1. ‘MSP should continue till markets become efficient’

NITI Aayog members’ comment on procurement irks SKM

Ahead of the nationwide protests by the Samyukt Kisan Morcha (SKM) demanding a law to ensure minimum support price, NITI Aayog member Ramesh Chand said here on Wednesday that the MSP should continue till markets become competitive and efficient.

The MSP can be given through means other than procurement, he said at a conference on “Getting agriculture markets right,” triggering reactions from leaders of the SKM.

Hannan Mollah, senior SKM leader and general secretary of the All-India Kisan Sabha, said farmers were demanding a law to ensure MSP. “Only two items are procured of the 23 crops that have an MSP. MSP without a legal guarantee will not be effective as the input cost has increased,” he said.

Direct relation

Pavel Kussa, coordinator of Bharatiya Kisan Union (Ekta-Ugrahan), said the MSP was directly linked to the food security of the country. “MSP is linked to procurement, storage and distribution of foodgrains through public distribution system. The NITI Aayog member seems to have forgotten the statement of Food Minister Piyush Goyal asking States to encourage paddy sowing. Farmers cultivate paddy as there is MSP and procurement of the crop. MSP without procurement has no meaning,” he said.

DPP method

Addressing the conference, Mr. Chand had also said that “deficiency pricing payment (DPP)” was one such means of giving MSP to farmers, but added that the DPP could not be stopped once implemented. “Under DPP, the difference between the open market price and MSP is given to farmers. It has been implemented in some States like Madhya Pradesh,” he said. “In some cases, MSP is justified in times of volatility in prices and glut. I feel what matters is how we give MSP to farmers. MSP has to be there as long as markets are not competitive and efficient. But MSP can be given through means other than procurement,” he said.

Mr. Chand added that he had given a detailed presentation on the issue to Prime Minister Narendra Modi. He said the difference between open market price and MSP was about 12-15% and MSP-fixed 23 crops would require ₹80,000 crore based on 1920 price. He said in the future, there could be differences in sarkari crops (MSP-fixed crops) and bajaari (commercial) crops and added that corporates were showing interest in innovation in bajaari crops.

Revamped protests

The SKM is relaunching its protests demanding legalised MSP from July 18, when the monsoon session of Parliament begins. The SKM will hold nationwide rallies asking the Centre to implement the promises it had made while repealing the three farm laws.

Minimum Support Price (MSP)

• About:
  • The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.
  • MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.
• Crops under MSP:
  • The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.
    • CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.
  • The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 other commercial crops.
  • In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.
• Factors for Recommending the MSP:
  • The CACP considers various factors while recommending the MSP for a commodity, including cost of cultivation.
  • It takes into account the supply and demand situation for the commodity, market price trends (domestic and global) and parity vis-à-vis other crops, and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.
• Three Kinds of Production Cost:
  • The CACP projects three kinds of production cost for every crop, both at state and all-India average levels.
    • ‘A2’: Covers all paid-out costs directly incurred by the farmer in cash and kind on seeds, fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
    • ‘A2+FL’: Includes A2 plus an imputed value of unpaid family labour.
    • ‘C2’: It is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.
  • CACP considers both A2+FL and C2 costs while recommending MSP.
    • CACP reckons only A2+FL cost for return.
    • However, C2 costs are used by CACP primarily as benchmark reference costs (opportunity costs) to see if the MSPs recommended by them at least cover these costs in some of the major producing States.
  • The Cabinet Committee on Economic Affairs (CCEA) of the Union government takes a final decision on the level of MSPs and other recommendations made by CACP.

Need of MSP

• The twin droughts of 2014 and 2015 forced the farmers to suffer from declining commodity prices since 2014.
• The twin shocks of demonetisation and the rollout of GST, crippled the rural economy, primarily the non-farm sector, but also agriculture.
• The slowdown in the economy after 2016-17 followed by the pandemic further ensured that the situation remains precarious for the majority of the farmers.
• Higher input prices for diesel, electricity and fertilisers have only contributed to the misery.

Issues Associated with India’s MSP Regime

• Limited Extent: As against the official announcement of MSP for 23 crops, only two, rice and wheat, are procured as these are distributed in NFSA (National Food Security Act). For the rest, it is mostly ad-hoc and insignificant.
• Ineffectively Implemented: The Shanta Kumar Committee, in its report in 2015, stated that only 6% of the MSP could be received by the farmers, which directly means that 94% of the farmers in the country are deprived from the benefit of the MSP.
• More of a Procurement Price: The current MSP regime has no relation to prices in the domestic market. Its sole raison d’être is to fulfil the requirements of NFSA making it effectively a procurement price rather than an MSP.
• Makes Agriculture Wheat and Paddy Dominated: Skewed MSP dominated system of rice and wheat leads to overproduction of these crops and discourages farmers to grow other crops and horticulture products, which has higher demand and subsequently could lead to increase in farmers income.
• Middlemen-Dependent: The MSP-based procurement system is also dependent on middlemen, commission agents and APMC officials, which smaller farmers find difficult to get access to.

