrence potential. Clearly, subsequent additions to the navy’s arsenal will focus on longer-range missiles and larger submarines capable of carrying them. Augmenting capability, however, will require higher allocation of funds.
2. Even if the defence gets more funds, rejigging the defence budget is inevitable. Too much of the defence budget goes to manpower costs: salaries and pensions. Defence allocation in Budget 2018-19 was to the tune of Rs 4,04,365 crore, of this, defence pensions accounted for Rs 1,08,853 crore.
3. It is imperative that the government revisit manpower costs, particularly pensions and benefits, if it is to increase funding for defence research and development. Indigenising defence production is another way to get more bang for every defence rupee.

• India needs to address serious issues on the archaic structure of the Ministry of Defence.
• E.g. the key military figure in the Nuclear Command structure, the Chairman of the Joint Chiefs of Staff Committee, generally holds office for less than a year
• This is hardly the time adequate to become fully familiar with the complexities of India’s Strategic Nuclear Command.
• There have been repeated proposals for appointment of a full time “Chief or Defence Staff”, or “Chairman Chiefs of Staff Committee”.
• S/he will hold charge of the Nuclear “Strategic Forces Command” and report to the political authority.
• But the proposals have gathered dust for years in the offices of the generalist bureaucracy of the Defence Ministry.
• Recommendations for such change even from the Parliament Standing Committee of Defence lie unimplemented.
• The present set up of the Defence Ministry thus needs to be drastically reorganised.

Way Forward

• Augmenting naval strategic capabilities is an imperative for India, especially considering the strategic importance of the Indian Ocean region.
• It is imperative that the government revisit manpower costs, particularly pensions and benefits, if it is to increase funding for defence research and development.
• Experts believe a real sea-based deterrence requires at least three atomic-powered submarines.
• India now needs to focus ahead and move fast, if it is to fully secure and advance its cherished strategic autonomy.
• The submarines will also need to be armed with missiles with a range of up to 5,000 km to give India the wherewithal to counter regional powers; China has a force of more than 60 undersea vessels, including SSBNs.
• The distance between India officially unveiling its plans for a nuclear triad and the first deterrence patrol took 15 years. Other milestones in this important programme shouldn’t take as long.

CONCLUSION

• Augmenting naval strategic capabilities is imperative for India, especially considering the strategic importance of the Indian Ocean region. The region is central from a strategic and security point of view, given China’s growing ambitions and activities, as well as from India’s own rise as a key player in the region, in Africa and as a strategic partner to other key countries.
• INS Arihant is a major achievement, but India now needs to focus ahead and move fast, if it is to fully secure and advance its cherished strategic autonomy.

Why in News?

• In May 2018, Union Cabinet approved a National Policy on Biofuels – 2018.
• It replaces earlier policy made by Ministry of New and Renewable Energy in 2009.

What are Biofuels?

• A biofuel is a fuel that is produced through contemporary biological processes, such as agriculture and anaerobic digestion, rather than a fuel produced by geological processes such as those involved in the formation of fossil fuels, such as coal and petroleum, from prehistoric biological matter.
• Biofuels can be derived directly from plants, or indirectly from agricultural, commercial, domestic, and/or industrial wastes.

Salient Features of the Policy

• The policy categories biofuels into the following 3 categories :-
  • First Generation (1G) : Also called as ‘basic fuels’, it includes bioethanol and biodiesel
  • Second Generation(2G): It includes ethanol, Municipal Solid Waste (MSW) to drop-in fuels and is also known as ‘advanced fuels’
  • Third Generation(3G) : Biofuels like bio-CNG

The categorization is done to enable the extension of appropriate financial and fiscal incentives under each category.

• Expands the scope of raw material: The policy allows the use of Sugarcane Juice, Sugar-containing materials like Sugar Beet, starch containing materials like Corn, Cassava, Damaged food grains like wheat, Rotten Potatoes, unfit for human consumption for ethanol production.
• Use of surplus food grains : To avoid wastage and to provide farmers appropriate prices, the policy proposes the use of surplus food grains for production of ethanol for blending with petrol with the approval of National Biofuel Coordination Committee.
• Viability Gap Funding : Policy indicates a viability gap funding scheme for 2G ethanol Bio refineries of Rs.5000 crore in 6 years.
• It encourages setting up of supply chain mechanisms for biodiesel production from non-edible oil seeds, Used Cooking Oil, short gestation crops.

Expected Benefits

• With the upswing in the oil price putting pressure on the economy, even small steps to encourage the use of biofuels are welcome.
• Reduced Import Dependency : The ethanol supply for year 2017-18 is expected to be around 150 crore liters of ethanol which will result in savings of over Rs.4000 crore of forex.
• Cleaner Environment : By reducing crop burning & conversion of agricultural residues/wastes to biofuels it will help in abetting Greenhouse Gas emissions.
• Municipal Solid Waste(MSW) management : Around 62 MMT of MSW is generated in India annually. With existing technology, there is potential to provide around 20% of drop in biofuels from one ton of MSW waste.
• Additional Income to Farmers: The otherwise burnt agricultural residues/waste can be commercialized augmenting the farmers’ income.

Implementation Challenges

• Technical Challenges : The technology for production of biofuels is still in its nascent stage and further research is needed for making it more economically viable.
• Supply Chain Management : For streamlining the movement of agricultural waste and other raw material for biofuel from source to industrial gates, robust supply chain is required which is still not well-developed.
• Limited Private Sector investment : Accelerated investment is needed in the sector which can only be achieved with the involvement of private sector whose participation has been hampered because of financial constraints and lack of cohesive support from central to local level.
• Food vs Fuel Challenge :There is the risk of diverting farmland or crops for biofuels production in detriment of the food supply which can lead to food inflation.
• Environmental Challenges : There is a risk of farmers opting for mono cropping preferring crops used for biofuel production which can disbalance local ecology as well.

Conclusion

• The Policy has the potential to transform India’s fuel market, mitigating environmental pollution, diversify farmers income and much more.
• However, the government need to take steps to remove policy barriers that have discouraged private investment in building supply chains and also need to channelise more research in new technology so as to make the production of biofuels more economically viable.

Introduction

The Parliament has recently passed the Insolvency and Bankruptcy Code Bill, 2016. It was first passed in Lok Sabha and later in Rajya Sabha in the month of May 2016.

• The bill will replace the existing bankruptcy laws to make it easy for investors to exit within a fixed time frame, in an effort to improve the ease of doing business in India.
• The Code creates time-bound processes for insolvency resolution of companies and individuals.

The bill introduced as a money bill

The Insolvency and Bankruptcy Bill, 2015 was introduced as a money bill in the Lok Sabha.

• In case of money bills, the Rajya Sabha can only make recommendations that are not binding on the Lok Sabha.
• The president has no power to return a money bill.

What is Insolvency?

• Simply speaking, insolvency is a financial state of being – one that is reached when you are unable to pay off your debts on time.
• Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity – a person, family, or company – becomes insolvent when it cannot pay its lenders back on time.
• Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.

What is Bankruptcy?

• Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving the issue of insolvency.
• Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government.
• In general, there are two main forms of bankruptcy –

1. Reorganization: Under reorganization bankruptcy, debtors restructure their repayment plans to make them more easily met.
2. Liquidation bankruptcy: Under liquidation bankruptcy, debtors sell certain assets in order to make money they can use to pay off their creditors.

It should be noted here that while insolvency is a financial situation and bankruptcy is a legal condition. Insolvency may or may not lead to bankruptcy.

Bankruptcy laws across the world:

USA

• The US has a Bankruptcy Code that provides for fairly quick liquidation or reorganisation of business with what is popularly known as Chapter 7, with cases being filed in bankruptcy courts; Chapter 11, which deals with reorganisation of businesses; and Chapter 15, on cross-border insolvencies. Individual bankruptcies are dealt with separately.

UK

• In the UK, once cases are filed for bankruptcies, after 12 months, there is either discharge with part of the assets being used to pay off debts, or, in situations where companies can be turned around, court-appointed administrators handle cases.

Germany

• The German insolvency law is applicable to both individuals and firms, with independent court-appointed insolvency practitioners helping in realising assets or reorganising the business.

Why does India need a bankruptcy law?

• India is a capital-starved country and therefore it is essential that capital isn’t frittered away on weak and unviable businesses. Quick resolution of bankruptcy can ensure this.
• Today, bankruptcy proceedings in India are governed by multiple laws — the Companies Act, SARFAESI Act, Sick Industrial Companies Act, and so on. The entire process of winding up is also very long-winded, with courts, debt recovery tribunals and the Board for Industrial and Financial Reconstruction all having a say in the process.
• According to the World Bank’s Doing Business 2016 report,

1. On average, secured creditors in India recover only 25.7 cents for every dollar of credit from an insolvent firm at the end of insolvency proceedings. This contrasts poorly with the OECD countries where creditors recover 72.3 cents.
2. The whole insolvency process takes 4.3 years to conclude in India whereas it takes just 1.7 years in OECD countries.
3. Because of the above reasons, India ranks an abysmal 136 out of 189 countries with respect to “resolving insolvency”.

Previous Bankruptcy Laws in India

• There are several laws that deal with insolvency for companies, such as the Sick Industrial Companies Act, the Recovery of Debt Due to Banks and Financial Institutions Act, and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).
• There are also a couple of laws dating from the time of the British Raj for dealing with individual debtors like Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920.

The Bankruptcy Law Reform Committee

• To fix the issues with the current insolvency regime, the government had set up a high-level Bankruptcy Law Reform Committee (BLRC) in August 2014 under T. K. Viswanathan.
• This committee had submitted its report in November 2015 while suggesting new institutions and structures to modernize the present outdated system.
• After consultation with stakeholders about the committee recommendations, the government prepared a draft bill and introduced it in the Parliament.

Salient Features of the Insolvency and Bankruptcy Code, 2015

The bill contains a clear speedy mechanism for early identification of financial distress and initiates revival/re-organisation of the company if it is viable.

Timeline

• The bill proposes a timeline of 180 days to deal with the applications for insolvency resolution with an option of extending it by 90 days for exceptional cases.

Insolvency Resolution Plan

• The insolvency resolution plan has to be approved by 75% of the creditors. If the plan is approved, then the adjudicating authority will give its sanction. In case of rejection of insolvency resolution plan, the adjudicating authority will pass an order for liquidation.

Insolvency Professionals (IPs) & Insolvency Professional Agencies (IPAs)

• 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.

Information Utilities

• Information utilities (IUs) will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.

Bankruptcy and Insolvency Adjudicator

• The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies.  The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for individuals.
• The Debt Recovery Tribunal (DRT), which has jurisdiction over individuals and unlimited liability partnership firms. Appeals from the order of DRT shall lie to the Debt Recovery Appellate Tribunal (DRAT).

