1. SC to hear plea against sale of electoral bonds
NGO seeks stay on scheme ahead of election in key States
Chief Justice of India Sharad A. Bobde agreed with advocate Prashant Bhushan on Thursday to urgently hear a plea by NGO Association for Democratic Reforms to stay the sale of a new set of electoral bonds on April 1, before the Assembly elections in crucial States such as West Bengal and Tamil Nadu.
Responding to an urgent mentioning made by Mr. Bhushan via videoconference, Chief Justice Bobde said the matter would require a detailed hearing and posted the case for March 24.
Mr. Bhushan said the Reserve Bank of India (RBI) and the Election Commission had both said that the sale of electoral bonds had become an avenue for shell corporations and entities to park illicit money and even proceeds of bribes with political parties. “Every time there is an election, the sale is opened. Every time this happens, we have moved the Supreme Court to stay it,” he submitted.
“But hasn’t stay been refused earlier?” Chief Justice Bobde asked.
“Not so, but parties had been asked to submit records in sealed cover… But a proper stay has to be considered. There are two documents from the RBI and the Election Commission that say the electoral bonds scheme is detrimental to democracy,” Mr. Bhushan replied.
Solicitor-General Tushar Mehta informed the Chief Justice that Attorney-General K.K. Venugopal would be appearing in the case. “His submissions in the Maratha quota case will start today [March 18] and he may finish it by Wednesday [March 24],” Mr. Mehta said.
“Surely, he will find time in a matter like this!” Chief Justice Bobde retorted.
The NGO, also represented by advocate Neha Rathi, voiced serious apprehensions about the sale of electoral bonds before elections.
‘Illegal sale windows’
“Data obtained through RTI has shown that illegal sale windows have been opened in the past to benefit certain political parties… There is a serious apprehension that any further sale of electoral bonds before the upcoming State elections in West Bengal, Tamil Nadu, Kerala and Assam would further increase illegal and illicit funding of political parties through shell companies,” the NGO submitted.
It said the scheme had “opened doors to unlimited political donations, even from foreign companies, thereby legitimising electoral corruption at a huge scale, while at the same time ensuring complete non-transparency in political funding”. The application reminded the court that both the central bank and the poll panel had objected to the electoral bond scheme.
The government notified the scheme on January 2, 2018. It defended the scheme in court, saying it allowed anonymity to political donors to protect them from “political victimisation”. The Ministry of Finance’s affidavit in the top court had dismissed the Election Commission’s version that the invisibility afforded to benefactors was a “retrograde step” and would wreck transparency in political funding.
The government affidavit had said the shroud of secrecy was a product of “well thought-out policy considerations”. It said the earlier system of cash donations had raised a “concern among the donors that, with their identity revealed, there would be competitive pressure from different political parties receiving donation”.
What is Electoral Bond Scheme?
- An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India.
- An individual or party will be allowed to purchase these bonds digitally or through cheque after disclosing their identity through know your customer (KYC) norms
- The citizen or corporate can then donate the same to any eligible political party of his/her choice.
- The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest. It has to be redeemed by Political parties within 15 days only in their specified account.
- The electoral bonds were introduced with the Finance Bill (2017). On January 29, 2018 the NDA government notified the Electoral Bond Scheme 2018.
Electoral bonds: Conditions
- Any party that is registered and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds
- The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
Why were electoral bonds introduced in India?
- The government said that electoral bonds would keep a tab on the use of black money for funding elections. In the absence of electoral bonds, donors would have no option but to donate by cash after siphoning off money from their businesses
- Electoral bonds were being introduced to ensure that all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public
Restrictions that were done away with after the introduction of the electoral bond scheme
- Earlier, no foreign company could donate to any political party under the Companies Act.
- A firm could donate a maximum of 7.5 per cent of its average three year net profit as political donations according to Section 182 of the Companies Act
- Also, companies had to disclose details of their political donations in their annual statement of accounts.
Criticisms of EBS
- Legalising Political Corruption: Since neither the purchaser of the bond nor the political party receiving the donation is required to disclose the donor’s identity, the shareholders of a corporation will remain unaware of the company’s contribution. Voters, too, will have no idea of how, and through whom, a political party has been funded.
- Possibility of Money Laundering: Since the identity of the donor has been kept anonymous, it could lead to an influx of black money. With doing away with all the safeguard that were present in Corporate donations to Political parties (through Companies Act), Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
- Large Corporations and not common man is utilizing this route: Nearly 91.76% (Rs 5,624 crore) of the total number of bonds purchased during the 12 phases were in the denomination Rs 1 crore. Thus, there is possibility of unholy nexus developing between Corporates and Political parties for favourable policies which comes at the cost of public welfare
- Against Smaller Regional Parties: 80.5% of the total Electoral Bonds redeemed between March 2018 and October 2019 were encashed in New Delhi (while maximum value of bonds was purchased in Mumbai) where national parties’ headquarters are located
- New sale windows during State elections: The government’s scheme was meant for Lok Sabha elections, but the sale window for bonds had been opened before State Assembly elections repeatedly, which is beneficial for Central ruling party.
- Non Transparency: The SBI has refused to divulge the names of those who purchased the electoral bonds under the RTI Act. The scheme infringes the citizens’ fundamental ‘Right to Know’ by withholding crucial information regarding electoral funding
Election Commission of India’s view on electoral bonds
ECI, in its response filed in the court, said the provisions would enable the creation of shell companies for the sole purpose of making political donations.
It also stated that the amendments to the law on foreign contributions would mean that there would be unchecked foreign funding of political parties, leading to foreign influence on India’s policy-making.
Reserve Bank of India on electoral bonds scheme
The central bank had warned the government that the bonds would “undermine the faith in Indian banknotes and encourage money laundering.”
Supreme Court’s View on Electoral Bonds
In an order in April 2019, SC had asked political parties to disclose to the Election Commission of India (ECI), in sealed covers, details of the donations they had received through the anonymous bond. However, it had refused to stay the scheme on the grounds of “limited time” available then (impending General Elections to Lok Sabha) and “the weighty issues” involved in the matter.
Drawbacks of Electoral Bonds
- The RPA (Representation of People Act 1951) although makes it mandatory for the political parties to disclose donations over Rs 20000, there is no law which prohibits these parties from disclosing the donations below Rs 20000 but the parties lack political will hence do not disclose
- The political parties have regularly delayed submitting the audited reports to the ECI. As per ADR between 2011-2015
- BJP has delayed the submission on an average by 182 days
- Congress by 166 days
- NCP by 87 days
Worse is the fact that some political parties do not even file the returns. There is little to show that action has been against these parties who have either delayed or not filed the returns.