2. RBI eases rules to boost forex inflows

It relaxes interest rates on NRIs’ foreign currency deposits, doubles overseas borrowing limit for firms

The Reserve Bank of India (RBI) on Wednesday announced a slew of temporary measures aimed at boosting foreign exchange inflows, including a doubling in the overseas borrowing limit for corporates and removal of interest rate ceilings for NRIs’ foreign currency deposits. The move comes as persistent capital outflows and a widening trade deficit have led to a sharp depreciation in the Indian rupee to new lows against the dollar.

Observing that the rupee had depreciated by 4.1% against the dollar (upto July 5) so far this financial year, the RBI asserted that, barring portfolio investments, capital flows remained stable with an adequate level of reserves providing a buffer against external shocks. India’s foreign exchange reserves stood at $593.3 billion as on June 24, supplemented by a substantial stock of net forward assets, it said.

“The Reserve Bank has been closely and continuously monitoring the liquidity conditions in the forex market and has stepped in as needed in all its segments to alleviate dollar tightness with the objective of ensuring orderly market functioning. In order to further diversify and expand the sources of forex funding so as to mitigate volatility and dampen global spillovers, it has been decided to undertake measures… to enhance forex inflows while ensuring overall macroeconomic and financial stability,” the RBI added.

As part of the measures, banks have been exempted from maintaining the stipulated Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on incremental FCNR(B) and NRE term deposits mobilised up to November 4. “It has been decided that with effect from the reporting fortnight beginning July 30, incremental FCNR(B) and NRE deposits with reference base date of July 1, 2022, will be exempt from the maintenance of CRR and SLR,” the RBI said.

It also freed banks to temporarily raise fresh FCNR(B) and NRE deposits without reference to extant regulations on interest rates, with effect from July 7 and up to October 31, 2022.

FPI debt norms loosened

To encourage foreign portfolio investment into debt, the RBI said the choice of government bonds available for investment under the fully accessible route (FAR) would be widened, with all new issuances of G-Secs of 7-year and 14-year tenors, including the current issuances of 7.10% GS 2029 and 7.54% GS 2036, designated as specified securities.

The RBI also temporarily doubled the annual limit for External Commercial Borrowings (ECB) to $1.5 billion or its equivalent.

Reserve Bank of India

History

• The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
• The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
• Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Preamble

• To regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
• To have a modern monetary policy framework to meet the challenge of an increasingly complex economy.
• To maintain price stability while keeping in mind the objective of growth.

Structure

• The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.
• The directors are appointed/nominated for a period of four years.

RBI’s Developmental role

·         Promotional functions that support national objectives are organized by RBI that encourage rural and agricultural economic development.

·         The RBI will regularly issue directives to the commercial banks to lend loans to small-scale industrial units.

Composition of RBI

·         Reserve Bank of India is controlled by a central board of directors. The directors are appointed for a 4-year term by the Government of India in keeping with the Reserve Bank of India Act.

·         The Central Board consists of:

·         Governor

·         4 Deputy Governors

·         2 Finance Ministry representatives

·         4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai, and New Delhi

·         The executive head of RBI is Governor.

·         The Governor is accompanied by 4 deputy governors.

·         The First Governor of RBI was Sir Osborne Smith and the First Indian Governor of RBI was C D Deshmukh.

·         The First woman Deputy Governor of RBI was K J Udeshi.

·         The only Prime Minister who had been the Governor of RBI was Manmohan Singh.

Constitution

• Official Directors (central board of directors)
  • Full-time: Governor and not more than four Deputy Governors
• Non-Official Directors
  • Nominated by Government: ten Directors from various fields and two government Official
  • Others: four Directors – one each from four local boards (regional)

Main Functions

1. Monetary Authority:

• It implements and monitors the monetary policy and ensures price stability while keeping in mind the objective of growth.

An amendment to RBI Act, 1934, was made in May 2016, providing the statutory basis for the implementation of the flexible inflation targeting framework. 

Section 45ZB of the amended RBI Act, 1934, also provides for an empowered six-member Monetary Policy Committee (MPC) to be constituted by the Central Government by notification in the Official Gazette

Monetary Policy Committee

• It was created in 2016.
• It was created to bring transparency and accountability in deciding monetary policy.
• MPC determines the policy interest rate required to achieve the inflation target.
• Committee comprises of six members where Governor RBI acts as an ex-officio chairman. Three members are from RBI and three are selected by government.
• Inflation target is to be set once in a five year. It is set by the Government of India, in consultation with the Reserve Bank.

