Editorial Simplified: Is Banning Cryptocurrencies the Solution? | GS – III


Relevance :  GS Paper III



Theme of the article

A blanket ban will push the crypto currency into the black market and stifle innovation.


Why has this issue cropped up?

 Recently, a government panel (Grag panel) placed in the public domain a draft bill calling for a complete ban on private cryptocurrencies in India.


Recommendations of the  Garg panel

  • The panel recommended a fine of up to ₹25 crore and a jail term of up to 10 years for anyone found to be owning or handling private cryptocurrencies.
  • As an alternative to private cryptocurrencies, the panel recommended the introduction of a single cryptocurrency for the whole country that is backed by the Reserve Bank of India (RBI).

Reasons to ban cryptocurrency

  • The volatility of private cryptocurrencies is one of the reasons being given to ban them.
  • An issue raised against cryptocurrencies is that they aren’t really backed by an underlying commodity or a sovereign government.
  • Due to anonymity, the common objection to cryptocurrencies is that they can be used to finance various criminal activities.

Should crypto currency be banned?

  • Volatility doesn’t sound like a good rationale to ban cryptocurrencies because if cryptocurrencies are volatile, so are many other asset classes. We do not ban investments in any other asset class just because it is volatile.
  • Banning the consumption of a good or service doesn’t really mean that people will stop consuming it. The market for the good or service simply goes underground and becomes hard to track.
  • It is not absolutely essential that a currency needs to be backed by a commodity or an institution for it to be widely accepted in the market.
  • The way we define money is that it is a generally accepted medium of exchange. So, it’s just trust that basically drives the value of money. There is nothing to back it, except trust. Sit is the value that people think the currency will possess in the future that really drives its value.
  • People will move to alternative assets and seek more anonymity only if they lose trust in government institutions. So, as long as the trust is maintained, monetary policy doesn’t face any particular threat from cryptocurrencies.

Cryptocurrency vs blockchain

  • The Garg panel, while being opposed to the idea of private cryptocurrencies, still seems to be a fan of the blockchain technology. It has called for a national cryptocurrency backed by the RBI, which would probably be based on the blockchain.
  • Most people equate cryptocurrencies with blockchain, but there is a huge difference between them. The cryptocurrency is just one application of the underlying blockchain technology. The blockchain technology has a lot more potential beyond cryptocurrencies.

The EU regulations on cryptocurrency

  • One of the most comprehensive sets of regulations for cryptocurrencies is being brought in by the European Union.
  • The EU is putting in a bunch of regulations to tackle money laundering, and it is called the AMLD-5. It is a bunch of norms to make crypto transactions more secure.
  • It has a lot of very stringent KYC regulations and self-declaration laws which every holder of a crypto wallet or user needs to adhere to.
  • Crypto exchanges are all expected to maintain a database that is transparently shared between countries.

Should govts issue cryptocurrency as proposed by Garg panel ?

  • There is no case for governments issuing cryptocurrencies because it would create a lot of problems in the form of contradictions in existing regulations and the government will have to deal with severe mismatches in regulations.
  • Secondly, there are reputation effects. A digital currency issued by the RBI that gets misused by criminals can affect trust in the existing fiat currency protocol. A central bank would want to take that risk.

Way forward

  • The decision of whether to invest in an asset or not should be left to the investor. The risk return calculation should be done by the investor, not the government.
  • If the government feels that there is enough rationale to regulate the consumption of a commodity or a service or investments in a crypto asset, the best way forward is to come up with a regulatory framework that has incentives set right for the users. We can have a tax on capital gains from investing in crypto assets, just like we have taxes on investments in other assets.
  • Right now, currencies are the only viable practical application of the blockchain technology even though it can be extrapolated to a lot of other sectors. So, for the sake of innovation, even if the government is bringing in a state-backed currency, it will be better if the other currencies are also allowed to operate with sufficient regulations.
  • For a country like India, in terms of size, cryptocurrencies constitute a very, very minor share of the total amount of money that is already being used to carry out various activities in the black economy. But the potential rewards that could come out of the blockchain technology are big.

Conclusion

EU has started creating a bunch of regulations on cryptocurrency that could become stronger over time. This could be the best way to go forward rather than putting a blanket ban on cryptocurrencies, because the presence of cryptocurrencies is very important for the further development of the blockchain.


Editorial Simplified: Fortifying the Africa Outreach | GS – II


Relevance :  GS Paper II


Theme of the Article

There is a disconnect between India’s developmental assistance to and economic engagement with the continent.