Insolvency regulators

• The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.

What about financial sector insolvencies?

The Financial Sector Legislative Reforms Commission (FSLRC) has recommended the creation of a resolution corporation to monitor financial firms, and intervene before they go bust.

• The aim is to either close firms that can’t be revived or change their management to protect investors or depositors.
• This is important because the failure of large banks or institutions imposes costs on taxpayers in the form of bailouts or capital infusion.
• The proposal is to promote the Deposit Insurance and Credit Guarantee Corporation (DICGC) as resolution corporation.

Critical Analysis of the Code

• Time-bound insolvency resolution will require the establishment of several new entities.  Also, given the pendency and disposal rate of DRTs, their current capacity may be inadequate to take up the additional role.
• IPAs, regulated by the Board, will be created for regulating the functioning of IPs.  This approach of having regulated entities further regulate professionals may be contrary to the current practice of regulating licensed professionals.  Further, requiring a high value of performance bond may deter the formation of IPAs.
• The Code provides an order of priority to distribute assets during liquidation.  It is unclear why:

1. Secured creditors will receive their entire outstanding amount, rather than up to their collateral value,
2. Unsecured creditors have priority over trade creditors, and
3. Government dues will be repaid after unsecured creditors.

• The Code provides for the creation of multiple IUs. However, it does not specify that full information about a company will be accessible through a single query from any IU.  This may lead to financial information being scattered across these IUs.
• The Code creates an Insolvency and Bankruptcy Fund.  However, it does not specify the manner in which the Fund will be used.

Importance of the bankruptcy code

The Insolvency and Bankruptcy Code would provide such an environment to ensure easy exit for sick companies and help the country to improve its position in ease of doing business.

• The bankruptcy code will make it easier for companies to wind up failed businesses and bring India on a par with developed nations in terms of resolving bankruptcy issues.
• A stated objective of the new law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders.
• Once the code will come into place it will minimize the problem of delay as there are strict timelines within which the case has to be disposed off.
• The code will also consolidate the existing laws thus making the process simpler.
• Quick disposal of cases will maximize the recovery amount.
• Establishment of information utilities will help in creating a database to provide information on the insolvency status of individuals. In addition to this, specialized insolvency professionals will help in guiding through the process.
• Easy process of claim by the creditors also encourages financial institutions to extend credit facilities thus strengthening the financial markets with increased availability of credit for business.

Panel for adopting UN model on cross-border insolvency

• The Insolvency Law Committee (ILC), tasked with suggesting amendments to the Insolvency and Bankruptcy Code of India, has recommended that India adopt the United Nations’ model to handle cross-border insolvency cases.
• “The ILC has recommended the adoption of the United Nations Commission on International Trade Law (UNCITRAL) Model Law of Cross Border Insolvency, 1997, as it provides for a comprehensive framework to deal with cross-border insolvency issues,” the government said in a statement.
• “The committee has also recommended a few carve-outs to ensure that there is no inconsistency between the domestic insolvency framework and the proposed cross border insolvency framework.”
• The UNCITRAL Model Law has been adopted in 44 countries and, therefore, forms part of international best practices in dealing with cross border insolvency issues, the government said.

UNCITRAL

• UNCITRAL was established by the UN General Assembly in 1966 to promote the progressive harmonisation and unification of international trade law.
• It is the core legal body of the United Nations system in the field of international trade law.
• It also aims to modernize and harmonize rules on international business.
• The Commission comprises 60 member States elected by the United Nations General Assembly for a term of six years. Membership is structured to ensure representation of the world’s various geographic regions and its principal economic and legal systems.
• India is a founding member of UNCITRAL.
• India is only one of eight countries which have been a member of UNCITRAL since its inception.

The necessity of amending the IBC

• The current law related to IBC applies to domestic companies only.
• Moreover many Indian companies have a global footprint and many foreign companies have a presence in multiple countries, including India, which calls for amending IBC.              

Advantages of bringing Model Law

• It will enhance the ease of doing business and protect creditors in the global scenario by providing increased predictability and certainty of the insolvency framework.
• Provide greater confidence generation among foreign investors.
• Provides a robust mechanism for international cooperation.

Conclusion

• However, enactment of the code is just a beginning. For effective results, the government will have to ensure that its so-called pillars — insolvency professionals, information utilities, a strengthened adjudication mechanism, and a regulator — are institutionalised.

Context

• The publication of central bank’s annual report for fiscal year 2016-17 (RBI follows a July-June fiscal year) which put the estimated value of the currency that returned to the system at Rs 15.28 trillion or close to 99% of the currency notes demonetised in November-December 2016.
• Currency in circulation in India stood at Rs 19.3 lakh crore as on 1 June, reaching 98.94% of the pre demonetisation level, according to the latest data released by the Reserve Bank of India (RBI).

Demonetization technically is a liquidity shock; a sudden stop in terms of currency availability. It created a situation where lack of currencies jams consumption, investment, production, employment etc. The intensity of demonetization effects clearly depends upon the duration of the liquidity shocks.

2016 Indian banknote demonetization

• On 8 November 2016, the Government of India announced the demonetisation of all Rs. 500 and Rs. 1,000 bank notes of the Mahatma Gandhi Series. The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.
• The sudden nature of the announcement—and the prolonged cash shortages in the weeks that followed—created significant disruption throughout the economy, threatening economic output.
• The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was issued by the Government of India on 28 December 2016 ceasing the liability of the government for the banned bank notes.

Following are the main impacts

• Currency crunch in our economy
• Welfare loss for the currency using population.
• Consumption was adversely affected

Consumption ↓→ Production ↓→ Employment ↓→ Growth ↓→ Tax revenue ↓

• Loss of Growth momentum
• Increase in bank deposits and reduced interest rate
• Countering of black money
• Check on counterfeit currency

A changed narrative from Black money to a cashless economy

• The original intent of demonetisation was to address the issue of black money. There is enough work that suggests that people with black money hold a very small proportion of it in cash.
• Most of it is usually invested in gold, or real estate, or in the stock market, or abroad, and the share of black cash is 6% of the total black economy.
• The primary pitch and narrative of the demonetisation drive by Prime Minister seems to have taken a major shift to cashless economy from the initial key highlights of war against black money, corruption and counterfeit currency.
• Now Government says that idle money has come into the system, the cash-to-GDP ratio will decline; the tax base will expand. But none of these required demonetisation and could have been implemented independently.
• The government now also said that demonetisation is only one of the many steps to tackle the black economy.
• The government’s argument that cash coming back to the banks will enable it to catch the generators of black income, and there will be formalisation of the economy, may not hold.
• Then the goalposts started shifting when it became apparent that the main reason was not justified by what was happening. First it was cashless, then less cash economy, then formalisation of the economy. The final step was in saying this would give IT authorities the information to go after people who had deposited black money.

Who mostly have borne the brunt?

Large deposits by businesses do not automatically become black. The Income Tax department has to prove that the sums deposited resulted from generation of black income. According to the Finance Minister, big data analytics would track black money holders who have deposited cash in their bank accounts.

• The negative effect of demonetisation can be seen in terms of big losses to the unorganised sector, farmers and traders.
• The start-up world has seen a drop in investment activity
• The brunt of this move actually has been borne by those who never had any black money. The note shortage is slowly waning and the long-term economic and social effects are becoming evident.

Short-term costs inevitable

There were always going to be costs in the short run — people would be short of currency, businesses would be disrupted, consumption would fall, and GDP growth would take a hit.

• The government announced the Pradhan Mantri Garib Kalyan Yojana where cash could be declared, deposited, and a hefty penalty paid. For those determined to deposit their illicit wealth without disclosure, the cash has not become white. It will be scrutinised by the tax authorities and penalties levied.
• The gains may accrue in the coming year once tax authorities have scrutinized through accounts with suspiciously large deposits.
• According to Finance Minister, between November 8 and December 31, 2016, deposits between Rs. 2 lakh and RS. 80 lakh, and deposits of more than Rs. 80 lakh amount to some two-thirds of the value of the demonetised currency. The holders of these suspicious accounts will now be in the tax net for perpetuity.
• However, not all of that money deposited is black. Perfectly white cash holdings were common. To able to distinguish the black from the non-black would be the responsibility of the IT authorities. They have to analyse the deposits and correlate them with the tax payment records, which is relatively easy to do.

Gains from demonetization

• Nobel laureate Kailash Satyarthi and others working to fight human trafficking said that the note ban had led to a huge fall in sex trafficking.
• The Demonetisation has badly hit Maoist and Naxalites as well. The surrender rate has reached its highest since the demonetisation is announced. It is said that the money these organisations have collected over the years have left with no value and it has caused them to reach to this decision.
• Mumbai Police reported a setback to Hawala operations. Hawala dealers in Kerala were also affected. The Jammu and Kashmir Police reported the effect of demonetisation on hawala transactions of separatists.
• Several e-commerce companies hailed the demonetisation decision as an impetus to an increase in digital payments, hoping that it would lead to a decline in COD returns which could cut down their costs.
• The demand for point of sales (POS) or card swipe machines increased. E-payment options like PayTM and Instamojo Payment Gateway, PayUMoney also saw a rise.
• The number of I-T returns filed for 2016-17 grew by 25 per cent and the advance tax collections during that period rose 41.8% over the 1-year period, as increased number of individuals filed their tax returns post demonetization

Why Demonetisation alone is not responsible for slow GDP growth?

There are multiple villains to blame, though, the most immediate being the damper of demonetisation of November 2016 and the implementation of the goods and services tax (GST) in July 2017

Following may also be the reasons for slow GDP growth.

• There has been a sign of distrust in financial investments.
• While GST pushed up gold buying, it pushed down manufacturing. Manufacturing companies sent out their old stocks to market, holding back on production. It brought down manufacturing sector growth from 5.3% in January-March to 1.2% in April-June.
• In the post-rabi-season quarter, we expected strong agricultural growth but it was pulled down by the animal husbandry sector. In fact, animal husbandry, specifically buffalo meat exports, has been the leading contributor to growth among all the areas that are clubbed under agriculture.
• Uttar Pradesh, India’s largest meat processing state faced huge shutdowns from end-March. Livestock contributes a little over 4% to GDP and roughly a quarter of total agricultural GDP.
• Agri-sector growth dropped to 2.3% in April-June quarter against 2.5% in the same quarter of 2016.
• Robust government expenditure rose 27% in the April-June quarter, to 6.5 lakh crore. The not so good news: fiscal deficit touched 92% of its budget estimates by July.
• At the same time, some of the government’s revenue-generating plans have not being implemented. While disinvestment and spectrum sales have yet to make significant headway.
• Lack of PPP projects is clearly our biggest problem. Implementing the Kelkar Committee report and tackling the institutional bottlenecks that constrain PPP in India are the need of the hour.
• There is an institutional capacity issue. With an NPA overhang, corporates are wary and lack appetite to take risks.
• Savings from physical assets were being moved from gold and real estate to financial assets. Gold (valuable) imports go up sharply. Household savings moving away from physical assets, especially real estate may not be a good thing for the economy.
• The second largest job creator after agriculture is real estate and construction growth has already tapered.

