1.The wings of Pegasus, the epoch of cyberweapons

With their use not only during a conflict but even during peacetime, matters have reached a tipping point

A raging controversy across the world on the misuse of Pegasus spyware — a great deal of which is mired in facts, suppositions, false trails, allegations and counter-allegations, but nevertheless contains more than a kernel of truth — has reignited a debate on the role of cyber weapons. From an occasional and sporadic instance of a cyberattack previously, cyberattacks on institutions such as banks and on critical infrastructure have proliferated to an alarming extent, signalling the emergence of the cyber weapon epoch.

The Pegasus spyware is by no means the ultimate cyberweapon. It has, however, compelled nations to emerge from their deep slumber about the threat posed by such new age weapons, even though it has been quite a few decades since the world saw the advent of cyberweapons, albeit more primitive than those in vogue today.

An evolution

One of the earliest instances of this kind occurred in the 1990s when Yahya Abd-al-Latif Ayyash, who served as the chief bomb maker for Hamas, was assassinated by Israel’s domestic Intelligence Agency, Shin Bet, using a doctored phone containing explosives, when he responded to a call from an unknown person. Many daring exploits of the past, which took months of effort, and the utilisation of large numbers of people and resources to achieve, are, in the cyber era, possible with far less effort and resources; the destruction of the Vemork power station (in Norway) during the Second World War which took months of planning, and the extensive resources of the Allied Powers (and involved loss of lives), for instance, could be achieved in 2019 with a fraction of this effort. In 2019, Norsk Hydro, aluminium and energy producer, became the victim of a cyberattack which was accomplished remotely and anonymously, and in the shortest possible time, but with the same telling effort.

What is noteworthy is that while all of these rate as among the many dramatic transformations brought about by cyber technologies since the turn of the century, what merits contemplation is that while Moore’s Law democratised access to computing, and the Internet opened a whole new avenue for communication, all this is coming at a price. Privacy has been eroded and the Internet — true to its origins in Cold War strategy — has become a powerful weapon in the hands of those seeking to exploit its various facets.

Now, a preferred weapon

Cyber is often touted as the fifth dimension of warfare — in addition to land, sea, air and space. However, it needs to be understood that cyber, as the domain of military and national security, also co-exists with cyber as a domain of everyday life. It is the same domain. The war is no longer out there. It is now directly inside one’s drawing room, with cyberweapons becoming the weapon of choice.

Israelis, though not the cyber pioneers, today dominate the cyber domain along with the Chinese, Russians, Koreans and, of course, the Americans. Already by the first decade of the 21st century, cyberspace had graduated from being merely the new domain of warfare, into becoming fundamentally a civilian space. From its very inception, cyberweapons ranked as special weapons, not unlike nuclear devices of earlier times. Following the joint U.S.-Israeli effort in unleashing the Stuxnet Worm in 2010 — which helped disable several hundred centrifuges at the Iranian nuclear facility in Natanz — it became still more apparent that mankind had indeed unleashed a new weapon, and had in a sense crossed the Rubicon.

The linkage between sabotage and intrusive surveillance is but a short step. There are many stories in circulation of the employment of the Pegasus spyware well before the present controversy, for in 2019, WhatsApp had sued NSO over allegations that several hundreds of its users were the targets of the Pegasus spyware. The Israeli company’s claim that the spyware is sold only to governments and official agencies is, however, unproven. Israel, for its part, identifies Pegasus as a cyberweapon, and claims that its exports are controlled.

Work in progress

The Pegasus spyware it is stated can copy messages that are sent or received, ‘harvest photos and record calls, secretly film through the phone’s camera, or activate the microphone to record conversations. It can potentially pinpoint where you are, where you have been, and whom you have met. Once installed on a phone, the spyware can harvest more or less any information or extract any file’. Ongoing efforts by the NSO Group, the makers of Pegasus, are devoted to making the spyware difficult to detect.

An earlier version of Pegasus, identified as far back as 2016, infected phones mainly through ‘spearphishing’. Since then, its capabilities have vastly increased, and it currently employs ‘zero click’ attacks, which do not require any interaction on the part of the phone owner. It is used to exploit certain ‘zero day’ vulnerabilities found in operating systems — about which the manufacturers themselves are unaware. Where ‘spearphishing’ or a ‘zero click’ attack cannot succeed, the Pegasus spyware can be installed over a wireless trans-receiver located near a target. Essentially, the Pegasus virus seeks what are termed as ‘root privileges’ — that enable communication with its controllers through an anonymised network on Internet addresses and servers and transit data.