2. Regulator and Supervisor of the Financial System:

• Prescribes broad parameters of banking operations within which the country’s banking and financial system functions such as issuing licenses, branch expansion, liquidity of assets, amalgamation of banks etc.
• Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services such as commercial banking, co-operative banking, to the public.

3. Manager of Foreign Exchange:

• Manages the Foreign Exchange reserves of India.
• It facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India.
• It also maintains external value of rupee.

4. Issuer of Currency:

• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

5. Developmental Role:

• Performs a wide range of promotional functions to support national objectives such as making institutional arrangements for rural or agricultural finance.
• Commercial banks lend loans to small-scale industrial units as per the directives (Priority Sector Lending) issued by the Reserve Bank of India time to time.

6. Financial Inclusion:

• The Reserve Bank has selected a bank led model for financial inclusion in India. RBI has undertaken a series of policy measures. Some of the important ones are:
  • No Frills Accounts – account either with nil or very low minimum balance as well as charges that would make such accounts accessible to vast sections of population.
  • Use of Technology – devices such as ATMs, hand held devices to identify user accounts through a card and biometric identifier, Deposit taking machines and Internet banking and Mobile banking facility to provide the banking services to all sections of society with more ease.

7. Related Functions:

• Banker to the Government: performs merchant banking function for the central and the state governments.
• It is entrusted with central govt.’s money, remittances, exchange and manages its public debt as well.
• Banker to banks: maintains banking accounts of all scheduled banks. It also acts as lender of last resorts by providing fund to banks.

Independence of RBI

• Under section 7 of the RBI Act, the central government may from time to time give such directions to the RBI as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. Moreover, there is no legal act mandating autonomy of the RBI.
• Yet, RBI has always been looked upon as an autonomous body which has under its umbrella all commercial banks, be it PSBs or private banks or foreign banks.
• It is not only vested with the powers to formulate the monetary policy but also to monitor the functioning of all banks.
• To play its role effectively, autonomy in its functioning is sine qua non for RBI.
• However, the independence of RBI has been challenged many times due to a continued tug of war for wresting more power between the bank and the govt.
• The main reasons for this have been:
  • RBI’s failure to check the growth of Non Performing Assets.
  • Reduced liquidity in the economy due to tight monetary policy followed by RBI.
  • Corrective measures taken by RBI to clean up the banking system which are not seen very positively by the government
  • Clash between short term populist agenda of the government and long term view for price stability taken by RBI.
  • Regulation of Public Sector Banks: One important limitation is that the Reserve Bank is statutorily limited in undertaking the full scope of actions against public sector banks (PSBs) – such as asset divestiture, replacement of management and Board, license revocation, and resolution actions such as mergers or sales –– all of which it can and does deploy effectively in case of private banks.
  • Erosion of statutory powers of the central bank through piece-meal legislative amendments that directly or indirectly eat at separation of the central bank from the government.

RBI’s Important Publication (half yearly)

• Financial Stability Report
• Monetary Policy Report
• Report on Financial Review

3. The new rules to keep advertisements in check

What are the provisions under the freshly issued guidelines of the CCPA? How is it addressing advertisements targeting children?

The Central Consumer Protection Authority (CCPA) recently issued guidelines to prevent false or misleading advertisements. The guidelines are path breaking because they fill significant consumer protection gaps while explicitly outlining advertiser duties. 

An advertisement is valid if it contains true and honest representation of goods and does not exaggerate the accuracy, scientific validity or practical usefulness or capability.

In a prominent move, advertisements that condone, encourage, inspire or unreasonably emulate behaviour that could be dangerous for children or take advantage of ‘children’s inexperience, credulity or sense of loyalty etc.’ have been prohibited.

G.S. Bajpai

The Central Consumer Protection Authority (CCPA) recently issued guidelines to prevent false or misleading advertisements. The guidelines are pathbreaking because they fill significant consumer protection gaps while explicitly outlining advertiser duties. The guidelines also try to discourage the promotion of illogical consumerism aimed at children. The problem of misleading, bait, surrogate and children-targeted advertisement has festered without respite for far too long. The guidelines perform an essential function in bringing the Indian regulatory framework at par with international norms and standards.

Defining a ‘valid’ advertisement

The guidelines lay down the conditions for non-misleading and valid advertisements. Briefly, an advertisement can be considered non-misleading if it contains true and honest representation of goods and does not exaggerate the accuracy, scientific validity or practical usefulness or capability. In case of unintentional lapse, the advertisement may still be considered as valid if the advertiser has taken prompt action in letting the consumer know the deficiency.