The economy has overcome note ban impact: World Bank

• However, in what would have come as music to the ears of the government, the World Bank in April said the Indian economy appeared to have recovered from the temporary disruptions caused by demonetisation and the introduction of the GST.
• The World Bank said the country was projected to grow by 7.3 per cent in 2018 and 7.5 per cent in 2019 but pointed out that despite growth, India was not creating enough jobs.

Criticism against demonetisation

Critics say, the Demonetisation as a means of tackling the black economy, carried out on the incorrect premise that black money means cash. It was thought that if cash was squeezed out, the black economy would be eliminated. But cash is only one component of black wealth: about 1% of it.

• Black money is a result of black income generation. This is produced by various means which are not affected by the one-shot squeezing out of cash.
• Any black cash squeezed out by demonetisation would then quickly get regenerated.
• So, there is little impact of demonetisation on the black economy, on either wealth or incomes.

99% of demonetised notes back with RBI-

• Opposition criticism intensified after the RBI, in its annual report for 2017-18 on August 29, 2018, said that nearly all the money that was withdrawn returned to the banking system.
• The RBI said it had received Rs 15.31 lakh crore of Rs 500 and Rs 1,000 notes, or 99.3 per cent of the Rs 15.417 lakh crore worth of notes which were in circulation as on November 8, 2016.
• This meant that just Rs 10,720 crore of Rs 500 and Rs 1,000 notes failed to come back to the RBI, as against government expectations that well over Rs 3 lakh crore of black money would not return to the banking system.

Demonetisation proved to be not just an unnecessary disruptor — growth slipped to 7.1 per cent in 2016-17 and 6.5 per cent in the following fiscal — but also took the eyes of policymakers off the real problem inherited from UPA: The mountain of bad loans weighing down public sector banks.

Demonetisation turned out to be a diverter in the case of IBC; bankruptcy resolutions have started happening only in the last year of this government. GST’s rollout, too, would have been far smoother had it not been preceded by demonetisation.

More than 105 people had died in the post-demonetisation rush for cash across the country. Demonetisation also hit small-scale businesses.

According to the Centre for Monitoring Indian Economy (CMIE), demonetisation caused loss of about 15 lakh jobs. The CMIE compared the employment data for January-April 2017 with the figures for the September-December quarter of 2016, when demonetisation was implemented.

High spending on note printing (Rs 7,965 crore was spent in 2016-17 as against Rs 3,421 crore, in 2015-16) impacted the profit of the RBI which reflected in the dividend that it paid to the government.

The RBI had transferred a surplus of Rs 65,876 crore to the government in 2015-16 which declined by more than half in 2016-17 when demonetisation was implemented. The RBI paid a dividend of Rs 30,659 crore.

Way Forward

• The government should focus on ensuring growth, job creation and investment. The urgent need is to get the private sector to start investing. One way to avoid winds of deflation is to kick-start private investments.
• Reviving the investment cycle and tackling bad loans will be the key challenges to be tackled on a priority basis in the current fiscal.
• The government has launched a multipronged attack on corruption and black money. Government discretion has been reduced particularly in the allocation of natural resources.
• There is a concerted attempt to improve ease of doing business, and technology is being used to deliver public services without leakages.
• It is far too early to write-off any of these efforts, and demonetisation. There is a future beyond the present.

Conclusion

• Data available so far shows that cash remains king in the economy, even post demonetisation and that the government’s digital drive cannot easily dethrone cash from Asia’s third-largest economy.
• But more than slowing growth and derailing reforms, demonetisation inflicted avoidable pain on farmers, daily wage labourers and informal enterprises used to transacting in cash.
• Nor did it deal a body blow to black money. The promised windfall of Rs 4-5 lakh crore proved a chimaera
• There is a disturbing irony in that two years after demonetisation, expectations have mounted of the RBI delivering over Rs 3 lakh crore to the government — this time from its own reserves.

 WHY IN NEWS

• The stand-off between the government and the RBI has reached a flashpoint.

Introduction

• The Reserve Bank of India (RBI) and the government give the impression that they are not on the same page even as far as an understanding of their roles is concerned.
• The RBI suggests that its independence is being violated while the government rationalises its intervention in terms of its concern for the economy.

How was the relationship between the central government and RBI?

• Since it is clear that the government and the central bank are not on the same page on these issues, their relationship is being widely debated. It has often been argued that the RBI is not an independent central bank.
• However, the real question is: should the RBI not have the operational independence to attain the objectives given to it? Former RBI governor Raghuram Rajan has explained what RBI does with the analogy of a seat belt.
• The driver—in this case, the government—has the option of not putting on the seatbelt, but in case of an accident, the damage could be severe.
• Put differently, it is in the interest of the government to respect the central bank’s mandate of maintaining financial stability.

The dispute between the Government and RBI-

• The rift between the Central Government and the RBI grew after the RBI Deputy Governor Viral Acharya said in a speech on October 26, 2018, that undermining a central bank’s independence could be “potentially catastrophic”, an indication that the regulator is pushing back hard against government pressure to relax its policies and reduce its powers.
• Acharya also said that “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite an economic fire, and come to rue the day they undermined an important regulatory institution…”

  SIX CRITICAL AREAS OF CONFLICT 

CASH GRAB

• The government has made repeated calls for the RBI to hand over more money from its reserves to help fund its fiscal deficit.
• The RBI currently hands over its profits earned from various activities in the form of a dividend. But the government also wants to tap a share of the RBI’s Rs. 3.6 lakh crore ($48.73 billion) of capital reserves.
• The RBI has consistently pushed back against the demand.

The aim of keeping reserves by RBI: what’s the objective of these reserves?

• The CGRA (currency and gold revaluation account) is meant to cover a situation where the rupee appreciates against one or more of the currencies in the basket.
• The basket has several currencies ranging from the dollar to the euro and the yen or if there is a decline in the rupee value of gold.
• The level of CGRA now covers about a quarter of the total currency reserves of the RBI.
• The CGRA, which serves as a risk management technique for the RBI, has shown large variations over the years due to revaluation of foreign exchange assets.
• The contingency reserve is meant to cover depreciation in the value of the RBI’s holdings of government bonds– domestic and foreign– if yields rise and their prices fall.
• The reserve is also meant to cover expenses from extraordinary events such as demonetisation, money market operations and currency printing expenses in a year of insufficient income.
• Most important of all, the contingency reserve supports the mother of all guarantees the central bank’s role as the lender of the last resort.
• The reserve is also a cover for the deposit insurance fund given that the Deposit Insurance and the Credit Guarantee Corporation (DICGC) is a wholly-owned subsidiary of the RBI.

OUT OF THE SHADOWS

• The government wants the RBI to provide more liquidity to the shadow banking sector, which has been hurt by the defaults of major financing company, Infrastructure Leasing & Financial Services (IL&FS).
• Those defaults triggered a sell-off in bonds and stocks of non-banking financial companies. The government has been asking the RBI for a dedicated liquidity window for these lenders similar to the one allowed during the 2008-2009 global financial crisis.

JUST RELAX

• The government has also been urging the RBI to relax its lending restrictions on 11 state-run banks. The curbs were imposed because the banks had a low capital base and major bad debt problems.
• The 11 public sector banks are barred from lending unless they reduce their bad debt levels, improve their capital ratios and become profitable.
• The government says the restrictions have gone too far and have reduced the availability of loans for small- and medium-sized businesses.

ENCROACHING

• The RBI is also irked by the government’s efforts to trim the central bank’s regulatory powers by proposing to set up an independent payments regulator.
• Currently, the RBI regulates all payments and settlements in the economy. The government says it wants a separate payment regulator which will be able to adapt to rapid changes in technology.

BOARD INFLUENCE

• The government appointed S Gurumurthy, a prominent BJP supporter and an affiliate of the Rashtriya Swayamsevak Sangh (RSS), to the RBI board earlier this year along with Satish Marathe, a former banker with ties to the RSS.
• Such political appointments have been unusual in the past as the RBI board’s external members have mostly been economists and industrialists.
• Traditionally, the RBI’s board has approved decisions related to internal functions of the central bank and it has not interfered in its supervisory and monetary policy functions.

KEEPING MUM

Senior government officials, as well as BJP and RSS officials, are angry that the RBI decided to go public over the quarrels. Acharya made it clear he had been asked to address the independence question by Patel and in a show of unity the three other deputy governors attended his speech. In its statement concerning autonomy, the government stressed that it will keep discussions confidential.

The fuse that lit this tension is said to be Section 7 of the Reserve Bank of India Act or RBI Act, which empowers the government to issue directions to the “lender of last resort”

Section 7 of the Reserve Bank of India (RBI) Act, 1934

The Section 7 of the RBI Act empowers the Central Government to consult and give instructions to the Governor of the Reserve Bank of India (RBI) to act on certain issues, that the government considers serious and in public interest. The Central Government may give such directions to the Bank from time to time, after consultation with the Governor of the Bank, consider necessary in the public interest. Once the Section 7 is invoked, the general superintendence and direction of the affairs and business of the Bank is entrusted to a Central Board of Directors which may exercise all powers and do all acts exercised or done by the Bank. It is considered that such a move could be a last resort for the Government to increase liquidity, ease pressure on banks and businesses, and boost economic growth. Has the Section 7 been invoked earlier? The Section 7 had never been used in independent India till now. It was neither even used when the country was close to economic crisis in 1991 and nor in the aftermath of the 2008 recession crisis. Allahabad High Court’s ruling in context of Section 7 The talks of invoking Section 7 began for the first time during the matter related to power generation which was taken up by the Allahabad High Court in which a case was filed by power producers challenging the RBI’s February 12 circular. The High Court at that time ruled that invoking of the section could be considered. However, the government at that point did not invoke the section. How this Section operates? It is not yet clear how this Section operates since it has never been used till now.