- The political parties can continue to collect the funds through cheque and digital payments (but will have to file returns to the Income Tax authority)
Hence there are some concerns associated with the usage of electoral bonds. Then, what is the way out of this?
- As per T S Krishnamurthy (Former CEC), the government will not know how many times, the bond has been sold in the market before being encashed by the political party. So it would be better if an Election Fund is set up by the EC and donations to various political parties are collected by ECI (with compulsory PAN number)
- The above suggestion of setting up of election fund has been given by Indrajit Gupta Committee
2. ‘India has assured Sri Lanka of support’
Ahead of UNHRC vote, Foreign Secy. says Colombo ‘appreciates’ the stance
India has assured Sri Lanka of its support at the UN Human Rights Council, Sri Lankan Foreign Secretary Jayanath Colombage has said, just days before member countries vote on a new resolution on the island nation’s rights record.
India’s Ministry of External Affairs declined to comment on the Sri Lanka Foreign Secretary’s statement. Sources in the government told The Hindu that no decision on the vote had been “conveyed” yet, while Mr. Colombage said Sri Lanka “greatly appreciates” India’s position, “being the superpower they are”.
The state-run Daily News on Thursday reported the senior Foreign Ministry official’s remarks, made at a recent “digital dialogue” hosted by Sri Lanka’s Media Centre for National Development, a month-old initiative aimed at publicising the government’s efforts locally and internationally.
Human Rights Council sessions in Geneva usually invoke sharp responses from nationalist forces within Sri Lanka’s Sinhala Buddhist majority, who see the process as “targeting” their country and “interfering with its sovereignty”.
The Rajapaksa government, whose core support comes from Sinhala Buddhist nationalists, has “categorically rejected” the UN Human Rights chief’s latest report, while accusing the Council of being “politically motivated”, even as a “core group” comprising the United Kingdom, Canada, Germany, North Macedonia, Malawi and Montenegro tables the new resolution.
Colombo has also been reaching out to the member countries during the past weeks, pitching its version of Sri Lanka’s post-war realities that the UN resolutions seek to address.
President Gotabaya Rajapaksa wrote to Prime Minister Narendra Modi and Chinese President Xi Jinping, among other leaders, seeking support at the 47-member Council, where Colombo anticipates a hostile resolution. Mr. Rajapaksa spoke to Mr. Modi over telephone last week, reportedly following up on the letter sent earlier. China has officially declared its support to Sri Lanka.
All eyes are on India’s vote, not only because of its “influence” in the Council, but also because of its own tensions with Colombo, following the Rajapaksa government’s recent decisions on strategic projects involving India and China. Given India’s pressing geopolitical concerns in the island nation, and stated support for Tamil aspirations, it remains to be seen how New Delhi will approach the vote scheduled on March 22.
The only official intervention made by India so far on Sri Lanka at the ongoing 46th session of the Council in Geneva, was the statement by Permanent Representative (PR) of India Ambassador Indra Mani Pandey, who spoke of India’s “consistent position” resting on two pillars of support to Sri Lanka’s unity and territorial integrity, and an “abiding commitment” to Tamil aspirations for “equality, justice, peace and dignity”. “These are no either-or choices,” the PR had said, calling for the full implementation of the 13th Amendment.
Apart from reminding Sri Lanka of its several pending commitments and failed promises on delivering truth, justice, and promoting reconciliation, the latest resolution calls for power devolution through the 13th Amendment.
Of the seven resolutions on Sri Lanka adopted by the Council since the end of the war in the country in 2009, only four were contested and put to vote. India voted for three of those in 2009, 2012 and 2013, and abstained in 2014. The three resolutions adopted from 2015 were consensual and co-sponsored by Sri Lanka, eliminating the need for a vote.
UN Human Rights Council
- The Human Rights Council is an inter-governmental body within the United Nations system responsible for strengthening the promotion and protection of human rights around the world.
- The Council was created by the United Nations General Assembly in 2006. It replaced the former United Nations Commission on Human Rights.
- The Office of the High Commissioner for Human Rights (OHCHR) serves as the Secretariat of the Human Rights Council.
- OHCHR is headquartered in Geneva, Switzerland.
- It is made up of 47 United Nations Member States which are elected by the UN General Assembly (UNGA).
- The UNGA takes into account the candidate States’ contribution to the promotion and protection of human rights, as well as their voluntary pledges and commitments in this regard.
- The Council’s Membership is based on equitable geographical distribution. Seats are distributed as follows:
- African States: 13 seats
- Asia-Pacific States: 13 seats
- Latin American and Caribbean States: 8 seats
- Western European and other States: 7 seats
- Eastern European States: 6 seats
- Members of the Council serve for a period of three years and are not eligible for immediate re-election after serving two consecutive terms.
Procedures and Mechanisms:
- Universal Periodic Review: UPR serves to assess the human rights situations in all United Nations Member States.
- Advisory Committee: It serves as the Council’s “think tank” providing it with expertise and advice on thematic human rights issues.
- Complaint Procedure: It allows individuals and organizations to bring human rights violations to the attention of the Council.
- UN Special Procedures: These are made up of special rapporteurs, special representatives, independent experts and working groups that monitor, examine, advise and publicly report on thematic issues or human rights situations in specific countries.
- Related to the Membership: A key concern for some critics has been the composition of Council membership, which sometimes includes countries widely perceived as human rights abusers.
- China, Cuba, Eritrea, Russia and Venezuela, all of which have been accused of human rights abuses.
- Disproportionate Focus: USA pulled out of the Agency in 2018 due to its disproportionate focus on Israel, which has received by far the largest number of critical council resolutions against any country.
India and UN Human Rights Council:
- Recently, a group of Special Rapporteurs to the United Nations (UN) has written to the Indian government expressing concerns over the draft Environment Impact Assessment (EIA) notification 2020.
- In 2020, India’s National Human Rights Commission submitted its mid-term report to the Council as a part of the third round of the Universal Periodic Review (UPR) process.
- India was elected to the Council for a period of three years beginning 1st January 2019.
3. Roads to be freed of toll booths in a year: Gadkari
‘GPS-based system being put in place’
India will implement a GPS-based toll collection system and do away with all toll booths within a year, Union Minister for Road Transport and Highways Nitin Gadkari informed the Lok Sabha on Thursday.
