📰 Losing the war, winning the peace
Why we need to rethink the narrative that the 1962 war was a catastrophic defeat for India
•India is not short of memories on 1962. The India-China War ended fifty-five years ago to the day, yet each winter brings back reminiscences of the conflict. The Chinese assault on the Thagla Ridge early in the morning of October 20, 1962, which turned simmering military tensions into open war. The doomed struggle of ill-equipped jawans. Jawaharlal Nehru’s awkward radio address to Assam, just as the Chinese seemed poised to enter the plains. The unilateral ceasefire that China announced on November 21, 1962, saving Assam but ending India’s chance of recovering the Aksai Chin. And above all, the scar of national humiliation at the hands of a triumphant China.
•But is there all there was to the war? One can doubt it. Standard histories of 1962 almost completely ignore a key aspect of the conflict: the way the authorities and people of Arunachal Pradesh — the North-East Frontier Agency (NEFA), as it was then called — experienced it. Look away from the fighting and the India-China War takes on quite a different hue, one where the war does not end at the point of ceasefire and where the roles of winners, losers and bystanders aren’t so neatly divided.
The October shock
•When large-scale fighting erupted between China and India, it did not take long for NEFA’s civilian officials to realise their entire administration was in jeopardy. By October 23, Tawang had to be abandoned. Meanwhile, Chinese troops were advancing onto Walong in the east. The retreat of the Indian Army entailed that of the civilian administration. Dozens of administrative centres were evacuated, leaving most of northern NEFA unoccupied and open for Chinese occupation. Thousands of Tibetan refugees followed suit, along with many local people (Picture shows refugees fleeing from the India-China border war, in 1962). Evacuee officials focussed on organising relief, and even began considering their permanent rehabilitation elsewhere in Assam. At the time, India’s loss of NEFA seemed in danger of becoming permanent.
•The war formally came to an end with China’s unilateral ceasefire on November 21, but the crisis did not. Gains in the Aksai Chin aside, the People’s Republic of China (PRC) now occupied significant portions of NEFA. Officially this was temporary, but everything was done to complicate India’s return. Government stores, supplies, equipment, furnishings, weapons and often buildings were systematically damaged, eaten or destroyed. The People’s Liberation Army (PLA) pointedly delayed its departure, keeping Indian troops and officials in the dark about it. On January 17, 1963 the Chinese still occupied Tawang. The local official only resumed his duties a few days later. In military terms, the India-China War had lasted only a month. As an occupation, almost three.
Battle for hearts and minds
•What most worried India’s frontier officials was how the inhabitants would receive them back. India’s state presence in NEFA was recent. The Raj’s eastern Himalayan frontier had barely been administered and remained poorly explored. Civilian administrators had made huge efforts since 1950 to consolidate India’s sovereignty over the region; but given the difficult terrain, wet climate, and financial and human shortages, doing so required local inhabitants’ cooperation. Gaining the loyalty of the Mishmis, Monpas or Adis was an aim in itself, if they were to become Indian citizens. Winning them over was key. The problem was that Indian officials’ state-building per force had to contend with the PRC’s own efforts in nearby Tibet. China too faced an uphill struggle to concretise its hold there, and it too needed border inhabitants’ cooperation. Yet, in this porous Himalayan borderland criss-crossed by social, cultural or family ties and regular movement, people had ample opportunity to observe and compare what In
dia and China respectively offered — both the good and the bad. The result was a fierce competition for Himalayan hearts and minds, well before military and diplomatic tensions appeared between the two countries.
•This struggle for authority and legitimacy did not stop when fighting erupted. On the contrary, the 1962 War offered China a chance to gain the upper hand in it. There is much evidence that the PRC’s occupation of northern NEFA was a sort of public relations exercise vis-à-vis local people. Indian officials came back to Tawang to find that no women had been molested and nothing taken without payment; houses, monasteries and possessions were intact. Chinese troops had brought in gifts and exotic goods and made every effort to convince people that their religion, customs, and freedom would be respected. In fact, China had one key message for the people of NEFA: it was there to liberate them from India.
•The story of NEFA’s occupation suggests that, among other things, the 1962 War was China’s chance to prove to Himalayan people that it was the better state — whereas a weak India could neither protect nor deliver. The unilateral ceasefire and withdrawal helped preserve the image of Chinese invulnerability and benevolence vis-à-vis local inhabitants while preventing an international escalation of the conflict. “Tell us to come back and we’ll free you from India,” departing troops reportedly said.
•In an ideal scenario, Himalayan inhabitants would do just that. More realistically, a China-supported, anti-Indian uprising might erupt like in nearby Nagaland — and India would stop posing a threat to China’s sovereignty in Tibet.
Going back
•India’s frontier officials had every reason to worry about returning to NEFA. Would people welcome them back considering China’s impressive wartime performance? To their own surprise, the answer was by and large yes. Many inhabitants expressed both their disappointment at having been left behind and their support for Indian authorities’ return. They made concrete demands to ensure that the disappointment would not re-occur, and that their support would be rewarded. Something strange was happening. China had won the war on both fronts, military and political; yet this had not been enough to win people over, especially since many people had heard of repression in Tibet from refugees passing through. In hindsight, China’s demonstration of superiority seems to have been counter-productive. The Indian state might be weaker and less efficient, but from the inhabitants’ standpoint it was less of a risk, and offered more chance for negotiation.