A brief survey of the more damaging cyberattacks during the past decade-and-a-half with or without the Pegasus spyware can be revealing. Beginning with the 2007 devastating cyberattack on Estonia’s critical infrastructure, this was followed by the Stuxnet worm attack a few years later on Iran’s nuclear facility. The Shamoon virus attack on Saudi Aramco occurred in 2012. Thereafter, followed the 2016 cyberattack on Ukraine’s State power grid; the 2017 Ransomware attack (NotPetya) which affected machines in as many as 64 countries; a Wannacry attack the same year on the United Kingdom’s National Health Service; and the series of attacks this year on Ireland’s Health Care System and in the United States such as ‘SolarWinds’, the cyber attack on Colonial Pipeline and JBS, etc.

Grave threat

With cyberweapons becoming the weapon of choice not only during a conflict but even during peacetime, matters have reached a tipping point. Cyberweapons carry untold capacity to distort systems and structures — civilian or military — and, most importantly, interfere with democratic processes, aggravate domestic divisions and, above all, unleash forces over which established institutions or even governments have little control. The Pegasus spyware is all this and more. For the present, it is hiding behind a cloak of anonymity, and the unwillingness of those to whom it has been sold to to acknowledge its misuse, but the reprieve is likely to be only temporary. Cyber methods which undermine capabilities can remain anonymous only for some, but not for all time. For the present, it may remain unrecognisable, but this will be only for a limited period.

Meanwhile, we must be prepared for, and guard against, a new epoch of cyber threats, employing newer, state-of-the-art cyberweapons, which will further intensify cyber insecurity across the board. As more and more devices are connected to networks, the cyber threat is only bound to intensify, both in the short and the medium term. What is especially terrifying is that instruments of everyday use can be infected or infiltrated without any direct involvement of the target. The possibilities for misuse are immense and involve far graver consequences to an individual, an establishment, or the nation. It is not difficult to envisage that from wholesale espionage, this would become something far more sinister such as sabotage.

Need for analysis

Dealing with the cyber threat, hence, deserves careful analysis and assessment. Plunging headlong into so-called solutions which have little rationale or depth is hardly the answer to critical threats posed by sophisticated spyware such as Pegasus. Dealing with ‘zero day’ vulnerabilities require far more thought and introspection than merely creating special firewalls or special phones that are ‘detached’ from the Internet. What is needed is a deeper understanding of not only cyber technologies, but also recognising the mindsets of those who employ spyware of the Pegasus variety, and those at the helm of companies such as the NSO. Short-term remedies are unlikely to achieve desired results.

With the advent of cyber weapons such as Pegasus, technology which is perceived as a friend could well become a matter of despair. At the pace at which cyber technology is evolving, erecting proper defences will prove difficult. Artificial Intelligence (AI) is often seen as a kind of panacea for many of the current problems and ills, but all advances in technology tend to be a double-edged sword. If truth be told, AI could in turn make all information warfare — including cyber related — almost impossible to detect, deflect or prevent, at least at the current stage of development of AI tools. Meanwhile, easy access to newer cyber espionage tools will add to the existing chaos. All this suggests that security in the era of ever-expanding cyberweapons could become an ever-receding horizon.

Notes

Types of Malware

Viruses which are the most commonly-known form of malware and potentially the most destructive. They can do anything from erasing the data on your computer to hijacking your computer to attack other systems. Viruses can also send spam, or host and share illegal content.

Worm is a type of malware that spreads copies of itself from computer to computer. Additionally, it can replicate itself without any human interaction. Also, it does not need to attach itself to a software program in order to cause damage.

Trojan is a type of malware that is often disguised as legitimate software to be used by cyber-thieves and hackers trying to gain access to systems.

Spyware collects your personal information and passes it on to interested third parties without your knowledge or consent. Spywares can also install Trojan viruses.

Ransomware is malware that employs encryption to hold a victim’s information at ransom.

Adware displays pop-up advertisements when you are online.

Fake security software poses as legitimate software to trick you into opening your system to further infection, providing personal information, or paying for unnecessary or even damaging “clean ups”.