Why has this issue cropped up?

Recently,  two important Indian dignitaries began their respective visits to Africa. President Ram Nath Kovind to Benin, Gambia and Guinea-Conakry and Defence Minister Rajnath Singh to Mozambique. These  visits indicate enhanced priority to Africa.


Economic links

  • In in the last India-Africa Forum Summit in 2015, India agreed to provide concessional credit worth $10 billion.
  • By 2017, India had cumulatively extended 152 Lines of Credit worth $8 billion to 44 African countries.
  • India has also unilaterally provided free access to its market for the exports of 33 least developed African countries.
  • Its trade with Africa totalled $63.3 billion in 2018-19. India was ranked the third largest trading partner of Africa having edged past the United States during the year.
  • The figures for Indians’ investments (estimated at $50 billion) and Indian diaspora (approximately three million) are a bit imprecise but are also substantive when put in the continental perspective.

The issues in India-Africa relations

  • Although the above statistics are impressive, they are well below the potential for India-African economic synergy and are often dwarfed by the corresponding Chinese data.
  • There seems to be a conspicuous disconnect between Indian developmental assistance to and India’s economic engagement with Africa.
  • From the demand to remove the statues of Mahatma Gandhi in Ghana to the travails of Indian investors in Africa, from occasional demonisation of the long-standing Indian community to the non-recognition of Indian academic degrees, India’s large developmental footprint in Africa does not produce commensurate empathy.
  • India’s aid being unconditional, the recipients often take it as an entitlement.

Way forward

We need to ask ourselves these: for all the development billions spent, how many mega-projects did Indian companies get and how many natural resources does India have access to in Africa? We should reorient our developmental profile to be more economically productive. To this end, a number of steps can be considered:

  • First, we need to take direct control of our development programme instead of handing our funds to intermediaries such as the African Union, the African Development Bank Group and the Techno-Economic Approach for Africa-India Movement (TEAM 9), whose priorities are often different from India’s. To make an impact, our aid should be disbursed bilaterally and aligned with national priorities of the recipient state, which should be a substantial stakeholder and co-investor in schemes and projects from initiation to operation.
  • Second, India’s development assistance should prefer the countries with its substantial interests, both existing and potential. For instance, Nigeria, South Africa, Egypt, Ghana, Angola and Algeria are India’s top six trading partners in Africa, accounting for nearly two-thirds of its trade and half its exports to the continent; yet, they do not figure commensurately in India’s developmental pecking order. India’s own needs for raw materials, commodities and markets should be factored in its aid calculus.
  • Third, we ought to prefer aiding countries which are willing to help us — from access to their natural resources to using our generics.
  • Fourth, the aided project selected should be compatible with local requirements. They should be cost-effective, scalable, future ready and commercially replicable.
  • Fifth, for greater transparency, India should prefer its public sector to implement the aid projects.
  • Sixth, the Indian Head of Mission in the recipient African state must be an integral part of the aid stream including project selection, co-ordination and implementation. Apart from empowering our diplomacy, this would ensure better harmonisation between our aid and economic objectives.
  • Finally, the aforementioned should not distract us from our duty to provide the needed humanitarian assistance to Africa: to be rendered promptly and with sensitivity, but without noise.

Conclusion

India is neither a rich country nor has its hands been tainted by a history of slavery, colonisation and the exploitation of Africa. In fact, it is a developing country with similar domestic challenges of poverty, infrastructure deficit and underdevelopment. India’s aid to Africa should be reciprocated by acknowledgement and quid pro quo in terms of goodwill and institutional preference.


Editorial Simplified: Zero Budget Natural Farming (ZBNF) | GS – III


Relevance :  GS Paper III



Why has this issue cropped up?

Finance Minister Nirmala Sitharaman thrust zero budget farming into the spotlight in the first Budget speech of the 17th Lok Sabha earlier this month, calling for a “back to the basics” approach.


What is Zero budget natural farming (ZBNF)? 

