Category: Burning Issues

Context

• Recently, the United Nation’s World Population Prospects (WPP) Report 2022 was released which predicted that India is projected to surpass China as the world’s most populous country in 2023, much earlier than previously thought.
• The population and related topics have been in news for past one year which makes the population and associated topics important for the upcoming Mains Examination, 2022.

About the UN World Population Prospect Report

• World Population Prospects 2022 is the official estimate and projections of the global population that have been published by the United Nations since 1951.
• They form a comprehensive set of demographic data to assess population trends at the global, regional and national levels.
• This report provides an overview of global population trends focusing on the period from 1950 to 2050 and presents a summary of key demographic prospects during the second half of the present century.

Key highlights

• The world’s population is projected to reach 8 billion on 15 November 2022.
• The global population is still growing, albeit at a reduced rate. Some countries and regions continue to experience further population growth, while others have witnessed a stabilization or begun to decrease in population size.
• In 2021, the average fertility of the world’s population stood at 2.3 births per woman over a lifetime, having fallen from about 5 births per woman in 1950.
• The world population might peak at around 10.4 billion in 2086.

Indian Population trends

• The total population of India currently stands at 1.37 billion which is 17.5% of the world population.
• Between 1992 and 2015, India’s Total fertility rate (TFR) had fallen by 35% from 3.4 to 2.2.
• Young people (15-29 age years) form 27.2% of the population in 2021. This made India enter the Demographic dividend stage.
• The percentage of the elderly population has been increasing from 6.8% in 1991 to 9.2% in 2016.

Causes of Population growth

• Higher birth rate: We have been successful in declining the death rates but the same cannot be said for birth rates.
• Fertility rate: is much higher compared to other countries.
• Early Marriage and Universal Marriage System: Getting married at a young age prolongs the childbearing age. Also, in India, marriage is a sacred obligation and a universal practice, where almost every woman is married at reproductive age.

• Poverty and Illiteracy: Another factor for the rapid growth of the population is poverty. Impoverished families have this notion that more the members in the family, the more will be the numbers to earn income. Some feel that more children are needed to look after them in their old age. Also, hunger can be the cause of death of their children and hence the need for more children. Strange but true, Indian still lags behind the use of contraceptives and birth control methods. Many of them are not willing to discuss or are totally unaware of them. Illiteracy is thus another cause of overpopulation.
• Age old cultural norm: Sons are the bread earners of families in India. This age-old thought puts considerable pressure on the parents to produce children till a male child or the required number of male children are born (This is called Son Meta preference).
• Illegal migration: Last but not the least, we cannot ignore the fact that illegal migration is continuously taking place from Bangladesh and Nepal is leading to increased population density.
• Lack of awareness: about family planning and its benefits, government schemes related to family welfare like free birth control measures leading to unwanted pregnancies and ultimately population growth.

Implications of high population

A. Negative outcomes:

• Poor achievement of SDGs: Sustained high fertility and rapid population growth present challenges to the achievement of sustainable development. The necessity of educating growing numbers of children and young people, for example, draws resources away from efforts to improve the quality of education.
• Unemployment: Generating employment for a huge population in a country like India is very difficult. The number of illiterate persons increases every year. The unemployment rate is thus showing an increasing trend.

• Pressure on infrastructure: The development of infrastructural facilities is unfortunately not keeping pace with the growth of the population. The result is a lack of transportation, communication, housing, education, healthcare etc. There has been an increase in the number of slums, overcrowded houses, traffic congestion etc.
• Manpower utilization: The number of jobless people is on the rise in India due to economic depression and slow business development and expansion activities. It has also caused India to be the home of the largest force of Gig Workers in the world and large informal economy. This ultimately leads to poor or stagnant living standards, slow progress in Human Capital Development and Social Mobility for a large section of society.
• Faster and inefficient resource utilization: Land areas, water resources, forests are over exploited. There is also scarcity of resources.
• Decreased production and increased costs: Food production and distribution have not been able to catch up with the increasing population and hence the costs of production have increased. Inflation is the major consequence of overpopulation.
• Inequitable income distribution: In the face of an increasing population, unequal distribution of income and inequalities within the country widen.
• Increasing divergence in the representation of different states in Parliament of India: higher population growth in north Indian states as compared to southern states has led to the freezing of the number of seats in parliament till 2026. This has caused a political tussle between less developed northern and largely developed southern Indian states.

However, there are a few Positive outcomes also:

• Largest pool of consumers: an increase in population means an increase in consumers and expansion of the demand for raw materials as well as finished products leading to high consumption and thus higher economic activities. Thus, India has become the largest market in the world for companies around the world.
• According to the neo-classical growth model, the population is beneficial to an economy because population growth is correlated to technological advancement. The rising population promotes the need for some sort of technological change to meet the rising demands for certain goods and services.
• Demographic dividend in India: India’s unique population structure with around 66% population in the working age group (15-59 years) has brought her at the cusp of a major transition for the next two decades. This has made it one of the youngest countries in the world which may put India on the path of high development as happened in China between 1991 and 2011.

Population control measures that can be taken

• Social Measure: Population outburst is considered to be a social problem and it is intensely rooted in civilization. It is, therefore, necessary to make efforts to eliminate the social iniquities in the country. Minimum age of Marriage: As fertility depends on the age of marriage therefore the minimum age of marriage should be raised. In India minimum age for marriage is 21 years for men and 18 years for women fixed by law. This law should be strongly implemented and people should also be made aware of this through promotion.
• Raising the Status of Women: There are prevalent biases against women. They are restricted to houses. They are still confined to rearing and bearing of children. So women should be given opportunities to develop socially and economically. Free education should be given to them.
• Spread education: The spread of education changes the views of people. The educated men take mature decisions and prefer to delay marriage and adopt small family customs. Educated women are health mindful and avoid frequent pregnancies and thus help in lowering the birth rate.
• Adoption: is also an effective way to curb population. Some parents do not have any child, despite expensive medical treatment. It is recommended that they should adopt orphan children. It will be helpful to orphan children and children to couples.
• Economic Measures: It is necessary is to raise the employment opportunities in rural as well as urban areas. Another economic measure for population control is the development of Agriculture and Industry. If agriculture and industry are correctly developed, a huge number of people will get employment. When their income is increased they would enhance their standard of living and accept small family norms.
• Urbanization: process can reduce population increase. It is reported that people in urban areas have low birth rate than those living in rural areas. Urbanization should be encouraged.
• Strict birth control measures: are needed such as China has adopted the strategy to decrease the birth rate. But it is not possible to reduce technological advancements to decrease the death rate in India. In order to reduce the birth rate, several government-funded agencies like the Family Planning Association of India spend excessive funds to promote family planning as a basic human right and the norm of a two-child family voluntarily.
• Creating awareness about family planning: The family planning methods provided by the family planning program are vasectomy, tubectomy, IUD, conventional contraceptives (that is condoms, diaphragms, jelly/cream tubes, foam tables) and oral pills.

Steps taken for population control in India

• After independence, a Population Policy Committee was created in 1952 which suggested the appointment of a Family Planning Research and Programmes Committee in 1953.
• Central Family Planning Board was created in 1956 which emphasized sterilization. Up till the 1960s a rigid policy was not adopted to arrest the fast growth of the population. The policy framed in 1951-52 was ad hoc in nature, flexible, and based on a trial and error approach.

• The New Population Policy, 1977: The Government of India introduced first National Population Policy in 1976, which focussed on reducing birth rate, lowering infant mortality rate and improving the standard of life.
• The National Population Policy 2000: provided a comprehensive framework to provide the reproductive and health needs of the people of India for the next ten years.

• Mission Parivar Vikas (MPV), 2016: Under the scheme, innovative strategies like the distribution of Nayi Pehel kits, Saas Bahu Sammelan, and Saarthi vans are helping in reaching out to the community and initiating dialogues on family planning and healthy birth spacing, and the importance of small families.
• Raising the marriage age for girls: Recently, the Government proposed the Prohibition of Child Marriage (Amendment) Bill, 2021, which seeks to raise the age of legal marriage for women from 18 to 21, which would further help in reducing fertility rates.

Some green shoots

• There have been some encouraging trends in India’s population in the Sample Registration System (SRS) Statistical Report (2018) and global population projections made by the Institute of Health Metrics and Evaluation (IHME), US.
• SRS report estimated the Total Fertility Rate (TFR), the number of children a mother would have at the current pattern of fertility during her lifetime, as 2.2 in the year 2018.
• Also, the recently released 5^th National Family Health Survey report has shown that India’s TFR has currently reached below the replacement level of fertility of 2.1 children per woman.
• As fertility declines, so does the population growth rate.

Controversies around Population Growth

• Demand for coercive population control measure on the lines of china: several local political leaders have been demanding coercive implementation of the 2-child policy and steps like the exclusion of couples with more than 2 children from government programs and employment. For example,

Uttar Pradesh Population (Control, Stabilization and Welfare) Bill, 2021, seeks to provide a series of incentives as well as list several punishments to families that adhere and do not adhere to a two-child norm.

• However, opponents of such a demand argue that it is against the fundamental rights of people and the democratic credentials of the nation and may promote illegal abortions threatening women’s health and safety.
• Communal overtone: several politicians try to falsely portray the population data to blame a particular community for the rising population of India. Also, several religious leaders also keep demanding couples to produce multiple children in order to maintain population majority in nation.

Way forward

• There is an urgent need to implement population-related government policies and programme in letter and spirit.
• Taking benefits of a smaller family to the last locality possible so as to make smaller families a norm right up to the districts which are still witnessing high TFR rates.
• Bringing women at the centre of family planning decisions and thus giving them control over their bodies.

Conclusion

• Hence, from above it is clear that India has come a long way in population control and planning. The recent Demographic data suggest that a ‘Social Revolution’ is underway in India.
• But still, a lot needs to be done. The Health, education and skills development of the Indian population needs acceleration to fully reap the benefits of the Demographic Dividend and achieve the goals of Aatmanirbhar Bharat and UN’s Sustainable Development Goals.

Context

• Recently, India got Droupadi Murmu elected as her 15^th President.
• However, several opposition leaders negatively commented on the President’s post in India as a ‘rubber stamp’ and ‘ceremonial head’ only with no powers. This reignited the debate around the President’s powers and position in India.
• This also makes the post and the process of election of President of India important for the upcoming UPSC mains 2022 examination and Preliminary examination in 2023.

About the President Post in India

Former PM Jawaharlal Nehru on the post of President of India- “President is the “Head that neither reign nor governs” but holds a position of “authority or dignity” 

Why do we need a President in India?

• The Constitution of India has provided for a Parliamentary form of government that has two executive heads- nominal and real executive.
• Consequently, President has been made the Nominal head of the executive; the council of ministers headed by the prime minister is the real executive. The President has to exercise his powers and functions with the aid and advice of the council of ministers.
• The logic behind having a nominal head is to provide continuity to the government. The Parliamentary system of government is inherently unstable and the government may go if it loses the vote of confidence. So, President acts as the head of the state during this period.
• Another reason to have a President is to have a “neutral head” representing the views of all the parties. His institution is a symbol of a “nonpartisan” institution. (this is the reason we see opposition MP’s visiting President against ruling government actions and asking him to take appropriate action)

Dr. BR Ambedkar summed up the post of President in the following ways:

 “The title of the functionary(President) reminds of the President of United States. But beyond the identity of titles, there is nothing in common between the two. Under Indian Constitution, the President occupies the same position as the king under the English Constitution.

Election Procedure for President of India

Electing the President

• The provisions of the election of the President are laid down in Article 54 of the Constitution of India.
• The Presidential and Vice-Presidential Election Act 1952 led to the establishment of this Constitutional provision.

Qualifications to become the President of India

The qualification of be the President of India are given below:

• He/ She must be an Indian citizen
• A person must have completed the age of 35.
• A person must be qualified for election as a member of the House of the People.
• Must not hold a government (central or state) office of profit
• A person is eligible for election as President if he/she is holding the office of President or Vice-President.

Actual course of election

• The President of India is elected indirectly by an Electoral College following the system of proportional representation utilizing a single transferable vote system and secret ballots.
• MPs and MLAs vote based on parity and uniformity values.

Electoral College composition-

 Legislative Assemblies of the States:

• According to the provision of Article 333, every state’s Legislative Assembly must consist of not less than 60 members but not more than 500 members.

Council of States:

• 12 members are nominated by the President of India based on skills or knowledge in literature, arts, science, and social service to act as the members of the Council of States.
• In total, 238 represent act as representatives from both the States and Union Territories.

House of the People:

• The composition of the House of People consists of 530 members (no exceeding) from the state territorial constituencies.
• They are elected through direct election.
• The President further elects 20 more members (no exceeding) from the Union Territories.
• Uniformity in the scale of representation of states
• To maintain the proportionality between the values of the votes, the following formula is used:

Value of vote of an MLA= total no. of the population of the particular state/ number of elected MLAs of that state divided by 1000.

Single vote system

• During the Presidential election, one voter can cast only one vote.
• While the MLAs vote may vary state to state, the MPs vote always remain constant.
• MPs and MLAs vote balance
• The number of the total value of the MPs votes must equal the total value of the MLAs to maintain the State and the Union balance.

Quotas:

• The candidate reaching the winning quota or exceeding it is the winner.
• The formula sued is ‘Winning quota total number of poll/ no.of seats + 1’.

Voters’ preference:

• During the Presidential election, the voter casts his vote in favor of his first preferred candidate.
• However, in case the first preference candidate does not touch the winning quota, the vote automatically goes to the second preference.
• The first preferred candidate with the lowest vote is eliminated and the votes in his/her favor are transferred to the remaining candidates.

Why need Proportional representation?