Browser hijacking software changes your browser settings (such as your home page and toolbars), displays pop-up ads and creates new desktop shortcuts. Additionally, it can also relay your personal preferences to interested third parties.

2.The long road to winning the battle against trafficking

Anti-trafficking policy exists in India, but where the system is found lacking is in the implementation of the laws

July 30 is United Nations World Day against Trafficking in Persons. It is also a time to reflect on India’s human trafficking crisis. Between April 2020 and June 2021, an estimated 9,000 children have been rescued after being trafficked for labour, according to a child rights non-governmental organisation (NGO). In other words, 21 children have been trafficked every day over nearly 15 months. The Childline India helpline received 44 lakh distress calls over 10 months. Over a year, 2,000 children have arrived at its shelter homes and 800 rescued from hazardous working conditions.

Increased vulnerability

The media frequently publishes individual stories of trafficking. Children as young as 12 are trafficked across States to work in factories in appalling conditions, where owners are turning to cheap labour to recoup their losses from the novel coronavirus pandemic. In November 2020, four children, between 12 and 16 years, died after being trafficked for labour from Bihar to Rajasthan; some of them had injuries from beatings.

Child marriages are also rampant — over 10,000 cases were tracked between April and August 2020. In Madhya Pradesh, about 391 child marriages were stopped in April-May 2021, while in Odisha, 726 child marriages were prevented between January-May 2021.

A child rights NGO, working with the Delhi Commission for Protection of Child Rights has highlighted the problem of rampant child labour. In a certain stretch within the national capital, at least 120 children can be seen working. The factors causing increased vulnerability are identifiable. Its report states: “The [corona] virus has resulted in loss of income and economic crisis, causing families’ reduced capacity to care for children in the long-term. It has also caused, in some instances, loss of parental care due to death, illness or separation, thereby placing children at heightened risk for violence, neglect or exploitation.” These factors are compounded by an erosion of some of the checks against child labour and child marriage provided by law, as well as the scrutiny of schools and society.

The increase in Internet access in current times has also led to cyber-trafficking. An August 2020 report by a member of a child rights group in India notes that popular social media platforms and free messaging apps are often used to contact young people. Often, the trafficker or middleman lures the person to a place under the pretext of offering him employment. Once removed from their locality, they face challenges of limited resources, unfamiliarity with the area and perhaps the local language. Threats of violence from the trafficker, and, importantly, the absence of any identifiable authority to approach other than the police — who are often seen as threats themselves — make it nearly impossible for trafficked persons to report the incident.

A recent report by the United Nations Office on Drugs and Crime on the effects of the pandemic on trafficking echoes these findings. It says, traffickers are taking advantage of the loss of livelihoods and the increasing amount of time spent online to entrap victims, including by advertising false jobs on social media. In addition, there is an increased demand for child sexual exploitation material online due to lockdowns.

Scant data, other gaps

The Government admitted in Parliament as recently as March 2021 that it does not maintain any national-level data specific to cyber trafficking cases. The efficacy of certain schemes launched by the Ministry of Home Affairs to improve investigation and prosecution of cyber crimes remains to be seen.

India is still classified by the U.S. Department of State as a Tier-2 country in its report on global human trafficking. This means that the Government does not fully meet the minimum standards under U.S. and international law for eliminating trafficking, but is making significant efforts to comply. The lack of implementation is illustrated by the state of the Anti-Human Trafficking Units (AHTUs). AHTUs are specialised district task forces comprising police and government officials. In 2010, it was envisioned that 330 AHTUs would be set up. RTI responses in August 2020 showed that about 225 AHTUs had been set up, but only on paper.

If properly staffed and funded, AHTUs could provide crucial ground-level data on the methods and patterns of traffickers, which in turn can strengthen community-based awareness and vigilance activities. Global practices such as in Nigeria, Africa, should be encouraged in India, in consonance with a larger framework to protect women and children by incentivising education and creating safe employment opportunities.

Draft Bill, judicial issues

With focus now shifting to the new draft anti-trafficking Bill, the point to be highlighted is that there is no shortage of anti-trafficking policy in India. Where the system is found lacking is in the implementation of the laws. Significant discussion is required on the provisions of the Bill, particularly with respect to bringing in the National Investigation Agency and increasing the punishment for offences, including the death penalty as an option in some cases. It is not proven that more stringent laws, particularly the death penalty, have any greater deterrent effect on crime. The draft Bill also provides for AHTUs/committees at the national, State and district levels, but as noted, their effective functioning cannot be taken for granted. Legislating without the political will to implement and monitor effectiveness is futile.