  • Several States, including Andhra Pradesh and Himachal Pradesh, have been aggressively driving a shift to Zero budget natural farming (ZBNF)
  • ZBNF is a method of chemical-free agriculture drawing from traditional Indian practices.
  • It was originally promoted by Maharashtrian agriculturist and Padma Shri recipient Subhash Palekar, who developed it in the mid-1990s as an alternative to the Green Revolution’s methods driven by chemical fertilizers and pesticides and intensive irrigation.
  • Instead of commercially produced chemical inputs, the ZBNF promotes the application of jeevamrutha — a mixture of fresh desi cow dung and aged desi cow urine, jaggery, pulse flour, water and soil — on farmland. Jeevamrutha adds nutrients to the soil, and acts as a catalytic agent to promote the activity of microorganisms and earthworms in the soil
  • A similar mixture, called bijamrita, is used to treat seeds, while concoctions using neem leaves and pulp, tobacco and green chillis are prepared for insect and pest management.
  • ZBNF is against vermicomposting, which is the mainstay of typical organic farming, as it introduces the the most common composting worm, the European red wiggler (Eisenia fetida) to Indian soils. It claims that these worms absorb toxic metals and poison groundwater and soil.

What are the benefits of ZBNF ?

  • He argued that the rising cost of these external inputs was a leading cause of indebtedness and suicide among farmers, while the impact of chemicals on the environment and on long-term fertility was devastating.
  • Without the need to spend money on these inputs — or take loans to buy them — the cost of production could be reduced and farming made into a “zero budget” exercise, breaking the debt cycle for many small farmers.
  • The ZBNF method also promotes soil aeration, minimal watering, intercropping, bunds and topsoil mulching and discourages intensive irrigation and deep ploughing.

Why does ZBNF matter?

  • According to National Sample Survey Office (NSSO) data, almost 70% of agricultural households spend more than they earn and more than half of all farmers are in debt.
  • In States such as Andhra Pradesh and Telangana, levels of indebtedness are around 90%, where each household bears an average debt of ₹1 lakh.
  • In order to achieve the Central government’s promise to double farmers income by 2022, one aspect being considered is natural farming methods such as the ZBNF which reduce farmers’ dependence on loans to purchase inputs they cannot afford.

Is ZBNF effective ?

  • A limited 2017 study in Andhra Pradesh claimed a sharp decline in input costs and improvement in yields.
  • However, reports also suggest that many farmers have reverted to conventional farming after seeing their ZBNF returns drop after a few years, in turn raising doubts about the method’s efficacy in increasing farmers’ incomes.
  • ZBNF critics note that India needed the Green Revolution in order to become self-sufficient and ensure food security. They warn against a wholesale move away from that model without sufficient proof that yields will not be affected.
  • Sikkim, which has seen some decline in yields following a conversion to organic farming, is used as a cautionary tale regarding the pitfalls of abandoning chemical fertilizers.

Promotion of ZBNF

  • Despite the ZBNF buzz caused by the Budget speech, the Finance Minister did not actually announce any new funding to promote it.
  • Last year, the Centre revised the norms for the Rashtriya Krishi Vikas Yojana- Remunerative Approaches for Agriculture and Allied sector Rejuvenation (RKVY-RAFTAAR), a flagship Green Revolution scheme with an allocation of ₹3,745 crore this year, and the Paramparagat Krishi Vikas Yojana, which has an allocation of ₹325 crore and is meant to promote organic farming and soil health.
  • Under the revised guidelines, both Centrally-sponsored schemes now allow States to use their funds to promote the ZBNF, vedic farming, natural farming, cow farming and a host of other traditional methods.

What lies ahead?

    • NITI Aayog has been among the foremost promoters of the ZBNF method.
    • However, its experts have also warned that multi-location studies are needed to scientifically validate the long-term impact and viability of the model before it can be scaled up and promoted country-wide.
    • The Indian Council of Agricultural Research is studying the ZBNF methods practised by basmati and wheat farmers in several states evaluating the impact on productivity, economics and soil health including soil organic carbon and soil fertility.
    • If found to be successful, an enabling institutional mechanism could be set up to promote the technology.
    • The Andhra Pradesh experience is also being monitored closely to judge the need for further public funding support .

Editorial Simplified: The Tremor of Unwelcome Amendments | GS – II


Relevance :  GS Paper II



Theme of the article

The Right to Information (Amendment) Bill is a twin attack on accountability and the idea of federalism.


Introduction

“Amendments” have haunted the Right to Information (RTI) community ever since the RTI Act came into effect almost 14 years ago.


The recent  amendment

  • The recently proposed amendments seek to amend Sections 13, 16, and 27 of the RTI Act which carefully links, and thereby equates, the status of the Central Information Commissioners (CICs) with the Election Commissioners and the State Information Commissioners with the Chief Secretary in the States, so that they can function in an independent and effective manner.
  • The deliberate dismantling of this architecture empowers the Central government to unilaterally decide the tenure, salary, allowances and other terms of service of Information Commissioners, both at the Centre and the States.