He also shared details of the vehicle scrapping policy, first announced in the Union Budget for 2021-22, according to which the automobile industry in India will see a jump in turnover to ₹10 lakh crore from ₹4.5 lakh crore.
Separately, the Minister also expressed concern over the number of accidents and asserted that road accidents had taken away more lives in 2020 compared with the COVID-19 pandemic.
“I want to assure the House that within one year, all physical toll booths in the country will be removed. It means that toll collection will happen via GPS. The money will be collected based on GPS imaging [of vehicles],” Mr. Gadkari told the Lok Sabha during Question Hour, responding to a question by Bahujan Samaj Party MP Danish Ali.
He said 93% of the vehicles were paying toll using FASTag — a system that facilitates electronic payment of fee at toll plazas seamlessly — but the remaining 7% had still not adopted it despite paying double the toll.
He also made a statement in the Lok Sabha on the government’s new scrapping policy which, he claimed, would reduce pollution, improve fuel efficiency, and increase government’s revenue collection from the sale of new vehicles.
The new policy provides for fitness tests after the completion of 20 years in the case of privately owned vehicles and 15 years in the case of commercial vehicles. Any vehicle that fails the fitness test or does not manage renewal of its registration certificate may be declared as an End of Life Vehicle.
All government vehicles and those owned by PSUs will be de-registered after 15 years. The government will implement the policy in a phased manner, Mr. Gadkari said.
The policy will kick in for government vehicles from April 1, 2022. Mandatory fitness testing for heavy commercial vehicles will start from April 1, 2023, and for all other categories of vehicles, including personal vehicles, it will start in phases from June 1, 2024 .
To encourage owners to take their old vehicles to scrapping centres, the government has announced several incentives, including advisories to the States to give up to 25% rebate in road tax for personal vehicles and up to 15% rebate for commercial vehicles. The government will also offer waiver of registration fees on the purchase of new vehicles. The Minister said the Centre would issue an advisory to automakers to offer 5% rebate for those who buy a new vehicle after producing a scrapping certificate.
The Ministry has proposed that commercial vehicles be de-registered after 15 years in case of failure to get the fitness certificate, and a private vehicle will be de-registered after 20 years if its fails fitness certification.
There are 51 lakh light motor vehicles older than 20 years and 34 lakh light motor vehicles older than 15 years, the Minister said.
India is amongst the top 2 countries globally, just behind China on many dimensions of digital adoption. By 2022, India’s digital economy is likely to cross $1 trillion. This was the focus at the India Digital Summit 2019, held in New Delhi. The summit deliberated on what India needs to become a trillion dollar digital economy, the challenges on the way forward as well as the threats to cyber security.
Digital India programme
- Vision Areas
- Digital infrastructure as Utility to Every Citizen
- Governance and services on demand
- Digital empowerment of citizens
- To prepare India for a knowledge future.
- For being transformative that is to realize IT (Indian Talent) + IT (Information Technology) = IT (India Tomorrow).
- Making technology central to enabling change.
- On being an Umbrella Programme – covering many departments.
- The programme weaves together a large number of ideas and thoughts into a single, comprehensive vision so that each of them is seen as part of a larger goal.
- The Digital India Programme will pull together many existing schemes which would be restructured and re-focused and implemented in a synchronized manner.
- Nine pillars of Digital India
- Broadband Highways
- Universal Access to Mobile Connectivity
- Public Internet Access Programme
- e-Governance: Reforming Government through Technology
- e-Kranti – Electronic Delivery of Services
- Information for All
- Electronics Manufacturing
- IT for Jobs
- Early Harvest Programmes
Progress and Impact of Digital India Programme
- Overall 12000 rural post office branches have been linked electronically.
- Increased in electronic transactions related to e-governance as it is estimated that there are more than 100 cr mobile phones in India.
- 2, 74,246 km of optical fiber network has connected over 1.15lakh Gram Panchayats under the Bharat Net programme.
Common Service Center
- A Common Service Center (CSC) is an information and communication technology (ICT) access point created under the National e-Governance Project of the Indian government.
- A CSC is essentially a kiosk with a personal computer, a wireless connection, and other equipment. Through computer and Internet access, the CSCs provide multimedia content related to e-governance, education, health, telemedicine, entertainment, and other government and private services.
- There is a rapid expansion in the network of Common Service Centers.
- DigiGaon or Digital Village conceptualized as the connected village where the citizen can avail various e-services. These DigiGaons are projected to be change agents, promoting rural entrepreneurship, building rural capacities and livelihoods through community participation.
- Digital villages have been equipped with solar lighting facility, LED assembly unit, sanitary napkin production unit, Wi-Fi choupal.
- The aim of the programme is to turn each village into a self-sustaining unit.
- It has been estimated that the internet service sector is expected to reach $74 billion in 2022. Internet data has become the major tool for the delivery of the services.
- India till Dec 2017 had made tremendous progress in urban internet penetration with 64%. However, four fifth of rural India is yet to get access to the internet.
- Presently, there are 300 million daily active users which have risen from 10-15 million daily users in 2011. And, it is estimated that by 2020 the number would double.
Initiatives launched by the Government of India
- Digilockers—it is a “digital locker” service operated by the Government of India that enables Indian citizens to store certain official documents on the cloud. The service is aimed towards reducing the need to carry physical documents.
- BHIM app—It is an app to enable digital payments. BHIM app was used to facilitate 913 million transactions in 2017-18.
- Pradhan Mantri Gramin Digital Saksharta Abhiyan to make citizen digitally literate. The project is expected to be one of the largest initiatives of the country with an overall target of training 6 crore students until the financial year, 2019. The government has accepted 250,000 Gram Panchayats to register at least 200-300 candidates each.
India’s Digital Economy
- India’s digital economy will touch $1 trillion by the year 2022. India would be $10 trillion economy by 2030 and half of it would be the digital economy.
- Fintech sector—the Fintech sector in a recent couple of years has seen a huge jump in growth. Digital currency and online payments platforms have played a major role in financial inclusion.
- Public Services Sector—steady and efficient digital transformation across areas like e-governance and this has also considerably brought down leakages and corruption. In recent years India performed well in transparency index.
- Health care sector—it is catching up to meet the demands of its tech-savvy population. Demand is shifting now to quality and affordable healthcare, much of it being fulfilled by a public-private partnership.
- Digital healthcare startups are playing a major role in addressing areas like preventive healthcare, analytics, emergency services and engage with super-aggregation platforms like Facebook and Google.
