📰 A commission misguided
The national child rights body seems to be deriving its priorities from the political agenda of the day
•The National Commission for Protection of Child Rights (NCPCR) is the apex body for upholding, monitoring and facilitating child rights in the country. However, as persons previously associated with this esteemed body, we note with great concern some of the recent actions of the Commission that suggest a grave departure from its primary duty to ensure the well-being of all children, especially children in need of care and protection.
Major concerns
•Amongst its significant powers and duties, the NCPCR has been specifically charged with the monitoring of Child Care Institutions (CCIs) and was instructed to carry out a social audit of the same by the Supreme Court. The social audit was initiated in 2015 and upon its completion, the NCPCR, in its wisdom, directed District Magistrates in eight States to ensure that all children within CCIs be de-institutionalised, repatriated and rehabilitated within a specified period. Civil society organisations have raised several obvious concerns about this, especially because most of these children are in CCIs due to abusive conditions in the family, and a mandated repatriation without an adequate case-by-case assessment plan within a short period of time would likely place the children again at grave risk of abuse, exploitation and neglect. They also point to the sheer inadequacy of current systems to organise adoption and foster care.
•Juxtaposed with this diktat is the disturbing report of raids being undertaken on the eve of Gandhi Jayanti by the NCPCR in select NGO-run CCIs, in order to establish whether foreign funds have been misused in any manner. Not only is monitoring of the FCRA regulations outside of the mandate of the NCPCR, but the raids also seem to target individuals who have been outspoken in the criticism of the Central government on issues such as the National Register of Citizens and the Citizenship (Amendment) Act. Such raids seem to have communal overtones as an enquiry led by none less than the Chairperson reportedly delved into whether the previously homeless children in the CCIs belonged to a particular community (Rohingya), and what religious practices they engaged with, even as the institutions are known to maintain a secular character.
A lot to be done
•The pandemic has exacerbated existing issues of child malnutrition, child labour, child abuse, child marriage and mental illness. We would have expected the NCPCR to show concern for the gross violation of children’s rights during the lockdown and in its aftermath. The NCPCR could have used its authority and power to issue recommendations to relieve these grave conditions by reiterating the need for strengthening all child-related institutions (government and non-government) through adequate funds, and appreciating the relief measures that many civil society organisations, including the ones being raided and instructed to close down, were engaged in.
•As citizens concerned with the rights and welfare of children, we have also been appalled at the daily reports of Dalit children and young women being raped and murdered, with gross irregularities by the very institutions that are charged with their protection. We would have expected the NCPCR to exhibit its priorities better by taking suo motu cognisance of the rape and murder of a 14-year-old girl in Bhadohi in Uttar Pradesh, to make a test case of the lack of systems to fight crimes against children instead of moving to undermine and dismantle whatever little does exist for their protection. Undoubtedly, CCIs need monitoring and reforms; the Commission should be in the vanguard to ensure the support that would necessarily be required to implement these reforms. Yet, it seems to be deriving its priorities from the political agenda of the day rather than upholding a steadfast and fair commitment to the welfare of children.
📰 Lost in the border crisis — political ownership
Using the defence forces as a shield may be politically profitable for the government but is damaging for India
•In October 2017, when India’s External Affairs Minister S. Jaishankar was the Foreign Secretary, he appeared before the Parliamentary Standing Committee on External Affairs to depose on the 73-day-long Doklam stand-off. In two separate depositions, he underlined to the committee that “the issue [on the Sino-India-Bhutan border] is more of attempting to alter the status quo on the ground... It is this aspect that transforms a transgression into a larger diplomatic and political issue shifting the matter from the domain of the Armed Forces to that of Foreign Policy”.
Armed forces as the cover
•Three years later, it is now clear that China has unilaterally altered the status quo on the Line of Actual Control (LAC) in Ladakh over the past five months — and at multiple points. As in Mr. Jaishankar’s benchmark, it has become transformed into a larger diplomatic and political issue, but the armed forces are still fronting the issue, whether in bilateral talks or in public communication. Once the matter had moved away from the domain of the armed forces, attention should have shifted from the military to the government as the public face of the crisis. However, that has not been the case so far as the government has been keen to shield itself from public criticism by demanding unquestioning support for the armed forces. Tightly embracing the military and pushing it to the forefront of domestic public imagination is an insurance policy for political leadership when it is facing severe criticism.