• The President of India is elected through proportional representation using the means of the single transferable vote (Article 55(3)).
• It allows the independent candidates and minority parties to have the chance of representation.
• It allows the practice of coalition with many voters under one government.
• This system ensures that candidates who are elected don’t represent the majority of the electorate’s opinion.

Why is President indirectly elected?

• If Presidents were to be elected directly, it would become very complicated.
• It would, in fact, be a disaster because the public doesn’t have absolute clarity of how the President-ship runs or if the candidate fits the profile of a President.
• Another reason why the direct election system isn’t favourable is that the candidate running for the President’s profile will have to campaign around the country with the aid of a political party.
• And, this will result in a massive political instability.
• Moreover, it would be difficult and impossible for the government to hand out election machinery (given the vast population of India).
• This will cost the government financially, and may end up affecting the economy as well.
• The indirect election system is a respectable system for the First Man of India (rightly deserving).
• The system/method of indirect electing of the President also allows the states to maintain neutrality and minimize hostility.

Impeachment of President of India

• Article 61 provides for the Impeachment of President on the grounds of violation of the Constitution. But the Constitution does not define the phrase ‘violation of the Constitution’. It is a quasi-judicial process.

• The President may be removed before the expiry of the term through impeachment for violating the Constitution of India by the Parliament of India.
• The process may start in either of the two houses of the parliament.
• The house initiates the process by levelling the charges against the President.
• The charges are contained in a notice that has to be signed by at least one-quarter of the total members of that house.
• The notice is sent up to the President and 14 days later, it is taken up for consideration.

Procedure

• A resolution to impeach the President has to be passed by a two-thirds majority of the total number of members of the originating house.
• It is then sent to the other house.
• The other house investigates the charges that have been made. During this process, the President has the right to defend oneself through an authorised counsel.
• If the second house also approves the charges made by special majority again, the President stands impeached and is deemed to have vacated their office from the date when such a resolution stands passed.
• No President has faced impeachment proceedings so the above provisions have never been used.

Powers and functions of the President of India

The powers and functions of President has been divided into several categories like:

Executive Powers

• Every executive action is taken in the name of President..
• He makes rules for the business transaction of executive.
• He appoints a number of important executive members like CAG, chairman UPSC, governors of states etc.

  Legislative Powers-

• He holds the powers to summons or prorogues and dissolve the Lok Sabha
• Joint sittings of both houses are called by President in case of a deadlock.
•  He addresses the Indian Parliament at the commencement of the first session after every general election
• Appointment of speaker, deputy speaker of Lok Sabha, and chairman/deputy chairman of Rajya Sabha are made by him.
• 12 members of the Rajya Sabha are nominated by him.
• Several bills such as money bills are introduced with his prior permissions.

Financial Powers of President

• He causes Union Budget to be laid before the Parliament
• Contingency Fund of India is controlled by President.
• Finance Commission is constituted by him every year.

Judicial Powers of President

• Appointment of Chief Justice and Supreme Court/High Court Judges are made by him.
• Under article 143, he can seek advice from supreme court on a matter of public importance.

Pardoning powers in India

• Under the Constitution of India (Article 72), the President of India can grant a pardon or reduce the sentence of a convicted person, particularly in cases involving capital punishment. There are five different types of pardoning that are mandated by law.

• Pardon: means completely absolving the person of the crime and letting him go free. The pardoned criminal will be like a normal citizen.
• Commutation: means changing the type of punishment given to the guilty into a less harsh one, for example, a death penalty commuted to a life sentence.
• Reprieve: means a delay allowed in the execution of a sentence, usually a death sentence, for a guilty person to allow him some time to apply for Presidential Pardon or some other legal remedy to prove his innocence or successful rehabilitation.
• Respite: means reducing the quantum or degree of the punishment to a criminal in view of some special circumstances, like pregnancy, mental condition etc.
• Remission: means changing the quantum of the punishment without changing its nature, for example reducing twenty year rigorous imprisonment to ten years.

Emergency Powers of President:

• On advice of PM, President declares national emergency under Article 352, President’s rule in state under article 356 and financial emergency under article 360.

Ordinance Making Power

• Article 123 deals with the ordinance-making power of the President. He promulgates an ordinance on the recommendation of the union cabinet when either of the houses of the parliament is not in session.

Veto Power of the President.

Article 111 in India’s Constitution governs the Veto powers of the President. Indian President has the following veto powers-

• Absolute Veto – Withholding of assent to the Bill passed by the legislature.
• Suspensive Veto – Which can be overridden by the legislature with an ordinary majority.
• Pocket Veto – Taking no action on the Bill passed by the legislature.

Discretionary powers of the President

Indian constitutions do not explicitly provide the President with any discretionary powers. However, he has few situational discretions under the below-mentioned situations:

• Selection of the prime minister when no party has a clear majority in the Lok Sabha or when there is vacancy in Prime Minister’s office due to sudden death of PM.
• Dismissing of the Council of Minister when it loses vote of confidence.
• Dissolution of the Lok Sabha if the council of minister has lost its majority vote.

Issues related to President of India

Despite sitting at the helm of the Constitution, the Presidential office has been the regular subject of criticism in the country because of the following reasons:

Being a Titular head only

• As per the mandate of Article 74 of the Constitution, the President is the Constitutional head of the Union Government and all executive actions are taken in his name.
• But in actual practice, it is the Prime Minister who makes the decisions and simply informs the President who is bound to act on his advice.

Being a Political Puppet/Rubber Stamp of Council of Minister

• President has been several times is termed as the rubber stamp of the government as he has to give approval to all executive decisions.
• For example, in 1975, the then President Fakhruddin Ali Ahmed, readily nodded to then PM Indira Gandhi’s demand for a declaration to impose a National Emergency.
• After 44^th constitutional amendment act, the scope of reconsideration of a bill passed by parliament by President was reduced to just once.
• BUT it does not mean that the President is merely a rubber stamp. A President with a  strong constitutional morality can make a difference. Under Article 78 of the Constitution the President has a Constitutional right to seek information from the Prime Minister. For example,

Former President K. R. Narayanan exercised his referral powers two times. He sent the advice of the Cabinet for its reconsideration related to the imposition of the President’s rule in the States of U.P. and Bihar during the Gujral and Vajpayee governments respectively and saved those governments.

• Eminent jurist Professor M. P. Jain: “The influence of the President depends on his personality. A man of character and ability can exert a potent influence on the affairs of the government with his advice, help, knowledge, and experience to arrive at decisions on matters affecting the well-being of the people”

Issue of Presidential activism

• It is a situation where the President asserts his discretionary powers and does not act according to the aid and advice of the council of ministers. India has a long history of activist Presidents.
• For example, Rajendra Prasad’s public criticism of government, returning of PEPSU bill in 1954. Similarly, KR Narayanan, APJ Abdul Kalam are also considered as activist Presidents.
• Many times, constitutional scholars have justified Presidential activism as it has helped in preserving federalism and preventing misuse of article 356.

• But from the perspective of legal experts, Presidential activism is not desirable in the parliamentary form of government. According to the author of the book “parliament in India” James Manor, the Constitution of India sanctions judicial activism but it doesn’t talks about Presidential activism. President is not an institution to hold the government accountable.

Misuse of Pardoning powers

• Under the Constitution of India (Article 72), the President of India can grant a pardon or reduce the sentence of a convicted person, particularly in cases involving capital punishment.
• This power is being widely abused by the President. Former President Pratibha Patil misused the power to great extent as evident form the fact that within 28 months of her Presidentship, she granted a record of 30 pardons which was equal to 90% of all pardons ever made by previous Presidents of India.

Choice of Presidential candidate:

• Many a times, the appointment of Presidential candidate is to appease particular community or section of the society. Also, he is not chosen directly by the people of the India.

Use of Office of President as reward for loyalty

• It is considered as office of reward for your life long allegiance to particular party or family.

Despite above criticisms, the President in India plays several crucial roles such as:

• Safeguard the foundation of parliamentary democracy in India.
• Involved in situation with no set precedent – appoint prime minister when no party has clear majority in lok sabha or when PM dies suddenly and there is no obvious successor.
• Custodian for safety of Constitution– He is a preserver, defender and protector of the Constitution of the country.
  
  In the words of former President of India R. Venkatraman, “the President in India is like an emergency lamp which comes to power only when the main switch is off”

Conclusion

• Thus, from above we can conclude that the post of President in India can be both ceremonial as well as active depending upon the nature of the person entering the office.
• All the Presidents in India by now has acted well according to their Constitutional mandates and helped protect the Constitution of India.

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Let’s talk about what’s happening in the aviation sector:

1. Quite a lot flights are not taking off
2. Staff are striking,
3. Luggage is not being loaded or are going missing,
4. Pilots don’t want to fly
5. Airports want airlines to cut capacity but airlines won’t oblige
6. Queues are long and passengers are suffering

India’s ailing Aviation Sector

• It is facing a unique crisis a crisis of credibility and safety.  Let me show you some recent headlines to start with.
• The windshield of a go air flight cracks mid-air, two go air flights suffer engine snags, a flight could not take off because of a dog on the runway.
• A bird was found in the cockpit of an Air India Express cruising at 37 000 feet.
• One flight suffered an engine snag another noticed smoke in the cabin.

India’s Aviation Industry: A backgrounder

• India is the world’s third largest aviation sector it is home to more than 150 million flyers every year.
• There are 15 airlines, two more will soon be operational and more than a million flights land and take off from India every year.
• The country has 137 airports and dreams of adding 100 more according to airbus.  India’s domestic air traffic will grow five times in the next two decades.
• Nearly 90% of the aviation traffic is domestic and low-cost carriers account for nearly 70% of the domestic seats.
• The average domestic fare has fallen by more than 70% since 2005.

Why are India’s airlines suffering so many technical glitches?

• Why are there so many emergency landings you must have heard of the DGCA or the directorate general of civil aviation it is the government body that’s responsible for airline safety issues the dgca is blaming these snags on staff shortage.
• Every flight is inspected and certified before take-off.
• Aircraft maintenance engineers they’re called AME aircraft maintenance engineers.
• This malfunction is happening because of a shortage of engineers.

Who’s responsible for the shortage?

• You see a lot of airlines have outsourced engineering to whom the likes of Air India engineering which is still owned by the government of India then there is Artworks Max Aerospace group gmr, spice jet technique.
• Some of these companies are short of staff and this staff shortage is risking lives.

Reasons behind the Crisis

• In the past years, aviation was one sector that was shining in terms of double-digit growth in passenger traffic for many years.
• However, that too is currently seeing complications, reflecting the adverse growth in the general economy.
• It should be noted that the aviation sector is a very high multiplier of both economic growth and employment and any downturn would affect the economy itself.
• However, airlines are currently in a financial mess.

(1) Pandemic incurred losses

• Indian airlines and airports incurred financial losses worth Rs 22,400 crore in the last financial year amid the coronavirus pandemic, according to official data.
• Besides, 75 per cent of Airports Authority of India-operated airports are incurring losses. Also, AAI’s revenue came down to Rs 889 crore during April-June this year.

(2) High fuel prices and taxes

• As far as the domestic sector is concerned, airlines work at a huge disadvantage as they are burdened by high taxes and levies at one end and high Air Turbine Fuel (ATF) prices on the other.
• The ideal cost of ATF should not exceed beyond 25% of the total operating cost.  
• A central excise imposition of 14% and sales tax levied by the state governments on ATF can be as high as 30%.
• Attempts to bring ATF under GST and cutting it down to 12% have not been accepted by the GST Council.

(3) Rupee depreciation

• Any deterioration of the exchange rate of rupees to the US dollar also causes adverse impacts on the profits of the airlines.
• Deterioration of international fuel prices also plays a role.
• Due to this toxic mix, the operational cost in the domestic sector remains high.

(4) Economics of tickets fare

• Due to the large order of planes, the total capacity of seats is increasing, leading to the increasing need to fill up the growing availability of seats.
• Thus, airline ticket prices are decided by algorithms that change fares based on several factors like past bookings, remaining capacity, average demand per route, probability of selling more seats later etc.
• This computer-based dynamic pricing system causes passengers acute distress during holidays/festivals or calamities when price sharply increase.

(5) Airport and aircraft maintenance

• The Airports Authority of India (AAI) is the custodian of all civil airports in India.
• While a dozen airports are profitable, the rest are cross-subsided by AAI.
• Airport improvement involves not just upgrading the terminals, but also the runway, navigational aid and equipment needed for the safety and security.
• The AAI is currently leasing out bigger airports on a long-term basis.
• However, the lessee company is selected based on the highest percentage of revenue it can share with the AAI.
• The Delhi International Airport share 46% of its revenue while Mumbai is a little less. The newly privatized airports are even higher.

(6) Skill shortage

• Although India has the world’s second-largest population, the aviation industry faces a severe shortage of skilled workforce.
• The low-quality training institutes are not training the necessary engineers, technicians and other professionals to meet the demand of this sector.
• These are the reasons behind aircraft maintenance engineers.

(7) Disproportionate workforce

• While some airlines like Air India have surplus manpower, some like IndiGo are suffering from manpower shortage.
• In fact, the surplus manpower of Air India is one of the major causes of its financial crisis.

(8) Congestions at airports

• India’s major airports suffer from congestion of passengers and limited runways.
• For instance, Mumbai Airport, which is a single runway airport handles over 900 flights each day on an average.
• That is approximately 38 to 40 flights each hour.
• Thus, congestion leads to delay in operations and a decrease in the operational efficiency of both airlines and airports.

Impact of such incidences

• These incidences are hurting India’s image in recent weeks.
• Several Indian flights had to make emergency landings abroad, even in Pakistan.
• Now India and Pakistan don’t have an aviation agreement the two countries, do not have direct flights and they don’t see eye to eye we know that.
• What about India, the world began questioning India’s aviation sector. The repeated technical snags are making headlines in West Asia in the UK.
• This raises concerns about flight safety in India and Indian carriers.