- Enterprise and Deep Technology sector—startups in this sector have made their presence felt globally with their success. The IT services in the country are set to reach USD 13.2 billion by the end of this year.
- E-commerce and Consumer internet sector—India’s e-commerce market is set to grow three times to surpass USD 100 billion by 2022.
- Travel and Hospitality sector—this sector has enjoyed rapid online growth since the beginning of this century. The growth is also attributed to the increase in disposable income, especially, among the millennials, who are changing decades of traditional travel trends.
- Slow roll-out of Wi-Fi hotspots and the slow speed, in comparison to other developed nation.
- Most small and medium scale industry is struggling to adapt to modern technology.
- Entry level smartphones have limited capabilities for smooth internet access, and the outreach of the ‘smartphones’ is limited.
- There is an absence of enough skilled manpower in digital technology.
- Lack of user education and there are limited facilities to train personnel. India needs over one million cyber security experts to check and monitor the growing menace of digital crime.
4. ‘Rising cases may lead RBI to delay liquidity normalisation’
Save new strict lockdowns, no threat to recovery: analysts
India’s central bank may have to delay the start of monetary policy normalisation by three months amid rising COVID-19 cases, but barring the return of stringent lockdowns there is no significant threat to the economy’s recovery, analysts say.
Having seen a peak of daily cases of almost 1,00,000 in late September, infections had been on a steady decline but have now started rising again over the last month.
“Even as the increase in the current caseload points to the risk of a second wave, more localised and less stringent restrictions will help contain the economic impact versus the initial wave,” said Radhika Rao, an economist with DBS Bank.
DBS has retained its assumptions for a stronger pick-up in March quarter growth versus the December 2020 quarter.
India reported 35,871 new coronavirus cases on Thursday, the highest in more than three months, with Maharashtra alone accounting for 65% of that.
Though analysts are unlikely to rush to review their growth forecasts, several believe policy normalisation, may now take a backseat.
“Monetary policy normalisation might be pushed back by a quarter as authorities monitor developments closely,” Ms. Rao said.
The RBI in early January said it wanted to start restoring normal liquidity operations in a phased manner.
“Growth concerns due to rising pandemic cases… could push back market expectations on the timing of policy normalisation,” Nomura economists Sonal Varma and Aurodeep Nandi wrote in a note.
- Monetary Policy refers to the measures pertaining to policy undertaken by the Central Bank (RBI) to influence the availability; determine the size and rate of growth of the money supply in the economy.
- In other words, monetary policy can be defined as a process of managing a nation’s money supply to contain/control the inflation, achieving higher growth rates and achieving full employment.
- Generally, all across the globe, monetary policy is announced by the central banking body of the country, for example the RBI announces it in India. India entered into the era of economic planning in 1951.
- The Monetary and Fiscal Policies had to be adjusted to the requirements of the planned development in the country and accordingly, the economic policy of the Reserve Bank was emphasized on two objectives:
- To speed up the economic development of the nation and raise the national income and standard of living of the people.
- Control and reduce the “Inflationary” pressure on the economy.
Monetary policy is of two kinds:
- Expansionary Monetary Policy: It increases the supply of money in an economy by making credit supply easily available. Money produced through such a policy is called as cheap money. An expansionary monetary policy is required when an economy goes through a phase of recession accompanied by lower levels of growth/high levels of unemployment. But risk associated with EMP is inflation.
- Contractionary Monetary Policy: It decreases the supply of money in the economy. Contractionary monetary is used to tackle the menace of inflation in the economy by raising the interest rates.
Objectives of Monetary Polity
- In India, as defined by former RBI governor C. Rangarajan, broad objectives of monetary policy are:
- To regulate monetary expansion so as to maintain a reasonable degree of price stability; and
- To ensure adequate expansion in credit to assist economic growth
- Further the objectives of Monetary Policy are:
- It leads to economic growth: The monetary policy can influence economic growth by controlling real interest rates and its resultant impact on the investment. If the RBI opts for a cheap credit policy by reducing interest rates, the investment level in the economy can be encouraged. This increased investment can speed up economic growth.
- Price Stability: Inflation and deflation both are not suitable for an economy. Price stability is defined as a low and stable order of inflation. Thus, the monetary policy having an objective of price stability tries to keep the value of money stable.
- Exchange Rate Stability: If exchange rate of an economy is stable it shows that economic condition of the country is stable. Monetary policy aims at maintaining the relative stability in the exchange rate. The RBI by altering the foreign exchange reserves tries to influence the demand for foreign exchange and tries to maintain the exchange rate stability.
- It generates employment: Monetary policy can be used for generating employment. If the monetary policy is expansionary then credit supply can be encouraged. It would thus help in creating more jobs in different sector of the economy.
- Equitable distribution of income: Earlier many economists used to justify the role of the fiscal policy in maintaining economic equality. However, in recent years economists have given the opinion that the monetary policy can play a supplementary role in attainting economic equality.
Methods for Regulation of Monetary Policy
The methodology can be classified into two categories:
- Quantitative Credit Control Methods:
These are the instruments of monetary policy that affect over all supply of money/credit in the economy. Some are as follows:
Statutory Liquidity Ratio:
- The Statutory Liquidity Ratio refers to that proportion of total deposits which the commercial banks are required to keep with themselves in a liquid form. The commercial banks generally make use of this money to purchase the government securities.
- Thus, the Statutory Liquidity Ratio, on the one hand, is used to siphon off the excess liquidity of the banking system, and on the other, it is used to mobilize revenue for the government.
- The Reserve Bank of India is empowered to raise this ratio up to 40 per cent of aggregate deposits of commercial banks. At present it is 18.5 per cent. It used to be as high as 38.5 percent at one point of time.
Cash Reserve Ratio:
- The Cash Reserve Ratio (CRR) is the ratio fixed by the RBI of the total deposits of a bank in India, which is kept with the RBI in cash form.
- CRR deposits do not earn any interest for banks.
- Initially, limits of 4% (lower) and 20% (upper) were set for CRR, but respective amendments removed the limits, therefore providing RBI with much needed operational flexibility. The more the CRR the less the money available for lending by the banks to players in the economy. RBI increases CRR to tighten many supple and lowers CRR to expand credit in the economy.
- CRR as a tool of monetary policy is used when there is a relatively serious need to manage credit and inflation.
- Otherwise, RBI relies on signaling its intent through the policy rates of repo and reverse repo. At present it is 4 percent.