Why is there unseemly haste and determination to amend the law?

  • Some feel that it is because the RTI helped with the cross-verification of the affidavits of powerful electoral candidates with official documents and certain Information Commissioners having ruled in favour of disclosure.
  • The information related to decision-making at the highest level has in most cases eventually been accessed because of the independence and high status of the Information Commission. That is what the government is trying to amend.

Agent of change

  • RTI is a constant challenge to the misuse of power. In a country where the rule of law hangs by a slender thread and corruption and the arbitrary use of power is a daily norm, the RTI has resulted in a fundamental shift — empowering a citizen’s access to power and decision-making.
  • It has been a lifeline for many of the 40 to 60 lakh ordinary users, many of them for survival.
  • It has also been a threat to arbitrariness, privilege, and corrupt governance.
  • More than 80 RTI users have been murdered because their courage and determination using the RTI was a challenge to unaccountable power.
  • The RTI has been used brilliantly and persistently to ask a million questions across the spectrum — from the village ration shop, the Reserve Bank of India, the Finance Ministry, on demonetisation, non-performing assets, the Rafale fighter aircraft deal, electoral bonds, unemployment figures, the appointment of the Central Vigilance Commissioner (CVC), Election Commissioners, and the (non)-appointment of the Information Commissioners themselves.

RTI and democracy

  • The RTI movement has been able to access information and through it, a share of governance and democratic power.
  • The Indian RTI law has been a breakthrough in creating mechanisms and platforms for the practice of continual public vigilance that are fundamental to democratic citizenship.
  • The mostly unequal struggle to extract information from vested interests in government needed an institutional and legal mechanism which would not only be independent but also function with a transparency mandate and be empowered to over-ride the traditional structures of secrecy and exclusive control.

Independence of Information Commission

  • An independent Information Commission which is the highest authority on information along with the powers to penalise errant officials has been a cornerstone of India’s celebrated RTI legislation.
  • The task of the Information Commission is different but no less important than that of the Election Commission of India.
  • Independent structures set up to regulate and monitor the government are vital to a democratic state committed to deliver justice and constitutional guarantees.
  • The separation of powers is a concept which underscores this independence and is vital to our democratic checks and balances.
  • When power is centralised and the freedom of expression threatened no matter what the context, democracy is definitely in peril.
  • The Commission which is vested by law with status, independence and authority, will now function like a department of the Central government, and be subject to the same hierarchy and demand for obeisance.
  • The decision of the government to usurp the powers to set the terms and conditions of service and salaries of an independent body must be understood as an obvious attempt to weaken the independence and authority granted by the law.

Assault  on federalism

Apart from Section 13 which deals with the terms and conditions for the Central information Commission, in amending Section 16, the Central government will also control through rules, the terms and conditions of appointment of Commissioners in the States. This is an assault on the idea of federalism.


Opaque moves

  • All the provisions related to appointment were carefully examined by a parliamentary standing committee and the law was passed unanimously.
  • The manner in which the amendments are being pushed through without any citizen consultation, bypassing examination by the standing committee demonstrates the desperation to pass the amendments without even proper parliamentary scrutiny.
  • The mandatory pre-legislative consultative policy of the government has been ignored.

Conclusion

The  amendments fundamentally weaken an important part of the RTI architecture. They violate the constitutional principles of federalism, undermine the independence of Information Commissions, and thereby significantly dilute the widely used framework for transparency in India. The RTI has unshackled millions of users who will continue to use this democratic right creatively and to dismantle exclusive power.


Editorial Simplified: Looming Challenges to India’s Standing | GS – II


Relevance :  GS Paper II


Theme of the Article

In the coming five years, a host of geopolitical and economic issues need to be reconciled.


Recent international events of significance to India

  • Prime Minister Narendra Modi was the cynosure of all eyes at the G-20 meeting in June, in Osaka.
  • At the BRICs informal meeting, also in Osaka, he called for the strengthening of the World Trade Organisation and for a global conference on terrorism.
  • He discussed counter-terrorism and climate change issues at separate meetings with China’s President Xi Jinping and Russia’s President Vladimir Putin.
  • He participated in the Japan-India-U.S. trilateral grouping, arguing for a “rules based order” in the Indo-Pacific region.
  • He met with U.S. President Donald Trump, to discuss the future of India-U.S. relations.