•Civil-military relations theorists have long warned against the participation of armed forces in domestic political roles in democracies, especially in times of a crisis. Micromanagement of the type we have witnessed during the Ladakh crisis, where the precise agenda and specific arguments of the Indian military delegation during the talks have been decided at the highest levels of government in Delhi, has drawn the armed forces into the political debate.
•If stark political divisions over this issue exacerbate, it could draw the military even deeper into the political slugfest, a situation best avoided. Peter D. Feaver’s research shows that linking the prestige of the military to debatable political decisions, as the government has attempted, carries with it the potential for reduced overall public confidence in the military and increased doubts about the military’s competence, truthfulness, and other dimensions of trustworthiness.
Key men, mixed signals
•The government is headed by a Prime Minister who is a master at public communication and not short of words on any issue. He regularly speaks directly to the people, either through his own radio show, by updates on social media platforms, through his public speeches broadcast on television channels, or his addresses to the nation. He has been, however, conspicuous either by his silence on the border crisis or by his laboured efforts to avoid mentioning China by name.
•The one time he chose to speak in detail on the issue was during the all-party meeting, on June 19, called by the government to discuss the violence on the India-China border, where he said: “ Na koi wahan hamari seema mein ghus aaya hai aur nahi koi ghusa hua hai, na hi hamari koi post kisi dusre ke kabze mein hain (No one has intruded and nor is anyone intruding, nor has any post been captured by someone)”. His rather convoluted formulation, that needed an elaborate official clarification, handed the Chinese officials an argument they have gleefully used to embarrass the Indian interlocutors in all bilateral negotiations thereafter.
•From his cabinet, the External Affairs Minister has not spoken at any great length about the border crisis, although he has held multiple events related to the launch of his new book, The India Way: Strategies for an Uncertain World . Only the Defence Minister, who was the first to confirm the border crisis in a news television interview, delivered a carefully prepared statement in Parliament on September 15 (https://bit.ly/30wNVbU). The statement was factually correct but did not leave anyone better informed at the end of it. He took no questions from Members of Parliament, denying the Indian citizen an opportunity to have authoritative information and form her own view about the government’s decision-making. Compare this to the reality in the British Parliament, where some of the toughest questions on the most sensitive issues are thrown at the Prime Minister, who has to answer them as a measure of his accountability to the people.
•The presiding officer of the Rajya Sabha asked the Defence Minister to brief the leaders of opposition separately but there has been no such briefing even two weeks later, and Parliament has been prorogued. The country still does not know whether the Cabinet Committee on Security, which is the highest authority in the country on matters of national security, has met and discussed the grave border crisis in the past five months. In contrast, the previous National Democratic Alliance government had conducted official daily briefings during the 1999 Kargil War and senior Ministers were available to answer the media’s questions.
•The government’s argument for not taking any questions in Parliament was the surmise that these were sensitive operational issues which cannot be discussed in public. It holds little credence going by the operational details shared by top armed forces officials in unofficial media briefings. It means that there are enough relevant aspects that can be made public without compromising military operations or national security.
•A more viable argument in support of the government’s stance is that every government needs a free hand during negotiations and making information public ties its hand for any give and take during parleys. For e.g., the government may have hypothetically wanted to ignore the territory China has ingressed in Ladakh after May, if it could have a firm commitment from Beijing on delineating the international boundary. That would not have been possible had the Prime Minister told the Indian public on June 19 that China now denies India access to more than 1,000 square kilometres of territory in Ladakh — he would be under pressure to publicly ask the military to throw the Chinese out. By stating that no Chinese soldier was in Indian territory, he retained the flexibility to clinch such a hypothetical deal.
On public opinion
•However, democratic governments can use public opinion to strengthen their hand during negotiations and to avoid making concessions to the other party. Pakistani leader Zulfiqar Ali Bhutto did it during the 1972 Simla negotiations after Pakistan’s loss in the 1971 Bangladesh war.