Another aspect: Ambitious UDAN Scheme

• The Ude Desh Ka Aam Nagrik (UDAN) scheme is a low-cost flying scheme launched with the aim of taking flying to the masses.
• The first flight under UDAN was launched by the PM in April 2017.
• It is also known as the regional connectivity scheme (RCS) as it seeks to improve air connectivity to tier-2 and tier-3 cities through revival of unused and underused airports.

Working of the Scheme

• Airlines are awarded routes under the programme through a bidding process and are required to offer airfares at the rate of ₹2,500 per hour of flight.
• At least 50% of the total seats on an aircraft have to be offered at cheaper rates.
• In order to enable airlines to offer affordable fares they are given a subsidy from the govt. for a period of three years.

Present status

• A total of nine rounds of bidding have taken place since January 2017.
• The Ministry of Civil Aviation has set a target of operationalizing as many as 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024.
• So far, the Airports Authority of India (AAI) has awarded 948 routes under UDAN, of which 403 routes have taken off that connect 65 airports.
• Out of the total 28 seaplane routes connecting 14 water aerodromes, only two have commenced.

Issues with the UDAN

• Discontinuance: In reality, some of the routes launched have been discontinued as most of the routes awarded under UDAN are not active.
• On-paper Ambitions: UDAN was expanded to provide improved connectivity to hilly regions and islands through helicopters and seaplanes. However, they mostly remain on paper.
• The reasons include:

1. Failure to set up airports or heliports due to lack of availability of land
2. Airlines unable to start flights on routes awarded to them or finding the routes difficult to sustain
3. Adverse impact of the COVID-19 pandemic

Various challenges

• Lack of funds: Many small airlines await infusion of funds, to be able to undertake maintenance of aircraft, pay rentals to lessors, give salaries to its staff, etc.
• Maintenance issue: Many players don’t have more than one or two planes and they are often poorly maintained. New planes are too expensive for these smaller players.
• Availability of pilots: Often, they also have problems with the availability of pilots and are forced to hire foreign pilots which costs them a lot of money and makes the business unviable.
• Competition: Only those routes that have been bagged by bigger domestic players such as IndiGo and SpiceJet have seen a better success rate.

Way forward

• Aviation is a critical component of the nation’s transportation sector and plays a pivotal role in economic growth and employment generation.
• Aviation could be a major growth engine to make India a $5 trillion economy by 2024.
• The government should look into the aviation sector holistically, as a part of the economy as it is going to play a crucial role in economic development and is no more a sector of the privileged class only.
• The current model of taxation of the civil aviation industry appears unsustainable.
• Therefore, fuel taxes should be brought under the GST to reduce the operation cost of the airlines.
• This sector has shown the indomitable spirit- never hesitant to be in the frontline by ensuring the safe movement of people and essential cargo during the nation’s fight against the pandemic.
• Some leeway at the right time will safeguard aviation to catch up the growth trajectory faster.

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Context

• China is witnessing one of the most challenging economic crisis in its history.
• The real estate market which accounts for nearly 30% of its GDP has come crashing down in the past 1 year.
• Property sales plummeted by 72%, 1000s of people are protesting in 86 cities, and now there is a banking crisis where banks have started freezing the accounts of the Depositors.
• In its heaviest crackdown on depositors, it has deployed tanks against the protesters. 

And in spite of all this trouble, experts say that this is the just beginning of one of the worst economic crises that is followed in China!!  The question is-

Chinese Evergrande Crisis: A backgrounder

What is Evergrande?

• Evergrande is a Real Estate company which currently owns more than 1,300 projects in more than 280 cities across China.
• The broader Evergrande Group now encompasses far more than just real estate development.
• Its businesses range from wealth management, making electric cars and food and drink manufacturing.
• It even owns one of country’s biggest football teams – Guangzhou FC.

What is the crisis?

• Chinese property giant Evergrande, whose liabilities exceed $300bn (£228bn), failed to meet interest payments to international investors.
• That prompted Fitch, an agency that rates companies’ financial risk, to declare Evergrande in default.
• The crisis has spooked investors who fear contagion across China’s property and banking sectors.
• Fitch, whose risk ratings are closely followed by major investors seeking to deploy billions of dollars, said it contacted Evergrande about the non-payment but received no response.

How did it land itself in trouble?

• Evergrande expanded aggressively to become one of China’s biggest companies by borrowing more than $300bn.
• Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
• The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.
• Now, it is struggling to meet the interest payments on its debts.
• This uncertainty has seen Evergrande’s share price tumble by almost 90% over the last year.

Why would it matter if Evergrande collapses?

There are several reasons why Evergrande’s problems are serious.

• Loss of public money: Many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.
• Loss to investors: There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.

Economic impact on China

• Huge dependence on a single company: Evergrande is an enormous company embedded across China’s financial system and economy, which relies heavily on the property for growth and jobs.
• Credit crunch in the economy: If Evergrande defaults, banks and other lenders may be forced to lend less. This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.
• Withdrawal of foreign investments: Companies that can’t borrow find it difficult to grow, and in some cases are unable to continue operating. This may also unnerve foreign investors, who could see China as a less attractive place.
• Snowball effect on debts: In theory, a collapse could chase investors away from other publicly traded developers, setting off a chain of defaults.
• Rise in unemployment: A collapse could also undermine the economic activity and jobs created by Evergrande and its downstream suppliers.
• Visible bankruptcy: Cash is so short the company this summer started paying some suppliers with unfinished apartments instead of money.  

Why Chinese people are fuming over the streets?

• Many investors have expressed concerns about the Chinese government’s lack of communication about its plans.  
• Continued absence of a clear message from Beijing is posing notable downside risk to growth.
• Given wide use of property as collateral for loans to companies and local governments, a deep and widespread drop in prices, however unlikely, could threaten the financial system.
• To head off further damage, the government faces the challenge of ensuring customers get the homes they bought.

What is China’s government doing to prevent a crisis?

• The government of the province, where Evergrande is based, said that at the company’s request it would dispatch a working group to help Evergrande manage its risks and maintain normal operations.
• China’s central bank said it supported the decision to step in and would cooperate, while banking and securities regulators said they would work together to maintain the health of the broader property market.
• Chinese authorities had earlier asked local governments to prepare to step in—only at the last minute—if Evergrande fails to manage its affairs in an orderly fashion.
• This approach signals Beijing’s reluctance to bail out the debt-saddled property developer while bracing to cushion any economic or social fallout.

What exactly went wrong with the Real estate market in China?

There were two immediate triggers that precipitated the crisis at Evergrande.

• Chinese regulators, as part of a widespread crackdown on sectors such as the digital economy and education, kicked off probes into the high borrowings of property developers.
• To counter that, Evergrande tried selling off some of its business.
• But a progressive slowing down of China’s property market and tapering demand for new houses crimped cash flows.
• These two factors combined to precipitate the cash crunch at Evergrande.

Three red lines In August 2020, in an effort to better manage the heavily leveraged sector, Chinese regulators introduced rules dubbed the “three red lines” to limit borrowing of real estate firms. The three red lines mandate that developers maintain: 1. A debt-to-asset ratio of 70% or lower, 2. A 100% cap on net debt to equity, 3. Enough cash on hand to satisfy short-term borrowing, debts, and liabilities.

Why is the world worrying?

A collapsing property market in China has triggered alarm bells across the world.

(1) Future of manufacturing

• It is still the manufacturing hub of the world and if its economy falters, countries around the globe would suffer from slower and more expensive exports.
• Contract electronics and semiconductor manufacturing, where China is a global leader, had already stalled various sectors such as auto, consumer electronics and more due to Covid-induced supply bottlenecks.
• This would only go up further in an economic crisis.

(2) Future of BRI Projects

• China is also the global creditor of the developing world. Developing countries dependent on China for infrastructure projects, would be hard-hit.
• The Xi-government has sponsored numerous projects under the Belt and Road Initiative.
• Currently, BRI projects are valued at over $1 trillion across 139 countries around the globe. These building sites, highways, power generation plants and so on could be left unfinished.

(3) Disburse of finances

• China’s extended property boom that started in the mid-1990s has now ensured that nearly three quarters of the country’s household wealth is locked up in housing.
• An impending collapse at the biggest real estate company could have a serious knock-on effect on the entire economy.
• It could drag down growth and potentially setting off a cascading impact that could singe the global commodities and financial markets.

Impact on India

• India’s buoyant iron ore exports, much of which is headed to China, could also see an impact if the twin crises in China triggers an extended slowdown in the Chinese real estate market.
• In India’s stock markets, the metals segment, which has been surging since the start of the year and appeared to show signs of overheating.
• Analysts view this more as a short-term correction, but there could be an extended impact if the crisis in China were to remain unresolved.
• And there could potentially be a sustained impact on global growth prospects, dampening the nascent recovery that is underway in markets such as India.

Why global sentiments now are against China?

• Aggressive expansion: In recent years, China has expanded its diplomatic and economic relationships through aggressive means.
• Covertness of BRI: It has been positioning itself as a donor of much-needed public goods through it’s the Belt and Road Initiative.
• As China’s influence has grown, so have the number of countries concerned with its:
• Lack of economic reciprocity
• Dominant technological policies
• Coercive foreign policy practices, and
• Regional military ambitions
• In Asia, where strong economic ties with China are critical to development, Beijing has still managed to drum up resentment for its unyielding position on territorial claims in the South China Sea.
• Criticism of Chinese policies, both at home and abroad, has revealed the grittier side of Beijing’s diplomacy.
• The coronavirus has only further highlighted this dynamic.

Will China collapse?

What do incidences say?

• Freezing of bank accounts: Some Chinese banks have responded by seizing purchasers’ savings deposits, claiming they are really ‘mortgage investment products.’
• Putting tanks over protestors: This has sparked open protests outside some banks, leading to the government surrounding the banks with tanks.

However, there is not going to be a financial crash in China. Why?

That’s because the government controls the financial levers of power:

1. The central bank,
2. The big four state-owned commercial banks which are the largest banks in the world (who lends Pakistan always)
3. The so-called ‘bad banks,’ which absorb bad loans
4. Big asset managers

Hence we can say that China is too big to collapse.

How can China achieve this?

Ans. Socialistic Autocracy

• The government can order the big four banks to exchange defaulted loans for equity stakes and forget them.
• It can tell the central bank, the People’s Bank of China, to do whatever it takes.
• It can tell state-owned asset managers and pension funds to buy shares and bonds to prop up prices and to fund companies.
• It can tell the state bad banks to buy bad debt from commercial banks.
• It can get local governments to take up the property projects to completion.
• So a financial crisis is ruled out because the state controls the banking system.

What are the lessons India needs to learn from the Chinese economic Crisis?

• What we need to learn from this Chinese crisis is that investment instruments driven by mindless social norms will often cost both the people and the economy heavily.
• In this case the Chinese definition of a well-seeded person got a ton of debt piled up for the Chinese people in spite of the sky high prices.
• In our case in India the same thing happened with fixed deposits (FDs) because we outright considered FDs to be safe because of the social norm without understanding inflation.
• Similarly the mindless purchase of gold is now hindering our economy so take a step back and assess whether your instruments are backed by calculated strategy or just mindless social norms.
• The Indian real-estate sector has been stagnant.
• If companies in the sector are to be believed, this has primarily been because of high interest rates. But what is basically holding back people are high home prices.
• We need homes in a price range of ₹10-15 lakh for real estate to become a major contributor to economic growth, like it has been in the Chinese case.

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One should not be surprised that the democratic system of administration was not new to India. Ever since ancient times, India had it and she lost it. We all have read about “Kingdoms, Kings and Early Republic” through NCERT since our preparation began.

Context

• In Maharashtra, recently splits in the ruling party led to the fall of a tripartite government which had acclaimed dynast and popular leaders.
• Most political parties in India were no doubt dynastic, i.e. the future leader is almost always a family member of the present party leader (no doubt they are anyhow ousted with the present regime in India).
• This however highlights huge vacuum in intra-party discipline and coherence of ideologies.
• Thus the character of any India’s political institution or party system is a result of its political culture.

Today’s debate is – Is India being held back due to a lack of democracy in its political parties? Or does the freedom to start a new political party compensate for this defect?

Point of discussion

• In India, there is no real movement toward the democratization of parties.
• The selection of candidates, Chief Ministers and office-bearers of party units is usually left to the discretion of a handful of leaders who take decisions behind closed doors.

“It is not that India did not know what is Democracy,” Dr.B.R.Ambedkar, the Chairman of the Drafting Committee told the Constituent Assembly while presenting the final draft of the Constitution, “There was a time when India was studded with republics, and even where there were Mahajanpada monarchies, they were either elected or limited. They were never absolute. It is not that India did not know Parliaments or Parliamentary procedures. A study of the Buddhist Bhikshu Sanghas discloses that not only there were Parliaments- for the Sanghas were nothing but Parliaments- but the Sanghas knew and observed all the rules of Parliamentary Procedure known to modern times.”

Constituent Assembly Debates

Political Parties in India: A Backgrounder

• A party system is a concept in comparative political science concerning the system of government by political parties in a democratic country.
• In India, there is a multi-party system in place, with the number of parties at the national level fluctuating.
• Furthermore, India has a diverse range of political parties, including left, centrist, and right-wing parties, as well as communal and non-communal parties.