A vastly altered situation

  • This may convey an impression that everything bodes well for India in the external realm.
  • What is often overlooked is that while we were fortunate in the past to be able to take advantage of a rare combination of favourable conditions, this situation no longer exists.
  • In the past, we did manage a shift from non-alignment to multi-alignment, could improve our relations with the United States without jeopardising our long-term relationship with Russia, and paper over our prickly relations with China without conceding too much ground; all the while maintaining our strategic independence. This is too much to hope for at the present time.
  • The global situation that made all this possible has altered. Rivalries among nations have intensified. There is virtual elimination of the middle ground in global politics, and it has become far more adversarial than at any time previously.
  • Even the definition of a liberal order seems to be undergoing changes. Several more countries today profess support for their kind of liberalism, including Russia and China. At the other end, western democracy appears far less liberal today.

Challenges for India

  • In this backdrop, India needs to rework many of its policies in the coming five years.
  • South Asia, in particular, and the region of our highest priority, needs close attention. The region is one of the most disturbed in the world and India has little or no say in any of the outcomes taking place.
  • India-Pakistan relations are perhaps at their lowest point. Tarring Pakistan with the terror brush is hardly policy, and stable relations continue to be elusive.
  • India has no role in Afghan affairs and is also excluded from current talks involving the Taliban, the Afghan government, Pakistan, the U.S. and even Russia and China.
  • India might have recouped its position more recently in the Maldives, but its position in Nepal and Sri Lanka remains tenuous.
  • In West Asia again, India is no longer a player to reckon with.
  • Across much of Asia, China is the major challenge that India has to contend with. Smaller countries in the region are being inveigled to participate in China’s programmes such as the Belt and Road Initiative (BRI).
  • The challenge in the coming years for India is to check the slide, especially in Asia, and try and restore India to the position it held previously. India cannot afford to wait too long to rectify the situation.
  • Deepening India-U.S. relations today again carry the danger of India becoming involved in a new kind of Cold War. This is another area that needs our special focus.
  • India must ensure that it does not become a party to the conflicts and rivalries between the U.S. and a rising China, the heightened tensions between the U.S. and Russia, and also avoid becoming a pawn in the U.S.-Iran conflict.
  • There is little doubt that current India-U.S. relations provide India better access to state-of-the-art defence items; the recent passage of the National Defence Authorisation Act in the U.S. makes India virtually a non-NATO ally. However, such close identification comes with a price. It could entail estrangement of relations with Russia, which has been a steadfast ally and a defence partner of India’s for the better part of half-a-century.
  • Closer relations with the U.S. also carries the risk of aggravating tensions between India and China, even as China and the U.S. engage in contesting every domain and are involved in intense rivalry in military matters as well as competition on technology issues. The U.S.-China-Russia conflict has another dimension which could affect India adversely.
  • The strategic axis forged between Russia and China will impact not only the U.S. but also India’s position in both Asia and Eurasia, with India being seen as increasingly aligned to the U.S. Hence, India needs to devise a policy that does not leave it isolated in the region.
  • Again, notwithstanding the ‘Wuhan spirit’, India cannot but be concerned about China’s true intentions, given the regional and global situation and its desire to dominate the Asian region. Within the next decade, China will become a truly formidable military power, second only to the U.S.
  • The ongoing India-U.S. entente could well provoke a belligerent China to act with greater impunity than previously. As it is, China would be concerned at the rise of a ‘nationalist’ India, which is perhaps not unwilling in the prevailing circumstances of today to become embroiled in a conflict over ‘freedom of navigation’ in the South and East China seas.
  • As India intensifies its search for state-of-the-art military equipment from different sources, it may be worthwhile for India to step back and reconsider some of its options. Military power is but one aspect of the conflicts that rage today. Today, disruptive technologies have tremendous danger potential and nations that possess these technologies have the ability to become the dominant powers in the 21st and 22nd Centuries.
  • A major challenge for India will hence be how to overcome our current inadequacies in the realm of disruptive technologies rather than remaining confined to the purely military domain. The U.S., China, Russia, Israel and few other countries dominate these spheres as also cyberspace and cyber methodologies.
  • New policy parameters will need to be drawn up by India, and our capabilities enhanced in areas such as artificial intelligence, biotechnology and cyber methodology, all of which constitute critical elements of the disruptive technology matrix.
  • None of this would, however, be possible unless India pays greater heed to its economy. Notwithstanding India’s ambition to become a $5-trillion economy by 2024-25, the reality today is that the economy appears to be in a state of decline. Jobs, specially skilled jobs, are not available in sufficient numbers and this should be a matter for concern. The ability to sustain a rate of growth between 8.5% and 9.5% is again highly doubtful.