•Nearer home, Prime Minister Atal Behari Vajpayee nudged the Opposition parties to hold public protests against plans to send Indian troops to Iraq in 2003, an idea his deputy, L.K. Advani had agreed to in Washington DC The excuse of adverse public opinion allowed Vajpayee to pull back from Advani’s assurance to the Americans.
Wanted, official information
•The lack of official information about the crisis has been damaging in other ways too. Not only are people uninformed; they are also misinformed by the gung-ho jingoistic, hyper-nationalist commentators and journalists who have hyped up the Indian military and diplomatic capabilities. Their desire to believe the most exaggerated version of events showing India in the greatest light, has put more pressure on this muscular government which cannot afford to be seen as weak. The gravest warning of keeping the people in the dark comes from neighbouring Pakistan — on the day its armed forces surrendered to India in Dhaka on December 1971, the Pakistani media was running reports of a glorious military win. A more honest dissemination of information prevents such situations from developing, which can have damaging consequences for the country going forward.
•India is facing a grave crisis on its borders which shows no sign of ending. As an issue in the middle of a raging novel coronavirus pandemic and a plummeting economy, it needs a ‘whole-of-government’ approach directly under the visible leadership of the Prime Minister. But the government seems shy of taking ownership of the crisis, instead placing the armed forces as the public face of the challenge. Having the uniform as a shield to avoid democratic accountability may be politically profitable for the government but it carries the risk of aggravating the crisis and hurting India.
📰 The future of GST hangs in the balance
The Centre is best positioned to raise additional resources to bridge the GST compensation gap
•Today is the crucial meeting of the Goods and Services Tax (GST) Council. It may not be an exaggeration to claim that today’s meeting could mark a milestone in the history of India’s fiscal federalism and shape the future of Centre-State relations.
•In 2017, the Centre made a promise to the States that a certain minimum amount of GST revenues will be guaranteed to every State for every year until 2022. GST was born in the cradle of this promise and hailed as a harbinger of ‘cooperative federalism’. Now, there is not enough money in the GST kitty for the Centre to honour this obligation. The Centre has therefore proposed that the States should borrow money to bridge this gap and that it will act as a guarantor to facilitate this borrowing. Many States have accepted this proposal while many others have rejected it and implored the Centre to borrow. There is a bitter stand-off between the Centre and these protesting States.
Widening trust deficit
•This is further complicated by the recent revelation of the Comptroller and Auditor General, and explained by Professor Govinda Rao in The Hindu, that in the last few years, the Centre deliberately mis-allocated nearly Rs. 3 lakh crore collected through various cesses, to reduce the States’ share of tax revenues. The Centre’s dishonesty has eroded its credibility with the States and widened the trust deficit. Amidst this background, the GST compensation issue could be put to vote in the GST Council meeting today.
•The GST Council has 31 States and Union Territories represented. The Council was set up in 2017 as a new financial institution with the enormous economic responsibility of directing policy for half of all tax revenues of the country. Sadly, this vital institution, like many others, has dwindled rapidly into yet another avenue for political power play.
•Twenty members of the GST Council that have agreed to the Centre’s proposal are governed by the Bharatiya Janata Party (BJP) or a BJP alliance. The 11 States that have opposed the Centre’s plan are all governed by the Opposition. The 11 opposing States account for a greater share of overall GST revenues than the 20 supporting States. But it does not matter since every State, large or small, has equal weight in the GST Council. Twelve votes can veto a proposal in the GST council.
•The Centre has reiterated its commitment to fulfil the GST compensation obligation to the States. So, only the modus operandi of raising funds to fulfil this obligation is to be decided. This is primarily an economic issue and should be settled based on what makes the most economic sense for each State and for the nation overall.