•On that count, we may need to revise our standard narrative of 1962. The war was not just about winning more territory (in the Aksai Chin) or teaching India a lesson (which it did). It was also about winning over hearts and minds. And if the PRC did win the war, on that front it also lost the peace.
•Bérénice Guyot-Réchard teaches contemporary history at King’s College London. Her book, ‘Shadow States: India, China and the Himalayas, 1910-1962’, was published this year
📰 In ICJ, it’s down to the wire for India, U.K.
It is the first time in the history of the United Nations that the candidacy of a permanent member of the UN Security Council is challenged in the way it has been by India
•As the UN General Assembly and the Security Council assemble for separate meetings in New York on Monday to hold the 12th round of voting to break the stalemate between India’s Dalveer Bhandari and Britain’s Christopher Greenwood for re-election to the International Court of Justice (ICJ), it will be a test of the depth and durability of New Delhi’s international partnerships.
•The winning candidate needs to get a majority in both the General Assembly (GA) and the Security Council (SC), but 11 rounds of voting so far ended with India winning in the former and the U.K. winning in the latter.
Historical challenge
•It is the first time in UN history that the candidacy of a permanent member of the Security Council is challenged in the way it has been by India, and all five permanent members, the P5, appear to have rallied behind Mr. Greenwood, though actual voting choices will remain secret.
•In the last round of voting at the SC, the U.K. got nine votes against five for India, with one abstention. Japan, which appeared to be at the forefront of a move to counter Chinese designs in Asia recently, is also said to have joined hands with China, the U.S. and Russia in support of the U.K., sources familiar with the developments at the UN told The Hindu on Sunday.
•U.S. diplomatic sources refused to disclose their preference in discussions over the weekend, but a long-time observer of UN politics in New York said: “P-1 is the U.S. and P-2 is the U.K. They are always together.”
•U.S. President Donald Trump is scheduled to meet Secretary of State Rex Tillerson and U.S. Ambassador to the United Nations Nikki Haley at the White House, shortly before the voting at the UN. It has been learnt that India sought U.S. support on the issue at the “highest level” in the recent past, but it was not clear if such discussions took place in the last week.
•The U.K. has already indicated to members of the SC that it plans to invoke a clause that has never been used to suspend voting on Monday and move to a conference mechanism of the GA and the SC if the first round of voting does not yield a clear outcome. The conference mechanism involves three members of the GA and three of the SC jointly selecting the winner. India has told member countries that this would amount to bypassing the desire of an overwhelming majority. But if the U.K. wants to suspend voting after the first round on Monday and invokes the conference option, there is no way to stop it, as per rules. India is gearing up for a three-pronged battle at the UN, according to sources familiar with the developments.
•The first is the headcount in the GA. India has ended up at 121 in the last round and is trying to push it up. If India gets two-thirds, at 128, “morally no judge can continue in the fray”, a source said.
•The second battle line is in the SC, which will vote simultaneously. India hopes that its votes will increase from five. More than six members of the SC have been assuring India their votes, but the count indicates that not all of them are keeping their promise. India’s Permanent Mission in New York worked through the weekend, reaching out to SC members. The 10 non-permanent members of the SC are Bolivia, Egypt, Ethiopia, Italy, Japan, Kazakhstan, Senegal, Sweden, Ukraine and Uruguay.
Conference mechanism
•The third line of battle is if the U.K. presses for conference, which will also have to be approved by the SC. In this case, the voting will be public, and members who are now playing a double game will not be able to do that. They will have to publicly take a position on whether or not they support the U.K.’s demand for suspension of voting. Though the U.K. has nine votes in favour of its candidate, it is unclear if it has those nine votes to stall the voting process itself in an open voting. The U.K.’s strategy will depend on its own assessment of how it stands on this count. If it is confident that it can get the majority of the SC to support publicly its demand for a suspension of voting, it will exercise the option of conference. This will be a moment for reckoning for India also, as it will show the extent of the support it gets from various countries.
•If the SC votes in favour of a conference mechanism, then the question of how the six members of the new mechanism, comprising three from the GA and three from the SC, will be selected will come up. “These are all open questions as they have not been explored earlier. It is an unprecedented situation,” a UN source said.
📰 China condemns Kovind’s Arunachal trip
Says President’s visit will complicate the border dispute
•China on Monday strongly objected to President Ram Nath Kovind’s visit to Arunachal Pradesh, saying India should refrain from “complicating” the border dispute when bilateral relations are at a “crucial moment”.
•President Kovind visited Arunachal Pradesh on Sunday.
•“The Chinese government never acknowledged the so-called Arunachal Pradesh and our position on the border issue is consistent and clear,” Chinese Foreign Ministry spokesman Lu Kang told presspersons when asked about Mr. Kovind’s visit to Arunachal Pradesh, which China claims as Southern Tibet.