CENTRAL BANK’S INDEPENDENCE A WESTERN CONCEPT: RSS AFFILIATED BODY

• Matters took a political turn after the RSS-affiliated Swadeshi Jagran Manch’s leader Ashwani Mahajan said the “Reserve Bank of India governor should work in sync with the government or otherwise resign.”
• He said, “This entire talk of central bank’s independence is a Western concept.
• It is not acceptable and feasible here. India is a developing country our main priority is employment and growth of small-scale industries.
•  RBI should stand with the government on these issues.” The Congress has also accused the Prime Minister Narendra Modi government of undermining the RBI’s independence.

Where Does RBI Stand in Terms of Autonomy?

• According to a paper published in the International Journal of Central Banking in 2014, RBI was listed as the least independent among 89 central banks considered under the study.
• These rankings are likely to have improved since the adoption of inflation targeting in February 2015 and the formation of Monetary policy committee in October 2016.
• However, vacancies in RBI’s board and government’s reluctance to fill them up raises questions about the decisions taken and whether proper deliberations on those decisions are being held.
• During the previous government, a Financial Sector Legislative Reforms Commission was formed which made various recommendations to cut down RBI’s powers.
• In 2013, a financial sector monitoring body, called Financial Stability Development Council was established which was to be chaired by the Finance Minister.
• In essence, the RBI Act 1934, does not empower RBI absolute autonomy. However, it does enjoy some independence when it comes to performing its regulatory and monetary functions

WHY IT MATTERS

FOR PM MODI

• The Modi government has been under pressure ahead of regional polls due at the end of 2018 because of weak farm prices and surging fuel costs, which have been hurting rural incomes. The government recently cut excise duty on gasoline and diesel, adding to pressure on its deficit.
• The budget is also being undermined by muted revenue collection from a recently introduced goods and service tax.
• Added to this, IL&FS woes have led to a liquidity crunch across much of the shadow banking sector and throttled off some lending.
• All of this could slow a $2.6 trillion economy, the world’s sixth largest, only months before the general election.
• To prevent that from happening, PM Modi is expected to spend more on populist programmes, including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price.

FOR INVESTORS

• The rift has created political and economic uncertainty. Investors want policy continuity from both the RBI and the government to ensure inflation is kept in check and economic stability is maintained.
• A persistent fall in the inflation rate since 2014 in a country that was used to volatile price pressures instilled confidence in the central bank and attracted investors. However, investors fear such hard-earned economic gains could be at risk if the government can pull the RBI’s strings.

Way Forward

•  The RBI governor should be responsible and accountable to Parliament and not to a particular government or the ministry of finance, or minister.  He can testify to Parliament twice a year. In separate testimony in both houses of Parliament, the lawmakers can ask questions of the RBI Governor and the latter can respond.
• A better way to sort out these differences and to come to a conclusion is to have a larger debate with technical experts weighing in.
• On issues of operational autonomy, the central government needs to lay off its pressure on the RBI.
• On macro issues such as exchange rate management and RBI’s dividend policy, written agreements that clearly demarcate roles and responsibilities can be thrashed out.
• The Monetary Policy Framework Agreement and the FRBM Act are good illustrations of how a mutually agreed rule-based framework can broker peace between the central bank and the executive arm of government.
• If the issues are not resolved, the tussle will undermine investor confidence and strengthens fears about institutional erosion when India is already experiencing economic turmoil.

Conclusion

• There is need to pay due regard to both autonomy and accountability. There has to be a forum within our democratic structure where the RBI is obligated to explain and defend its position.
• Different countries have taken different routes and by and large each model is appropriately tuned to their specific contexts.
• The oft-quoted US example is a good model to work upon.
• Presentation by the chairman of the Federal Reserve to the Congress makes for public exposure and transparency but does not take away the chairman’s autonomy.
• We need an appropriate and structured forum to strike a balance between unrestrained autonomy and blatant political intervention

India ease of doing business rank jumps 23 places to 77 in World Bank’s Doing Business 2019 survey

Context

• India’s rank in the World Bank’s Ease of Doing Business 2019 survey climbed 23 places to 77 among 190 countries surveyed, making it the only country to rank among the top 10 improvers for the second consecutive year.
• Last year, India saw a record jump of 30 places to reach the 100th position in the rankings.
• New Zealand topped the list of 190 countries in ease of doing business, followed by Singapore, Denmark, and Hong Kong.
• The United States is placed eight and China has been ranked 46th. Neighbouring Pakistan is placed at 136.

Areas where Ease of Doing Business Concentrate

• Ease of doing business: Harmonization of laws, procedures and rates of tax, will improve the environment of compliance as all returns to be filed online, input credits to be verified online reducing need to deal with different tax authorities. It would also discourage mere ‘invoice shopping’.
• This is a dynamic process and it reflects performance in various parameters for doing business in comparison to other countries.

Ease of Doing Business Index Indicators

• Starting a business
• Dealing with construction permits
• Getting electricity
• Registering property
• Getting credit
• Protecting minority investors
• Paying taxes
• Trading across borders
• Enforcing contracts
• Resolving insolvency

(Each one of these indicators carries equal weightage.)

What is measured

• The EODB study tries to capture the experience of small and mid-sized companies in a country with their regulators, by measuring the time, costs and red tape they deal with.
• To collect data, it empanels experts from the largest business cities in each country, with Mumbai and Delhi surveyed in India. It has many rounds of interactions with them — typically lawyers, business consultants, accountants, freight forwarders, government officials — who can capture the experience of multiple businesses.
• Over 13,800 experts participated in the 2019 study, from June 2, 2017 to May 1, 2018. Each country is assigned a rank out of 190 based on the total score it earns on 10 key aspects of doing business.
• The indicators considered now are: starting a business, getting construction permits, securing electricity, registering property, getting credit, protecting minority investors, paying taxes, cross-border trade, enforcing contracts and resolving insolvency.
• In short, the World Bank’s intent is to measure a country’s progress on a few ‘doing business’ indicators in great depth, without trying to be comprehensive about the indicators or striving for a statistically large sample.
• The above facts make the shortcomings of the study obvious. In India, it may not reflect the experience of partnership or proprietorship firms that dominate the small business space, or those located in tier 2 or tier 3 towns.
• With the ten indicators measured by the study well-known, it is also easy for governments to specially target these areas for reforms.
• But the EODB rankings do serve as the most trusted ready-reckoner for foreign investors looking to set up shop in a country. For that reason, this is an achievement for India to celebrate.

What improved

India’s climb in the 2019 rankings seems to have come mainly from sharply higher scores on two ‘doing business’ indicators — securing construction permits and trading across the borders. It also made smaller improvements in starting a business and getting credit.

The sharp rise in the ranking will burnish the reformist credentials of the present government.

• The number of days taken to Start a Business dropped from 30 to 16.
• The number of days taken to obtain Construction Permits dropped from 144 to 95.
• Border compliance for exports dropped from 106 to 66 hours.
• Border compliance for imports dropped from 264 hours to 96 hours.
• In the electricity sector, the time taken for obtaining a new connection has reduced from 105 to 55 days.

Further, India now ranks in the top 25 in the world on three indicators–

• Getting electricity,
• Getting credit and protecting minority investors,
• Department of industrial policy and promotion.
• In dealing with construction permits, India has implemented an online single window system, introduced deemed approvals and reduced the cost for obtaining these permits.
• For resolving insolvency, India has put in place a new Insolvency and Bankruptcy Code and time bound reorganization procedure for corporate debtors.
• Upgrades in port infrastructure, a move to online documentation and facilities for exporters to seal their containers on their own, helped.

What didn’t change

• While India managed dramatic changes in some indicators, there were others where its scores barely budged.
• Its score remains dismal on registering property, where it ranks 166. While it takes 69 days to register a piece of property and costs about 8% of its value in India, the norm for OECD countries is just 20 days at half that cost. New Zealand gets this done in a single day.
• The other vexatious aspect that most business folk will readily identify with, is paying taxes. Despite the advent of GST, India has remained a back-bencher on this at a rank of 121. A typical Mumbai-based firm makes 13 tax payments a year, spends 278 hours on this and coughs up 52% of its profits.
• But businessmen in Hong Kong make just three payments a year, those in Singapore spend just 49 hours paying taxes. The average tax rate across global economies is less than half of the Indian rate!
• India also fares poorly, at rank 163, on enforcing contracts. While enforcing a claim through the courts in Mumbai takes 1,445 days and costs 31% of claim value, OECD nations manage this feat in 582 days at a cost of 21%.

 What will be the outcome of this Ease of Doing Business Index report?

• It is significant for countries like India, where foreign investors and Governments look at the investor-friendly measures and this index is considered to be the one which reflects the ground reality.
• In today’s capitalistic society (market economy with safeguards for vulnerable sections), this assumes significance as FDI flows are considered necessary for the growth of emerging economies.
• Multilateral lending institutions like World Bank, IMF look at these parameters and suggest measures for improvement before giving financial help to the emerging economies/underdeveloped countries.
• Simplifying FDI process by abolishing FIPB (Foreign Investment Promotion Board) as a result, more than 90% of FDI inflows are now through automatic route.

However, the report does not truly represent the status of economic reforms taken by India

For instance:

• One particular change in the ranking methodology seems to have done considerable damage to India’s improvement prospects.
• India ranks fourth from the bottom under the header “paying taxes”. Inclusion of new criterion ‘post-filing index’ has much to contribute to this.
• The rankings cover only the two cities of Delhi and Mumbai. However, the reforms are being carried on all across India. In fact, states like Andhra Pradesh, Telangana have done remarkable efforts in economic reforms.
• There is increasing competition from other countries who are trying to improve their rankings as well.
• India has recommended the World Bank that reforms undertaken in the entire country and not just in Delhi and Mumbai be considered for the “Ease of Doing Business” Index.

To improve ranking, there must be an additional effort in strengthening our weakest areas:

Dealing with Construction Permits (181/190)

• States have aimed to reduce time and costs for obtaining building and construction permits and introduced the provision of deemed approvals.
• To expedite the building plan approvals, inspections are being integrated and made risk-based.

Enforcing Contracts (164/190) – Enforcing Contracts has suffered owing to lack of a well-defined system for dispute resolution.

• National Judicial Data Grid is being introduced which serves as a monitoring tool to identify, manage and reduce pendency of cases.
• Several states have established dedicated Commercial Courts at the district level to ensure speedy resolution of commercial disputes and have published model contract templates.
• They are also implementing e-Courts, entailing facilities such as e-cause lists, e-payments, e-filing and e-summons.

Starting a Business (156/190)

• Supply side reform is important – focussing on the micro regulatory regime — such as making it easy to start or close down business. It is here that India still has a lot of ground to cover, as local entrepreneurs would testify.
• The World Bank report flags the areas where the country lags — local entrepreneurs need to go through 12 procedures to start a business in India’s commercial capital, which is way higher than many high-income economies, besides cumbersome procedures for construction permits, registration of property and enforcement of contracts.