It must be noted that rather than defining what constitutes a ‘misleading or invalid advertisement,’ the guidelines have sought to define ‘valid or non-misleading advertisement.’ This take on policy drafting significantly reduces the scope for exploitation of any inadvertent loopholes.

Surrogate advertisements

“Surrogate advertisement” refers to the advertisement of goods in the shadow of other goods. For example, the advertisement of tobacco in the garb of pan masala. Advertisement of tobacco as such is prohibited by the law. While existing laws such as the Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply, and Distribution) Act, 2003 already seeks to govern advertisements related to tobacco, manufacturers and advertisers have been able to circumvent the regulation through the grey area created by a surrogate advertisement. The guidelines seek to ensure that these grey areas are filled by the black letter of the law, completely disallowing any attempts to advertise products that are otherwise prohibited by law.

Advertisements targeting children

Another important issue taken up by the new guidelines is the discouragement of “children targeted advertisements”. Advertisements that condone, encourage, inspire or unreasonably emulate behaviour that could be dangerous for children or take advantage of children’s inexperience, credulity or sense of loyalty etc. have been prohibited. It goes without saying that advertisements tend to influence children’s buying behaviour and encourage them to consume unhealthy goods, or develop negative feelings toward healthy goods. The guidelines further require that the goods which require a health warning should not be advertised through children as well as personalities from music, sports and cinema. Advertisements that state “any health or nutritional claims or benefits without being adequately and scientifically substantiated” or any surgery which may have adverse effects on the physical and mental health of children are prohibited. Furthermore, an advertisement may be considered as children targeted if the advertisement of any goods, product or service which addresses or targets children may develop negative body image in children or give any impression that such goods, product or service is better than natural or traditional food. For example, advertisements relating to milk additive products often imply that the products have higher nutritional value for the growth of children, increase retention power of the brain during exams, strengthen bones in sports etc., even though these claims are yet to be scientifically proven.

The youth form the most impressionable demographic for all advertisers. To catch them young is a well-known marketing strategy. Children can be influenced through advertisements fairly easily — they are individually capable of making buying decisions, can influence the decisions of their parents and make up the future adult demographic. A marketing strategy that seeks to aggressively play on the immaturity of the younger audience can invariably impinge upon their ‘right to choose’ as well as their right to be informed and protected against unsafe goods and services as well as unfair trade practices.

Additionally, the guidelines also require that advertisements including “chips, carbonated beverages and such other snacks and drinks” shall not be cast on channels exclusively meant for children. However, it remains to be seen as to whether such a guideline can survive a challenge under Article 14 and Article 19(1)(g) of the Indian Constitution in as much as it impinges upon the right of the channels such as Cartoon Network to earn revenue from such advertisements.

Other reforms

The guidelines have also introduced the need to have “disclaimers in advertisements” to “clarify a claim made in such advertisement or make qualifications or resolve ambiguities therein in order to explain such claim in further detail.” Moreover, the advertiser must not “attempt to hide material information with respect to any claim made in such advertisement, the omission or absence of which is likely to make the advertisement deceptive or conceal its commercial intent”. The guidelines require that the disclaimer must be visible to normally sighted persons and prominently placed so that the consumer may read it carefully.

The guidelines also impose duties on the manufacturers, service providers and advertising agency to not claim and make comparisons in an advertisement which relate to matters of objectively ascertainable facts. Moreover, the advertisement must be framed to gain the trust of the consumers and not to “abuse the trust of consumers or exploit their lack of experience or knowledge”.

The enforcement issues in existing advertisement laws have been addressed by the guidelines in as much as it imposes severe penalties. The guidelines are momentous in empowering customers against mischievous advertisers. The advertisers, too, must take a cue from the guidelines and impose self-regulation to comply with the same. While the guidelines must be hailed as a step in the right direction, there is a definite need to ensure their implementation in the spirit they have been drafted with.

4. Understanding the all-time high in India’s trade deficit

After a year of record exports, why have India’s exports moderated in the first quarter?

The chasm between exports and imports has widened in the first quarter of this year, with the cumulative trade deficit already hitting $70 billion, translating into an average of $23.3 billion a month. 

While Russia’s conflict with Ukraine has propped up commodity prices globally, the spill over effects of runaway inflation are hurting global growth prospects as well as trade demand. The ‘lacklustre’ exports in June reflect an underlying slowdown in external demand.

India is not alone as even super-exporter Germany recorded its first trade deficit in 30 years this May, albeit a minor one.