Repeated opposition
•China routinely objects to visits of Ministers and senior officials to the area. On November 6, China raised objection to Defence Minister Nirmala Sitharaman’s visit to the border areas of Arunachal Pradesh.
•India has dismissed Beijing’s objections, maintaining that Arunachal Pradesh is an integral part of the country and Indian leaders are as much free to visit the State as they are to any other part of the country.
•Both countries are “in the process of settling this issue through negotiation and consultation and seek to reach to a fair and reasonable solution acceptable to all”, Mr. Lu said.
•Pending final settlement all parties should work for peace and tranquillity, he said.
•“China firmly opposes the Indian leader’s relevant activities in the relevant region when China-India relations are at a crucial moment,” he said.
•“We hope India could work in the same direction and maintain a general picture of bilateral ties and refrain from complicating border issue and work to create favourable conditions for border negotiations and for the sound and stable development of bilateral ties,” he said.
•The Line of Actual Control (LAC) between India and China stretches to 3,488 km.
Bilateral meet in Dec.
•Both sides held 19 round of talks by the Special Representatives to resolve the boundary dispute.
•The 20th round is expected to be held next month in New Delhi, though dates have not yet been announced.
•National Security Adviser Ajit Doval and his Chinese counterpart, Yang Jiechi, are the designated Special Representatives for the boundary talks.
📰 Rigid alliances will be avoided: India
Many of the assumptions that guided our thinking in the past are no longer valid, says S. Jaishankar
•A week after joining the first official-level meeting of the new quadrilateral grouping in the Asia Pacific region, India on Monday stressed that it will avoid rigid geopolitical alliances. Launching a new policy-oriented club for diplomats, Foreign Secretary S. Jaishankar reaffirmed India’s expanding commitments internationally and said that in view of the global uncertainties, India will have an “open-minded approach” to international politics.
•“It is important to recognise that we are in a period of major transition, where many of the assumptions that guided our thinking in the past are no longer valid. This calls for a more open minded approach in international politics where there are less fixed points and more flexible combinations. Our earlier mindset of broadening our options in a structured work must give way to the understanding that rigidity of positions and alliances no longer hold and we ourselves are one of the poles,” said Mr. Jaishankar.
•He was speaking at the launch of the PHD Ambassadors Club here, which will be serve as a platform for former Indian envoys and resident foreign envoys to interact and cooperate on hard and soft diplomatic issues.
Cautionary position
•Mr. Jaishankar said in the current order, optimal use of human resource alone can boost a country’s standing. In that direction, the PHD Ambassadors Club was an initiative where diplomacy would converge with commercial goals of Indian foreign affairs.
•The Foreign Secretary’s comments about the alliances indicate that India will continue to adopt a cautionary position regarding the budding groupings and alliances in the morphing world order.
•This is the second time in a week that the top diplomat of India has sounded a note of caution in international affairs. A day after the first quadrilateral meeting in Manila, Mr. Jaishankar had downplayed the meeting, arguing that the alliance was one of the many such groupings that India had recently participated in.
Instability
•He explained that the position was borne out of the Indian analysis of recent history, where the end of the Cold War was followed by the subsequent rise of the Asian powers like China and India and the more recent ‘recalibration’ of the Western powers that were going through a phase of instability and change.
📰 Let Censor Board certify Padmavati: SC
•The Supreme Court on Monday dismissed another plea to stay the release of the controversial movie Padmavati and initiate criminal prosecution against its director Sanjay Leela Bhansali.
•It made it clear that it wants the Censor Board to come to an independent and considered decision on certifying the movie.
•A three-judge Bench led by Chief Justice of India Dipak Misra said the Supreme Court cannot stop a statutory body like the Central Board of Film Certification (CBFC) from doing its statutory duty of certifying a film by “prematurely” ordering a stay on its release.
•“Can the Supreme Court intervene to stop a movie? The CBFC has a statutory duty. Can this court injunct a statutory board from doing its duty,” Chief Justice Misra asked the petitioner-advocate M.L. Sharma.
•Referring to the repeated pleas filed before it for stay of the movie even before the CBFC has certified it, he said, “All this happens because people do not read the Cinematograph Act and rules.”
•“Five members see a movie. Once they see it, they discuss it among themselves and suggest cuts. Before they do anything, they give the film-makers an opportunity to be heard to convince them not to cut the scenes in question,” the Chief Justice explained.
•He said that in case of any grievance, there is the Film Certification Appellate Tribunal.
•The court, in its order, said the film is yet to be certified by the CBFC and that “our interference will tantamount to pre-judging the matter.”
•Mr. Sharma began by arguing that the movie indulges in the “character assassination” of the 13th century Queen Padmavati.
•“The Queen was not a dancer. She was a warrior’s wife and a warrior herself,” Mr. Sharma submitted.
•He argued that the film-makers have released the songs without CBFC certification.
•He contended that the CBFC did not take any action despite the fact that the songs were part of the movie.
•“I can prove my point. I can produce the songs in court on Tuesday,” Mr. Sharma said.
•Appearing for the film-makers, senior advocate Harish Salve, with senior advocate Shyam Divan, argued that the movie is before the examination committee of the CBFC.