Institutional Challenges in the Indian system

A mismatch between the intent of reforms and quality of actual enforcement and transparency on the ground, — the governance challenge

• A high level of discretion still exists with the officer enforcing rules on the ground.
• Aggravated by the lack of a time-bound grievance redress mechanism, and the absence of independent ‘auditors’ who monitor on-ground enforcement quality and ensure there is accountability for poor decisions made in the field.

Design challenge: Procedures are often designed to cater to the few instances of failure or non-compliance and not for efficiency and facilitation.

Management challenge: There is a tendency to blame poor quality of government services on lack of infrastructure or human resources. This often overlooks the fact that there are many examples of better services with effectively fewer resources.

Way Ahead

While vigilance is the call of the hour, we should also recognize that an improved in ranking is not an end in and of itself.

For attracting new investment, both foreign and domestic, several macroeconomic issues have to be addressed.

These include political and economic stability, law and order maintenance, quality physical infrastructure, and buoyancy in financial markets.

Major institutional and governance reforms not covered in the World Bank study remain prerequisites for new businesses to start and grow.

India may have the advantage of a large domestic market, and our efforts to improve our ease of doing business rankings may be finally yielding results, but there is still a lot of work ahead.

Conclusion

India saw a similar improvement in the “trading across borders” section to 80th position from 146th a year ago.

Other Initiatives like digitization, e-visas, infrastructure status to Logistics, Start-up India, announcement of National Intellectual Property Rights (IPR) policy.

This improvement was made possible by:

• Reducing the time and cost to export and import through various initiatives, including the implementation of electronic sealing of containers,
• Upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures under its National Trade Facilitation Action Plan 2017-2020.

India is one of only nine countries around the world and only one in BRICS to feature in this list

Context

• The recent happenings at the CBI are unprecedented. Never has the premier investigating agency of the country been in similar crisis. These events will have ramifications on the dignity, discipline and image of CBI.
• The question that should be troubling us is how are things so opaque within our investigative agency?
• With serious charges and counter-charges flying thick and fast, the ordinary citizen may be left wondering as to what really goes on behind closed doors at the CBI.

INTRODUCTION

• Central Bureau of Investigation (CBI) is India’s premier investigating agency that handles all high-profile cases. Its job is to ensure a fair and an impartial probe.
• But, recently in October 2018, two of the top officials of the agency have been reported to be involved in a major feud. This has led the Government of India to intervene in order to restore the institutional integrity and credibility of CBI.

About CBI

• Origins of CBI can be traced back to the Special Police Establishment (SPE) set up in 1941 in order to cases of bribery and corruption in War & Supply Department of India during World War II.
• The need of a Central Government agency to investigate cases of bribery and corruption was felt even after the end of World War II. So, DSPE (Delhi Special Police Establishment) Act, 1946 was brought that gave legal power of investigating cases to CBI.
• CBI is not a statutory body as it is not established by an Act of the Parliament.
• CBI investigates cases related to economic crimes, special crimes, cases of corruption and other high-profile cases.
• CBI comes under the jurisdiction of the Ministry of Personnel, Public Grievances and Pensions. Various organizations under this Ministry are Union Public Service Commission (UPSC), Staff Selection Commission (SSC), Lal Bahadur Shastri National Academy of Administration (LBSNAA), Central Vigilance Commission (CVC), CBI, Central Information Commission (CIC), etc.
• CBI is exempted from Right to Information (RTI) Act similar to National Investigating Agency (NIA), National Intelligence Grid (Natgrid), etc.
• CBI is headed by a Director, an IPS (Indian Police Service) officer of the rank of Director General of Police. The director is selected based on CVC Act, 2003 for two years-term. Several other ranks in CBI are filled through recruitment by SSC or deputation from Police, Income Tax Department and Customs Department.
• The appointment procedure of CBI Director has undergone several changes over time.

The CBI is subject to three ministries of the Government of India and Two Constitutional bodies

• Ministry of Home Affairs: Cadre Clearance
• DoPT: Administration, Budget and Induction of non IPS officers
• Union Public Service Commission: Officers of and above the rank of Deputy Secretary.
• Law and Justice Ministry: Public prosecutors
• Central Vigilance Commission: Anti-corruption cases.

Present Issue went to SC: Supreme court orders CVC To Enquire Against Alok Verma

• The Supreme Court ordered Central Vigilance Commission (CVC) to complete its ongoing inquiry against exiled CBI Director AlokVerma in two weeks.
• The CVC inquiry will be conducted under the supervision of Former Apex Court judge, Justice A.K.Patnaik.
• Mr.Nageswara Rao will take care of only routine tasks to keep the CBI functioning. He is barred from taking any major or policy decisions.
• All the decisions taken by Mr. Rao (as a Director of CBI) “from October 23 up to this hour” have come under scanner of the Supreme Court.
• The Court asked the list of all decisions taken by Mr. Rao to be placed before the Bench on November 12 in a sealed cover.

The Crisis Is Not About CBI, It’s About the Rule of Law:

• It is perhaps futile to lament that the politicisation of the Central Bureau of Investigation (CBI) has been a work in progress for years and that the midnight coup was only its latest manifestation
• But this is not about two IPS officers; it is not even about the CBI or its presumed image or its subverted autonomy, It is about the future of the rule of law.
• It played a pivotal role in criminal justice delivery as highlighted in tough cases like Satyam scam investigation, Bhanvari Devi Murder etc.
• However myriad of responsibilities over categories like Corruption & fraud, economic crimes, special crimes including terrorist attacks has overburdened it and reduced its efficiency.

Problems associated with CBI:

• The agency is dependent on the home ministry for staffing, since many of its investigators come from the Indian Police Service.
• The agency depends on the law ministry for lawyers and also lacks functional autonomy to some extent.
• The CBI, run by IPS officers on deputation, is also susceptible to the government’s ability to manipulate the senior officers, because they are dependent on the Central government for future postings.
• Another great constraint on the CBI is its dependence on State governments for invoking its authority to investigate cases in a State, even when such investigation targets a Central government employee.
• Since police is a State subject under the Constitution, and the CBI acts as per the procedure prescribed by the Code of Criminal Procedure (CrPC), which makes it a police agency, the CBI needs the consent of the State government in question before it can make its presence in that State. This is a cumbersome procedure and has led to some ridiculous situations.

 Criticism and inaction

• The CBI has been criticised from time to time. Justice J.S. Verma in an article published in 2009 stated that “it is sad that even now the CBI continues to disappoint the people whenever it deals with cases against the powerful”.
• The Supreme Court [in 2013] called it a “caged parrot”.
• The criticism is valid, but can we hold the CBI responsible for that? Successive committees at different periods of time suggested changes in the composition and structure of the CBI.
• As far back as 1978, the L.P. Singh Committee recommended the “enactment of a comprehensive central legislation to remove the deficiency of not having a central investigative agency with a self-sufficient statutory charter of duties and functions”.
• The 19th report of the parliamentary standing committee (2007) recommended that a separate Act should be promulgated for the CBI “in tune with the requirements of the time to ensure credibility and impartiality”.
• The 24th report of the parliamentary standing committee (2008) was of the unanimous opinion that “the need of the hour is to strengthen the CBI in terms of legal mandate, infrastructure and resources”. It is unfortunate that none of these recommendations were acted upon.

Who is to blame then?

• The government or the CBI? It is unfair to blame the organisation when it is not given the required legal mandate, when it is not provided with the requisite manpower and financial resources.
• It is true that some of the recent Directors of the CBI brought a bad name to the organisation, but the truth of the matter is that in their cases the selection process was subverted or tweaked and protégés of influential politicians posted.
• The fault is not so much of the organisation as of the people who shape its structure and define its powers.
• It is a matter of common experience that every time there is a sensational case, the popular demand is for a CBI investigation.
• The CBI is a first-class investigating agency as long as the government does not interfere with or influence its functioning.

What will be the Way Forward?

Rule of law is much more than a set of interlocking procedures and principles; it is a sense of shared confidence among citizens and other constitutional stakeholders that values of justness and fairness are not subject to the whims and fancies of the rulers of the day.

• The first reform is to ensure that CBI operates under a formal, modern legal framework that has been written for a contemporary investigative agency.
• A new CBI Act should be promulgated that ensures the autonomy of CBI while at the same time improving the quality of supervision.
• The Lokpal Act already calls for a three-member committee made up of the prime minister, the leader of the opposition and the chief justice of the Supreme Court to select the director. However, not enough has been done to administratively protect CBI from political interference. For this to happen, the new Act must specify criminal culpability for government interference.
• One of the demands that has been before Supreme Court, and in line with international best practices, is for the CBI to develop its own dedicated cadre of officers who are not bothered about deputation and abrupt transfers.
• The CBI did recruit some officers in the past to its cadre, but that effort has gone nowhere, and all senior posts in the CBI are now held by Indian Police Service (IPS) officers.
• It is also possible to consider granting the CBI and other federal investigation agencies the kind of autonomy that the Comptroller and Auditor General enjoys as he is only accountable to Parliament.
• A more efficient parliamentary oversight over the federal criminal and intelligence agencies could be a way forward to ensure better accountability, despite concerns regarding political misuse of the oversight.

Conclusion

• To ensure that the CBI is a robust, independent and credible investigation agency, there is an urgent need to work out a much more transparent mechanism for selection of the Director and induction of officers on deputation.
• The tenure of the Director needs to be enhanced, terms of officers made sacrosanct and the CBI given reasonable financial and administrative autonomy if it has to live up to its motto of ‘Industry, Impartiality and Integrity’.

Micro, Small and Medium Enterprises in India

Context

• The Prime Minister, Shri Narendra Modi, launched a historic support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. As part of this programme, the Prime Minister unveiled12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.
• The Prime Minister said that the 12 decisions that he is announcing, will mark a new chapter for the MSME sector. Noting that MSMEs are one of the principal employment generators in India, the Prime Minister recalled the glorious Indian traditions of small-scale industry, including Ludhiana’s hosiery, and Varanasi’s sarees.

 Introduction

Amid a major decline in credit growth in the economy this year, micro, small and medium sector players are among the worst hit as banks continue to practice caution in lending to the industrial sector. But, for India to pursue high growth path, the MSME sector assumes a pivotal role in driving the growth engine

MSME in India

The MSME sector in India continues to demonstrate remarkable resilience in the face of trialling global and domestic economic circumstances.

• The sector has sustained an annual growth rate of over 10% for the past few years.
• With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive economic shocks, even of the gravest nature.