Conclusion

The looming challenge for India in the coming five years, therefore, would be how to build a strong economic foundation, one that is capable of providing the kind of power structure needed for an emerging power, and also one possessing the best liberal credentials.


Editorial Simplified: Jobless Growth Becomes more Systemic | GS – III


Relevance :  GS Paper III


Theme of the Article

Earlier confined largely to the organised sector, it has now spread to other areas, as revealed by the latest survey results.


Why has this issue cropped up?

The findings of the latest employment survey, called the Periodic Labour Force Survey (2017-18), are a cause for concern as the scenario is still far from anything that would denote decent employment. The two biggest issues here are: the shrinking share of the labour force; and the rising unemployment.


The data of concern

  • The labour force participation rate (% of people working or seeking work in the above-15 years age category) in the earlier survey of 2012 was 55.5%. This has shrunk to 49.7% in 2018.
  • There is an absolute decline in the number of workers from 467.7 million in 2012 to 461.5 million in 2018.
  • The figure for the overall unemployment rate at 6.1% is 2.77 times the same figure for 2012.
  • The highest unemployment rate of a severe nature was among the urban women at 10.8%; followed by urban men at 7.1%; rural men at 5.8%; and rural women at 3.8%.
  • Youth unemployment rate (unemployment among those in the 15-29 years age category) has reached a high 17.8%. Even here, the women stand more disadvantaged than the men, especially urban women, whose unemployment rate of 27.2% is more than double the 2012 figure of 13.1%.

Women labour

  • Given the sharp decline in women’s labour force participation rate, they have been losing out heavily due to the double whammy of exclusion from the labour force and an inability to access employment when included in the labour force.
  • The decline in women’s labour force participation from 31% to 24% means that India is among the countries with the lowest participation of women in the labour force.

Educated employment

  • The issue of educated unemployment, given its link with not just growth but also with transformative development, has never been as acute as at present.
  • What is significant is that the unemployment rates go up as levels of education go up. Among those with secondary school education, it is 5.7% but jumps to 10.3% when those with higher secondary-level education are considered. The highest rate is among the diploma and certificate holders (19.8%); followed by graduates (17.2); and postgraduates (14.6%).
  • Of course, educated persons are likely to have aspirations for specific jobs and hence likely to go through a longer waiting period than their less-educated counterparts. They are also likely to be less economically deprived. But the country’s inability to absorb the educated into gainful employment is indeed an economic loss and a demoralising experience both for the unemployed and those enthusiastically enrolling themselves for higher education.
  • Here again, the burden is the highest among urban women (19.8%) followed by rural women (17.3%), rural men (10.5%) and urban men (9.2%). Among the educated, women face a more unfavourable situation than men despite a low labour force participation rate.

Conclusion

The overall conclusion here is that the trend of ‘jobless growth’ that was till recently confined largely, if not only, to the organised sector has now spread to other sectors of the economy, making it more generalised. This calls for a thorough re-examination of the missing linkages between growth and employment.


Editorial Simplified: Opaque Aadhaar| GS – II


Relevance :  GS Paper II


Why has this issue cropped up?

The Aadhaar amendment bill, which provides for voluntary use of Aadhaar for KYC,under the Telegraph and Prevention of Money Laundering Acts, has now been passed by both Houses of Parliament.


Amendment feature

It has reinstated many of the provisions of Section 57 of the original Aadhaar Act which was struck down by the Supreme Court in September 2018 as unconstitutional. The amendment comes with no major alteration in either design or use cases.


Concerns with amendment

  • The steamrolling of the legislative processes, without heed to the Supreme Court judgment or civil society concerns, is a definite cause for disquiet.
  • Section 57 was struck down not only because of the procedural issue of passing Aadhaar as a money bill, but also due to serious concerns relating to privacy and proportionality.
  • The dissenting judgment of Justice DY Chandrachud found many other aspects of Aadhaar objectionable, including biometric authentication, and declared it to be unconstitutional in its entirety.