•Each State’s economic realities are distinct. Just four States — Maharashtra, Gujarat, Tamil Nadu and Karnataka — account for nearly as much GST tax revenues as the remaining 27 States and Union Territories combined. But Gujarat and Karnataka support the Centre’s proposal while Maharashtra and Tamil Nadu have opposed it. GST compensation constitutes a significant share of the revenues of Punjab and Himachal Pradesh, yet Himachal Pradesh supports the Centre’s plan while Punjab is against it. Rajasthan and Haryana have similar sized fiscal deficits . Rajasthan is understandably apprehensive, but Haryana seems ready to indulge in more borrowing.
•Naïve and clichéd as it may sound, a State’s decision to borrow or not should be based on its fiscal situation, not its political affiliation. State fiscal policies are complex matters and cannot be decided through a ‘high command whip’. The GST compensation imbroglio has exposed the shallow rhetoric of ‘cooperative federalism’ and exacerbated the politicisation of the GST Council.
Alternative revenue sources
•Economic logic suggests that the Centre, and not the States, is best positioned to raise additional resources to bridge the GST compensation gap. State governments don’t have the powers to levy direct taxes or indirect taxes to earn additional revenues. A State’s finances are not in the hands of the State government any more.
•But the Centre has multiple alternative revenue streams. It is true that COVID-19 has ravaged the economy and strained government finances. But even in this severe economic slowdown, the Centre can find some new and creative options for tax revenues that are not available to the States.
•Purely for illustrative purposes, one such revenue opportunity can be through increased taxation of capital market transactions. Between April and June, when economic activity in the nation had come to a complete standstill, India’s stock markets experienced its highest activity levels in its history, with a 75% increase in transactions vis-a-vis last year. The stock market rose 30% in this period and a minority few profited handsomely. In all likelihood, this buoyant stock market activity did not create one extra job in the real economy. The Centre can levy a higher tax on such speculative stock market trading to earn additional revenues during these difficult times, which will also not hurt the economy like an increase in GST rates or cess will do.
•A five-fold increase in the securities transaction tax from its current minuscule levels of 0.025% can potentially generate an additional Rs. 50,000 crore of revenue for the Centre, which can be very handy in these times. Contrary to belief and fearmongering by stock market participants, 15 years of data show there is no evidence that, in India, raising securities transaction taxes adversely impacts stock market activity or the overall economy.
•The larger point is that such options for new revenue generation are not available for the States. In these dire economic conditions, the Centre has many more avenues to raise additional resources than the States. A combination of additional revenues and borrowing by the Centre can help resolve the GST compensation issue amicably.
•There is fear that the international ratings agencies may downgrade India’s rating to “junk” status if the Centre’s borrowings rise exorbitantly. It is understandable that no finance minister or bureaucrat wants the badge of a downgrade. But it is inane to believe that just offloading the borrowing to States can fool the ratings agencies.
•The economic argument is crystal clear that it is more prudent for the Centre to use its much greater ammunition to raise additional tax revenues and/or to borrow to keep its GST promise. It makes no economic sense for the States, regardless of which party is in power, to increase their borrowing at the behest of the Centre. States will be forced to borrow anyway for their own expenditure. The credibility of the GST Council and the larger idea of cooperative federalism can still be salvaged if, in today’s meeting, the Centre can shed its cussedness and end this impasse by committing to raise resources to plug the GST compensation gap.
📰 Transforming business and the insolvency system
Further streamlining of the Insolvency and Bankruptcy Code can instil more confidence in foreign and local investors
•The Prime Minister mentioned the Insolvency and Bankruptcy Code (IBC 2016) as one of the key legislative reforms that would help aid India’s path to self-reliance on a high growth trajectory. The IBC, along with the Goods and Services Tax regime, among other key reforms, were helping in significantly improving the ease of doing business in India and enabling it to emerge as a ‘Make for World’ platform. He also credited these reforms for a surge in Foreign Direct Investment into India in 2019-2020, to the tune of nearly $74.5 billion, or a significant increase of 20 per cent from the previous year.