Special attention must also be paid to the challenges prosecutors and judges face in trafficking cases. There were 140 acquittals and only 38 convictions in 2019, according to government data. This points to a failure of investigation and cannot be solved by the draft Bill’s provision that accused traffickers must be presumed guilty unless they can prove the contrary. Further, trials can drag on for years, with victims sometimes withdrawing their complaints after being intimidated by traffickers. Proper case management must be introduced to give meaning to the “fast track” courts. Other problems include the low number of beneficiaries of monetary compensation and the lack of consistent access to psychological counselling. Parts of the draft Bill recognise the importance of rehabilitation, but implementation is key.

Most victims of trafficking are from low-income communities for whom the novel coronavirus pandemic and lockdowns have caused long-term financial distress. With schools continuing to be closed in much of India and no definite end to the pandemic in sight, it cannot be assumed that incidents of trafficking will decline with a return to “normalcy”. That apart, the failure of existing institutional mechanisms to foresee the present crisis should spur the Government and other stakeholders to take preventive action now. July 30 should be the beginning of the end of human trafficking in India.

Background

Bachpan Bachao Andolan (BBA) and various civil society groups have campaigned for decades for a strong law to end the menace of human trafficking. In 2017, thousands of trafficking survivors marched a Bharat Yatra alongside students, governments, the judiciary, multifaith leaders, businesses and civil society to demand such a law.

COVID-19 has further intensified the need for the law. Traffickers are taking advantage of prolonged school closures and loss of family livelihood. Although Anti-trafficking policies exist in India, where the system is found lacking is in the implementation of the laws.

Intense of Human trafficking during the pandemic

Government agencies have rescued almost 9,000 children from trafficking since the first lockdown. In other words, 21 children have been trafficked every day over nearly 15 months.

• Children as young as 12 are trafficked across the States to work in factories in appalling conditions, where owners are turning to cheap labour to recoup their losses from the novel coronavirus pandemic.
• The Childline India helpline received 44 lakh distress calls over 10 months. Over a year, 2,000 children have arrived at its shelter homes and 800 rescued from hazardous working conditions.
• Child marriages are also rampant — over 10,000 cases were tracked between April and August 2020.

How the Pandemic made children vulnerable to Human trafficking?

A child rights NGO, working with the Delhi Commission for Protection of Child Rights has highlighted the problem of rampant child labour during the pandemic. It pointed out reasons such as,

• The children and their families faced a loss of income and economic crisis, causing families’ reduced capacity to care for children in the long term.
• The pandemic has also caused, in some instances, loss of parental care due to death, illness, or separation. Thereby placing children at heightened risk for violence, neglect, or exploitation.
• This is compounded by an erosion of some checks against child labour and child marriage provided by law, as well as the scrutiny of schools and society.
• The increase in Internet access in current times has also led to cyber-trafficking. A recent report by the United Nations Office on Drugs and Crime on the effects of the pandemic on trafficking mentions that the traffickers are taking advantage of the loss of livelihoods and the increasing amount of time spent online to entrap victims, including by advertising false jobs on social media.

Why strong steps are essential to curb human trafficking?

• Human trafficking is not a crime in itself, but it is also the propeller of several other crimes. It creates a parallel black economy that fuels child labour, child marriage, prostitution, bonded labour, forced beggary, drug-related crimes, corruption, terrorism, and other illicit businesses.
• Further, the architects of our Constitution established the severity of the crime of trafficking by making it the only offence punishable under the Constitution of India itself, besides untouchability.
  • So, a strong anti-trafficking law is the moral and constitutional responsibility of our elected leaders, and a necessary step towards nation-building and economic progress.

Constitutional & Legislative provisions related to Trafficking in India

1. Trafficking in Human Beings or Persons is prohibited under the Constitution of India under Article 23 (1).
2. The Immoral Traffic (Prevention) Act, 1956 (ITPA) is the premier legislation for the prevention of human trafficking for commercial sexual exploitation.
3. Criminal Law (Amendment) Act 2013 has come into force wherein Section 370 of the Indian Penal Code has been substituted with Section 370 and 370A IPC which provide for comprehensive measures to counter the menace of human trafficking.