Features of Political Parties in India

The key features of the Indian Party system are:

1. Ideology base
2. Multi-Party System
3. Pre-poll Alliances
4. Coalition System
5. Opposition’s Multi-Party Character

Issues with Political Parties in India

• Lack of proper organisation: Another feature of the Indian party system is its lack of structure. Political parties live and die by their organization.
• Groupism inside India’s party structure: In India, groupism is a major problem for every political party. This shatters a party’s cohesiveness, causing it to split into several factions. Ex. INC, NCP, TMC.
• Extra-constitutional ways of gaining power: Political parties do not hesitate to utilize uncertain measures to gain political power in addition to legitimate means. Ex. Resort Politics
• Populist tendencies: In India, it is well noticed that political parties turn to populist politics in order to gain power. They take unfair advantage of people’s emotions and compulsions, promote populist slogans, and mislead the public. Ex. Temple reconstruction movements
• Lack of discipline among party members:  It has been observed that members of various political parties are unconcerned about party discipline, preferring instead to sling dirt at one another. Ex. Undue political statements
• Communal characteristics: The people of India are influenced by caste and religion, and they have a strong sense of allegiance to their caste and religion. Ex. Political party in Hyderabad.
• Criminalization of politics: Leaders are valued for their capacity to attract crowds and raise funds as elections become more and more expensive.

Why are tainted candidates inducted by political parties?

• Innocent until proven guilty maxim: The other reason offered by political parties is summarised by the maxim of Indian law, which is that any accused is innocent until proven guilty.
• Popularity: Such candidates with serious records seem to do well despite their public image, largely due to their ability to finance their own elections and bring substantive resources to their respective parties.
• Prospected victory: The logic of a candidate with criminal charges doing better for the cause of people of is another flawed argument.
• Destabilizing other electors: Others do not seek to punish these candidates in instances where they are in contest with other candidates with similar records.
• Vested interests: Some voters tend to view such candidates through a narrow prism: of being able to represent their interests by hook or by crook.

Why voice for democracy within?

• Dynastic politics: Many political parties in India has charges of dynastic politics irrespective of the political insights of the person who inherits the legacy.
• Opaque appointments:  Although election of the party president cannot be the sole criteria for judging intraparty democracy, political parties view the matter only through the procedure of electing the chiefs.
• Dominants: The party head positions are mostly influenced by some external forces which have larger say in finance and caste (or) religion.
• Personality cult: There is a tendency of hero worship in people and many times a leader takes over the party and builds his own coterie, ending all forms of intra-party democracy.
• Centralised power: Most parties are subservient to one supreme leader or a charismatic personality.   Such leaders are valued for their capacity to attract crowds and raise funds as elections become more and more expensive.
• Lack of institutionalization: Most of political parties still refuse to lay down settled and predictable procedures for almost everything they do, from the selection of candidates to the framing of a manifesto.

How this impacted election has mandates?

• Weaker opposition: In India, strong and well-organized opposition is required for parliamentary democracy to succeed, yet it does not exist.
• Non-coherence: There are several national and regional political parties performing the role of opposition at the moment, both at the national and state levels, but they are not unified on many political topics and do not have a uniform agenda.
• Electoral autocracy: India is often accused to be a flawed democracy on accounts of its alleged far-right-wing political government. There has been increased pressure on human rights groups, intimidation of journalists and activists, and a spate of attacks, especially against Muslims.
• Against public aspirations: People vote for fulfilling their demands and put much effort with aspirations that a stable government would be at their behest to resolve their issues.
• Unstable government: This point needs no explanation. We have largely seen the perils of poor decision-making of politicians due to a lack of consensus among the allies.

Even Monarchies were either elected or limited but never absolute Bhakti or hero-worship sure road to dictatorship, says Dr.Ambedkar

A critical evaluation

• Political parties have become oligarchies: India’s success in consolidating a democratic system of government has paradoxically forestalled pressure for party reform.  .
• One person diktat rules the parties: Most parties are subservient to one supreme leader who can impose his/her offspring on the party, and even electoral defeat does not loosen their control or hold over the party.
• Election manifesto is nowhere relevant post-election: Political parties with the exception of the Left parties still refuse to lay down settled and predictable procedures for almost everything they do, from the selection of candidates to the framing of a manifesto.
• Party reform is a pressing one in India: While many argue that intraparty democracy is essential to sustain broader political democracy, this is not a panacea for the numerous problems facing parties.
• Vague system is the status-quo:  The biggest weakness of parties is that they are leader-centric and most leaders are unwilling to institutionalize the procedures.
• Diktat of the party high-command actually rules a govt.: As a rule, strong leaders rarely support institutionalization because it constrains their discretion and personal power.  
• Partisan mobilization of the left-liberals: There is a major challenge facing the party system by party activity driven by partisan mobilisation lies at the root of much of the schism and disruption of Indian politics today. Ex. Leftists frequently meeting the Chinese.
• Sake of electioneering and winning never ends: Another aspect is the reduction of party organisations into election-winning machines. This has become the only role a party envisages for itself.
• Lack of political will persists: If party funds are raised and controlled centrally, this weakens the State units and rank and file vis-à-vis the central leadership on a range of issues including leadership selection and nominations for elections.

Need for imbibing democracy

• Ensuring equal opportunity: The absence of intra-party democracy adversely impacts the constitutional right of all citizens to equal political opportunity to participate in politics and contest elections.
• Less factionalism: A leader with strong grassroot connection would not be side-lined. This will allow less factionalism and division of parties thereby ensuring a stable govt in power.
• Popular representation: A transparent party structure with transparent processes will allow proper ticket distribution and candidate selection.  The selection would not be based on the whims of a few powerful leaders in the party but will represent the choice of the larger party.
• Accountability of the legislators: A democratic party will be accountable to its party members, for they will lose elections in the next cycle for their shortcomings.
• Decentralising power: Every political party has State and local body units, an election at each level will allow creation of power centres at different levels. This will allow decentralisation of power and the decision making will take place at the ground level.
• Legal loopholes: Currently, there is no express provision for internal democratic regulation of political parties in India except political defection. The ECI’s power to require parties to hold regular internal elections for office bearers, and candidate selection is compromised in the absence of any penal provisions.

How to attain internal democracy within parties?

• Internal elections: It shall be the duty of the political party to take appropriate steps to ensure holding of elections at all levels. The political party shall hold elections in an unpartisan ways by their ‘karyakartas’.
• Strengthening Anti-defection Law: The Anti-Defection Act of 1985 requires the party legislators to act according to the party whip which is decided by the diktats of the highest party leadership. One way to democratise political parties is to promote intra-party dissent.
• Limited reservations: Seats can be reserved for women and members of the backward community including minorities.
• Empowering ECI: The ECI shall be competent to inquire into allegations of non-compliance of any of the provisions requiring elections.
• Social audit and penal provisions: ECI should have the penal power to deregister a party until free and fair elections in the party are conducted.
• Encouraging new generation of leaders: For long, there is a widespread impression created that lot of good people shy away from politics. It is therefore necessary that this impression be changed and efficient people brought into political arena.

Way forward

• The 170th report of the Law Commission of India on reform of electoral laws, dedicated an entire chapter on the necessity of providing laws relating to internal democracy within parties.
• It observed that a political party which does not respect democratic principles in its internal working cannot be expected to respect those principles in the governance of the country.
• The National Commission for Review of Working of Constitution states that there should be comprehensive legislation regulating the registration and functioning of political parties or alliances of parties in India.
• The Administrative Reforms Commission II (ARC), 2008 Ethics and Governance Report pointed out that corruption is caused by over-centralization.

Conclusion

• Politics is inseparable from political parties as they are the prime instruments for the execution of democracy in the country.
• We must emphasize our PM’s call for a debate on internal democracy in political parties.
• It is imperative that political parties open their eyes to growing calls for electoral political reforms and take steps towards bringing in intra-party democracy.

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Context

• The Reserve Bank of India has announced an arrangement for the country’s traders to settle imports and exports in rupees.
• This move is aimed at promoting growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the Indian Rupee.

Background: Russia-Ukraine War

• India is a trade deficit country, meaning it imports more than it exports.
• This forces the country to maintain large forex reserves since world trade still occurs in US dollars.
• This is not the first time that the RBI has allowed international trade in rupees – the sanctions on Iran a few years ago resulted in the two countries trading in rupees instead of dollars.
• The Russia-Ukraine war and the subsequent sanctions have provided RBI with another opportunity to push for trading in rupees.

US Dollar: The Global Currency

• The U.S. dollar has been the world’s dominant currency since the end of World War II.
• Roughly half of the international trade, international loans, and global debt securities are denominated in USD.
• The USD became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.
• Despite the challenges faced by the US economy due to fiscal and external deficits of the 1980s, the dollar’s share of global reserves remained steady and reserves even grew as time progressed.
• The dominance of the dollar is backed by strong and highly credible institutions, deep markets and the fact that it is freely convertible.
• Almost 40% of the world’s debt is issued in dollars. As a result, foreign banks need a lot of dollars to conduct business. This became evident during the 2008 financial crisis.

 What is the Rupee Settlement System?

• Banks acting as authorized dealers for such transactions would have to take prior approval from the regulator to facilitate this.
• All exports and imports under the invoicing arrangement may be denominated and invoiced in Rupee.
• Exchange rate between the currencies of the two trading partner countries may be market determined.
• Exporters and importers can now use a Special Vostro Account linked to the correspondent bank of the partner country for receipts and payments denominated in rupees.
• These accounts can be used for payments for projects and investments, import or export advance flow management, and investment in Treasury Bills subject to Foreign Exchange Management Act, 1999 (FEMA).
• Also, the bank guarantee, setting-off export receivables, advance against exports, use of surplus balance, approval process, documentation, etc., related aspects would be covered under FEMA rules.

Nostro and Vostro Accounts: Nostro and vostro are terms used to describe the same bank account; the terms are used when one bank has another bank’s money on deposit.They are used to differentiate between the two sets of accounting records kept by each bank.Nostro comes from the Latin word for “ours,” as in “our money that is on deposit at your bank.”Vostro means “yours,” as in “your money that is on deposit at our bank.”

Why such a move?

• Trade facilitation: This will also facilitate trade with countries like Russia which are facing sanctions.
• FOREX savings: India imports more than it exports so the country will also save foreign currency under the new arrangement.
• Rupee appreciation: The rupee is at a historic low against the dollar. It will also help stabilize rupee.
• Mitigating war impact: Payments had become a pain point for exporters immediately after the Russia-Ukraine war broke out, especially after Russia was cut off from the SWIFT payment gateway.
• Convertibility easing: We see this as a first step towards 100% convertibility of rupee.
• Energy security: It will also help buy discounted crude oil from Russia, which now accounts for 10% of all imported crude.
• Export promotion: As such, the new mechanism will help India promote its exports.

Which countries would prefer this system?

• War mongering Russia: For now, it looks like trade settlements in rupee will be limited to countries like Russia and Iran who are facing sanctions from the West
• Bankrupt Sri Lanka: SL is going through economic turmoil and India has been consistently extending lines of credit to SL.
• Immediate neighbors: Other countries may include immediate neighbors of India.

Rupees over Dollars: Why countries would prefer Rupees?

• At a very simplistic level, this is like two Indians deciding to use an alternative mode of exchange that they have come up with, instead of using rupees.
• In other terms, this is similar to the barter system.
• The main reason for countries to want to trade with India in rupees is this:

1. USD has been going through a phase of strength against most currencies in the world
2. Strong USD performance has essentially made imports expensive for most countries
3. Sri Lanka, which is going through one of its worst economic crises in decades, is a glaring example of a country in which the economy has come to a halt due to a drastic fall in forex reserves

• While the Sri Lankan Rupee has declined over 83 percent against the US Dollar, its fall against the Indian Rupee has been lower at 70 percent.
• So instead of paying 83 percent more to make purchases in USD, Sri Lanka can pay in Indian Rupees and save some money.

Challenges

• Trade surplus countries’ preference: The question that RBI and the Indian government will have to answer is this – why would countries with a trade surplus with India want to trade in rupees?
• Negative trade balance: China had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
• Idle money lying useless: If China were to trade with India in rupees, it would have Indian rupees worth $73 billion (about ₹5.77 lakh crore) sitting idle in its Rupee Vostro accounts in an Indian bank.
• Few countries interested: Countries whose exports to India are more than imports, will not be too enthusiastic to trade in rupees, especially if the difference is huge as in the case of China.

Way forward

• In a multipolar world where Free Trade Agreements (FTAs) are frequent, undermining the dollar’s dominance seems prominent.
• This has been the dream of governments that have looked uneasily at US global primacy, and formed coalitions.
• It is predicted that the sanctions against Russia has foreshadowed the decline of the dollar as the reserve currency.

Conclusion

• No doubt! This move wouldn’t kill the dollar.
• A currency’s dominance depends on demand of the currency and India would need to export stuff to create that demand.
• If all the nations in the world stop using dollars only then it would fall.

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Context

• The RBI recently released a very important document about the economy of the States of India.
• Some of our Indian states have been managing their finances so bad that these states could be heading towards the same state as Sri Lanka’s economy!
• And we all know what’s happening in Sri Lanka right now!
• The worst part is that if this continues for a long time, the entire country of India will lose money and could face another economic crisis!

Questions raised:

• Why is this RBI document comparing Indian states to the economic crisis in Sri Lanka?
• How are these states doing the same mistakes as the Sri Lankan government?
• And most importantly as citizens of India what are pointers that you need to keep eye on before you cast your vote for the so-called leaders of India?

Crumbling state finances:

How can we arrive at this conclusion?

(1) Debt-GSDP Ratio

• Punjab, Rajasthan, Kerala, West Bengal, Bihar, Andhra Pradesh, Jharkhand, Madhya Pradesh, Uttar Pradesh and Haryana turn out to be the states with the highest debt burden.
• Highest debt-GSDP ratio in FY22 are Punjab (53.3%), Rajasthan (39.8%), West Bengal (38.8%), Kerala (38.3%) and Andhra Pradesh (37.6%).
• All these states receive revenue deficit grants from the Centre.
• What exacerbated the debt-GSDP ratio was that while numerator (liabilities) rose sharply, the denominator (nominal GDP) fell sharply.