•Mr. Salve said what “we have released are promos.” He argued that audios do not require approval.
•The court also turned down Mr. Sharma’s plea to initiate prosecution under Section 499 IPC (criminal defamation) against the film-makers.
•The court further found some portions of Mr. Sharma’s petition offensive and struck them out. “Pleadings in a court are not meant to create any kind of disharmony in a society which believes in the concept of unity in diversity,” Chief Justice Misra said in the order.
•This is the second time the court has refused to interfere in the duties of the CBFC on Padmavati.
•The period drama is based on the 13th century battle between Maharaja Ratan Singh and his army of Mewar and Sultan Alauddin Khilji of Delhi.
📰 ‘Indian renewable energy firms among lowest rated’
Poor score on investments in Asia-Pacific region, says Fitch
•Indian renewable energy companies are among the most poorly rated investment grade companies in the Asia-Pacific region, according to a report by ratings agency Fitch.
•“Most of the issuers are owned by their respective sovereigns due to the strategic importance of energy supply,” Fitch’s 2018 Outlook on Asia-Pacific Utilities said. “These entities also have strong standalone profiles given solid and stable cash flow generation. At the bottom end are the Indian renewable issuers with ratings that reflect lower plant utilisation, limited operating history, volume risk, weaker counterparties, and weak but improving financial profiles.” The agency expects renewable energy to make up a larger portion of India’s electricity generation, bolstered by untapped generation potential, strong policy support and lower tariffs.
•“Tariffs for both wind and solar electricity hit a new low of under ₹3.0/kWh in mid-2017, making the two the cheapest source of electricity in the country,” the report added. “Renewable energy made up 58% — its biggest share yet — of the 25 GW of generation capacity added in India in FY17.”
•The report added that small renewable players would remain protected from price risks due to long-term power purchase agreements, but said that production volumes would vary on the basis of climatic patterns.
Petroleum players
•In a separate report, Fitch said that India’s overall demand for petroleum products would grow at about 5% over the medium term, driven by strong GDP growth over the next two financial years and continued growth in auto sales.
•“Fitch expects Indian State-owned oil and gas companies to undergo large debt-funded consolidation in 2018,” the ratings agency said in its 2018 Outlook on Asia-Pacific Oil and Gas. “This, combined with large committed downstream capex, is likely to result in modest weakening of the credit metrics for Indian Oil Corporation, BPCL, HPCL and HPCL-Mittal, although their standalone credit profiles will still have some headroom.”
•The agency expects an improvement in the credit of metrics of Reliance Industries on the back of the completion of its capital expenditure, which enlarged its petrochemical capacity and enhances its refining efficiency. However, it also warns that any further large investment for its digital business may limit the upside in its standalone credit profile.
•“We expect India’s overall demand growth for petroleum products to remain at around 5% over the medium term, driven by strong GDP growth of around 7.4-7.5% over the next two fiscal years and continued growth in auto sales,” the report added.
📰 Infra status for logistics sector
Industry can now avail funding at competitive rates that comes with recognition
•The Centre has granted infrastructure status to the logistics sector, allowing it to avail loans at competitive terms that come along with the status.
•“The need for integrated logistics sector development has been felt for quite some time in view of the fact that the logistics cost in India is very high compared to developed countries,” the government said in a statement.
•“High logistics cost reduces the competitiveness of Indian goods both in domestic as well as export markets. Development of logistics would give a boost to both domestic and external demand thereby encouraging manufacturing and ‘job creation.’
•“This will, in turn, be instrumental in improving country’s GDP.”
•“The cost of logistics is extremely high in India with some estimates putting it at about 13% of GDP, which is higher than the U.S. (9) and Germany (8),” said Pirojshaw Sarkari, CEO, Mahindra Logistics, in a statement. “Hence, the logistics sector needs improvement in efficiency. We believe that the infrastructure status will reduce the cost of capital in transportation and warehousing, thereby reducing the cost of logistics.”
•“There are a number of benefits that the infrastructure status has,” said K. Ravichandran, senior vice president, ICRA said.
Longer maturity period
•“Number one, infrastructure industries get longer maturity loans compared to typical manufacturing sector. They are also eligible for slightly higher equity ratios while applying for the loans. The third is that the external commercial borrowing guidelines say that the infrastructure sector has certain advantages and flexibility, and they can also do refinancing with specialised lenders like IDFC, IIFCL, etc.”
•The inclusion of the logistics sector in the Harmonised Master List of Infrastructure Sub-sectors was discussed at the 14th Institutional Mechanism (IM) Meeting held on November 10, 2017, where it was approved by Finance Minister Arun Jaitley.
•According to the definition that has been included, ‘logistics infrastructure’ means and includes multi-modal logistics park comprising inland container depot (ICD) with minimum investment of ₹50 crore and minimum area of 10 acre, cold chain facility with minimum investment of ₹15 crore and minimum area of 20,000 square feet, and/or warehousing facility with investment of minimum ₹25 crore and minimum area of 1 lakh square feet.