Trafficking in Persons (Prevention, Care and Rehabilitation) Bill

The Government of India has proposed the Trafficking in Persons (Prevention, Care and Rehabilitation) Bill, 2021. This Bill aims to tackle all aspects of trafficking including the social and economic causes of the crime, punishment to traffickers, and the protection and rehabilitation of survivors.

Salient provisions of the anti-trafficking bill

• Definition: The bill defines exploitation to include the exploitation of the person for prostitution or other forms. Which includes pornography, forced labour, forced removal of organs, or illegal clinical drug trials.
• Includes Transgender: The bill extends beyond the protection of women and children as victims. It now includes transgenders as well as any person who may be a victim of trafficking.
• Victim Definition: The bill does away with the provision that a victim necessarily needs to be transported from one place to another to be defined as a victim of trafficking.
• Nodal Investigative Agency: National Investigation Agency (NIA) shall act as the national investigating and coordinating agency responsible for the prevention and combating of trafficking in persons.
• Punishment: The Punishment will be for a minimum of seven years period, which can go up to imprisonment of 10 years and a fine of Rs 5 lakh. However, in cases of the trafficking of more than one child, the penalty is life imprisonment. In certain cases, even the death penalty can be sought.
  • More severe penalties in case of aggravated offences, like the death of a victim.

Issues with the draft bill

• There is no shortage of anti-trafficking policies in India. Where the system is found lacking is in the implementation of the laws.
• The bill prescribes stringent laws, including the death penalty as an option in some cases. It is not proven that more stringent laws have any greater deterrent effect on crime.
• Low conviction rates and lengthy trials: There were 140 acquittals and only 38 convictions in 2019, according to government data. This points to a failure of investigation and cannot be solved by the draft Bill’s provision that accused traffickers must be presumed guilty unless they can prove the contrary. Further, trials can drag on for years, with victims sometimes withdrawing their complaints after being intimidated by traffickers.

Suggestions

• Proper case management must be introduced to give meaning to the “fast track” courts and proper investigation of trafficking cases.
• To protect and rehabilitate the trafficked persons, the Bill has to include the necessary checks and balances against potential misuse of power by agencies.
• The bill also has to include periodic reviews of the law and its performance.
• Above all, the government has to allocate adequate resources for the effective implementation of the existing laws and the bill (if enacted).

3.LS passes 2 Bills without debate

Will take strict action against those who repeatedly disrupt proceedings: Speaker

Amid continuous Opposition protests, the Lok Sabha on Thursday passed two Bills before it was adjourned for the day.

The Airports Economic Regulatory Authority of India (AERA) Amendment Bill, 2021, and the Inland Vessels Bill, 2021, were passed in the din without debate.

Opposition members kept protesting over the Pegasus snooping issue and the three farm laws despite Lok Speaker Om Birla cautioning them that he would be forced to take strict action against those who “repeatedly disrupt the proceedings”.

When the House began at 11 a.m., Mr. Birla said he was deeply hurt by the Wednesday incident, when some members tore papers and threw at the Chair and Treasury benches. “If you don’t take care of the parliamentary practices, then how will the parliamentary process strengthen? My endeavour is that all members get adequate time to raise their issues and give them their due respect,” he said.

Minister seeks apology

When Parliamentary Affairs Minister Pralhad Joshi demanded an apology, Congress leader Adhir Ranjan Chowdhury said Opposition members were not able to put forth their views because of the “stubborn” attitude of the government.

Amid continuous sloganeering, Mr. Birla adjourned the House until 11.30 a.m.

The BJP’s Rajendra Agrawal ran the Question Hour proceedings for some time but had to adjourn twice in an hour. In between the interruptions, Business Advisory Committee members met to discuss the agenda. When the House reconvened at 2 p.m., Kirit Premjibhai Solanki, who was in Chair, took up the two Bills.

Civil Aviation Minister Jyotiraditya Scindia moved the AERA Amendment Bill for passage after some scathing remarks on the Opposition benches. “During the pandemic, instead of discussion, the House is witnessing sloganeering… We will convert this crisis into an opportunity and provide all possible facilities to farmers and people… Let the people of the country know what great work the Prime Minister is doing and what they [Opposition] are doing,” he said.