Problems with technical design of Aadhaar

  • Mandatory deployment of biometric authentication for everyday transactions in sectors like welfare causes denial of service for some.
  • The requirement of reliable online connectivity compounds the problem.
  • A nation-wide digital identity limited only for de-duplication, authentication, KYC and limited fintech services is rather narrow. The Aadhaar design did not envisage using it for building online social, financial and asset registries, electronic health records etc.
  • The design also did not examine safe protocols for facilitating analytics for targeting of welfare, education and healthcare, econometric analysis, epidemiological studies, tax compliance etc.
  • Commercial use of Aadhaar linked data raises yet another set of very serious legal and technical questions.
  • There is no clear analysis of the minimum information that needs to be exchanged during authentication and KYC for various applications.
  • Also, using the same identity across multiple applications may allow a correlation of identities across domains and illegal profiling.
  • Because biometrics are not secret information, Aadhaar is vulnerable to illegal harvesting of biometrics, identity thefts and other frauds.
  • Lack of protection against insider threats, lack of clear policies on the use of virtual identities lack of any regulatory oversight and a data protection law raise some serious privacy concerns.
  • The inadequate privacy safeguards can potentially give the government of the day unprecedented access to information and power over its citizens, threatening civil liberty and democracy.
  • Also, Aadhaar does not record the purpose of authentication. Authentication without authorisation and accounting puts users at serious risk of fraud because authentication or KYC meant for one purpose may be used for another.
  • Neither the Aadhaar holders nor the agencies responsible for service delivery have any control over either identity or authentication, causing understanding gaps and making grievance redressal difficult.

Way forward

  • Transparency, regular design reviews, use case audits, and a reliable process of public consultation seem to be the way forward.
  • A thoughtful design with provable privacy guarantees would be able to support large scale registries and analytics by the government.

Conclusion

Thus, AADHAR’s  technical design requires serious reconsideration, following amendments to the law.


Editorial Simplified: Among Members | GS – II


Relevance :  GS Paper II


Theme of the Article

Glaring bilateral and global issues were highlighted at the G-20 summit.


Introduction

As a forum, the G-20 is often watched more closely for the meetings the event affords on its sidelines, than for substantive outcomes. The countries that make up the G-20 account for 85% of the world’s nominal GDP.


Highlights of the summit

  • Prime Minister Narendra Modi used the occasion of the G-20 summit at Osaka for as many as 20 such meetings, including nine bilaterals, eight pull-aside engagements, and of the Russia-India-China, Japan-U.S.-India and Brazil-Russia-India-China-South Africa groupings.
  • S. and China have called a halt to raising tariffs until they resolve issues. It came as a relief to India, given the impact of those tensions on the national and global economies.
  • Modi raised several Indian concerns at the G-20 deliberations, including the need for cooperation on dealing with serious economic offenders and fugitives, as well as climate change funding. This found its way into the final declaration.
  • India sent a tough message by refusing to attend the digital economy summit pushed by Japanese Prime Minister Shinzo Abe, as his plan for “data free flow with trust”, included in the G-20 declaration, runs counter to the Reserve Bank of India’s proposed data localisation guidelines.
  • The U.S. wrote in a counter to the paragraph praising the Paris accord, while trade protectionism was not mentioned in the document.
  • On issues such as ocean pollution management, gender equality and concerted efforts to fight corruption, the G-20 found consensus more easily.

What lies ahead

  • With Saudi Arabia hosting the next G-20 in 2020, followed by Italy in 2021, all eyes will soon turn to the agenda India plans to highlight when it holds the G-20 summit in 2022.
  • Many global challenges, such as climate change and its impact, the balance between the needs for speed and national security with 5G networks being introduced, as well as technology-driven terrorism, will become even more critical for the grouping, and the government must articulate its line.

Way forward

  • India should lead the exercise in making the G-20 more effective in dealing with some of the inequities in its system.
  • The G-20 is an important platform to discuss pressing issues, and it must not be detracted from its original purpose of promoting sustainable growth and financial stability by grandstanding by one or two members.

Editorial Simplified: New framework | GS – III


Relevance :  GS Paper III


Theme of the Article

The SEBI regulations for mutual funds will help restore investor confidence.


Why has this issue cropped up?

After introducing a new standard framework for credit rating agencies last month, the Securities and Exchange Board of India came up with more stringent regulations to govern the management of mutual funds. The mutual fund industry came under its scrutiny after some mutual funds in the last few months had to postpone redemption of their fixed maturity plans (FMPs).


New SEBI Regulations

  • According to the new SEBI regulations, liquid mutual fund schemes will have to invest at least 20% of their funds in liquid assets like government securities.
  • They will be barred from investing more than 20% of their total assets in any one sector; the current cap is 25%.
  • When it comes to sectors like housing finance, the limit is down to 10%.
  • While the mandated investment in government securities will ensure a modicum of liquidity, the reduction in sectoral concentration will discipline funds and force them to diversify their risks.
  • Some mutual funds entered into standstill agreements with companies in whose debt instruments the funds had invested. This is not a welcome practice and goes against the interests of investors in the mutual fund. SEBI has done the right thing by banning funds from entering into such standstill agreements.
  • Further, SEBI has required that assets of mutual funds be valued on a mark-to-market basis in order to better reflect the value of their investments.