(2) Fiscal Deficit

• The Fiscal Responsibility and Budget Management (FRBM) Act, 2005 prescribes the ceiling for debt to GSDP ratio at 25 per cent.
• Eight out of the 15 states studied here, exceed the prescribed limit in FY22.
• Odisha was a clear outlier with a 15.79 per cent Debt-GSDP ratio.
• States like Tamil Nadu and Karnataka were marginally higher than the mandated limit. 

(3) Fiscal deficit to GSDP

• Large borrowing by some States is due to the sharp expansion in their fiscal deficits, much beyond the mandated level.
• Bihar recorded highest fiscal deficit to GSDP ratio at 11.30 per cent as per FY22 revised estimates followed by Rajasthan (5.2 per cent), Punjab (4.60 per cent) and Uttar Pradesh (4.27 per cent).

(4) Interest cover

• High borrowings or fiscal deficit-GDP ratio is not something to be worried about as long as the States have adequate revenue surplus to fund them.
• This can be gauged by looking at the interest cover as measured by the revenue receipts of the State divided by its interest payment.
• For instance, Bihar had the highest fiscal deficit as a percentage of GSDP, however, the state has adequate revenue receipts to cover its interest burden, with interest cover of 11.3.
• Odisha topped the list with highest interest coverage ratio since it has been diligently lowering its borrowing as well as the resultant interest burden.
• Punjab, Haryana, West Bengal, Tamil Nadu and Kerala appear weak going by this metric with interest cover under 6 times. 

(5) Increase in Market Borrowings

• Most States increased their market borrowing during the pandemic as their fiscal deficits expanded.
• Tamil Nadu topped the list of states with highest gross market borrowings in both FY21 and FY22.
• But not all states were on a borrowing spree.
• Odisha stayed away from market borrowing through state development loans (SDLs) in FY22.

(6) Revenue buoyancy

• Revenue buoyancy of States has already been affected since the Goods and Services Tax (GST) came in and states’ ability to raise taxes has come down.
• Interest payments, salaries and pensions fall under the committed expenditure of State governments.
• This committed expenditure of Kerala and Tamil Nadu accounts for 71 per cent and 67 per cent of their budgeted revenue receipts respectively in FY23. 
• A larger proportion of the budget allocated for committed expenditure items limits the state’s flexibility to decide on other expenditure priorities such as developmental schemes and capital outlay.

(7) Dependency on Centre

• Own tax revenue of Haryana, Kerala and Andhra Pradesh constitutes about half of their total revenue collections.
• The major source of revenue of other States is Central transfers.
• Within own tax revenue, States’ goods and services tax (SGST), States’ excise duties and sales tax are the major sources of revenue

(8) Poor capital outlay

• High revenue expenditure results in poor spending quality, as reflected in their high revenue spending to capital outlay ratios.
• Capital outlay is the money spent on acquiring assets while revenue expenditure indicates daily operations expenses like salaries and pensions.

What factors led to the financial vulnerabilities of Indian states?

(1) Pandemic

• The prolonged COVID crisis has worsened fiscal positions of governments around the world as reflected in mounting debt levels.
• The sustainability of public debt at national and sub-national levels has again assumed centre-stage as the dominant fiscal risk.
• In particular, the pandemic has taken a heavy toll on finances of states in India.

(2) Freebie Politics

(3) DISCOM sector distress and payment crisis

• The power sector accounts for much of the financial burden of state governments in India, both in terms of subsidies and contingent liabilities.
• Illustratively, many state governments provide subsidies, artificially depressing the cost of electricity for the farm sector and a section of the household sector.
• Despite various financial restructuring measures17, the performance of the DISCOMs has remained weak, with their losses surpassing the pre-UDAY level of 0.4 per cent of GDP.

(4) Pension expenditure

• The government’s fiscal burden in providing a safety net to the elderly could rise to as much as 4.1% of the GDP by 2030 from 2.2% at present, a report by global analytical company Crisil has said.
• Currently, the central government spends 3-3.4% of GDP on education and just over 1% of GDP on medical and public health, water supply and sanitation.
• This is an ever-increasing challenge, as the old live longer, and demographic transitions reduce the number of young to pay for the old.
• Many states are opting out of New Pension Scheme (NPS) to the old pension scheme which is a huge burden on the exchequer.

A rational analysis

(1) Certain necessary expenditures cannot be avoided

• States often try and provide some kind of relief to voters.
• We can certainly be in favour of expanding, for example, the MGNREGA type of spending and subsidy in the form of food ration schemes.
• These go a long way in increasing the productive capacity of the population. So, they’re not just freebies.
• They build a healthier and a stronger workforce, which is a necessary part of any growth strategy.
• That is similar to a State spending on education or health.

(2) Certain election promises create dysfunctions

• There are obviously cases where State governments have gone astray and have gone into providing all sorts of freebies or gifts.
• But when it comes to simply giving away loan waivers, we cannot go in favour of these because they have undesired consequences such as destroying the whole credit culture.
• It blurs the very basic question as to why is it that a large majority of the farming community is getting into a debt trap repeatedly.

(3) Non-essentiality of welfare expenditure

• We know about free electricity that is being given in various States to rural communities.
• This has sometimes led to disastrous consequences in terms of the declining water table, wastage of electricity and various other things.
• There are nuances to the issue, and one will have to get into those nuances to take a final call on whether a certain welfare spending is necessary or not.

(4) Necessary expenditures/ merit freebies

• Some people have been questioning subsidies going into education, such as for laptops and other things.
• Some of them have now become necessities for increasing productivity, knowledge, skills, and various other things.
• So, we need a more nuanced understanding of the issue.

Way forward

• Fiscal discipline: The state governments must restrict their revenue expenses by cutting down expenditure on non-merit goods in the near term.
• Stabilize debt levels: In the medium term, these states need to put efforts toward stabilising debt levels.
• Power sector reforms: Further, large-scale reforms in the power distribution sector would enable the DISCOMs to reduce losses and make them financially sustainable and operationally efficient.
• Focus on capital creation: In the long term, increasing the share of capital outlays in the total expenditure will help create long-term assets, generate revenue and boost operational efficiency.
• Risk testing: State governments need to conduct fiscal risk analyses and stress test their debt profiles regularly to be able to put in place provisioning to manage fiscal risks efficiently.

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Context

• The Enforcement Directorate (ED) is in the news now and often for summoning a range of personalities from politicians to celebrities as well as NGOs.
• Many states often accuse the agency of being a tool used by the Centre to coercively engage politicians for vested interests.
• The timing of the ED cases is making politicians see red. Opposition parties usually allege that raids by Central agencies like the ED and the CBI pick up the pace before crucial polls.

Is the ED a tool to investigate financial skulduggery or a stick to browbeat opposition leaders? Let’s check.

What is Enforcement Directorate (ED)?

• ED was formed in 1957 to look into cases of foreign exchange-related violations, a civil provision.
• It goes back to May 1, 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs.
• Now, the ED falls under the finance ministry’s Department of Revenue.
• But in 2002, after the introduction of the PMLA, it started taking up cases of financial fraud and money laundering, which were of criminal nature.
• It was then tasked for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act (FERA).
• Today, it is a multi-dimensional organisation investigating economic offences under the:

1. Prevention of Money Laundering Act (PMLA)
2. Fugitive Economic Offenders Act
3. Foreign Exchange Management Act
4. Foreign Exchange Regulation Act (FERA)

Its establishment

• When proceeds of crime (property/money) are generated, the best way to save that money is by parking it somewhere, so one is not answerable to anyone in the country.
• Therefore, there was a need to control and prevent the laundering of money.
• The PMLA was brought in for this exact reason in 2002, but was enacted only in 2005.
• The objective was to prevent parking of the money outside India and to trace out the layering and the trail of money.
• So as per the Act, the ED got its power to investigate under Sections 48 (authorities under act) and 49 (appointment and powers of authorities and other officers).

At what stage does the ED step in when a crime is committed?

• Whenever any offence is registered by a local police station, which has generated proceeds of crime over and above ₹1 crore, the investigating police officer forwards the details to the ED.
• Alternately, if the offence comes under the knowledge of the Central agency, they can then call for the First Information Report (FIR) or the chargesheet if it has been filed directly by police officials.
• This will be done to find out if any laundering has taken place.

What differentiates the probe between the local police and officers of the ED?

Case study:

• If a theft has been committed in a nationalised bank, the local police station will first investigate the crime.
• If it is learnt that the founder of the bank took all the money and kept it in his house, without being spent or used, then the crime is only theft and the ED won’t interfere because the amount has already been seized.
• But if the amount which has been stolen is used after four years to purchase some properties, then the ill-gotten money is brought back in the market.
• Or if the money is given to someone else to buy properties in different parts of the country, then there is ‘laundering’ of money.
• Hence the ED will need to step in and look into the layering and attachment of properties to recover the money.
• If jewellery costing ₹1 crore is stolen, police officers will investigate the theft. The ED, however, will attach assets of the accused to recover the amount of ₹1 crore.

Roles and functions of the ED

• Summon, Search and seizure: The ED carries out search (property) and seizure (money/documents) after it has decided that the money has been laundered, under Section 16 (power of survey) and Section 17 (search and seizure) of the PMLA.
• Arrest and detentions: On the basis of that, the authorities will decide if an arrest is needed as per Section 19 (power of arrest).
• Attachment of property: Under Section 50, the ED can also directly carry out search and seizure without calling the person for questioning. It is not necessary to summon the person first and then start with the search and seizure.
• Filing of chargesheet: If the person is arrested, the ED gets 60 days to file the prosecution complaint (chargesheet) as the punishment under PMLA doesn’t go beyond seven years.

Centrestage of our debate: Over-reach by Investigation Agencies

Why is ED comes to picture frequently?

Ans. Money laundering

• Money laundering is the process of making significant amounts of money obtained through criminal activities, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
• As a result, it provides an incentive for money launderers to “legitimize” their ill-gotten gains through money laundering.
• The money generated is referred to as ‘dirty money,’ and money laundering is the act of converting ‘dirty money’ into ‘legitimate’ money.

Prevention of Money Laundering Act (PMLA) PMLA, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money laundering and to provide for the confiscation of property derived from money laundering. It was enacted in response to India’s global commitment (including the Vienna Convention) to combat the menace of money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. The act was amended in the year 2005, 2009 and 2012.

Why ED mostly grips Politicians?

• Exposing rampant corruption: It is not always ironic to say that most politicians are never corrupt. We have a very inglorious past of political corruption.
• Selective witch-hunt: The ED has often been attacked for initiating investigations, raiding and questioning leaders of opposition parties, be it under the current regime or under past governments.

Issues with PMLA

• Misuse of central agencies: PMLA is being pulled into the investigation of even ordinary crimes by the Enforcement Directorate.
• Seizing of assets: Assets of genuine victims have been attached. The ED could just walk into anybody’s house.
• Politically motivated raids: In all this, the fundamental purpose of PMLA to investigate the conversion of “illegitimate money into legitimate money” was lost.
• Opacity of charges: Petitioners pointed out that even the Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
• Vagueness over evidence: The accused is called upon to make statements that are treated as admissible in evidence.
• Harassment: The ED begins to summon accused persons and seeks details of all their financial transactions and of their family members.
• Against individual liberty: The initiation of an investigation by the ED has consequences that have the potential of curtailing the liberty of an individual.

Allegations against ED

• Huge discretions: The ED is the only Central agency in the country that does not require permission from the government to summon or prosecute politicians or government functionaries for committing economic offences like money laundering.
• Used for petty crimes: PMLA is pulled into the investigation of even “ordinary” crimes and assets of genuine victims have been attached.
• Actual purpose denigrated: PMLA was a comprehensive penal statute to counter the threat of money laundering, specifically stemming from the trade in narcotics.
• Violations of Rights: PMLA was enacted in response to India’s global commitment to combat the menace of money laundering. Instead, rights have been “cribbed, cabined and confined”.
• Functional opacity: There is also a lack of clarity about ED’s selection of cases to investigate. We often see ED raiding houses of opposition parties suddenly.
• Poor rate of conviction: We have hardly read the conclusion of cases by ED. Meantime media-trial tears off the accused person’s credibility which is the most desired intent.
• Under-trials and slower prosecution: ED has been focusing on keeping the accused in custody rather than actually proving the charges against them.

Challenges to ED

• ED being dragged to court: The petitions against the ED had the effect of slowing down the investigations, as officers have to defend themselves in court.
• Foul crying politicians: There are attempts to cover up unexplained, high-value transactions that fall within the PMLA’s ambit
• Investigation of foreign transactions: Getting information on accounts and money stashed abroad to establish a trail is the biggest challenge they face.

Way forward

• The fight against corruption is intimately linked with the reform of the investigations.
• Therefore the adjudicating authorities must work in cooperation and ensure the highest standards of transparency and fairness.
• ED has been walking a tightrope to safeguard its integrity by speeding up investigations and court procedures.
• The need of the hour could be systemic fixes—and not shrill calls to throw the baby out with the bathwater.
• It is unlikely that corruption can be substantially reduced without modifying the way government agencies operate.

Conclusion

• What the ED is caught in is really an image crisis.
• The trust in premier investigating institutions, and their credibility, is at stake.

Context

• The ‘States’ Startup Ranking 2021’ was recently released.