The amendment will allow the Airports Economic Regulatory Authority (AERA) to regulate tariff and other charges for aeronautical services for not just airports with annual passenger traffic of more than 35 lakh but also a group of airports. Once the Bill becomes a law, the government will be able to club profitable and non-profitable airports as a package for privatisation as envisaged in this year’s Budget speech.

Soon after, Ports and Shipping Minister Sarbananda Sonowal moved the Inland Vessels Bill that seeks to introduce a uniform regulatory framework for navigation across the country. To prevent pollution, the Bill also specifies safety standards.

Background

Recently, the Lok Sabha passed the Airports Economic Regulatory Authority of India (AERA) Amendment Bill, 2021.

• It was first introduced in March 2021 and subsequently referred to a parliamentary standing committee on transport, tourism and culture, which approved it without any changes.
• It seeks to amend the Airports Economic Regulatory Authority of India Act, 2008.

Key Points

• Major Provisions:
  • Definition:
    • It proposes to amend the definition of major airport to include a group of airports.
      • The 2008 Act designates an airport as a major airport if it has an annual passenger traffic of at least 35 lakh.
      • The central government may also designate any airport as a major airport by a notification.
  • Tariff:
    • It will allow AERA to regulate tariff and other charges for aeronautical services for not just major airports with annual passenger traffic of more than 35 lakh, but also a group of airports.
  • Profitable Clubbing:
    • The government will be able to club profitable and non-profitable airports as a combination/package to bidders to make it a viable combination for investment under PPP (Public-Private Partnership) mode.
• Significance:
  • It will help in expanding the air connectivity to relatively remote areas and as a result, expediting the UDAN regional connectivity scheme.
  • It will encourage development of smaller airports.
• Concern:
  • Lack of clarity in the bill on the criterion for deciding which airports will be clubbed together to qualify under ‘a group of airports’ definition, whether it will be the passenger traffic of more than 3.5 million or some other factors too.

Airports Economic Regulatory Authority of India

• Background:
  • Initially,the Airports Authority of India (AAI) was running and managing the airports. After some time, a change was made in the civil aviation policy as some private players were also given airports to run. The reason behind this was to provide consumers with great services.
  • Typically, airports run the risk of becoming a monopoly because cities usually have one civilian airport which controls all aeronautical services in that area.
  • To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt.
• About:
  • The Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) was passed which set up the AERA as a statutory body.
  • It was set up, keeping in mind that the country needs to have an independent regulator who has transparent rules and can take care of the interests of the service providers as well as that of the consumers.
• Functions:
  • The AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports.

4.High fiscal borrowings won’t crowd out private sector: CEA

SEBI member asserts ‘no doubt’ borrowings are crowding out corporate bonds

Concerns about high government borrowings crowding out the private sector’s fund-raising efforts were misplaced and not based on evidence, Chief Economic Advisor Krishnamurthy Subramanian asserted on Thursday reacting to comments made by a member of the Securities and Exchange Board of India (SEBI).

“It’s a very tempting argument to make but the data does not support it,” he said.

On the contrary, the government’s increased capital spending would impart a ‘crowding-in effect’ spurring more investment, Dr. Subramanian contended.

Earlier, addressing an Assocham event on the productive use of financial resources, SEBI whole-time member G. Mahalingam stressed that bond markets had an important role in supporting the economy’s rebound at a time when banks were ‘overburdened from the overhang of non-performing assets’.

“No doubt, a good part of the bond market gets crowded out by the government issuances of close to about ₹14-15 lakh crore,” asserted Mr. Mahalingam. “That crowds out all the corporate bond market, no doubt about it all,” he added.

“The flaw with this argument is that it relies on the pool of savings being static,” the CEA responded. “There is now evidence that savings are pro-cyclical with growth. When you have a pool that is growing and the government takes a rupee out today for capital expenditure, and thereby push growth and increase savings, the pro-cyclical behaviour of savings kicks in. So this is the crowding-in effect of infrastructure, especially government-led, capital spending,” Dr. Subramanian observed.

About

• SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
• The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.

Background

• Before SEBI came into existence, Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
• In April, 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
• Initially SEBI was a non statutory body without any statutory power.
• It became autonomous and given statutory powers by SEBI Act 1992.
• The headquarters of SEBI is situated in Mumbai. The regional offices of SEBI are located in Ahmedabad, Kolkata, Chennai and Delhi.