Vikas Dhoot

The story so far: Having crossed a record $400 billion mark in 2021-22, India’s exports have moderated in the first quarter of this year, with May and June clocking upticks of 20.6% and 16.8%, respectively, slowing from a 30.7% rise in April. Sequentially too, overall goods exports declined for the third month in a row in June, even as imports continued to rise sharply, triggering fresh peaks for India’s monthly trade deficit.

How has the merchandise trade balance changed in recent months?

While India’s exports were surging last year, imports were rising too, according to the Ministry of Commerce. Total goods exports in 2021-22 amounted to $422 billion, up sharply from the pre-COVID levels of $313 billion in 2019-20. This was the highest ever export number, and marked the first time in years that an official export target ($400 billion) was not only met, but surpassed. Imports hit a fresh high of $613 billion, compared to $394 billion in the pandemic affected previous year and $475 billion before that. The trade deficit thus stood at $191 billion, nearly double of 2020-21.

The chasm between exports and imports has widened in the first quarter of this year, with the cumulative trade deficit already hitting $70 billion, translating into an average of $23.3 billion a month. By contrast, the previous highest monthly trade deficit was $22.9 billion in November 2021. That record has been surpassed significantly in the past two months, with the deficit hitting $24.3 billion in May and peaking to a new high of $25.6 billion in June. Economists reckoned the deficit was higher on a seasonally adjusted basis, with Nomura analysts estimating that it stood at $25.8 billion in May and widened to $29.9 billion in June. Economists at HSBC Securities and Capital Markets (India) pegged the trade deficit even higher in seasonally adjusted terms, at $31 billion from $26 billion in May.

In value terms, imports jumped for the fifth month in a row to a fresh record of $63.6 billion in June, 51% over the same month a year ago and 6.9% higher than May’s tally, which in turn was 7.3% over the value of April’s inbound shipments. On the other hand, exports slid 2.6% from May’s $38.9 billion to $37.9 billion in June.

What is driving up imports and denting exports?

While Russia’s continuing conflict with Ukraine since late February this year has propped up commodity prices globally, the spill over effects of runaway inflation are hurting global growth prospects as well as trade demand. The ‘lacklustre’ exports in June reflect an underlying slowdown in external demand, with weakness seen in exports of engineering products, chemicals, pharmaceuticals, cotton yarn and plastic products, Nomura said in a note. Outbound shipments for these four categories, part of India’s top ten exports, contracted. While petroleum exports were still up a sharp 98% from June 2021, they were $0.7 billion lower than May 2022 levels. And though exports of readymade garments, electronics and rice remained healthy, non-oil exports fell for the second successive month in June on a seasonally adjusted basis, HSBC cautioned in a note on Tuesday. “…We find that in volume terms, low-skill exports like agriculture and textiles have weakened more than high skill exports like engineering goods and pharma,” said its chief economist Pranjul Bhandari (along with co-authors).

Imports, on the other hand, have literally been fuelled by energy sources — oil and coal, with the former driven by higher prices and the latter driven by India’s domestic coal supply crunch compelling power producers to import more each passing month. The volatility in financial markets and the sharp inflation have also driven up imports of gold — considered a safe haven and hedge against price rise. Coal imports were up 242% in June, gold by 170% (after a dazzling 789% uptick in May), and crude oil imports grew over 94%. But non-oil, non-gold imports (also known as core imports) also grew by a robust 31.7% in June — spurred by higher inflows of plastics, chemicals, electronics and vegetable oils. While higher prices are feeding a large part of the increase in headline imports, import volumes are also growing in line with steady domestic demand, Nomura analysts argued.

What will determine the trade trajectory through the rest of the year?

With several developed economies expected to fall into recession over this year, the dip in exports could accelerate in coming months. The fresh taxes and restrictions imposed on petroleum exports could weaken outbound volumes further, while Indians’ appetite for gold may not be dented much by the higher import duties levied by the Centre last week. Oil and gold prices may have corrected a bit recently, but still remain significantly high. Moreover, coal imports will only surge further as Coal India’s production levels slide through the monsoon. The weakening rupee will continue to make imports costlier while slowing exports may not be able to capitalise enough on it. Indian exporters don’t expect a change in the narrative till the war in Europe abates, along with the high volatility in commodity prices. Economists at Nomura and HSBC expect ‘record high trade deficits’ to remain the norm for India, for now. But India is not alone, and can perhaps, take solace from the fact that even super-exporter Germany recorded its first trade deficit in 30 years this May, albeit a minor one.