‘States’ Startup Ranking 2021’: Key Highlights

• Gujarat and Karnataka are the top achievers in creating startup ecosystems for aspiring entrepreneurs.
• Gujarat was recognized as having the best performance for the third time in a row.
• The top performing states included Jammu and Kashmir, Kerala, Maharashtra, Odisha, and Telangana.
• The leaders’ category includes Punjab, Tamil Nadu, Uttarakhand, Uttar Pradesh, Andaman and Nicobar Islands, Arunachal Pradesh, and Goa.
• Chhattisgarh, Delhi, Madhya Pradesh, Rajasthan, Chandigarh, Puducherry, and Nagaland are among the states and UTs that fall under the category of aspiring leaders.
• Andhra Pradesh, Bihar, Mizoram, and Ladakh are among the states in the category of developing startup ecosystems, according to the study.

What are Startups?

• A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable economic model.
• While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder.
• At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them does go on to be successful and influential.  Some startups become unicorns.

Why do we need start-ups?

Start-ups make an indispensable contribution in the economic growth of a nation.

(1) Employment Generation

Entrepreneurship creates more avenues for new job in the economy. This would help harness the readily available employment in our country. This mission will reduce the burden from service and agricultural sector and enables condition of balance in economy.

(2) Creation of Wealth

Since entrepreneurs are attracting investors by investing their own resources, the people of the nation would get benefit when startups grow. Since the money is sharing with the society, wealth is creating within the nation.

(3) Better standard of living

Startups can implement innovations and technologies to improve the living of people. There are many startups who are working for rural areas to develop the community.

(4) Economic growth

GDP plays a vital role in enhancing the economic growth of a country. By supporting and encouraging more startups, it is possible to generate more revenue domestically and consumer’s capital will also flow around the Indian economy.

(5) Source for FDI

It has been noted that in recent years, the volume of foreign investments made in the Indian startup is quite huge. The foreign investments in the startups act as an easy capital raise and technological investment for the startups which makes them readily accept the investments coming towards them.

(6) Culture of Entrepreneurship

Startups encourage a culture of entrepreneurship and innovation which leads to create new job opportunities and provide support to the economy. Success stories motivate talented youth to start their own ventures and help them to become a job provider instead of a job seeker.

(7) Advancement in technology

Startups are more focused on new technologies and cutting-edge innovation. Free from a multilayered corporate bureaucracy, startups are more agile and able to build an idea into a product and improve it upon consumer demand with faster decision-making communications.

About Startup India Scheme

• Startup India is an initiative of the Government of India.
• The campaign was first announced by PM Modi during his speech on 15 August 2015 address from the Red Fort.
• The action plan for this initiative is focusing on three areas:

1. Simplification and Handholding.
2. Funding Support and Incentives.
3. Industry-Academia Partnership and Incubation.

• An additional area relating to this initiative is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances.
• It was organized by the Department for promotion of industry and internal trade (DPI&IT).

An evaluation of the Scheme

(A) Successes

• Investment: $63 Bn has been invested in Indian startups in the last five years.  
• Growth: Between 2016 and August 2020, Startup India programme has recognised over 34.8K startups. 
• Rise of Unicorns: Unicorns are privately held, venture-capital-backed startups that have reached a value of $1 billion. From 17 Unicorns in 2018 the number went up to 38 in 2020 and it’s 71 and counting in 2021.
• IPRs: Among these, 8.3K startups received intellectual property rights (IPR) fee benefits, while over 2.6 lakh people enrolled in the entrepreneurship-focused learning courses.
• Gender inclusion: In terms of gender diversity across workspaces in India, just 9% of the board members of the top 20 unicorn startups in India are women.

(B) Failures

• Clearances: The Startup India scheme had received around 1368 applications by mid-December last year out of which DPIIT has only accepted 502 application forms and recognized them as ‘startups’.
• Delay: The delay and lack of efficiency is a cause for the startup plan to fail in some cases.
• Funding: The concerns of domestic angel and VCs on capital gains tax remain largely unaddressed.
• EODB issues: Venture capital firms and angel investors are more cautious while investing in Indian startups. It is because the conditions, the ease of capital flow and doing business are not stable enough.

Some lacunae of the scheme

• Definitional issues: The scheme is criticized by professionals because of the definition of Start-up provided in the scheme. The definition states that a mere act of developing products or services that do not have the potential for commercialization or have no or limited incremental value for customers would not be a start-up.
• Test of ‘Innovation’: Each startup is scrutinized by an Inter-Ministerial Board (IMB) to see if the startup is ‘innovative’ – i.e. if it is unique or a world first. Most of start-ups would lie outside the purview of this definition.
• Red tapism: Further eligibility of start-up, lies under definition or not, shall be approved or certified by an inter-ministerial board which is a retrograde step and against the government policy of ‘Min Government Max Governance’.
• Taxation mirage: A tax break of three years has been given in the scheme. Anyone who has business sense knows that only a few of start-ups will be profitable in the first three years and so this handful can avail them of the tax break.
• Patenting terms: The other option for startups to get tax benefits is to get a patent. And we all know that it takes several years to register a patent in India, and if royalty profits accrue before then, the tax benefits will be denied.
• Heavy concentration in megacities:  Entrepreneurship continues to be “highly concentrated” in three megacities, namely, Mumbai, Bengaluru and Delhi NCR. Such concentration can lead to increased economic inequality and hinder the emergence of entrepreneurs from industries other than those belonging to the clusters.

Inherent challenges to Start-ups in India

• Financial scarcity: Availability of finance is critical for startups and is always a problem to get sufficient amounts.
• Lack of Infrastructure: There is a lack of support mechanisms that play a significant role in the lifecycle of startups which include incubators, science and technology parks, business development centers etc.
• Regulatory bottlenecks: Starting and exiting a business requires a number of permissions from government agencies. Although there is a perceptible change, it is still a challenge to register a company and exiting it.
• Compliance hurdles: For example earlier Angel tax, which stands removed no, falls under corruption and bureaucratic inefficiencies as it takes the focus of entrepreneurs away from building a product or service to responding to tax notices and filing appeals.
• Low success rate: Several startups fail due to poor revenue generation as the business grows. As the operations increase, expenses grow with reduced revenues forcing startups to concentrate on the funding aspect, thus, diluting the focus on the fundamentals of business.
• Lack of an Innovative Business Model: To be successful a startup must be innovative. Unfortunately, Indian startups are less innovative than startups elsewhere. Many Indian startups don’t have an original business idea that is disruptive and by which consumers will be provided with better service.
• Non-competitive Indian Markets: Too many startups serving too few consumers are saturating the Indian market.  Most startups serve the fraction of Indians who live in urban India. The majority of Indians who live in rural areas and small towns remain untouched by most startups.

Recent challenge: Downtime for Edu-techs

• Pandemic accelerated edtech’s ascent:

1. Massive funding
2. High rates of enrollment and
3. Positive word of mouth

• However, the metric that the tech companies are using to show their growth is the number of paid enrollments that they achieve by their army of salesmen and NOT the results or true learning outcomes.
• They never cared to track learning outcomes through some randomized control trial which would take a lot of money and time.
• Edtech companies sell their products without putting a thought if a particular student really needs them.
• Their one-size-fits-all sales strategy is now backfiring. It helped them boost their revenue, but without results.

Various initiatives by the Govt.

There are numerous government initiatives to assist start-ups,

• MUDRA Scheme: Through this scheme, start-ups get loans from the banks to set up, grow and stabilize their businesses.
• SETU (Self-Employment and Talent Utilization) Fund: Government has allotted Rs 1,000 Cr in order to create opportunities for self-employment and new jobs mainly in technology-driven domains.
• E-Biz Portal: Government launched e-biz portal, India’s first government to business portal that integrates 14 regulatory permissions and licenses at one source to enable faster clearances and improve the ease of doing business in India.
• Credit Guarantee Fund: launched by the GoI to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
• Fund of Funds for Start-ups (FFS): 10,000 Rs corpus fund established in line with the Start-up India action plan under Small Industries Development Bank of India (SIDBI) for extending support to Start-ups.
• Tax Sops: Tax exemption on Capital gain tax, Removal of Angel tax, Tax exemption for 3 years and Tax exemption in investment above Fair Market Value.

Way Forward

The best of the Indian startup ecosystem still lies ahead.

• There is a need for policies and progressive strategies from governments to encourage startups and provide access and assistance in key areas including tax clarity, incubation, affordability and licensing.
• In any case, governments should be well prepared and dedicated to creating a culture of startups to impact the entrepreneurial ecosystem in their cities, countries and citizens.
• Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives.
• It is critical, therefore, that nations set out to develop entrepreneurial skills, attitudes and behaviour in the school systems at all levels as a part of the lifelong learning process.
• To produce effective entrepreneurs who can initiate change, governments need to cut ‘red tape’ and streamline regulations.
• Funding, another daunting and difficult challenge, has to be resolved at earliest with liberal funding mechanisms.
• Apart from all these concerns, Start-up India has potential to solve India’s problems and create jobs. Nonetheless, the challenges and changes are not to be dreaded but defeated.

Conclusion

• The current economic scenario in India is in expansion mode.  Indian Startups are now spread across the length and breadth of the entire country.
• The Indian government’s policies like Make in India, Digital India, Atmanirbhar etc. shows the enthusiasm of centre to imbibe reforms.
• With the government going full hog on Startups, it could arrest the brain drain.
• Efforts are being made by diverse stakeholders in the Indian startup ecosystem to elevate domestic policies in concurrence with global trends.

Also read:

Unicorn boom in India

Context

• The debate surrounding the comments by some political spokespersons has put the spotlight on the need for anti-blasphemy law which deals with criticism of or insults to religion.
• Presently India does not have a formal legal framework for dealing with hate speech concerning any particular religion.

What is Blasphemy?

• Blasphemy is one of the world’s most abused law when it comes to suppressing the voices of communities, rationalists as well as at many times scientists.
• It is often regarded as a reasonable restriction over the freedom of speech and expression.
• It many a times is also regarded as a hindrance in the development of a scientific temper among people.
• It also a methodology of imposing the religious beliefs and virtues of one community over other.

A backgrounder

• Being a society with mostly Hindu population, India never saw a legislation against blasphemy till 1927.
• Prior to independence, in the fog of communal tensions, a Pamphlet was published by Mahashay Rajpal.
• It sparked controversy, with the members of Muslim community seeking punishment for Rajpal as it was a violent attack over the religious sentiments of Muslims.
• Eventually Rajpal was acquitted because of the lack of any blasphemy law in India, only to be murdered in 1929.

Beginning of legislation

• The British colonial government eventually in the time of need, amended the Indian Penal Code, 1860 and added the Section 295(A) in the year 1927.
• The Section even after the partition of India, is present in the Indian Penal Code, 1860, as well as in Pakistan and Bangladesh.

What is Section 295A of the Indian Penal Code (IPC)?

• Section 295A, define the contours of free speech and its limitations with respect to offences relating to religion.
• It prescribes punishment for deliberate and malicious acts, intended to outrage religious feelings of any class by insulting its religion or religious beliefs.
• It calls for imprisonment of either description for a term which may extend to [three years], or with fine, or with both.
• It has been invoked on a wide range of issues from penalizing political satire and seeking bans on or withdrawal of books to even political critique on social media.

Chapters to penalize religious offenses

Section 295A is one of the key provisions in the IPC chapter to penalize religious offenses. The same chapter includes offenses to penalize:

1. Damage or defilement of a place of worship with intent to insult the religion (Section 295)
2. Trespassing in a place of sepulture (burial) (Section 297)
3. Uttering, words, etc, with deliberate intent to wound the religious feelings of any person (Section 298) and
4. Disturbing a religious assembly (Section 296)

Frequency of use

• The state often invokes Section 295A along with 153A of the IPC, which penalises promoting enmity between different groups on grounds of religion, race, place of birth, residence, language, etc.
• It acts prejudicial to the maintenance of harmony and Section 505 of the IPC punishes statements conducing to public mischief.

What about online hate speech?

• In cases where such speech is online, Section 66A of the Information Technology Act was invoked.
• However, in a landmark verdict in 2015, the Supreme Court struck down Section 66A as unconstitutional on the ground that the provision was “vague” and a “violation of free speech”.
• However, the provision continues to be invoked.

Issues with such laws

• The broad, vague terms in the laws are often invoked in its misuse.
• Lower conviction rates for these provisions indicate that the process — where a police officer can arrest without a warrant — is often the punishment.
• Critics have pointed out that these laws are intended for the state to step in and restore “public order” rather than protect free speech.

Voice for Anti-Blasphemy Laws

(1) Sacrosanctity of Religions

• Most of the religions establish in the mind of people, the sacrosanctity of God as well as the religion itself.
• Scholars in the past have held that the God is above and beyond the scope of any question or doubt.
• Acts such as impunity, apostasy and blasphemy have been held to be grievous offense, penalty of which at many times can be death.

(2) Enforcement of Religious Sanctions

• For example in Afghanistan the Constitution declares Islam to be the official “religion of the state”.
• It goes on to stating that no law can be contrary to the beliefs and provisions of the sacred religion.
• For issues on which the Constitution and Penal Code are silent (including conversion and blasphemy), courts rely on Shari’a.

(3) Stable Governance

• Sometimes religion is not a purely personal affair but is the foundation of the state, a vector of spiritual civilization affecting not only the feeling and thoughts, but also the actions of human beings.
• Hereby it can be understood that Religion affects the actions of human beings, thus requires a protection legally as a moral & social value that drives a human, leading to a stable society and better governance.
• The responsibility to protect religious sentiments of others later transforms into a legal duty when the state recognizes the Right to Religion.