•“It will enable the logistics sector to avail infrastructure lending at easier terms with enhanced limits, access to larger amounts of funds as external commercial borrowings (ECB), access to longer tenor funds from insurance companies and pension funds and be eligible to borrow from India Infrastructure Financing Company Limited (IIFCL),” the release added.
📰 Inflation will rise further, says RBI
‘Farm loan waiver, pay hikes to impact’
•Retail inflation, which has gone up by more than 200 basis points since June, is expected to rise further in the remaining part of the financial year, M.D. Patra, executive director, Reserve Bank of India, said in an October 27 speech, the details of which were put out by the central bank on Monday.
•“In the MPC’s [monetary policy committee] assessment, inflation will likely rise from current levels in the rest of the year, with farm loan waivers and the implementation of pay and allowance revisions by States a la the Centre, posing upside risks,” Mr. Patra said in his speech on the first anniversary of formation of the monetary policy committee. Consumer price based inflation accelerated to 3.58% in October, its fastest pace in seven months.
First anniversary
•The October monetary policy of the RBI marks the first year of the monetary policy committee from October 2016, when a six-member committee began deciding on interest rates — a departure from the earlier practice of the RBI governor taking the final call.
•“The monetary policy statement of October 2017 was framed in quite a dramatic setting,” Mr. Patra said. “Even as growth broadened globally, it slowed to below 6% for the second quarter in a row in India in April-June. At this rate, India was still among the fastest-growing large economies of the world, but the blow from the growth print was significant enough to set off a chorus of alarm,” he said. The MPC had decided to hold the repo rate at 6% while maintaining the neutral stance.
•Mr. Patra said the committtee regarded the first estimates of kharif production (lower than last year’s level and this year’s target) and the GST roll-out as early, but transitory, setbacks.
•He said it believed that agricultural activity would improve hereon and termed business optimism expressed by firms on prospects for the October-December quarter as reassuring. “Relative to its August assessment, the MPC lowered its growth forecast by 60 basis points which, in a rough and ready sense, measures the net lagged impact of shocks such as demonetisation and the GST,” he added.
📰 The danger of electoral bonds
It is difficult to imagine a better instrument to ease the flow of black money to political parties
•If being ranked 100th out of 190 countries in the World Bank Ease of Doing Business Index was a matter of national celebration, how do we celebrate India being ranked a far more impressive 19th out of 180 countries in the Paradise Papers leaks? Though more than 700 Indians figure in the documents cache, celebrations have been muted, to say the least.
Link with shell firms
•All these Indians are on the list for one reason: their association with shell companies set up to siphon vast sums of money out of India and into a tax haven under the cloak of secrecy. The best part is that it’s all legal, more or less.
•An interesting case unearthed from the Paradise Papers pertains to a law firm’s refusal to supply nominee directors to two Mauritius-based companies of an Indian business group due to fears of ‘round-tripping’ — a term that denotes the (illegal) routing of Indian-origin illicit funds from a tax haven (in this case, Mauritius) back to India.
•What if there was a legal channel for companies to round-trip their tax haven cash to a political party? If this could be arranged, then a businessman could lobby for a change in policy, and legally funnel a part of the profits accruing from this policy change to the politician or party that brought it about.
•Well, the government introduced precisely such a scheme earlier this year: electoral bonds. These bonds share with tax havens the two characteristics that make the latter such attractive destinations for black money: secrecy and anonymity.
•Transparency in political funding is the global norm. The 255th Law Commission Report on Electoral Reforms observed that opacity in political funding results in “lobbying and capture” of the government by big donors. The lower the transparency in political funding, the easier it is for the super-rich to buy the kind of government they want.
•According to the NGO, Association of Democratic Reforms, 69% of the income of political parties is from unknown sources. But even the 31% from known sources pertains only to the income that the parties declare to the Income Tax (IT) department.
•Thanks to black money, the real incomes of political parties are far greater than their declared income. In other words, not only is the source unknown for the greater chunk of a party’s income, even the very existence of this income is ‘unknown’, as it is not captured in any official record — either with the Election Commission (EC) or with the IT department. Put simply, transparency in political funding in India is already abysmal.
•This is despite the existence of declaration norms, traditionally governed by four legislations: the Representation of the People Act (RPA), the IT Act, the Companies Act, and the Foreign Contribution (Regulation) Act (FCRA). Under these laws, political parties have to declare the source and the amount donated for all contributions above ₹20,000.
•Similarly, companies have to declare in their profit and loss (P&L) statement the party-wise break-up of political donations. Also, a company must be at least three years old to contribute to a party. Its contribution cannot be more than 7.5% of its average net profit in the three preceding years. And parties cannot accept foreign contributions.
•But declaration to an institution is not the same as disclosure to the public. Even with all these stipulations, as of today, it is barely possible to glean, via multiple Right to Information applications, a rudimentary idea of political parties’ sources of funding. Now electoral bonds are set to eliminate even this smidgen of transparency.
•The government set the ball rolling with the Finance Act 2016, which amended the FCRA to allow political parties to accept donations from foreign companies. This year, the Finance Act 2017 did the rest, by amending the RPA, the Companies Act and the IT Act. The Reserve Bank of India Act was also amended to enable the issuance of electoral bonds, which would be sold through notified banks.