- In basic terms, bank rate is the interest rate at which RBI provides long term credit facility to commercial banks. A change in bank rate affects the other market rates of interest. An increase in bank rate leads to an increase in other rates of interest, and conversely, a decrease in bank rate results in a fall in other rates of interest. Bank rate is also referred to as the discount rate. A deliberate manipulation of the bank rate by the Reserve Bank to influence the flow of credit created by the commercial banks is known as bank rate policy.
- An increase in bank rate results in an increase in the cost of credit or cost of borrowing. This in turn leads to a contraction in demand for credit. A contraction in demand for credit restricts the total availability of money in the economy, and hence results as an anti-inflationary measure of control.
- Likewise, a fall in the bank rate causes other rates of interest to come down. The cost of credit falls, i.e., borrowing becomes cheaper. Cheap credit may induce a higher demand both for investment and consumption purposes. More money through increased flow of credit comes into circulation. A fall in bank rate may, thus, prove an anti-deflationary instrument of control. Penal rates are linked with Bank Rates. For instance if a bank does not maintain the required levels of CRR and SLR, then RBI can impose penalty on such banks. Currently Bank Rate is 7%.
- Nowadays, bank rate is not used as a tool to control money supply, rather Liquidity Adjustment Facility (LAF) (Repo Rate) is used to control the money supply in economy.
- If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate.
- Similarly, if RBI wants to make it cheaper for banks to borrow money, it reduces the repo rate. Repo rate stood at 5.75%.
Reverse Repo Rate:
- Reverse Repo is the rate at which the Central Bank (RBI) borrows from the market. This is called as reverse repo as it the reverse of repo operation. Reverse repo rate at present is 50 basis points (or 0.5%) lower than the Repo Rate. Repo and Reverse
- Repo Rates are also referred to as the Policy rates and are often used by the Central Bank (RBI) to send single to the financial system to adjust their lending and borrowing operations.
- Repo rates and reverse repo rates form a part of the liquid adjustment facility.
Open Market Operations (OMOs):
- It refers to buying and selling of government securities in open market in order to expand or contract the amount of money in the banking system. This technique is superior to bank rate policy. Purchases inject money into the banking system while sale of securities do the opposite.
- It is a common misconception that OMOs change the total stock of government securities, but in reality they only change the proportion of Government Securities held by the RBI, commercial and co-operative banks.
- The Reserve Bank of India has frequently resorted to the sale of government securities to which the commercial banks have been generously contributing. Thus, open market operations in India have served, on the one hand as an instrument to make available more budgetary resources and on the other as an instrument to siphon off the excess liquidity in the system.
Marginal Standing Facility:
- Marginal Standing Facility is a liquidity support arrangement provided by RBI to commercial banks if the latter doesn’t have the required eligible securities above the SLR limit.
- It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
- The MSF was introduced by the RBI in its monetary policy for 2011-12.
- Under MSF, a bank can borrow one-day loans from the RBI, even if it doesn’t have any eligible securities excess of its SLR requirement (maintains only the SLR). This means that the bank can’t borrow under the repo facility.
- In the case of MSF, the bank can borrow up to 1 % (can be changed by the RBI) below the SLR (means 1% of Net Demand and Time Liabilities or liabilities simply).
- The working of MSF is thus related with SLR. For example, imagine that a bank has securities holding of just 19.5 % (of NDTL). This is equal to its mandatory SLR holding. The bank can’t borrow using the repo facility. But as per the MSF, the bank can borrow 1 % of its liabilities from the RBI. Sometimes the RBI increases the limit of borrowings to 2% of NDTL. As in the case of repo, the bank has to mortgage the securities with the RBI.
- MSF rate and the Repo rate: The bank has to give higher interest rate to the RBI. The interest rate for MSF borrowing was originally set at one percent higher than the repo rate. As on November 2017, the RBI has lowered the difference between repo rate and MSF to 0.25%. The MSF rate and Bank rate are equal.
- Qualitative Credit Control Methods
These are those tools through which the Central Bank not only controls the value of loans but also the purpose for which these loans are assigned by the commercial banks. Some of these are:
- Moral suasion means persuasion and request. To arrest inflationary situation Central Bank persuades and requests the commercial banks to refrain from giving loans for speculative and non-essential purposes. On the other hand, to counter defiation Central Bank persuades the commercial banks to extend credit for different purposes.
- Under Moral Suasion, RBI issues periodical letters to bank to exercise control over credit in general or advances against particular commodities.
- Periodic discussions are held with authorities of commercial banks in this respect.
- In India, from 1949 onwards the Reserve Bank has been successful in using the method of moral suasion to bring the commercial banks to fall in line with its policies regarding credit.
Rationing of credit:
- Rationing of credit is a method by which the Reserve Bank seeks to limit the maximum amount of loans and advances, and also in certain cases fix ceiling for specific categories of loans and advances. RBI also makes credit flow to certain priority or weaker sectors by charging concessional rates of interest. This is at times also referred to as Priority Sector Lending.
Regulation of Consumer Credit:
- Now-a-days, most of the consumer durables like Cars, Televisions, and Laptops, etc. are available on installment basis financed through bank credit. Such credit made available by commercial banks for the purchase of consumer durables is known as consumer credit.
- If there is excess demand for certain consumer durables leading to their high prices, Central Bank can reduce consumer credit by (a) increasing down payment, and (b) reducing the number of installments of repayment of such credit.
- On the other hand, if there is deficient demand for certain specific commodities causing deflationary situation, Central Bank can increase consumer credit by (a) reducing down payment and (b) increasing the number of installments of repayment of such credit.
- This method is adopted when a commercial bank does not co-operate with the central bank in achieving its desirable objectives. Direct action may be as:
- Central banks may charge a penal rate of interest over and above the bank rate upon the defaulting banks;
- Central bank may refuse to rediscount the bills of those banks which are not following its directives;
- Central bank may refuse to grant further accommodation to those banks whose borrowings are in excess of their capital and reserves.
- Generally, commercial banks give loan against ‘stocks or ‘securities’. While giving loans against stocks or securities they keep margin. Margin is the difference between the market value of a security and its maximum loan value. Let us assume, a commercial bank grants a loan of Rs. 8000 against a security worth Rs. 10,000. Here, margin is Rs. 2000 or 20%.
- If central bank feels that prices of some goods are rising due to the speculative activities of businessmen and traders of such goods, it wants to discourage the flow of credit to such speculative activities. Therefore, it increases the margin requirement in case of borrowing for speculative business and thereby discourages borrowing. This leads to reduction is money supply for undertaking speculative activities and thus inflationary situation is arrested.