(4) Reasonable Restriction for Harmony

• Most of the countries implement Blasphemy laws as a reasonable restriction for the maintenance of communal harmony.
• Not to forget the fact that the Section 295(A) was introduced in the IPC, 1860 to put a hold on a series of communal violence provoked by the use of blasphemous statements.
• Thus the British governments’ aim of introducing 295(A) was to put the reasonable restriction of the freedom of speech for the maintenance of order in the society.

Issues with Anti-Blasphemy Law

Throughout the world there have been numerous oppositions against blasphemy laws which at points have succeeded at points have not.

(1) Lack of a definition for term Religion

• Blasphemy has been described as irreverence towards God or Religion, however the term Religion itself lacks a proper definition for itself.
• Belief in God which may unite Judaism, Islam and Christianity, is clearly insufficient as a definition, because some religions, such as Hinduism are arguably, Polytheistic.
• Definition that depends upon a belief on God or Gods would similarly fail to include Buddhism, as it doesn’t include belief in a God.

(2) Freedom of Religion

• Many jurisdictions have tried to define the term religion through commentaries or judgments.
• The Universal Declaration of Human Rights in its article 18 also protects Atheistic and Non- Theistic views in order to broaden the term Religion.
• If the term Religion is broadened enough to include Atheism, then it also comes under the purview of Freedom of Religion and the practicing Atheism may fall under the category of Blasphemy at many instances.
• Apart from Atheism, many religions also come a lot of time in conflict with other religions, at many times which may lead to blasphemy.

(3) Curb on freedom of speech and expression

• Freedom of Speech and expression is a fundamental right in the constitution of various countries including India and also is a Human Right.
• The International Covenant on Civil and Political Rights in its article 19 states that everyone shall have the right to freedom of expression.
• This right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice and the right to hold

(4) A Tool for Oppression

• Blasphemy for a very long time has been seen as a tool for the majority to oppress the minority. One of the best example for it is in Pakistan and the Saudis.
• Their laws puts immense restrictions on non-Muslims and slightest defiance invites sentences such as beheadings.
• The ratio of Muslims to non-Muslims among blasphemy defendants illustrates the extent to which these laws are used to persecute religious minorities.

(5) Promotes Violence

• The allegations of blasphemy at multiple occasions leads to violence and extremism and have been used by vigilante groups and non-state actors to justify and instigate incidents of interreligious violence.
• The Constitutional Court review of Blasphemy laws in Indonesia led to mass protests with hard lined groups threatening the petitioners.
• The petitioners had asserted that the law had played an instrumental role in creating sectarian tensions and religious conflict rather than preventing them.
• This has been the umbrella under which various militant groups attack, burn and destroy others.

(6) Hurdle in development of scientific temper

• A large number of incidents have taken place across the world where a rationalist has faced a threat for questioning religious doctrines and has been persecuted under the blasphemy laws.
• It is to be noted that astrologer Galileo Galilei was put under house arrest for supporting Heliocentrism as opposed to Geocentrism in the Bible.
• These were some of the arguments against Blasphemy laws in various countries, which may or may not applicable in other countries as well.

India’s considerations for such laws

(1) Nature of the State and Society

• It is not the business of the government to supress real or imaginary attacks upon a particular religious doctrine.
• India is a secular state by the virtue of its constitution. A secular state is neither a supporter of religion nor irreligion.
• However the imposition of a penal provision that acts as an anti- blasphemy law is a biasness against the irreligious, as discussed earlier the practice and propagation of irreligion may amount to blasphemy for few religions.

(2) Violation of Freedom of Speech and Expression

• Throughout the history of Independent India, the section has been defined as a reasonable restriction over freedom of speech to secure public order.
• In the Ramji Lal Modi case the court had held that the Constitution in Article 19(2) permits the state to restrict freedom of speech and expression in interests of public order.
• In the light of above state case laws, Free speech gets a wider scope.
• However, in practical approach, the idea of an imminent lawless action makes it very difficult in the case of Blasphemous acts.
• It is quite unpredictable as to what statement containing elements of blasphemy has the capability to spark off violence.

(3) Promotion of Violence & Victimhood

• The IPC sections also incite the display of wounded feelings.  More than this, the law encourages or generates specifically violent displays of wounded feelings.
• The provisions main objective was to prevent violence.
• Say, a ban on a book under Section 295(a) requires a strategy and being violent is the first part of it as it is the clearest proof that the sentiments of a class of citizens of India has been outranged.

(4) India’s International Responsibility

• As stated earlier, the International Covenant for civil and political rights in its article 19 makes it a duty of every country to ensure its citizen’s right to freedom of Speech and expression.
• It also states that any sort of blasphemy law is a clear violation of the Article 19.
• Hence, since India has ratified the above mentioned Covenant it is its duty to abolish any such laws

(5) Question of Malice

• The section 295 (A) has put emphasis only on those act which are done with an element of malice in it, punishable.
• However what is to be looked into is the fact that, when it comes to the malice, proving it is a complex and difficult issue, and in India the disposal rate of cases are very slow.
• Most of the times, such cases take a very long time & surpass the duration of the punishment itself.
• The element of Malice was added to make sure that any necessary or constructive criticism doesn’t get restricted.

Way forward

• Laws should be made with an objective to punish miscreants and curb their objective and not to protect the religion from them.
• One and only one sustainable solution to this is to make the society tolerable, and for that education is the key.
• This will provide for a society which will respect the right to express thoughts and right to speech and at the same time, respecting all religions, minorities and their beliefs also.
• It has to be kept into mind that the concept of blasphemy was a concept developed and fit for a pre-modern society, led by a government that is not secular and democratic.

Conclusion

• To conclude, these words by Ludwig Feuerbach are appropriate, “God is not liable to offence; and even if he were offended, He would not under any circumstances wish the punishment of his offenders.”
• Public order only can be censored. Hereby the only incitement that has to be there is an incitement of violence. This is where the laws of Blasphemy and hate speech differs.
• However, blasphemous statements are that doesn’t contain elements of hate or violence is left at the level of tolerance for a section of society.
• This becomes even weaker due to the presence of Blasphemy laws.

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Context

Elections to the Rajya Sabha were recently concluded in some states.

In this article, we will discuss and analyse the journey, significance and achievements of the Upper House of Parliament – Rajya Sabha.

The Rajya Sabha

• The Rajya Sabha or Council of States is the upper house of the bicameral Parliament.
• It currently has a maximum membership of 245, of which 233 are elected by the legislatures of the states and union territories using single transferable votes through Open Ballot.
• The President can appoint 12 members for their contributions to art, literature, science, and social services.
• Members sit for terms lasting six years, with elections every year but almost a third of the 233 designates up for election every two years, specifically in even-numbered years.

A Historical background

• The Rajya Sabha came into being on April 3, 1952, and held its first session on May 13 the same year.
• The Constituent Assembly, which was formed in 1947, after the adoption of the Constitution became the Provisional Parliament and made laws till 1952.

Before its existence

• The central legislature that came into being under the Government of India Act, 1919 was bicameral.
• Under 1919 Act, Council of States had 60 members and Legislative Assembly had 145 members.
• The membership and voting norms for the Council of States were restrictive. These restrictions meant only wealthy landowners, merchants and those with legislative experience could enter it.
• Women could neither vote nor seek membership.
• The Government of India Act, 1935 proposed an elaborate and improved version of the second chamber, but this never materialized.

Elections to the Rajya Sabha

Qualifications

Article 84 of the Constitution lays down the qualifications for membership of Parliament. A member of the Rajya Sabha must:

• Be a citizen of India;
• Be at least 30 years old. (Article 84 constitution of India)
• Be elected by the Legislative Assembly of States and UTs by means of the single transferable vote through proportional representation.
• Not be: a proclaimed criminal, a subject of an insolvent, of unsound mind.
• Not hold any other office of profit under the Government of India.
• Possess such other qualifications as may be prescribed in that behalf by or under any law made by Parliament.

In addition, twelve members are nominated by the President of India having special knowledge in various areas like arts and science. However, they are not entitled to vote in Presidential elections as per Article 55 of the Constitution.

Election procedure

• Candidates fielded by political parties have to be proposed by at least 10 members of the Assembly or 10% of the party’s strength in the House, whichever is less.
• For independents, there should be 10 proposers, all of whom should be members of the Assembly.

Voting procedure

• Voting is by single transferable vote, as the election is held on the principle of proportional representation.
• A single transferable vote means electors can vote for any number of candidates in order of their preference.
• A candidate requires a specified number of first preference votes to win. Each first choice vote has a value of 100 in the first round.
• To qualify, a candidate needs one point more than the quotient obtained by dividing the total value of the number of seats for which elections are taking place plus one.
• The formula simply is [(Number of MLAs X 100) / (Vacancies + 1)] + 1.

Example: If there are four seats and 180 MLAs voting, the qualifying number will be 180/5= 36 votes or value of 3,600.

Note: The Rajya Sabha polls have a system of the open ballot, but it is a limited form of openness. There is a system of each party MLA showing his or her marked ballots to the party’s authorised agent (called Whip), before they are put into the ballot box.

The NOTA option has been struck down by the Supreme Court in RS elections.

The Power Equation: Lok Sabha Vs. Rajya Sabha

The Indian Constitution provides for parity of powers between the Lok Sabha and the Rajya Sabha in law, making an exception in some cases.

The Money Bill or Finance Bills can be introduced only in the Lok Sabha which only can approve the Demands for Grants.

On the other hand, the Rajya Sabha has some special powers as requiring adopting a resolution allowing Parliament to legislate on subjects in the State List and creating All India Services, besides approving proclamations of Emergency and President’s Rule when the Lok Sabha is dissolved.

Renowned British philosopher and political economist John Stuart Mill as early as in 1861 said in his great treatise Considerations on Representative Government that management of free institutions requires conciliation; a readiness to compromise; a willingness to concede something to opponents and mutual give and take. Truly, Rajya sabha plays this role in Indian legislature.

In detail: Powers and Functions of the Rajya Sabha

[1] Legislative Powers:

• In the sphere of ordinary law-making, the Rajya Sabha enjoys equal powers with the Lok Sabha. An ordinary bill can be introduced in the Rajya Sabha and it cannot become a law unless passed by it.
• In case of a deadlock between the two Houses of Parliament over an ordinary bill and if it remains unresolved for six months, the President can convene a joint sitting of the two Houses for resolving the deadlock.
• This joint sitting is presided over by the Speaker of the Lok Sabha. But if the deadlock is not resolved, the bill is deemed to have been killed.

[2] Financial Powers:

• In the financial sphere, the Rajya Sabha is a weak House.
• A money bill cannot be introduced in the Rajya Sabha. It can be initiated only in the Lok Sabha.
• A money bill passed by the Lok Sabha comes before the Rajya Sabha for its consideration.

[3] Executive Powers:

• Members of the Rajya Sabha can exercise some control over the ministers by criticizing their policies, by asking questions and moving motions etc.
• Some of the ministers are also taken from the Rajya Sabha. The PM can also be from Rajya Sabha if the majority party in the Lok Sabha may elect/adopt him as its leader.

[4] Electoral Powers:

• The Rajya Sabha has some electoral powers also. The elected members of the Rajya Sabha along with the elected members of the Lok Sabha and all the State Legislative Assemblies together elect the President of India.
• The members of the Rajya Sabha Lok Sabha together elect the Vice- President of India.
• Members of the Rajya Sabha also elect a Deputy Chairman from amongst themselves.

[5] Judicial Powers:

• The RS acting along with the Lok Sabha can impeach the President on charges of violation of the Constitution.
• The RS can also pass a special address for causing the removal of a judge of the Supreme Court or of any High Court.
• The charges against the Vice-President can be levelled only in the RS.
• The RS can pass a resolution for the removal of some high officers like the Attorney General of India, Comptroller and Auditor General and Chief Election Commissioner.

[6] Miscellaneous Powers:

The Rajya Sabha and Lok Sabha jointly perform the following functions:

• Approval of the ordinances issued by the President,
• Ratification of an emergency proclamation,
• Making any change in the jurisdiction of the Supreme Court and the High Courts, and
• Making any change in the qualifications for the membership of the Lok Sabha and the Rajya Sabha.

[7] Exclusive Powers

The Rajya Sabha enjoys two exclusive powers:

(i) The Power to declare a Subject of State List as a subject of National Importance:

The Rajya Sabha can pass a resolution by 2/3rd majority of its members for declaring a State List subject as a subject of national importance. Such a resolution empowers the Union Parliament to legislate on such a state subject for a period of one year. Such resolutions can be repeatedly passed by the Rajya Sabha.

(ii) Power in respect of Creation or Abolition of an All India Service:

The Rajya Sabha has the power to create one or more new All India Services. It can do so by passing a resolution supported by 2/3rd majority on the plea of national interest. In a similar way, the Rajya Sabha can disband an existing All India Service.

Limitations to its powers

The Constitution places some restrictions on Rajya Sabha; the Lok Sabha is more powerful in certain areas as such:

1. Money bills

• A money bill can be introduced only in the Lok Sabha by a minister and only on recommendation of President of India.
• When the Lok Sabha passes a money bill then the Lok Sabha sends money bill to the Rajya Sabha for 14 days during which it can make recommendations.
• Even if Rajya Sabha fails to return the money bill in 14 days to the Lok Sabha, that bill is deemed to have passed by both the Houses.

Also, if the Lok Sabha rejects any (or all) of the amendments proposed by the Rajya Sabha, the bill is deemed to have been passed. Hence, Rajya Sabha can only give recommendations for a money bill but Rajya Sabha cannot amend a money bill.

There is no joint sitting of both the houses with respect to money bills, because all final decisions are taken by the Lok Sabha.

2. Joint Sitting of the Parliament

• Article 108 provides for a joint sitting of the two Houses of Parliament in certain cases.
• Considering that the numerical strength of Lok Sabha is more than twice that of Rajya Sabha, Lok Sabha tends to have a greater influence in a joint sitting of Parliament.  A joint session is chaired by the Speaker of Lok Sabha.