What electoral bonds do
•Electoral bonds are essentially bearer bonds that ensure donor anonymity. They are like cash, but with an expiry date. Let’s say company ‘X’ wishes to contribute ₹100 crore to political party ‘Y’. It could buy ten electoral bonds of ₹10 crore each from bank ‘A’. These bonds would carry only a serial number and not the identity of the buyer.
•X would have these bonds deposited in Y’s designated account with bank ‘B’. B would know that this money belongs to Y but it doesn’t record the fact that it has come from X.
•The cluster of amendments around electoral bonds makes the scheme’s intent amply clear: first of all, they eliminate the 7.5% cap on company donations (which means even loss-making companies can make unlimited donations); also gone is the requirement for a company to have been in existence for three years (paving the way for fly-by-night shell companies); and finally, companies no longer need to declare the names of the parties to which they have donated (so shareholders won’t know where their money has gone).
•As for political parties, they no longer need to reveal the donor’s name for contributions above ₹20,000, provided these are in the form of electoral bonds. In a nutshell, a foreign company can anonymously donate unlimited sums to an Indian political party without the EC or the IT department ever getting to know. It is difficult to imagine a better instrument to ease the flow of black money into the coffers of political parties.
Danger to democracy
•By far the most pernicious feature of electoral bonds is their potential to load the dice heavily in favour of the ruling party. In the hypothetical transaction above, only bank ‘A’ knows the identity of the donor, while bank ‘B’ knows only the identity of the recipient.
•But both the banks report to the RBI which, in turn, is subject to the Central government’s will to know, though it remains to be seen if the former’s autonomy can withstand the latter. So, only the ruling party — and no one else — can ascertain which companies donated to the Opposition parties. It is then free to use the organs of the state to gently dissuade (or retaliate against) these misguided donors. What this means is that once the scheme for electoral bonds is notified, the Opposition parties may struggle to raise adequate funds to put up a fight. The implications for democratic politics are obvious.
•The government’s stated rationale for introducing electoral bonds was that they would protect donors from harassment by enabling anonymous contributions. But this argument falls flat as only the government is in a position to harass, or alternatively, protect, donors from harassment by non-state harassers.
•Going forward, there is little doubt that democracy will be the biggest casualty if electoral bonds see the light of day. Former Chief Election Commissioner S.Y. Quraishi has suggested an alternative worth exploring: a National Electoral Fund to which all donors can contribute. The funds would be allocated to political parties in proportion to the votes they get. Not only would this protect the identity of donors, it would also weed out black money from political funding. But without pressure from the citizenry, it is unlikely to interest a political class hell-bent on insulating itself from public accountability.
📰 It’s the real economy
Corrective steps are needed to recover momentum in industrial growth
•Feel-good news about the economy, the rating upgrade from Moody’s and, prior to that, the jump in India’s position in the World Bank’s Ease of Doing Business index, has dominated the headlines. The improvements reflect the increased attractiveness of India to investors and deserve applause. Although it seems out of sync with the reality on the ground, the international recognition doesn’t hurt.
As seen from abroad
•The ratings by Moody’s are based on its assessment of the trajectory of governments’ abilities to service their debt over time. The higher rating for India signals a lower risk grade for the government’s debt and can lower the cost of raising it. Other borrowings benchmarked to the government’s also stand to benefit. The significance of the upgrade is also in its timing. In 2015, Moody’s had changed the outlook for India from ‘stable’ to ‘positive’, while keeping the rating unchanged. That outlook would have been difficult to defend at the upcoming review a few weeks down the line, had the rating upgrade not materialised. India could have been pushed back into the ‘stable’ outlook grade.
•The likelihood of revisions by other rating agencies such as Standard & Poor’s has increased, but those upgrades will not be automatic. To bag them, the National Democratic Alliance (NDA) government will have to preserve its fiscal rectitude and encourage States to shun populism and adventurism.
Not so optimistic
•As far as the growth on the ground is concerned, the performance of the economy in the first half of the current financial year will be known next week. The release of growth estimates for the second quarter, ending September 30, is due at the end of this month. Exports data and the quick estimates, the Index of Industrial Production (IIP), for April through September are out. The bellwether indicator for non-agricultural production, investment and consumption in the economy does not present a pretty picture.
•News on the industrial output is bad. The growth rate weakened to 2.5%; it was 5.8% a year ago. On the manufacturing front, the news gets worse. The growth rate was 1.9%, pale when compared to 6.1% a year ago. It’s the same story with infrastructure and construction: the growth rate, 2%, is feeble compared to 4.9% in the first half of last year.
•Consumer and investor sentiments haven’t got any better. Capital goods and consumer durables output was lower in the first half of the year than that in the same period last year, as production contracted. The only source of comfort have been consumer non-durables, the output of which grew to 7.4%, although at a slower pace than the 10-plus% growth a year ago.