Limitations of Monetary Policy
The monetary policy of Reserve bank has played only a limited role in controlling the inflationary pressure. It has not succeeded in achieving the objective of growth with stability.
- The existence of black money in the economy limits the working of the monetary policy. Black money is not recorded since the borrowers and lenders keep their transactions secret.
- Informal money lenders on a large scale in countries like India but they are not under the control of the monetary authority. This factor limits the effectiveness of monetary policy in such countries.
- An important limitation of monetary policy arises from its conflicting objectives. To achieve the objective of economic development, the monetary policy is to be expansionary but contrary to it is to achieve the objective of price stability and curb on inflation. It can be realized by contracting the money supply. The monetary policy generally fails to achieve a proper coordination between these two objectives.
- Another limitation of monetary policy in India is underdeveloped money market. The weak money market limits the coverage, as also the effecient working of the monetary policy.
Monetary Policy Committee
- The Monetary Policy Committee (MPC) is a committee of the Central Bank in India (Reserve Bank of India), headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level.
- The MPC replaces the current system where the RBI governor, with the aid and advice of his internal team and a technical advisory committee, has complete control over monetary policy decisions.
- A Committee-based approach will add lot of value and transparency to monetary policy decisions.
- Prior to MPC, the RBI governor, with the aid and advice of his internal team and a technical advisory committee, had complete control over monetary policy decisions. This lacked clear objective, accountability and transparency in decision making.
- All the important committees of namely the Y. V. Reddy Committee (2002), Tarapore Committee (in 2006), Percy Mistry Committee (2007), Raghuram Rajan Committee (2009), Dr. Urjit R. Patel (URP) Committee (2013) (discussed below) recommended for a MPC to decide policy actions.
- They all opinioned that “Heightened public interest and scrutiny of monetary policy decisions and outcomes has propelled a worldwide movement towards a committee based approach to decision making with a view to bringing in greater transparency and accountability in India.
- Monetary Policy Committee (MPC) as a statutory committee of the Central Bank in India (Reserve Bank of India), headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level. The MPC replaces the current system.
- The MPC will have six members; – the RBI Governor (Chairperson), the RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board and the remaining three members would represent the Government of India. These Government of India nominees are appointed by the Central Government based on the recommendations of a search cum selection committee
- Government nominees of the MPC will hold office for a period of four years and will not be eligible for re-appointment. These three central government nominees in MPC are mandated to be persons of ability, integrity and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy.
- RBI Act prohibits appointing any Member of Parliament or Legislature or public servant, or any employee / Board / committee member of RBI or anyone with a conflict of interest with RBI or anybody above the age of 70 to the MPC.
- Central government also retains powers to remove any of its nominated members from MPC subject to certain conditions and if the situation warrants the same.
Financial Stability and Development Council
- Background: Since April 2009, India was a member of the international agency looking into the issue, namely, Financial Stability Board.
- High Level Coordination Committee on Financial Markets (HLCCFM), was the agency facilitating regulatory coordination, informally
- HLCCFM was the forum to deal with inter-regulatory issues arising in the financial and capital markets, as India follows a multi-regulatory regime for financial sector. It functioned under the Chairmanship of Governor (RBI), with Chairman (SEBI) Secretary (Economic Affairs, Ministry of Finance), Chairman (Insurance Regulatory and Development Authority) and Chairman (Pension Fund Regulatory Development Authority- PFRDA) as members.
- However, it was an informal body and had its own limitations despite being a good mechanism. In the absence of formal instruments, clear specifications as to its functions/powers and an empowered secretariat to nominate and follow up on the decisions of the HLCCFM, its effectiveness has been limited.
- The markets that are regulated by members of the HLCCFM have dramatically changed since 1992. Over time, markets have become more complex and converged and are becoming increasingly integrated. In such a scenario, if the regulators do not take an integrated and holistic view, it was felt that outcomes will be sub-optimal.
- Various Governmental Committees, as given below, have also recommended such an approach to regulation:
- RBI’s Advisory Group on Securities Market Regulation (RBI-AGSMR 2001);
- High Level Expert Committee on Making Mumbai an International Financial Centre (MIFC 2007);
- Committee on Financial Sector Reforms (CFSR 2008);
- Committee on Financial Sector Assessment (CFSA 2009).
- With a view to strengthen and institutionalize the mechanism for maintaining financial stability and enhancing inter-regulatory coordination, Indian Government setup an apex-level Financial Stability and Development Council (FSDC), in the Union Budget 2010–11.
- The Chairman of the FSDC is the Finance Minister of India and its members include the heads of the financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA and FMC) , Finance Secretary and/or Secretary, Department of Economic Affairs (Ministry of Finance), Secretary, (Department of Financial Services, Ministry of Finance) and the Chief Economic Adviser.
- The commodities markets regulator, Forward Markets Commission (FMC) was added to the FSDC in December 2013 subsequent to shifting of administrative jurisdiction of commodities market regulation from Ministry of Consumer Affairs to Ministry of Finance.
- Mandate: The Council would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates. It will address inter-regulatory coordination issues and thus spur financial sector development. It will also focus on financial literacy and financial inclusion. What distinguishes FSDC from other such similarly situated organizations across the globe is the additional mandate given for development of financial sector.
5. Rajya Sabha passes Bill to raise FDI limit in insurance sector
Opposition alleges that govt. is handing over control, ownership to foreigners
The Rajya Sabha on Wednesday passed the Insurance Amendment Bill, 2021 that increases the maximum foreign investment allowed in an insurance company from 49% to 74%, amid criticism from the Opposition parties on the clause enabling “control and ownership” by foreign investors.
The Opposition parties unsuccessfully tried to stall the house demanding that the Bill not be moved in a haste and instead be sent to a standing committee. They marched into the well of the House after Finance Minister Nirmala Sitharaman moved the Bill. The House was adjourned four times.
The debate started at 3.30 p.m., when the Opposition relented reluctantly to have a debate instead of continuing with the protests.
Senior Congress leader Anand Sharma questioned the very justification and intent for such a bill. He asked when the government has majority in both Houses why was it in a hurry to pass the Bill ducking due parliamentary scrutiny that the Opposition was demanding. He said the insurance companies hold the people’s money in trust and that this Bill broke it. He also accused the government of violating the assurance given in 2015 that “Indian ownership and control” would remain.