Structure

• SEBI Board consists of a Chairman and several other whole time and part time members.
• SEBI also appoints various committees, whenever required to look into the pressing issues of that time.

• Further, a Securities Appellate Tribunal (SAT) has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.
• SAT consists of a Presiding Officer and two other Members.
• It has the same powers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order can appeal to the Supreme Court.

Securities Appellate Tribunal (SAT)

• SAT is a statutory body established under the provisions of the Securities and Exchange Board of India Act, 1992.
• It is to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India or by an adjudicating officer under the Act; and to exercise jurisdiction, powers and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.
• Consequent to government notification dated 27^th May, 2014; SAT hears and disposes of appeals against orders passed by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013.
• Further, in terms of government notification dated 23rd March, 2015, SAT hears and disposes of appeals against orders passed by the Insurance Regulatory Development Authority of India (IRDAI) under the Insurance Act, 1938, the General Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 and the Rules and Regulations framed there under.

Powers and Functions of SEBI

• SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.
• It functions to fulfill the requirements of three categories –
  • Issuers – By providing a marketplace in which the issuers can increase their finance.
  • Investors – By ensuring safety and supply of precise and accurate information.
  • Intermediaries – By enabling a competitive professional market for intermediaries.
• By Securities Laws (Amendment) Act, 2014, SEBI is now able to regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance.
• SEBI Chairman has the authority to order “search and seizure operations”. SEBI board can also seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.
• SEBI perform the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.
• It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

SEBI’s Achievements

• Prime Minister Manmohan Singh in 2006 said that eternal vigilance is the price of market stability and market growth. The regulator has kept the faith in its 25-year journey that has seen it steadily gain more powers to oversee India’s capital markets.
• It has ensured a well-functioning market and driven market development: dematerialisation of shares, shortening settlement cycles, initiating nationwide electronic trading, introducing risk management systems, establishing clearing corporations, nurturing the mutual fund industry and so on.
• Rightly, the regulator has earned respect from domestic and global investors for improving the efficacy of the market. After all, there have been no broker defaults after 2001.
• Initiating the process of consultation papers before framing regulation has also enhanced its credibility with stakeholders.
• Today, the Indian capital market can compares favorably with mature markets.
• New initiatives for improving analytical capabilities, strengthening surveillance & risk management and to promote research have been taken by SEBI in recent years to counter the volatility in market.

Issues with SEBI

• In recent years SEBI role became more complex, the capital markets regulator is at a crossroads.
• There is excessive focus on regulation of market conduct and lesser emphasis on prudential regulation.
• SEBI statutory enforcement powers are greater than its counterparts in the US and the UK as it is armed with far greater power to inflict serious economic injury.
• It can impose serious restraints on economic activity, this is done based on suspicion, leaving it to those affected to shoulder the burden of disproving the suspicion, somewhat like preventive detention.
• Its legislative powers are near absolute as the SEBI Act grants wide discretion to make subordinate legislation.
• The component of prior consultation with the market and a system of review of regulations to see if they have met the articulated purpose is substantially missing. As a result, the fear of the regulator is widespread.
• Regulation, either rules or enforcement, is far from perfect, particularly in areas like insider trading.
• The Securities offering documents are extraordinarily bulky and have substantially been reduced to formal compliance rather than resulting in substantive disclosures of high quality.

Suggestions

• There is need of an attitudinal change, indeed, hundreds of inputs about the market being full of crooks necessitating a crackdown and severe intervention would be received.
• SEBI needs deep review and research as to what can be done better. The size of funds that get raised can never be a barometer of success for how this segment of the market regulation is performing.
• The foremost objective of SEBI should be cleaning up the policy space in this area of the market.
• SEBI must give special attention to human resources and matters within the organisation. SEBI must encourage lateral entry to draw the best talent.
• Alignment and fitment of senior employees upon merger of the Forward Markets Commission into Sebi remains an open area of work.
• Enforcement can be strengthened with continuous monitoring and improving market intelligence. This requires a rich talent pool.
• India’s financial markets are still segmented. One regulator can’t be blamed for another’s failure when the remit over a financial product overlaps.
• In this context a unified financial regulator makes eminent sense to remove both overlap and excluded boundaries.