5. Editorial-1: Words from Bandung to relive in Bali and Delhi

With the Ukraine war shaping the future world order, it is time India brings a balanced outlook to its strategic policy

Three back-to-back summits in the past fortnight have helped settle the dust on who stands where on the Russian invasion of Ukraine: the BRICS (June 23-24), followed by the G-7 summit (June 26 and 27), and then the North Atlantic Treaty Organization (NATO) Summit in Madrid (June 29). Prime Minister Narendra Modi attended the BRICS summit virtually, and then travelled to Germany for the G-7 outreach between the seven “most industrialised nations” and the special invitees this year, namely, Argentina, Indonesia, India, Senegal and South Africa. India was not a part of the NATO summit, which included an outreach to the United States’s Indo-Pacific treaty allies, i.e., Japan, South Korea, Australia and New Zealand.

In order to understand what they portend for the future global world order, it is necessary to study the messages sent out by each of these groupings against the backdrop of the situation in Ukraine. Some of the impact will be made clearer this week as India’s External Affairs Minister S. Jaishankar attends a Foreign Ministers meeting of the G-20, “the world’s largest economies”, in Bali (July 7-8), and in the next few months, when Indonesia hosts the G-20 summit in November and India takes over the G-20 presidency in December. Most importantly, how can India, that has hitherto managed a careful balancing act between all the groupings, build a movement out of this moment of deep polarisation in the world?

BRICS-G7-NATO

The Brazil-Russia-India-China-South Africa Summit hosted by Chinese President Xi Jinping in virtual format was significant as it was the first such multilateral grouping Russian President Vladimir Putin attended since February 24, 2022 (the day Ukraine was invaded), and both Mr. Xi and Mr. Putin took aim at the unilateral economic sanctions imposed by the United States and the European Union. The fact that Mr. Modi agreed to join the summit showed India’s commitment to BRICS as an alternate grouping of economies spotlighted India’s refusal to shun Russia, and agreement to set aside the two-year stand-off with China’s People’s Liberation Army at the Line of Actual Control (LAC) in favour of multilateral meetings such as BRICS and the Shanghai Cooperation Organisation (SCO). The BRICS Beijing Declaration was a consensus document, as each member cited differing “National Positions” on the Ukraine issue. However, the BRICS economic initiatives, that Mr. Modi lauded as “practical”, contain several challenges to the western-led sanctions regime against Russia. In addition to BRICS’s New Development Bank (NDB), that has approved about 17 loans totalling $5 billion for Russian energy and infrastructure projects, the “Contingent Reserve Arrangement” (CRA), and a BRICS Payments Task Force (BPTF) for coordination between their central banks for an alternative to the SWIFT payments system, Mr. Putin also proposed building a global reserve currency based on a “basket of currencies” and trading in local currencies. Russia also committed to providing more oil and coal supplies to BRICS countries, which will no doubt raise red flags in the West, as will the possible admission of countries such as Argentina and Iran that have applied to the BRICS mechanism.

A day after BRICS, Mr. Modi left for the G-7 Summit at Germany’s Schloss Elmau, proof, if any was required, of India’s flexibility in dealing with both sides of the conflict. In a number of statements, the G-7 (the U.S., the United Kingdom, Canada, France, Germany, Italy, Japan and the European Union) targetted Russia’s war in Ukraine and China’s economic aggression. However its outreach documents — on “Resilient Democracies” and “Clean and Just Transitions towards Climate Neutrality” — the only ones that India and other invitees signed on to, were devoid of any mentions of either.

At the NATO meeting, however, there was little sign of any restraint as the group comprising the U.S., Canada and European countries committed to more NATO actions against “Russian aggression”. These included, for the first time, a reference to “systemic competition” from China as a challenge to NATO “interests, security and values”. The presence of the U.S.’s trans-Atlantic and trans-Pacific military allies at one conference sent out a clear message against a perceived Russia-China alliance. The launch of another Indo-Pacific coalition — of “Partners in the Blue Pacific” (PBP), i.e., the U.S., the U.K., Australia, New Zealand and Japan, in addition to last year’s Australia-U.K.-U.S. (AUKUS), is another signal of the U.S.’s growing focus on countries that it has military alliances with, against its adversaries. Apart from the Indo-Pacific partners at the summit, there were leaders of the five countries that have applied to join NATO, i.e., Finland, Georgia, Sweden, Ukraine (President Zelensky gave a virtual address), and Bosnia Herzegovina (its Defence Minister attended). The direct message was that NATO would no longer consider Russian sensitivities on the subject of NATO expansion.