Mr. Sharma said, “We are not opposed to the policy of disinvestment, but is it disinvestment or leapfrogging towards privatisation and embarking on grand clearance sale of national assets built assiduously over the years.”
He also flagged that the big insurance firms are not in shortage of capital and that the Bill differed from the government motto — “Atmanirbhar Bharat”.
DMK MP Tiruchi Siva pointed out that none of the insurance firms had managed to get FDI even up to the present limit of 49% and questioned the justification to increase the limit.
Replying to the debate, Finance Minister Nirmala Sitharaman assured the House that the policy holder’s money will not leave Indian shores and have to be compulsorily invested here. She argued that more FDI would mean greater competition and thus better negotiated premiums for the end user.
Countering the key criticism by the Opposition parties on handing over “control and ownership” to foreign firms, Ms. Sitharaman said it came with safeguards. The key management personnel would have to be Indians and therefore would be governed by the Indian laws.
Foreign Direct Investment (FDI)
Any investment from an individual or firm that is located in a foreign country into a country is called Foreign Direct Investment.
- Generally, FDI is when a foreign entity acquires ownership or controlling stake in the shares of a company in one country, or establishes businesses there.
- It is different from foreign portfolio investment where the foreign entity merely buys equity shares of a company.
- In FDI, the foreign entity has a say in the day-to-day operations of the company.
- FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise/know-how.
- It is a major source of non-debt financial resources for the economic development of a country.
- FDI generally takes place in an economy which has the prospect of growth and also a skilled workforce.
- FDI has developed radically as a major form of international capital transfer since the last many years.
- The advantages of FDI are not evenly distributed. It depends on the host country’s systems and infrastructure.
- The determinants of FDI in host countries are:
- Policy framework
- Rules with respect to entry and operations/functioning (mergers/acquisitions and competition)
- Political, economic and social stability
- Treatment standards of foreign affiliates
- International agreements
- Trade policy (tariff and non-tariff barriers)
- Privatisation policy
Foreign Direct Investment (FDI) in India – Latest update
- From April to August 2020, total Foreign Direct Investment inflow of USD 35.73 billion was received. It is the highest ever for the first 5 months of a financial year. FDI inflow has increased despite Gross Domestic Product (GDP) growth contracted 23.9% in the first quarter (April-June 2020).
- FDI received in the first 5 months of 2020-21 (USD 35.73 billion) is 13% higher as compared to the first five months of 2019-20 (USD 31.60 billion).
FDI in India
The investment climate in India has improved tremendously since 1991 when the government opened up the economy and initiated the LPG strategies.
- The improvement in this regard is commonly attributed to the easing of FDI norms.
- Many sectors have opened up for foreign investment partially or wholly since the economic liberalization of the country.
- Currently, India ranks in the list of the top 100 countries in ease of doing business.
- In 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows, as per a UN report. This is a 16% increase from 2018.
- In February 2020, the DPIIT notifies policy to allow 100% FDI in insurance intermediaries.
- In April 2020, the DPIIT came out with a new rule, which stated that the entity of nay company that shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of such a country can invest only under the Government route. In other words, such entities can only invest following the approval of the Government of India
- In early 2020, the government decided to sell a 100% stake in the national airline’s Air India. Find more about this in the video below:
FDI Routes in India
There are three routes through which FDI flows into India. They are described in the following table:
|Category 1||Category 2||Category 3|
|100% FDI permitted through Automatic Route||Up to 100% FDI permitted through Government Route||Up to 100% FDI permitted through Automatic + Government Route|
Automatic Route FDI
In the automatic route, the foreign entity does not require the prior approval of the government or the RBI.
- Medical devices: up to 100%
- Thermal power: up to 100%
- Services under Civil Aviation Services such as Maintenance & Repair Organizations
- Insurance: up to 49%
- Infrastructure company in the securities market: up to 49%
- Ports and shipping
- Railway infrastructure
- Pension: up to 49%
- Power exchanges: up to 49%
- Petroleum Refining (By PSUs): up to 49%
Government Route FDI
Under the government route, the foreign entity should compulsorily take the approval of the government. It should file an application through the Foreign Investment Facilitation Portal, which facilitates single-window clearance. This application is then forwarded to the respective ministry or department, which then approves or rejects the application after consultation with the DPIIT.
- Broadcasting Content Services: 49%
- Banking & Public sector: 20%
- Food Products Retail Trading: 100%
- Core Investment Company: 100%
- Multi-Brand Retail Trading: 51%
- Mining & Minerals separations of titanium bearing minerals and ores: 100%
- Print Media (publications/printing of scientific and technical magazines/speciality journals/periodicals and a facsimile edition of foreign newspapers): 100%
- Satellite (Establishment and operations): 100%
- Print Media (publishing of newspaper, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%
Sectors where FDI is prohibited
There are some sectors where any FDI is completely prohibited. They are:
- Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
- Atomic Energy Generation
- Nidhi Company
- Lotteries (online, private, government, etc.)
- Investment in Chit Funds
- Trading in TDR’s
- Any Gambling or Betting businesses
- Cigars, Cigarettes, or any related tobacco industry
- Housing and Real Estate (except townships, commercial projects, etc.)
New FDI Policy
According to the new FDI policy, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.
Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather than asking for prior permission from the relevant government department.
The earlier FDI policy was limited to allowing only Bangladesh and Pakistan via the government route in all sectors. The revised rule has now brought companies from China under the government route filter.
Benefits of FDI
FDI brings in many advantages to the country. Some of them are discussed below.
- Brings in financial resources for economic development.
- Brings in new technologies, skills, knowledge, etc.
- Generates more employment opportunities for the people.
- Brings in a more competitive business environment in the country.
- Improves the quality of products and services in sectors.
Disadvantages of FDI
However, there are also some disadvantages associated with foreign direct investment. Some of them are:
- It can affect domestic investment, and domestic companies adversely.
- Small companies in a country may not be able to withstand the onslaught of MNCs in their sector. There is the risk of many domestic firms shutting shop as a result of increased FDI.
- FDI may also adversely affect the exchange rates of a country.
Government Measures to increase FDI in India
- Government schemes like production-linked incentive (PLI) scheme in 2020 for electronics manufacturing, have been notified to attract foreign investments.
- In 2019, the amendment of FDI Policy 2017 by the government, to permit 100% FDI under automatic route in coal mining activities enhanced FDI inflow.