The guidelines with regard to investment in plant and machinery or equipment as defined in the MSMED Act, 2006 are:

The significance of MSME:

The significance of MSMEs is attributable to their calibre for employment generation, low capital and technology requirement.

• They are also important for the promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.
• According to the estimates of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country.
• With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India.
• Besides the wide range of services provided by the sector, the sector is engaged in the manufacturing of over 6,000 products ranging from traditional to hi-tech items.

Why the MSME sector is important for India?

The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector and contributes in building an inclusive and sustainable society in innumerable ways through creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.

The Diversity of the Indian MSME Sector:

The MSME sector in India boasts of diversity in terms of its size, level of technology employed, range of products and services provided and target markets.

• MSME Tool Rooms have been credited to provide at least ten components that were used in India’s Mangalyaan (Mars Orbiter Mission probe), the Indian Space Research Organization’s (ISRO) most ambitious mission till date, which is the country’s first inter-planetary space mission.
• The sector has also contributed vital inputs for other space satellites such as the Chandrayan. India seeks to launch other ambitious projects like a global sea traffic monitoring system and an earth observation satellite, in cooperation with the EU. The projects envision significant contributions and convergence opportunities from the Indian MSME sector.
• Many global companies are increasingly looking to Indian MSMEs for strategic partnerships of mutual benefit due to the innovative capabilities in niche manufacturing, comparative advantages of advanced engineering, low-cost manufacturing and overheads, ability to speedily absorb new technologies and local skills and capabilities that set these enterprises apart from other national and international players in the sector.
• With its vast resource pool of engineering talent and high skill labour at competitive costs, India has the potential to become a significant player in the global auto industry, especially in engineering and component manufacturing. MSMEs assume a dominant position in the automotive and auto components sector.
• Many more lucrative opportunities can be tapped by Indian MSMEs in the foundry industry, electronics industry, chemicals, leather, textiles, agro and food processing, pharmaceuticals, transport and tourism industries, etc.
• The globalization of businesses has increasingly drawn SMEs into global value chains through different types of cross-border activities. Many entrepreneurs are recognizing the opportunities that this advent ushers and gaining access to global markets has become a strategic instrument for their further development.

Challenges faced by MSME sector:

• The sector is always fund starved. Banks are often unwilling to lend. Besides, whatever bank finance these sector gets, comes at far higher interest costs than what large enterprises can negotiate.
• Long receivables cycles make a mess of working capital management.
• Little access to trained labour, technical progress and management support limit their growth.
• Other common problems faced by small enterprises are related to availability of technology, infrastructure and managerial competence, and limitations posed by labour laws, taxation policy, market uncertainty and imperfect competition.

Government’s support for the sector:

Recognizing the potential of this sector for the nation’s development, the Government of India, through its various agencies, has taken many key steps to strengthen the MSME sector and promote innovation and capacity building in this sector.

• Regular dialogue is facilitated between various stakeholders through the constitution of specific task forces and inter-ministerial committees.
• The Micro and Small Enterprises-Cluster Development Programme is being implemented by the government for the holistic and integrated development of these enterprises in clusters through soft interventions, hard interventions and infrastructure upgradation for enhancing their productivity and competitiveness.
• Provisions are also being made to strengthen the framework of virtual clusters with an aim to assist MSME accessibility of the Ministry from the remote location of their operation.
• The Credit Linked Capital Subsidy Scheme also assists in the technological upgradation on MSMEs.
• The National Manufacturing Competitiveness Programme is another flagship programme of the Ministry of MSME which endeavors to equip these enterprises with technology-based tools in the areas of quality upgradation, productivity, design development, energy efficiency and marketing.
• To ensure better flow of credit to SMEs, the Ministry has introduced a Policy Package for Stepping up Credit to Small and Medium Enterprises (SMEs) under which it operates schemes like the Credit Guarantee Fund Scheme and the Performance and Credit Rating Scheme.
• PM Modi announced 12 measures to boost the Micro, Small and Medium Enterprises (MSME) sector, including a portal that would enable the units to get a loan in just 59 minutes and interest subvention of 2%.
• Small businesses can use the ‘59-minute’ portal to avail loans of up to Rs 1 crore.
• Small enterprises registered under the goods and services tax will also get a 2 percent tax rebate on incremental loans of up to Rs 1 crore.
• More than 72,000 loans worth over Rs 23,852 crore have been sanctioned.
• The portal is set up by the Small Industries Development Bank of India. MSMEs can register and apply for a loan.

The prime minister unveiled 12 initiatives for MSMEs, which he called “Diwali gifts”. They are:

Access to Credit

• As the first announcement, the Prime Minister announced the launch of the 59 minute loan portal to enable easy access to credit for MSMEs. He said that loans upto Rs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes. He said a link to this portal will be made available through the GST portal. The Prime Minister asserted that in New India, no one should be compelled to visit a bank branch repeatedly.
• The Prime Minister mentioned the second announcement as a 2 percent interest subvention for all GST registered MSMEs, on fresh or incremental loans. For exporters who receive loans in the pre-shipment and post-shipment period, the Prime Minister announced an increase in interest rebate from 3 percent to 5 percent.
• The third announcement made by the Prime Minister was that all companies with a turnover more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS). He said that joining this portal will enable entrepreneurs to access credit from banks, based ontheir upcoming receivables. This will resolve their problems of cash cycle.

Access to Markets

• The Prime Minister said that on access to markets for entrepreneurs, the Union Government has taken a number of steps already. In this context, he made his fourth announcement, thatpublic sector companies have now been asked to compulsorily procure 25 percent, instead of 20 percent of their total purchases, from MSMEs.
• The Prime Minister said his fifth announcement is related to women entrepreneurs. He said that out of the 25 percent procurement mandated from MSMEs, 3 percent must now be reserved for women entrepreneurs.
• The Prime Minister said that more than 1.5 lakh suppliers have now registered with GeM, out of which 40,000 are MSMEs. He said transactions worth more than Rs. 14,000 crore have been made so far through GeM. He said the sixth announcement is that all public sector undertakings of the Union Government must now compulsorily be a part of GeM. He said they should also get all their vendors registered on GeM.

Technology Upgradation

• Coming to technological upgradation, the Prime Minister said that tool rooms across the country are a vital part of product design. His seventh announcement was that 20 hubs will be formed across the country, and 100 spokes in the form of tool rooms will be established.

Ease of Doing Business

• On Ease of Doing Business, the Prime Minister said his eighth announcement is related to pharma companies. He said clusters will be formed of pharma MSMEs. He said 70 percent cost of establishing these clusters will be borne by the Union Government.
• The Prime Minister said that the ninth announcementis on simplification of government procedures. He said the ninth announcement is that the return under 8 labour laws and 10 Union regulations must now be filed only once a year.
• The Prime Minister said that the tenth announcement is that now the establishments to be visited by an Inspector will be decided through a computerised random allotment.
• The Prime Minister noted that as part of establishing a unit, an entrepreneur needs two clearances namely, environmental clearance and consent to establish. He said that the eleventh announcement is that under air pollution and water pollution laws, now both these have been merged as a single consent. He further said that the return will be accepted through self-certification.
• As the twelfth announcement, the Prime Minister mentioned that an Ordinance has been brought, under which, for minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts, but can correct them through simple procedures.

Social Security for MSME Sector Employees

• The Prime Minister also spoke of social security for the MSME sector employees. He said that a mission will be launched to ensure that they have Jan Dhan Accounts, provident fund and insurance.
• The Prime Minister said that these decisions would go a long way in strengthening the MSME sector in India. He said the implementation of this outreach programme will be intensively monitored over the next 100 days

Way forward

The challenge now is to create a policy environment that will encourage the growth of more MSME that can hold their own in a competitive market.

• The problems faced by MSMEs need to be considered in a disaggregated manner for successful policy implementation as they produce very diverse products, use different inputs and operate in distinct environments.
• In general, there is need for tax provisions and laws that are not only labour-friendly but also entrepreneur-friendly.
• More importantly, there is need for skill formation and continuous upgrade both for labour and entrepreneurs.
• While the government has to strengthen the existing skilling efforts for labour, there is an urgent need for managerial skill development for entrepreneurs running MSMEs — an area that is considerably neglected.
• Further, the government could consider dedicated television and radio programmes, similar to agriculture, to help educate entrepreneurs running small businesses.

Conclusion

• Issues related to credit, like adequacy, timely availability, cost and mortgages continue to be a concern for MSME. These enterprises are dependent on self-finance. Profit margins are also low.
• The government drive for financial inclusion could benefit such entities. The government could consider dedicating specialised financial schemes for addressing difficulties in assessing and providing credit for small enterprises, as also providing line of credit to firms which are under financial stress.
• However, it remains to be seen whether new institutions such as MUDRA Bank can open the credit markets for small enterprises.

Context

• In an acknowledgement that the more than a century-old system of prisons in India needs repair.
• In this context, the Supreme Court formed a committee on prison reforms.  Headed by former Supreme Court judge, Justice Amitava Roy, it is to look into the entire gamut of reforms to the prison system.
• But this is not the first time that such a body is being set up, examples being the Justice A.N. Mulla committee and the Justice Krishna Iyer committee on women prisoners (both in the 1980s).
• While marginal reforms have taken place, these have not been enough to ensure that prison conditions are in tune with human rights norms.

Reasons for Overcrowding in Jails

• In India, the publication, Prison Statistics India, brought out by the National Crime Records Bureau will provide food for thought for the Justice Roy Committee.
• In 2015, there were nearly 4.2 lakh inmates in 1,401 facilities, with an average occupancy rate of 114% in most.
• About 67% of total inmates were under trials, a commentary on the speed and efficiency of India’s criminal justice system.
• Occupancy by undertrials– 67% of the people in Indian jails are under trials which is extremely high by international standards like it is 11% in UK, 20% in the US and 29% in France. Males at 400,855 make up 95.8% of prisoners while females at 17,681 represent 4.2%.
• Judicial backlogs-Due to 1 crore cases (2016) pending in various courts of the country, jails across the country will remain overcrowded in the absence of any effective systemic intervention.
• Inadequate prison capacity- Most Indian prisons were built in the colonial era, are in constant need of repair and part of them are uninhabitable for long periods.
• Restricted access to legal representatives-Many inmates are unaware of their rights and cannot afford legal aid, limited ability to communicate with lawyers from within the jail premises hampers their ability to defend themselves.
• Problems in acquiring bail – For poor and marginalized it is also difficult to get bail which leaves them no option but to stay in jails and wait for courts final order.
• Unnecessary arrests: Over 60 per cent of arrests were unnecessary and such arrests accounted for 3 per cent of jail expenditure.