A key reform step
•The IBC has been a far-ranging and structurally significant reform that has transformed insolvency resolution in India. Replacing a rather inefficient bankruptcy law regime, the IBC has focused on time-bound resolution, rather than liquidation, as an empowering tool to support companies falling within its ambit. It has successfully instilled confidence in the corporate resolution methodology, and perhaps, more importantly, on creating a possibility for the creditors recouping some of their investments in firms being liquidated or going in for resolution. Its core implication has been to allow credit to flow more freely to and within India while promoting investor and investee confidence. Despite the suspension of the IBC for a limited duration due to the COVID 19 pandemic, in the short, medium and long term, it will prove to have been a timely reform. It will greatly streamline insolvency processes in a sustainable, efficient, and value retaining manner.
•India, unfortunately, suffers from a serious backlog in court cases, to the tune of nearly four crore matters pending final judgment. The novel coronavirus pandemic is likely to exacerbate this. The enforceability of contracts has been a challenge. On an average, it takes as many as 1,445 days for a contract to be enforced, and that too at a cost of nearly 31% of the claim value. This is simply unacceptable.
Criminal penalties
•Along with further streamlining and reinforcing the IBC, the Government of India is also working toward decriminalisation of minor offences. NITI Aayog is playing an active role in this exercise, which will significantly reduce the risk of imprisonment for actions or omissions that are not necessarily fraudulent or an outcome of mala fide intent. Criminal penalties including imprisonment for minor offences act as major deterrents for investors. The government’s intent is to help differentiate between good faith mistakes and intentional bad faith actions, so as to penalise the former, and criminalise the latter.
Moves that will help
•Other legislative measures that will further improve the investment climate, include the rolling out of the commercial courts, commercial divisions and the Commercial Appellate Divisions Act, 2015, to allow district court-level commercial courts, and the removing of over 1,500 obsolete and archaic laws. Together with the IBC, these highlight a major and multi-dimensional effort by the government to provide comfort, relief and reliability to the potential investors.
•The IBC is both flexible and dynamic, which makes it impactful, given how forward thinking the concept of an omnibus legislation of its nature actually is. The IBC goes beyond other similar pieces of legislation across the world, and through the Insolvency and Bankruptcy Board of India (IBBI), it has established an unprecedented organisation that both regulates and develops insolvency policy, and assesses market realities.
•The Ministry of Corporate Affairs (MCA), in its year end summary press release (https://bit.ly/2EXXEQH), provided the context of India’ s rapid rise in the Ease of Doing Business rankings, and IBC’s important role of the IBC in it. According to the Resolving Insolvency Index, India’s ranking improved to 52 in 2019 from 108 in 2018, a leap of 56 places. Further, the recovery rate improved nearly threefold from 26.5% in 2018 to 71.6% in 2019. And, the overall time taken in recovery also improved nearly three times, coming down from 4.3 years in 2018 to 1.6 years in 2019.
•Two key drivers for the IBC are relatively short time-bound processes, and the focus on prioritising resolution rather than liquidation. The report of the Bankruptcy Law Reforms Committee (https://bit.ly/33uW4zj) speaks of the critical need for speed in the working of the bankruptcy code. It is clear that the inability to make significant decisions without full clarity of ownership and control delays resolution. And, the longer the delay, the more likely that the entity in question would move towards liquidation rather than resolution. The delays result in low value liquidation due to a high economic rate of depreciation. Higher value stems from the firm being acquired as a going concern.
•Going forward, there could perhaps be a look at institutionalising the introduction of a pre-packed insolvency resolution process, the need for which is highlighted by the necessary suspension of the IBC proceedings. This will also help resolve matters expeditiously, outside of the formal court system, and allow resolution even during the COVID-19 altered reality.
Helping MSMEs
•The MCA along with IBBI are working diligently on putting in place a Micro, Small and Medium Enterprises (MSME) and non-MSME framework to help expedite this process.
•At the same time, given the need for social distancing and the suspension or limitation of physical hearings, a concerted effort should be made to enhance the role of digitally conducting all processes and hearings to achieve greater efficiency in the new normal. Bringing in technology would help ease of access to justice and greatly help ease of doing business from a process and efficiency standpoint as well. The IBC has provided a major stimulus to ease of doing business, enhanced investor confidence, and helped encourage entrepreneurship while also providing support to MSMEs. Its further streamlining and strengthening will surely instil greater confidence in both foreign and domestic investors as they look at India as an attractive investment destination.