India must lead

The outcome of all three summits points to a growing polarisation, even battle lines being drawn, between the Western Atlantic-Pacific axis and the Russia-China combine. So where does this leave India? The Narendra Modi government has committed to a singular strategy, albeit a defensive one, that does not condone Russia for its attacks on Ukraine, but one that does not criticise it either. First, India has joined China as global economies that have most increased their intake of Russian oil, and where India continues to source fertilizer, cement and other commodities from Russia using different means, including even paying in the Chinese Yuan to circumvent sanctions. Second, India is working to diversify its defence purchases from Russia, hostilities with China are high, and a strategic tilt towards the U.S. and Quad partners in the Indo-Pacific is growing. On the multilateral stage, too, India remains a balancing voice in the room: along with Brazil and South Africa, India ensured that the BRICS Beijing declaration did not carry the Russian position on the Ukraine war or any criticism of the West, while making certain with other partners of the global South that the G-7 outreach documents carried no criticism of Russia and China.

This perilous tightrope walk, however, is unlikely to suffice as a long-term strategy. It is time for New Delhi to seize the moment for leadership in a world that is becoming increasingly uncomfortable with the growing polarisation and the disruption due to the Ukraine war. India is not alone. In Germany, Mr. Modi found common cause on this with the Indonesian President, Joko Widodo, who is trying ensure that both sides of the world attend the G-20 summit he will host in Bali in November, amid growing worries that leaders of at least nine member countries (Australia, Canada, France, Germany, Italy, Japan, the Republic of Korea, the U.K., the U.S., as well as the European Union) could stay away from sessions where Mr. Putin speaks. As the next President of the G-20, Mr. Modi also must shoulder the burden of ensuring that the G-20 stays together, and reassuring those worried by the brinkmanship of the West on one side and Russia and China on the other.

Gather the like-minded

These countries are more numerous than one can imagine. At the United Nations General Assembly, for example, a majority of 141 countries voted to castigate Russia for its invasion of Ukraine, but much fewer, only 93, voted to oust Russia from the Human Rights Council. Even more significantly, only 40 countries joined the U.S. and Europe-led sanctions regime against Russia. This represents a large pool of independently-minded countries that do not see it in their own national interest to blandly choose one side over another. Instead of abstaining on every vote or being defensive about sanctions, therefore, India’s national interests would be better served by building a community of those like-minded countries (from South America to Africa, the Gulf to South Asia and to the Association of Southeast Asian Nations), who cannot afford the hostilities, and want to avoid the possibility of a global war at all costs. Like Mr. Widodo, who flew from Germany to Kyiv and Moscow to talk to Mr. Zelensky and Mr. Putin, Mr. Modi is amongst the few leaders today still able to speak to both sides. The group of those who can urge for sanity to prevail must grow.

Words that matter

In 1955, it was in such a similar moment that India took leadership of (along with countries such as Indonesia and Egypt at the Asian-African Conference of 29 newly independent nations, at Bandung), a conference that eventually led to the Non-Aligned Movement (NAM). “If all the world were to be divided up between these two big blocs what would be the result?” asked Prime Minister Jawaharlal Nehru at Bandung. “The inevitable result would be war. Therefore, every step that takes place in reducing that area in the world which may be called the unaligned area is a dangerous step and leads to war. It reduces that objective, that balance, that outlook which other countries without military might can perhaps exercise.”

While the Narendra Modi government has shown little interest in NAM or even in Nehruvian thought, it may be necessary to reconsider Nehru’s words in a world fraught with danger nearly 70 years later. This is the time to rethink India’s role in “growing the unaligned area” and bringing the “objective and balanced” outlook Nehru spoke of, to the forefront of India’s strategic policy, by channelling that thought from Bandung, to Bali and Delhi this year.

6. Editorial-2: A ‘no’ to pharma freebies, a ‘yes’ for public good

The recent Supreme Court judgment should be applied to other unethical practices and expenditure out of public funds

The judgment by a two-judge Bench of the Supreme Court of India in M/s Apex Laboratories Pvt. Ltd. vs Deputy Commissioner of Income Tax, Large Tax Payer Unit-II, on February 22, 2022 has struck a blow for public good.

Justice Uday Umesh Lalit and Justice S. Ravindra Bhat dismissed the Special Leave Petition by Apex Laboratories to claim deduction on freebies given to doctors. Upholding a decision by the Madras High Court, the Bench said that the act of pharmaceutical companies giving freebies to doctors is clearly ‘prohibited by the law’. Further, it cannot be claimed as a deduction under Section 37(1) of the Income Tax Act, 1961.

The judgment will go a long way in checking unethical and illegal practices in the pharma sector which has become so out of reach for the common man.

A case of misuse

Repelling the contention of the company by S. Ganesh, Senior Counsel, Justice Ravindra Bhat said that pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence of giving freebies to doctors to promote their brands, even though this was prohibited in the law framed by the Medical Council of India (MCI). In the said case, the company was giving out freebies to doctors in order for them to create awareness about a health supplement it was manufacturing called Zincovit.