Issues with prisons in India

1. Overcrowding: According to Centre’s reply in response to a question in the Lok Sabha in 2017, 149 jails in the country are overcrowded by more than 100% and that 8 are overcrowded by margins of a 500%. Overcrowding takes affects the already constrained prison resources and separation between different classes of prisoners difficult.
2. Under-trials– More than 65% of the prison population in India are under trials. The share of the prison population awaiting trial or sentencing in India is extremely high by international standards; for example, it is 11% in the UK, 20% in the US and 29% in France.
3. Lack of legal aid: Legal aid lawyers are poorly paid, and often over-burdened with cases. Further, there is no monitoring mechanism to evaluate the quality of legal aid representation in most states.
4. Unsatisfactory living conditions: Prison structures in India are in dilapidated condition. Further, lack of space, poor ventilation, poor sanitation and hygiene make living conditions deplorable in Indian prisons.
5. Shortage of staff: The ratio between the prison staff and the prison population is approximately 1:7. In the absence of adequate prison staff, overcrowding of prisons leads to rampant violence and other criminal activities inside the jails.
6. Torture and Sexual abuse: Prisoners are subjected to inhuman psychological and physical torture. Sexual abuse of persons in custody is also part of the broader pattern of torture in custody.  The National Human Rights Commission observes custodial violence as “worst form of excesses by public servants entrusted with the duty of law enforcement.”
7. Custodial deaths: In 2015, a total of 1,584 prisoners died in jails. A large proportion of the deaths in custody were from natural and easily curable causes aggravated by poor prison conditions. Further, there have been allegations of custodial deaths due to torture
8. Underpaid and unpaid labor: Labor is extracted from prisoners without paying proper wages.
9. Discrimination: According to Humans Rights Watch, a “rigid” class system exists in Indian prisons. There is rampant corruption in the prison system and those who can afford to bribe, often enjoy luxuries in prison. On the other hand, socio-economically disadvantaged prisoners are deprived of basic human dignity.
10. Inadequate security measures and management:  Poor security measures and prison management often leads to violence among inmates and resultant injury and in some cases death.
11. Health: In prison the problem of the overcrowding, poor sanitary facilities, lack of physical and mental activities, lack of decent health care, increase the likelihood of health problems. Further, mental health care has negligible focus in Indian prisons.
12. The condition of women prisoners: Women prisoners face a number of challenges including poor nutritional intake, poor health and lack of basic sanitation and hygiene. Further, there are alleged instances of custodial rapes which generally go unreported due to the victims’ shame and fear of retribution.
13. Lack of reformative approach: Absence of reformative approach in the Indian prison system has not only resulted in ineffective integration with society but also has failed to provide productive engagement opportunities for prisoners after their release

SC Judgements

Through a number of judgements {like Maneka Gandhi case (Right to life and personal with dignity), Ramamurthy vs. State of Karnataka (on conditions of prisons) Prem Sankar Shukla vs. Delhi Administration (no handcuffing), Sunil Batra I and II vs. Delhi Admin (rights of prisoners)} on various aspects of condition of prisoners and prison administration, the Supreme has upheld three broad principles regarding imprisonment and custody

1. A person in prison does not become a non-person;
2. A person in prison is entitled to all human rights within the limitations of imprisonment
3. There is no justification for aggravating the suffering already inherent in the process of incarceration.

Legislations

1. The Prisons Act, 1894: It contains various provisions relating to health, employment, duties of jail officers, medical examination of prisoners, prison offences etc.
2. Transfer of Prisoners Act, 1950 – The Act deals with the transfer of a prisoner from state to another state
3. Repatriation of Prisoners Act, 2003: The act enables the transfer of foreign prisoners to the country of their origin to serve the remaining part of their sentence. It also enables the transfer of prisoners of Indian origin convicted by a foreign court to serve their sentence in India
4. Model Prison Manual 2016: It aims at bringing in basic uniformity in laws, rules and regulations governing the administration of prisons and the management of prisoners across all the states and UTs in India
5. Legal service Authority Act, 1987: According to the law, a person in custody is entitled to free legal aid.

Committees and Recommendations

Various Committees and Commissions have been constituted by the State Governments as well as the Government of India to study and make suggestions for improving the prison conditions and administration.

Mulla Committee, 1983

• The major recommendations of the committee included:
• The setting up of a National Prison Commission to oversee the modernization of the prisons in India
• Putting a ban on clubbing together juvenile offenders with the hardened criminals in prison and enacting a comprehensive and protective legislation for the security and protective care of delinquent juveniles
• Segregation of mentally ill prisoners to a mental asylum
• The conditions of prison should be improved by making adequate arrangements for food, clothing, sanitation and ventilation etc.
• Lodging of under trial in jails should be reduced to bare minimum and they should be kept separate from the convicted prisoners

Krishna Iyer Committee, 1987

• The committee mandated to study the condition of women prisoners in the country, recommended induction of more women in the police force in view of their special role in tackling women and child offenders.

In 2005, the Government of India constituted a high powered committee under the chairmanship of Director General, Bureau of Police Research and Development (BPR&D). This committee used the reports of Justice Mulla Committee Report & Justice Krishna Iyer Committee and made several additional and new recommendations. It also drafted a National Policy on Prison Reforms and Correctional Administration, 2007.

Steps taken

1. Modernization of Prisons scheme: The scheme for modernisation of prisons was launched in 2002-03 with the objective of improving the condition of prisons, prisoners and prison personnel. Various components included construction of new jails, repair and renovation of existing jails, improvement in sanitation and water supply etc.
2. E-Prisons Project: It aims to introduce efficiency in prison management through digitization
3. Draft National Policy on Prison Reforms and Correctional Administration:

India’s International Obligations

International Covenant on Civil and Political Rights (ICCPR):

It is the core international treaty on the protection of the rights of prisoners. Key features include:

• It imposes a requirement of separation of prisoners in pre-trial detention from those already convicted of crimes.
• It states that there is a requirement that the focus of prisons should be reform and rehabilitation, not punishment
• It bans torture or other cruel, inhumane or degrading treatment

International Covenant on Economic, Social and Cultural Rights (ICESR):

• It acknowledges that the prisoners have a right to the highest attainable standard of physical and mental health. Further, second-generation economic and social human rights as set down in the ICESR also apply to the prisoners.

United Nations Standard Minimum Rules for the Treatment of Prisoners or Nelson Mandela Rules:

Fundamental principles on Nelson Mandela Rules are:

• Prisoners must be treated with respect for their human rights and dignity
• No torture or inhumane practice towards prisoners
• Set an objective to prevent recurrence of crime
• Everyone in the prison should be safe at all times
• There should be no discrimination and administrators should take into account needs of individual prisoners especially the vulnerable ones

UN Convention against Torture or Other Cruel, Inhuman, or Degrading Treatment or Punishment (UNCAT): India signed UNCAT in 1997. However, has not yet ratified it.

International Best Practice

Prison System- Norway:

Norway’s incarceration rate is only 75 per 100,000 people. Further, it has one of the lowest recidivism rates in the world at 20%. The criminal justice system in Norway focuses on the principle of restorative justice and rehabilitating prisoners. 30% of prisons in Norway are open and all prisons ensure healthy living conditions, vocational training and recreational facilities.

Prison Reforms are not coming for Implementation:

• The question often asked by governments is, in these days of extreme fiscal stress, why should state resources be diverted to a ‘negative exercise, whose benefits are dubious’?
• There are those who believe that if you keep improving prison conditions, there is likely to be an attendant impact on the incidence of crime.
• This accounts for the reluctance of many criminal justice administrators to employ or enlarge non-prison alternatives such as community service.
• The offshoot of all this is growing numbers of prisoners and the woeful incapacity of governments to build more and larger prisons.
• This is why jail officials are often asked to ‘somehow manage’ with existing modest facilities.

Way Forward

1. There is a dire need to address the issue of overcrowding in Indian jails. Further, sincere efforts should be made to improve living conditions which include better sanitation and hygiene, adequate food and clothing.
2. There should be an urgent focus on addressing health issues and ensuring access to medical care among prisoners. Women’s health needs, covering mental, physical, sexual and reproductive health, require particular attention.
3. Efforts should be made to reform offenders in the social stratification by giving them appropriate correctional treatment. Initiatives should be taken to impart vocational training to prisoners and ensure proper rehabilitation and social inclusion after release
4. The government must take initiative to improve the conditions of under trial prisoners which can be achieved by speeding of the trial procedure, simplification of the bail procedure and providing effective legal aid
5. Issues related to custodial violence and sexual abuse should be dealt with effective monitoring and stringent punishments of those involved in such violence.
6. Open prison as an effective institution for rehabilitation of offenders has been highlighted by Supreme Court as late as 1979 in Dharambeer v State of U.P case. The open prisons should be encouraged as a correctional facility.
7. It is also important to address the issue of inadequate prison management by recruiting more prison staff, imparting proper training and undertaking the modernization of prisons.

Conclusion

• More than a century-old system of prisons in India needs urgent repair.
• Overcrowding, number of undertrials than convicted prisoners, delayed justice, inhumane conditions, brutality and lack of basic human need facilities are some of the major issues in Indian prisons.
• Justice Amitava Roy committee is a ray of hope in the direction of prison reforms, but without political reforms in India’s criminal justice system are impossible

Context

• President Maithripala Sirisena sacked Mr Wickremesinghe, replacing him with former President Mahinda Rajapaksa.
• The President subsequently prorogued Parliament for over two weeks, deferring the possibility of a floor test until November 16.

INTRODUCTION

• The recent political turmoil in Sri Lanka brings to the surface the debate on domestic issues vis-à-vis South Asian geopolitics. The ongoing chaos has definitely gotten New Delhi worried, as Wickremesinghe was seen as close to India.
• In the last few years, the relationship between India and Sri Lanka had improved considerably and was looking positive after Wickremesinghe’s visit to India last month.

Background

Executive Power in Sri Lanka

• In Sri Lanka, the President is the most dominant political force. The Prime Minister’s role is limited to a deputy to the President, besides being the leader of Cabinet.
• However, in the latest development, the final call to decide whether the President has the power to straightway dismiss or replace a Prime Minister lies with the Sri Lankan Supreme Court.
• In 2015, Sri Lanka had amended its constitution to prevent the president from sacking any prime minister unless they had died, resigned or lost the confidence of parliament.