Caution needed

  • While SEBI’s intent to deal with the risks within the financial system is commendable, there could be unintended consequences to the regulator’s actions — which need watching.
  • One of the new regulations introduced by SEBI is to increase the exit load on short-term investments in liquid mutual funds to discourage sudden demands for redemption. This could possibly hinder fund flow into the bond market, which in India is already quite undeveloped when compared to the rest of the world.

The concern

  • While SEBI is doing a commendable job in disciplining the markets and intermediaries, the larger question is whether the regulator can really protect investors beyond a certain point.
  • Market investments involve risk, and investors seeking high returns may in fact be willing to assume the increased risk that comes with such investment.

Conclusion

What SEBI is probably more concerned about is the ripple effect of defaults and roll-overs on the system. Investor confidence can be shaken by defaults and that will have consequences for the economy. Viewed from this perspective, the regulator’s latest rules should be welcomed.


Editorial Simplified: A Thumbs Down to Unilateralism | GS – II


Relevance :  GS Paper II


Why has this issue cropped up?

The U.S. is acting in defiance of agreed rules to target India’s WTO-consistent policies.


Introduction

Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner.


Some background

  • In the past, U.S. agencies — in particular, the Office of the United States Trade Representative (USTR) and the United States International Trade Commission (USITC) — have “investigated” India’s trade policies, the conclusions of which have been used by the administration to demand changes in policies that would benefit American businesses.
  • The latest demands stem from two extensive USITC investigations which were conducted between 2013 and 2015 on India’s trade, investment, and industrial policies.

Propriety and procedures

The investigations conducted by the U.S. agencies raise several issues of propriety, procedures and substance. These three dimensions need to be understood well for this is the only way in which the Government of India can prepare appropriate responses to the persistent questioning by the U.S. administration of its trade and investment policies.

  • PROPRIETY:
    • The first is the issue of propriety. It is important to mention here that all of India’s trade-related policies were done under the cover of the U.S.’s domestic laws.
    • This is tantamount to unilateralism, the response to which should be an unequivocal “no” in this age of multilateralism, where differences on policy issues between sovereign countries must be resolved in the appropriate multilateral forums. The possibilities of a stronger power using unilateral means should be eliminated.
    • It is in this spirit that the General Agreement on Tariffs and Trade (GATT) was established which was later replaced by WTO. The main purpose of the GATT/WTO is to provide a forum for the resolution of disputes by following multilaterally agreed rules. The only country disagreeing with this position is the U.S.
  • PROCEDURE
    • The procedure of conducting the investigations was deeply flawed for it provided a platform for vested interests in the U.S. to make common cause against India’s policies.
    • What is more, in these investigations, U.S. government agencies have been not only acting as the judge and the jury but also actively engaged in getting the findings of the investigations implemented.
  • SUBSTANCE
    • The substance of the investigations touched trade-related issues that are covered by the WTO agreements.
    • Since the establishment of the WTO, India’s policies have mostly been consistent with its commitments; where they have not been, other WTO members, including the U.S., have approached the dispute settlement body of the organisation to make India fall in line.
    • The fact that the U.S. is not approaching the WTO to challenge India’s trade and investment policies that American businesses find detrimental to their interests implies that the India’s largest trade partner is acting in defiance of agreed rules to target India’s WTO-consistent policies.
    • Take, for instance, India’s high tariffs which have left Mr. Trump greatly perturbed. These tariffs were agreed to in the Uruguay Round negotiations in consultation with all members of the organisation. Moreover, in the period since, India has lowered tariffs on many agricultural and industrial products.

What is at the core

  • The India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy, and to achieve this goal, the administration is stepping beyond legitimate means.
  • In fact, the basis of the discord lies in the way the U.S. has been targeting India’s policies, disregarding the rule of law.

What lies ahead

  • Early resolution of this discord seems difficult as the U.S. has decided to undermine the WTO’s dispute settlement mechanism and walk down the path of unilateralism instead.
  • Under these circumstances, the Government of India would have focus on two fronts: to remain engaged with its largest trade partner and to also engage actively with the global community to make the U.S. understand the imperatives of a rules-based trading system.