The judge said that in the process of interpretation of the law, it is the responsibility of the court to discern the social purpose which the specific provision subserves. The judgment said: “Thus, pharmaceutical companies’ gifting freebies to doctors, etc. is clearly ‘prohibited by law’ and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes — that they need to be interpreted strictly — cannot sustain when it results in an absurdity contrary to the intentions of the Parliament.”

Upholding the Central Board of Direct Taxes (CBDT) circular dated August 1, 2012, and applying it to the case, the Court also cited and relied upon Regulation 6.8 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 framed under the Medical Council Act, 1956, now repealed and substituted by the National Medical Commission Act, 2019. The Court also highlighted Quereshi (2007) 2 SCC 759 and Commissioner Of Income Tax vs Khemchand Motilal Jain to show that the assessee was not a wilful participant in any offence or illegal activity prohibited by law.

While overruling the Income Tax Tribunal’s view in the case of PHL Pharma (2017) and Max Hospital (2014) ILR 1 P. 620, the Court held that Regulations 2002 did apply to pharma companies also. Further, they could not be allowed to perpetuate the illegality of violations of norms by doctors. Invoking the principle of implied condition, the Court relied on the precedents in the case of P.V. Narasimha Rao (1998) 4 SCC 626 under the Prevention of Corruption Act, and Jamal Uddin Ahmad (2003) 4 SCC 257 under the Representation of the People Act.

Laying emphasis on the fiduciary relationship between doctor and patient, the Court noted that a doctor’s prescription is considered as the final word on medication by the patient even if the cost of such medication is unaffordable. In a situation where such trust is reposed in doctors, having prescriptions manipulated by the lure of freebies is immoral. The Court was conscious that the cost of such freebies is factored in the cost of medicines sold, in turn driving up their prices and perpetuating a publicly injurious cycle. This fact was taken note of by the Parliamentary Standing Committee on Health and Family Welfare in its 45th report, dated August 4, 2010.

In the U.S.

In its elaborate judgment, the Court also took note of a report issued by the United States Department of Health and Human Services Office called “Savings Available Under Full Generic Substitution of Multiple Source Brand Drugs in Medicare Part D” dated July 23, 2018. Here, it was stated that the beneficiaries could have saved over $600 million in out-of-pocket payments had they been dispensed generic equivalent drugs. In a previous study by ProPublica titled “Dollars for Doctors: Now There is Proof: Docs who get Company Cash Tend to Prescribe Brand Name Meds” dated March 17, 2016 also, similar feelings were echoed. In the U.S., by the reason of the Physician Payments Sunshine Act 2010 also known as Section 6002 of the Affordable Care Act (ACA) of 2010, the law compels the manufacturers of drugs, devices, biologic and medical supplies to report to the Centers for Medicare and Medicaid Services, on three broad categories of payments or transfers of value such as meals, travel reimbursements and consulting fees. These include expenses borne by manufacturers such as speaker fees, travel, gifts, honoraria, entertainment, charitable contribution, education, grants and research grants, etc.

The issue of retail price

Obviously, the uncovered field in this judgment — and it was not the controversy in hand before the Court — is the sale of medicines at Maximum Retail Price, or MRP. This is a scam and a case of underhand dealing that happens in the pharma world (the giving away of freebies is a smaller part of it) because drugs are invariably sold in pharmacist shops at MRP only. This is what affects medical treatment. Even though the Drug Price Control Order and Drugs and Cosmetics Act are there on the statute book, there is hardly any action to keep the sale price of medicines under control with due and proper investigation into their so-called research and development costs and keeping their profit margins within a prescribed limit.

One fails to understand why the law cannot be amended to compel the manufacturer of drugs to sell at the verified genuine cost, that also factors in a reasonable profit margin for each product by bringing manufacturers, both foreign or domestic, under the control of the MCI or any other equivalent body such as the Institute of Chartered Accountants of India. This must be at a uniform rate throughout the country; further, classified life saving drugs should be sold at cost only or even at subsidised rates.

Nobody is against the pharma industry earning a reasonable profit. But there is an urgent need to check looting that is driven by drug manufacturers to distribute their products using freebies or ‘bribes’.

Further application

This judgment can also go far. It should be debated and applied to other unethical practices and expenditure out of public funds. The strategy here should be to use financial tools such as income-tax provisions for disallowing such expenditure and taxing the same as perquisites or taxable income in the hands of recipients viz. assurances and declarations in election campaigns by political parties by giving away free laptops, waived electricity charges, food grains, loan waivers, etc. It is tax-payers money that is being used to garner votes.

Justice Vineet Kothari is a former Acting Chief Justice of the Gujarat and Madras High Courts and Judge of the Rajasthan and Karnataka High Courts