Constitutional provisions

1. The constitutional provision that Mr Sirisena has cited in the official letter to Mr Wickremesinghe does not grant the President authority to remove a Prime Minister from office
2. Section 42(4) of the Constitution merely enables the President to appoint a PM
3. The President has taken the position that since he is the appointing authority, he also has the implicit power to sack the PM
4. Mr Wickremesinghe has dismissed the constitutional validity of the presidential action and has argued that he still commands a majority in Parliament
5. His line of argument is that only Parliament has the constitutionally sanctioned authority to decide whether he could continue in office as PM or not
6. It also suggests that as long as there is no no-confidence motion passed in Parliament against him and the cabinet, his position as PM cannot be invalidated by the President at his will

19th Constitutional Amendment 

1. The argument seems to have derived its salience in the context of the 19th Amendment to Sri Lanka’s Constitution, passed in 2015
2. The 19th Amendment has restored the Westminster framework of the relationship between the head of state, the PM, and Parliament
3. It curtailed powers of the President under the 1978 Constitution (the original) as well as the 18th Amendment passed in 2010
4. Among the presidential powers taken away by the 19th Amendment, which is valid, is the one pertaining to the President’s powers over the PM
5. The 19th Amendment, which created a dual executive, made the PM’s position secure from the arbitrary actions of the President
6. Thus, the office of the PM falls vacant only under limited circumstances. Death, voluntary resignation, loss of support in Parliament, rejection by Parliament of the budget, and ceasing to be an MP are these circumstances
7. Sacking by the President is certainly not in this list

Speaker’s role in prorogation

• The Speaker of the Sri Lankan Parliament, Karu Jayasuriya, urged President Maithripala Sirisena to protect the rights and privileges of Prime Minister Ranil Wickremesinghe until his majority in the House was challenged by another member.
• Further, citing possible serious consequences of the President’s decision to suspend Parliament till November 16, he pressed Mr. Sirisena to reconvene the House.
• The prorogation should be done in consultation with the Speaker. Mr. Jayasuriya said the move would have serious and undesirable consequences for the country and urged Mr. Sirisena to reconsider the decision.
• Rajapaksa said he had accepted Mr. Sirisena’s invitation to assume charge as Prime Minister as he was aware that the people expected our leadership and protection, at this moment of national peril.
• In the statement, signed as the ‘Prime Minister of Democratic Socialist Republic of Sri Lanka,’ Mr. Rajapaksa said the primary objective of leaders and lawmakers who had joined him and Mr. Sirisena was to ensure early conduct of provincial and parliamentary elections.

What are the reasons for the replacement of PM?

• Sri Lankan President Maithripala Sirisena claimed that there is no constitutional violation in his recent appointment of former President Mahinda Rajapaksa in place of Prime Minister Ranil Wickremesinghe.
• In a televised address, Mr. Sirisena sought to justify his decision — to abruptly induct Mr. Rajapaksa as PM and then prorogue Parliament until November 16.
• He cited sharp political and cultural differences with Mr. Wickremesinghe, with whom he formed Sri Lanka’s first national unity government in January 2015, among the factors.
• Sirisena tied two main reasons to his falling out with Mr. Wickremesinghe — corruption related to the bond scam at the Central Bank and the alleged assassination plot targeting him.
• Sri Lanka police functions under the Law and Order Ministry, helmed by a Minister from Mr. Wickremesinghe’s United National Party. The manner in which authorities probed the assassination plot was the most proximate and powerful reason for appointing Mr. Rajapaksa.
• Meanwhile, Mr. Rajapaksa said that he accepted the invitation to assume charge as PM as he was aware that the people expected our leadership and protection at this moment of national peril.
• The primary objective was to ensure an early holding of provincial and parliamentary elections, he said in a statement that he signed off as the ‘Prime Minister of Democratic Socialist Republic of Sri Lanka’.

The aftermath of this crisis:

• Mr. Sirisena’s appointment of Mr. Rajapaksa even before voting out Mr. Wickremesinghe on the floor of Parliament is nothing but blatant abuse of his executive powers.
• Guided by narrow political interests, the President’s actions betray an utter disregard for the parliamentary process.
• In resorting to these emergency measures, he has not only put democracy in serious peril but also let down Sri Lankans, including a sizeable section of the Tamil and Muslim minorities that backed him in the critical 2015 election.
• The political crisis in the island nation triggered violence on October 28. One person was killed and two others injured as the bodyguards of Petroleum Minister Arjuna Ranatunga fired at the supporters of Rajapaksa when they surrounded the cabinet member.

India’s concerns

• India did not have a broad array of options regarding the situation. India should stay focussed on long-term priorities like bilateral and regional connectivity and trade ties with Sri Lanka, and allow the situation in Colombo to work itself out.
• India reminded Sri Lanka of the constitutional process, following the ongoing political crisis. India’s response came as both the leaders began an outreach to the global diplomatic community.
• This was the first time that India commented on the situation in Colombo which has turned into a stand-off between Mr. Sirisena and Mr. Wickremesinghe.
• The friction between Mr. Sirisena and Mr. Wickremesinghe began with a strong statement from the latter during his visit to Delhi, which seemed to target the President for delay in India-backed projects.
• Wickremesinghe met select Colombo-based diplomats. It is said to have included those from the European Union, the U.S., the U.K., Canada, Australia, Italy, France, Switzerland, South Africa and India.
• Many of the countries had put out similar sounding statements and tweets, underscoring the need to respect due constitutional process and democracy.
• The countries are loosely identifying themselves as being like-minded on this development

CHALLENGES FOR INDIA-

India has been struggling to maintain its influence in the neighborhood as many countries in the region (Pakistan, Nepal, Maldives and Sri Lanka) have shown increased leaning toward Beijing.

• The structural constraints on New Delhi’s strategic space in South Asia go deeper. India is in an unenviable position. It is a regional power that is large enough for the asymmetrical nature of its relationship with its neighbours to make them nervous.
• But it is also a status quo power that lacks the economic and military muscle of the extra-regional revisionist power its neighbours inevitably look to as a balancer. That makes the question of who is in power—or which political systems are in place—subordinate.
• India’s backseat approach to Sri Lanka drives home the point, that India cannot fully hope to counter China in its own backyard and elsewhere until it really doubles down on economic reforms, which the government of Prime Minister Narendra Modi has only embraced partially.
• India needs to foster local growth and economic interconnectivity in South Asia. It has a huge stake, geopolitically, in Sri Lanka, and cannot afford to let it drift away.
• The time is coming for India to follow the lead of the United States and Brazil’s president-elect, and grow beyond insisting publicly that it does not view China as a competitor, but as an economic and strategic rival and openly embrace relationships with other countries that seek to balance and contain China.
• The region that India has regarded as its natural sphere of influence is slipping out of its hands. This will provide a new wake-up call to New Delhi as it needs to rethink and reformulate its policies toward the South Asian region. China has successfully managed to gain greater influence and leverage by exploiting its financial strength.
• The question now is whether India needs to combine some hard power with its soft-power approach and establish its status as an important player in the Indian Ocean region and South Asia.
• The domestic turmoil in Sri Lanka has a greater geopolitical, regional, and political connotation. The current leaders are overtly pro-Beijing and have consistently worked toward using China to counter Indian influence.
• It was no surprise that days before Wickremesinghe’s visit to India, Sirisena even made claims to the cabinet that the Indian Research and Analysis Wing (RAW) was involved in a plot to assassinate him. Such accusations highlight the insecurity and mistrust harboured by the current Sri Lankan president toward India.
• The concerns of the Chinese having a forward military base in Sri Lanka that was projected by US Vice-President Mike Pence were countered by Wickremesinghe last month, but the recent developments give further strength to the US concerns.

INDIA-CHINA GEOPOLITICAL TUSSLE

• The crisis highlights the role of powerful Asian rivals, India and China. While Sirisena tried to free his country from Chinese debt, he was instead drawn back to China after being unable to do so, and
• He ended up giving “China a controlling equity stake and a 99-year lease for Hambantota port, which it handed over in December 2017,” a move which alarmed the United States and India, which fear its potential strategic applications.
• Nonetheless, the recent changes put in question the proposed Indian investments in Sri Lanka, primarily in Mattala Airport, the Port of Colombo’s East Container Terminal, the LNG (liquefied natural gas) plant in Kerawalapitiya, and Palaly Airport in Jaffna. They also cast a shadow on Indian-Sri Lankan relations.
• The United States and the European Union have also asserted the need for following the constitutional process, but China was quick to congratulate Rajapaksa. Cheng Xueyuan, the Chinese ambassador to Sri Lanka, personally called on the newly appointed PM.
• The promptness with which Beijing congratulated Rajapaksa underscores the arguments that he is a pro-China man. During his term as president, the Sri Lankan economy became riddled with Chinese debt that culminated with Beijing gaining control of the Hambantota Port for 99 years.
• It should come as no surprise that China is focused on its national interests, and is not just a benevolent, non-interfering state that wants to build infrastructure for the good of the world. What else could explain the haste by which Chinese President Xi Jinping congratulated Rajapaksa, before the resolution of the crisis?
• The reasons China is happy are quite obvious. In the last few years, some resistance was appearing in Colombo toward the incoming Chinese investments.
• The government was becoming more concerned about the long-term impacts on the domestic economy and financial stability. A number of projects had also witnessed some violence and opposition.
• The appointment of Rajapaksa as the new prime minister could change this direction of thought and give Beijing added leverage. This also provides a new lease on life for the Chinese Belt and Road Initiative (BRI) and makes way for more Chinese investments.
• Despite statements of neutrality, there are persistent rumors that China is favoring Sirisena and Rajapaksa. A deputy minister in Wickremesinghe’s administration, Ranjan Ramanayake, accused China of paying for Rajapaksa to buy legislators.
• It also shows that China has great sway in the domestic politics of South Asian countries.
• The crisis in Sri Lanka illustrates the role China can play in upsetting local political calculations elsewhere, even without direct interference.
• The New York Times quotes Brahma Chellaney, an analyst and critic of China, who often advises the Indian government as saying: “The political turmoil, more than Rajapaksa’s return to power, works to China’s advantage. In country after country, China has exploited internal disarray to advance its objectives.”
• In Sri Lanka’s case, China’s “deep pockets” have meant that even though the Sirisena government initially promised to re-evaluate Chinese investment, it was unable to because India and the United States were unable to provide an equivalent amount of money for its projects — or to get it out of Chinese debt.
• However, now that China’s “debt-trap” strategy has been demonstrated, other countries must do their most to avoid it, and richer countries like the United States should step up and offer alternative investment schemes.

CONCLUSION

India must avoid erring too much on the side of caution, however reasonable this may be, unlike in case of Maldives political crisis.

In Sri Lanka’s case, military intervention likewise ought to be on the table, one that is better than India remaining silent and watching a geopolitical noose be slowly drawn around it, especially if it is proven that the democratic and legal processes of the country are being thwarted with financial pressure, thuggish force, or extra-constitutional decisions.