Joint sessions of Parliament are a rarity, and have been convened only three times in last 71 years, for the purpose of passage of a specific legislative act, the latest time being in 2002:

• 1961: Dowry Prohibition Act, 1958
• 1978: Banking Services Commission (Repeal) Act, 1977
• 2002: Prevention of Terrorism Act, 2002

 3. No confidence motion:

• The Union Council of Ministers is collectively responsible before the Lok Sabha and not the Rajya Sabha.
• Lok Sabha alone can cause the fall of the Council of Ministers by passing a vote of no-confidence.

Rajya Sabha: A destructionist house?

• An analysis by the Secretariat revealed that the productivity of the Rajya Sabha till 1997 has been 100% and above and the past 23 years have thrown up a disturbing trend of rising disruptions.
• This decline is primarily on account of disruptions forcing cancellation of Question Hour frequently.
• Disruptions also dent the quality of law-making as seen in passing of Bills without discussion sometimes.
• However, the Rajya Sabha is proving to be more and more a ‘deliberative’ body with increasingly more time being spent on this function.
• According to various members of Lok Sabha, Rajya Sabha has done nothing except stalling legislative works and causing policy paralysis in the country.
• For critics, the Upper House serves no purpose as its members are not directly elected and hence are not accountable to the people.
• Rajya Sabha often has members from the party defeated in various elections, or are from political families, and due to political differences, they do not allow passage of important bills.
• So many extra members are an added burden on exchequer which can be done away with.
• Politics of boycotting and creating ruckus in the house and toeing on the party-line even on the issue that won’t attract disqualification provisions is a worrying thing.
• At the same time, in terms of working, Rajya Sabha does not have sufficient powers in financial matters to bring any change and they are without any direct public interaction. Hence its purpose in modern democracy seems outdated.

Importance of Rajya Sabha and Why It Should Continue

• According to President Radhakrishnan, there are functions, which a revising chamber like Rajya Sabha can fulfil fruitfully. Parliament is not only a legislative but a deliberative body. So far as its deliberative functions are concerned, Rajya Sabha has made very valuable contributions time and again.
• It’s true that party dynamics affects the working of Rajya Sabha. But in democracy passion often defeat the normal rationality. Thus a revising house is needed to check such adrenal rush.
• While the argument of members not able to win in direct elections holds true, but retaining talent is essential for any democratic system. Losing valuable talent during election fervours has mostly been corrected by Rajya Sabha. It has also given entry to other experts like scientist, artist, sportsmen etc that can rarely face the electoral politics.
• While Lok Sabha have members for each state, the Hindi belt domination is a constant theme. Hence other state interests, like those in North East, have always been taken up by the Rajya Sabha.
• While it can’t bring no confidence motion or amend money bill, its role in checking arbitrariness of government as reflected in Land Ordinance, is necessary in democracy. Besides its special role in All India Services, legislation in State List too necessitates its existence.
• Men and women of prodigious talent and calibre have adorned the benches of the upper house and have contributed significantly towards realising the vision of the founding fathers of the Constitution.
• A permanent Upper House is also a check against any abrupt changes in the composition of the Lower House.
• Rajya Sabha has continuity and is a permanent house.
• Unlike Lok Sabha, it cannot be dissolved by anyone. Thus it has, time and often, carried out some administrative functions even when the lower house is dissolved. It has members with experienced players while there may be new entrants in the Lok Sabha.

By virtue of this, Rajya Sabha can’t be said to be ‘obstructive’.

Conclusion

A study of the powers of the Rajya Sabha leads us to the conclusion that it is neither a very weak house like the British House of Lords nor a very powerful house as the American Senate. Its position is somewhat mid-way between the two. It has been less powerful than Lok Sabha but it has been not a very weak or insignificant House.

Instead of engaging in the debate of if we need upper house or not, more constructive outlook would be improve it’s functioning. Clearly, the recommendations are present from NCRWC to 2nd ARC. The need is implementation and political support.

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Context

• India’s biggest public issue, the Life Insurance Company initial public offering opened to primary markets on Wednesday.
• The government has fixed the LIC IPO price band at Rs 902 to Rs 949 per equity share, announcing Rs 60 discount to the policyholders and Rs 45 discount to LIC employees.
• The total value of LIC IPO is set at Rs 21,000 crore, making it India’s biggest public issue to date.

Life Insurance Corporation of India (LIC): A Backgrounder

• LIC is an Indian state-owned insurance group and investment corporation owned by the Government of India.
• It was founded in 1956 when the Parliament of India passed the Life Insurance of India Act that nationalized the insurance industry in India.
• Over 245 insurance companies and provident societies were merged to create the state-owned LIC.

Beginning of Life Insurance in India

• The Oriental Life Insurance Company, the first company in India offering life insurance coverage, was established in Kolkata in 1818.
• Its primary target market was the Europeans based in India, and it charged Indians heftier premiums.
• Surendranath Tagore had founded Hindusthan Insurance Society, which later became Life Insurance Corporation.
• The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance provider.

Nationalization in 1956

• In 1955, parliamentarian Feroze Gandhi raised the matter of insurance fraud by owners of private insurance agencies.
• The Parliament passed the Life Insurance of India Act on 19 June 1956 creating the LIC which started operating in September of that year.
• It consolidated the business of 245 private life insurers and other entities offering life insurance services; this consisted of 154 life insurance companies, 16 foreign companies and 75 provident companies.
• The nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least 17 sectors of the economy, including life insurance.

Present capital base of LIC

LIC is India’s largest financial institution, and if LIC shares are listed on stock exchanges, it could easily emerge as the country’s top listed company in terms of market valuation, overtaking current leaders Reliance and TCS.

The corporation, which started its business with around 300 offices, 5.7 million policies and a corpus of INR 45.9 crores (US$92 million as per the 1959 exchange rate of roughly ₹5 for US$1), had grown to 25,000 servicing around 350 million policies and a corpus of over ₹800,000 crore by the end of the 20th century.

• From its creation, LIC, which commanded a monopoly of soliciting and selling life insurance in India, created huge surpluses and by 2006 was contributing around 7% of India’s GDP.
• As of 2019, LIC had toa tal life fund of ₹28.3 trillion.
• The total value of sold policies in the year 2018-19 is ₹21.4 million.
• LIC settled 26 million claims in 2018-19. It has 290 million policyholders.

LIC: A milch cow for the government

• India’s top insurer: Governments have long shied away from considering listing India’s top insurer.
• Participation in Capital Market: It has played a role in supporting the markets by buying shares during major sell-offs and also shares of state-owned companies during divestment and when investor participation has been weak.
• Heavy investments in G-Secs:  It is also the largest investor in government securities and stock markets every year.
• Infrastructure funding: LIC also has huge investments in debentures and bonds besides providing funding for many infrastructure projects according to its Annual Report for 2017-18.

What is an IPO?

• IPO means Initial Public Offering. It is a process by which a privately held company becomes a publicly-traded company by offering its shares to the public for the first time.
• Offering an IPO is a money-making exercise. Every company needs money, it may be to expand, to improve their business, to better the infrastructure, to repay loans, etc.
• A private company, that has a handful of shareholders, shares the ownership by going public by trading its shares.
• Through the IPO, the company gets its name listed on the stock exchange.

Initial Public Offerings (IPO) of LIC :

A big-bang announcement

• The government could start by initially selling a small tranche of the government-controlled institution through an IPO, and subsequently dilute the government’s holdings.
• The IPO is likely to fetch a huge premium as LIC currently has a small equity base.
• In the Budget of July 2019, the government had announced a proposal to make minimum public holding of 35 per cent for listed companies.
• The government had listed the shares of General Insurance Corporation and New India Assurance through IPOs three years ago.
• Public listing of LIC will lead to more disclosures of investment and loan portfolios and better governance, with greater transparency and accountability.

How will the IPO go?

• The government will have to amend the LIC Act first before taking the Corporation public.
• LIC is currently under the supervisory oversight of the Insurance Regulatory Development Authority of India (IRDAI), but it is governed by The LIC Act of 1956,
• The act enables it to obtain a special dispensation in several areas including higher stakes in companies beyond the limit set by the IRDAI.
• Under Section 37 of The LIC Act, the government has guaranteed the sum assured with bonus in all LIC policies to ensure the availability of financial security to the family of the deceased.

Implications of LIC IPO

• It seems like the government is trying to make the most of the brand value of LIC, given that it is one of the few remaining profit-making entities owned by the state.
• Will the listing of LIC, which is the country’s largest financial institution with assets under management of close to ₹30 trillion, do any good to its policyholders?

Let’s have a look:

(1) Listing will boost LIC’s efficiency and thereby policy returns

• As a 100% government-owned entity, LIC’s financial health is largely outside the scrutiny of the financial markets.
• Unlike unit-linked insurance plan investors, who have a clear visibility on the daily performance of underlying funds, the endowment policyholders’ visibility is limited to annually declared bonuses.
• Listing will allow analysts to monitor LIC’s governance. LIC will come under Sebi’s direct watch and will have to comply with the requirements meant for other listed firms.
• Such compliance is likely to strengthen its overall corporate governance, financial and investment discipline.
• Over time, this will increase its efficiency and it may deliver higher returns to policyholders.

(2) Peers will be under pressure to improve pricing and features

• Any company going public is good news for stakeholders since it ensures higher transparency, better governance, more disclosures and scrutiny from the investors.
• However, LIC is not a typical company. LIC has in the past invested in the equity markets to stem its fall.
• After being listed, LIC will be answerable to public shareholders and, hence, will be a prudent investment decision, which is good for policyholders.
• LIC will also become more competitive. This will put pressure on its peers to innovate, benefitting policyholders in terms of pricing, product features and services.

(3) Less govt interference will be a positive for LIC’s financial health

• For LIC, it will be a significant task to enhance the quality of asset management given that the government sometimes is reliant on it to bail out PSUs, without delving deep into the fiscal prudence of these assets.
• Being under scrutiny, the quality of asset management by LIC will be enhanced as the government’s influence on its asset management will reduce.
• Further, LIC services a few state-sponsored schemes which have underwriting challenges on the commercial front.
• In a nutshell, with less federal interference, LIC will be more accountable with strong governance protocols, which will be a positive for its financial health.

(4) If the sovereign guarantee continues, policyholders won’t perceive risk

• So far, LIC has operated almost like a mutual insurance company by passing on most of the earnings to the policyholders and keeping very little as profits, despite having a massive operation.
• The listing of LIC is a positive move which will result in transparency of the corporation in public view, sparking renewed interest in the insurance industry in international markets.
• Government-owned General Insurance Co. of India is already listed, so the process and transparency will not be any different.
• As long as sovereign guarantee over the maturity proceeds and sum assured continue, policyholders won’t perceive any risk.
• The return on policies may have to be moderated to boost profitability and technical reserves in the face of shareholder and analyst scrutiny.
• It is not clear how much of the company will be diluted. So, the opportunity for the general public to pick up equity in LIC in the IPO may be limited.

Challenges posed by this IPO

(1) Structural challenges

• LIC can even evolve into a bank like many of its global peers like Axa, Berkshire, and Munich Re.
• But even after the listing, the LIC stock will still be controlled by the Indian government.
• And, it will continue to exercise some amount of control.
• So, investors in LIC might face what those of PSU banks do – be a part of poor governance, bad decisions — despite controlling 70% of the country’s banking system.

(2) Market hurdles

• LIC’s own issues are not the only challenge the company would face in going public. It also remains to be seen if the Indian share market is ready to absorb such a large public issue.
• Whilst it will definitely help deepen the markets, given that SEBI regulations need a minimum dilution of 10 per cent to the public, it is unclear if there is enough liquidity for such a large sized IPO.
• Additionally, LIC has been a port of call for various PSU fund raises in the past.
• Once a behemoth the size of LIC goes for listing, it will be interesting to see if other private life insurance companies will still be able to attract funds at expected valuation.

(3) Impact on growth

• The size of the IPO will determine the extent of liquidity it will suck out, but Indian markets do not have depth to take the issue of a very size.
• Critics argue that it’s too early for LIC to go public. LIC could see plenty of high growth despite the ongoing slowdown in the economy.

(4) Fears of disclosure

• The company’s books and operations have been opaque for far too long but it is trusted by 250 million policyholders.
• It could have been the saviour for many more listed state-owned companies, but the government has decided to sell the golden goose itself.
• LIC is also famous for investing millions whenever stock market tanks, just to prop it up.
• But once it is listed in the market, these tricks will be impossible to execute. The disclosures will lead to a lot of discontents due to NPAs.

(5) Investors trust

• Being one of the biggest financial institutions of the country, the move to privatise LIC will shake the confidence of the common man and will be an affront to our financial sovereignty.
• The very purpose of LIC to provide insurance coverage to socially and economically backward class at a reasonable cost will be defeated and motto will change from service to profit.
• The sovereign guarantee element currently enjoyed by each LIC policyholder might cease to exit after the IPO. Some policyholders may then find it hard to trust LIC.

Way Forward

• LIC is all set to see significant disruption. The scale of that disruption would be unprecedented within the organization and outside.
• Over the years, LIC has become ‘the lender of last resort’ to the Government of India.
• Confronted with an unprecedented fiscal deficit and worried by an economy in crisis, the government has to find resources.
• This disinvestment is also a preferred option for ideological and practical reasons.
• The government could utilize the money gained by selling off its stakes to improve services in public goods like infrastructure, health and education.
• However, listing LIC wouldn’t be an easy task and calls for a political will.
• In the new avatar, LIC would have to benchmark itself against private insurers and global insurance giants.

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