- FDI in manufacturing was already under the 100% automatic route, however, in 2019, the government clarified that investments in Indian entities engaged in contract manufacturing is also permitted under the 100% automatic route provided it is undertaken through a legitimate contract.
- Further, the government permitted 26% FDI in digital sectors. The sector has particularly high return capabilities in India as favourable demographics, substantial mobile and internet penetration, massive consumption along technology uptake provides great market opportunity for a foreign investor.
- Foreign Investment Facilitation Portal (FIFP) is the online single point interface of the Government of India with investors to facilitate FDI. It is administered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry.
- FDI inflow is further expected to increase –
- as foreign investors have shown interest in the government’s moves to allow private train operations and bid out airports.
- Valuable sectors such as defence manufacturing where the government enhanced the FDI limit under the automatic route from 49% to 74% in May 2020, is also expected to attract large investments going forward.
Regulatory Framework for FDI in India
In India, there are several laws regulating FDI inflows. They are:
- Companies Act
- Securities and Exchange Board of India Act, 1992 and SEBI Regulations
- Foreign Exchange Management Act (FEMA)
- Foreign Trade (Development and Regulation) Act, 1992
- Civil Procedure Code, 1908
- Indian Contract Act, 1872
- Arbitration and Conciliation Act, 1996
- Competition Act, 2002
- Income Tax Act, 1961
- Foreign Direct Investment Policy (FDI Policy)
Important Government Authorities in India concerning FDI
- Foreign Investment Promotion Board (FIPB)
- Department for Promotion of Industry and Internal Trade (DPIIT)
- Reserve Bank of India (RBI)
- Directorate General of Foreign Trade (DGFT)
- Ministry of Corporate Affairs, Government of India
- Securities and Exchange Board of India (SEBI)
- Income Tax Department
- Several Ministries of the GOI such as Power, Information & Communication, Energy, etc.
6. Editorial-2: Aadhaar as a hurdle
Inefficiencies in the Aadhaar project should not come in the way of welfare delivery
The Supreme Court, on Wednesday, did the right thing by terming as serious the allegation by a petitioner that three crore ration cards were cancelled for not being linked with the Aadhaar database and that these were connected to reported starvation deaths in some States. The unique identification scheme has been in existence for more than a decade and recent data has estimated that nearly 90% of India’s projected population has been assigned the Aadhaar number. Following the Court’s judgment in 2018, upholding the Aadhaar programme as a reasonable restriction on individual privacy to fulfil welfare requirements and dignity — a 4-1 majority Bench had also rejected a review petition in January 2021 — questions about the scheme’s validity for public purposes have been put to rest. But that has not meant that concerns about the failures in the use of the identity verification project have been allayed. These include inefficiencies in biometric authentication and updating, linking of Aadhaar with bank accounts, and the use of the Aadhaar payment bridge. With benefits under the PDS, the NREGA and LPG subsidy, among other essentials, requiring individuals to have the Aadhaar number, inefficiencies and failures have led to inconvenience and suffering for the poor. There are reports that show failures in authentication having led to delays in the disbursal of benefits and, in many cases, in their denial due to cancellation of legitimate beneficiary names. The government had promised that exemption mechanisms that would allow for overriding such failures will help beneficiaries still avail subsidies and benefits despite system failures. That has been the response by the government to the recent petition as well, but reports from States such as Jharkhand from 2017, for example, suggest that there have been starvation deaths because of the denial of benefits and subsidies.
Biometric authentication failures are but expected of a large scale and technology-intensive project such as the UID. Despite being designed to store finger and iris scans of most users, doubts about the success rates of authentication and the generation of “false negatives” have always persisted, more so for labourers and tribal people. Those engaged in manual and hard labour, for example, are susceptible to fingerprint changes over time. In practice, beneficiaries have tended to use Aadhaar cards as identity markers but there have been instances of people losing cards and being denied benefits. Given the scale of the problem, the central and State governments would do well to allow alternative identification so that genuine beneficiaries are not denied due subsidies. The question of fraud can still be addressed by the use of other verification cards and by decentralised disbursal of services at the panchayat level.
7. Editorial-3: For a reset
There is no hope of a sudden improvement in U.S.-China ties, but the Alaska meet is a start
As top diplomats from the U.S. and China begin their meeting in Alaska, there is no question that their conversation will be a difficult one. The meeting, between U.S. Secretary of State Antony Blinken and Yang Jiechi, CCP Politburo member and Director, Central Foreign Affairs Commission, accompanied by U.S. NSA Jake Sullivan and Chinese Foreign Minister and State Councillor Wang Yi, comes on the back of tensions that spiralled during the Trump administration around trade tariffs, 5G telecommunication, tech espionage, Chinese maritime actions and U.S. sanctions on China, and further exacerbated over the pandemic, which Mr. Trump called the “China virus”. Biden administration officials have said that they will bring up China’s crackdown in Xinjiang and Hong Kong, Chinese aggression against U.S. allies and partners, in particular pressure on Australia over trade bans, aggression against Japan in the Senkaku islands and even the PLA’s incursions over the LAC, which China considers bilateral issues. Mr. Blinken prefaced the Alaska meet with visits to Seoul and Tokyo where he promised an American “pushback” to China, and he goes into the talks with the backing of the recent summit-level Quad conversations, with a commitment to ensuring a free Indo-Pacific. For its part, China is seeking a reversal of Trump-era policies, and structured dialogue to take forward ties from the point they have reached, arguably their lowest since the Nixon era. In particular, China wants an end to the U.S.’s trade sanctions, restrictions on American firms manufacturing in China and visa bans, and a reopening of its consulate in Houston.
Clearly, the scene is set for an extended airing of grievances, and expectations are low of any breakthrough, but the fact that the meeting is happening at all sends the signal that both sides are prepared to engage each other. Mr. Blinken’s formulation that the U.S. will be “competitive when it should be, collaborative when it can be and adversarial when it must be” with China, chalks up climate change, the COVID-19 challenge and global economic recovery as areas of possible discussion. Research quoted by the World Economic Forum predicted that the U.S.-China tariff war itself could cost the world $600 billion. Afghanistan is another area where the U.S. and China have held three meetings last year as part of the “Troika” with Russia, and a common peace strategy could be another helpful conversation. The two sides are expected to discuss a possible summit meeting between U.S. President Joe Biden and Chinese President Xi Jinping. While New Delhi has a litany of its own grievances with Beijing, it too would benefit if a “Cold War” between the U.S. and China is averted, much like the rest of the world that has found itself akin to the proverbial grass when two elephants fight.