•So, the IIP indicates that the industrial sector is on extremely shaky ground. Festive and post-harvest season spending was expected to boost demand, but September remained a weak month. The hope now is that October, data for which are not out yet, will turn out to be better. The investment climate remains soured. The conditions do not seem conducive for job creation.
•The industrial performance this year so far is so tepid that it is weaker than it had been in 2012-13, the worst year growth-wise under the United Progressive Alliance (UPA) government. The GDP had grown at its slowest pace, 5.5%, that year in its 10-year tenure. The annual IIP growth had been 3.3%. It was 2.5% in the first six months of this year. Growth in every single major segment of the IIP — manufacturing, capital goods, consumer durables and infrastructure and construction — this year so far is weaker than it was in 2012-13. If corrective steps are not taken, at the current rate of loss in industrial growth momentum, this year may turn out to be worse than the UPA government’s policy paralysis phase.
•The IIP’s coverage by design is limited to the organised sector. The disruption in the unorganised sector will be measured separately and become known only later. Just how much of a drag the industrial sector was on the economy’s overall growth remains to be seen. Other segments of the economy, agriculture and services particularly, are expected to outpace it.
On the export front
•Exports had been showing encouraging signs of recovery, with double-digit growth. August and September were good months. But October notched up a small decline, so more data points are needed before it can be concluded that a sustainable recovery is under way. The decline is sharper in the employment-intensive sectors of leather, gems, jewellery, handicrafts, readymade apparel and carpets.
•Exporters blame the break in the trend on a liquidity crunch owing to the infirmities in the goods and services tax (GST) system. They complain that their refund claims were not released for four months. Smaller firms with limited access to working capital have taken a body blow.
•The growth crisis is of the NDA government’s own making. If demonetisation led to demand destruction, the GST rollout has had disastrous effects on the supply side. The twin shocks have compounded the problems of industry, big and small, that was already struggling with a slowdown. It’s time the real economy starts dominating the government’s agenda.
📰 A fine balance — On the National Anti-profiteering Authority
The GST’s anti-profiteering body must not become a tool of harassment
•Over four months into the troubled implementation of the goods and services tax, the Centre has operationalised a provision in the GST law that has been worrying industry. The National Anti-profiteering Authority, whose constitution was approved by the Cabinet last Thursday, is empowered to crack down on firms that fail to pass on the ‘benefits’ of the tax regime to consumers. The authority can order businesses to reduce product prices or refund to consumers ‘undue benefits’; in extreme cases it can impose a penalty on errant firms and cancel their registration as taxpayers. Where the consumers are difficult to trace individually, the amount construed by the authority to be the extent of undue benefit will be deposited in a consumer welfare fund. The authority will have its own bureaucracy — including a screening committee in each State that consumers can complain to; a standing committee in which profiteering allegations with an ‘all-India’ impact can be taken up; and an investigation wing that will vet complaints ‘with prima facie’ merit and report its findings to the NAA. More clarity is needed on how the government will ascertain the difference between undue profit and fair play — or the discretionary space available to the NAA could enable rent-seeking.
•The trigger for setting up the authority is clearly the recent large-scale reduction in tax rates on more than 300 items, of which about 200 rate changes were to come into effect from November 15. The government is keen on ensuring that consumers have a better perception of the GST’s ground-level impact. Union Finance Secretary Hasmukh Adhia has urged companies (especially those in the fast-moving consumer goods segment) to ensure that new maximum retail prices are inscribed on products from November 15, even on existing inventory in the market. While wholesalers can still implement this, reaching every last retailer is a challenge. But firms have been warned that the entire retail chain must reflect revised prices in order to avoid anti-profiteering action; and the expectation is that there will be some exemplary action soon to make industry fall in line. Restaurant chains are also likely to face the heat for retaining price hikes; even though their tax rate has dropped, they no longer get any credits for taxes paid on inputs. Protecting consumer interest is important, but the prospect of the government monitoring prices and asking businesses to justify pricing decisions instead of letting market forces play out is unnerving. The NAA could take a cue from, if not partner, the Competition Commission of India in this, and focus on firms raising prices indiscriminately in markets where they enjoy a dominant position, or forming pricing cartels. The government must ensure that the authority’s powers are used transparently and only where there is genuine consumer/public interest at stake. Else, it runs the risk of making profit itself a bad word.
📰 An app to get tiger numbers right
The GST’s anti-profiteering body must not become a tool of harassment
•Over four months into the troubled implementation of the goods and services tax, the Centre has operationalised a provision in the GST law that has been worrying industry. The National Anti-profiteering Authority, whose constitution was approved by the Cabinet last Thursday, is empowered to crack down on firms that fail to pass on the ‘benefits’ of the tax regime to consumers. The authority can order businesses to reduce product prices or refund to consumers ‘undue benefits’; in extreme cases it can impose a penalty on errant firms and cancel their registration as taxpayers. Where the consumers are difficult to trace individually, the amount construed by the authority to be the extent of undue benefit will be deposited in a consumer welfare fund. The authority will have its own bureaucracy — including a screening committee in each State that consumers can complain to; a standing committee in which profiteering allegations with an ‘all-India’ impact can be taken up; and an investigation wing that will vet complaints ‘with prima facie’ merit and report its findings to the NAA. More clarity is needed on how the government will ascertain the difference between undue profit and fair play — or the discretionary space available to the NAA could enable rent-seeking.
•The trigger for setting up the authority is clearly the recent large-scale reduction in tax rates on more than 300 items, of which about 200 rate changes were to come into effect from November 15. The government is keen on ensuring that consumers have a better perception of the GST’s ground-level impact. Union Finance Secretary Hasmukh Adhia has urged companies (especially those in the fast-moving consumer goods segment) to ensure that new maximum retail prices are inscribed on products from November 15, even on existing inventory in the market. While wholesalers can still implement this, reaching every last retailer is a challenge. But firms have been warned that the entire retail chain must reflect revised prices in order to avoid anti-profiteering action; and the expectation is that there will be some exemplary action soon to make industry fall in line. Restaurant chains are also likely to face the heat for retaining price hikes; even though their tax rate has dropped, they no longer get any credits for taxes paid on inputs. Protecting consumer interest is important, but the prospect of the government monitoring prices and asking businesses to justify pricing decisions instead of letting market forces play out is unnerving. The NAA could take a cue from, if not partner, the Competition Commission of India in this, and focus on firms raising prices indiscriminately in markets where they enjoy a dominant position, or forming pricing cartels. The government must ensure that the authority’s powers are used transparently and only where there is genuine consumer/public interest at stake. Else, it runs the risk of making profit itself a bad word.
📰 Mullaperiyar: T.N. moves SC against parking project
NGT had given nod to Kerala to go ahead with its proposal
•The Tamil Nadu government on Monday moved the Supreme Court against the decision of the National Green Tribunal (NGT) allowing Kerala to go ahead with a “mega car parking” project in the water spread area of the Mullaperiyar dam.
•The Chennai Bench of the tribunal, on November 15, allowed the project in the area around the Periyar Tiger Reserve near the Mullaperiyar dam reservoir.
‘Danger to ecology’
•In its special leave petition, Tamil Nadu, represented by advocate G. Umapathy, submitted that the car parking project was located in the area leased to Tamil Nadu. The project, which involves various supplementary construction activities, would environmentally affect the catchment area, the water spread area of the dam and consequently the waters of the reservoir, used for drinking and irrigation purposes by the people of five districts of Tamil Nadu.
•Arguing that Kerala has already encroached on about 2.5 acres, and through this project, proposes to take over about 20 acres in the water spread area of the dam for parking the tourist vehicles and construction of reception blocks, cafeteria, sewage treatment plant, eco-shops complex, toilets, dining block, office block, road work, and road work for battery operated vehicle, developing different thematic arboretums, landscaping, etc, intended for tourism and commercial activities.
Pending suit
•The tribunal’s green signal comes even as an original suit is pending in court on Tamil Nadu’s plea to restrain Kerala from trespassing into land leased to it. When it declared that no clearance is required to be taken by Kerala under the Forest Conservation Act, 1980, the tribunal failed to take into consideration that the construction activities would ultimately pollute the water needed for drinking and irrigation in Tamil Nadu, the petition said.
•The NGT decision is despite a letter from the National Tiger Conservation Authority on March 21, 2013 that provisions of the Forest Conservation Act and other environmental laws should not be overruled while considering the viability of the project.
📰 ISRO opens doors to private sector
Issues tender for manufacturing 35 satellites over three years
•In an attempt to increase the number of satellite launches and build the capacity of the private sector, the Indian Space Research Organisation (ISRO) issued a tender on Monday to the private industry for Assembly, Integration and Testing (AIT) of 30-35 satellites.
•“ISRO has issued a Request For Proposal (RFP) to the private industry to build 30-35 satellites over three years. Under this, 4-5 companies would be selected after evaluation and awarded parallel contracts. They would be responsible for the AIT of satellites at ISRO facilities,” said Dr. M Annadurai, Director ISRO satellite centre. He was speaking at the first international seminar on Indian space programme jointly organised by ISRO and the Federation of Indian Chamber of Commerce and Industry.
•He said ISRO currently launches 3-4 launches per year but the demand is for 16-18 satellites. ISRO expects to get the responses to the RFP by December 5, complete selection of the companies by January 5 and sign contracts by February5.
•“The aim is to launch 3-4 satellites in 2018 and improve it further,” Dr. Annadurai said to a question from The Hindu.
Gaining experience
•Another ISRO official said it had tried this model on a pilot scale with two satellites. “Alpha Design Technologies was allowed to build satellites at our facilities. We did the hand holding on the first one and tried their staff. The second satellite was completely built by them at our facility,” he said.
•In the next step, the idea is to let the private industry build their own facilities after gaining enough expertise, the official added. The private sector already supplies majority of the sub-systems in satellite manufacturing.
•Giving the reason for the push, he said in the next 3-4 years ISRO plans to launch 58 satellites. “Our in-house capacity is limited. So we are looking to offload 30-40% of the work to the private sector,”
•To this end, ISRO has built a space technology park spread over 25 acres in Bengaluru where the entire range of facilities have been set up for use by the industry.
