04 March 2021: The Hindu Editorial Analysis
1) The distress sale of national assets is unwise.
The government’s intent to offload public sector units and banks will only result in the long-term loss of public wealth
GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Government Budgeting.
1. Demonetization and hastily implemented flawed Goods and Services Tax (GST) Together, these twin disasters robbed millions of their livelihoods and plunged the Indian economy into a prolonged slump that predates the COVID-19 pandemic.
2. A badly designed and hastily implemented flawed Goods and Services Tax (GST) and the COVID-19 pandemic, further devastating vast numbers of medium and small enterprises, as well as the vast informal sector of the economy.
3. For overcome this Indian economic situation the government of India, intent to offload (by selling or passing it on to someone else) public sector units (PSU),Banks and Non-Banking Financial Company (NBFC) will only result in the long-term loss of public wealth.
Oil taxes, PSU privatization:
1. A historically, low international oil prices presented the government an opportunity to encourage a consumption-led revival by passing on these benefits to the people, Instead of seizing the opportunity.
2. The government continues to squeeze every family’s shrinking budget through excessive petroleum taxes and cesses. In contrast, in 2019, it gave corporates a huge tax cut that did not generate increased investment and succeeded only in burning a ?1.45-lakh crore-sized hole in India’s Budget.
3. The government is using the economy’s collapse since the pandemic to rush headlong into its mission. It has announced its intent to become cash rich by selling the family silver, through hasty privatisation, of India’s public sector undertakings (PSUs).
3. Executed carefully and strategically, disinvestment (sale of a part of the government’s shares in PSUs) can generate resources for the government, set the right incentives for their managements, and reward the investing public.
More a fire sale (Concern):
1. The government has explicitly embraced “privatisation” instead of “disinvestment.” Its choice of language signals its intent.
2. The PSU sale is being justified by citing enhanced efficiency and the generation of funds for the government’s welfare programmes. This is a deceptive argument.
3. What we are likely to witness in reality is the privatisation of PSU profits, and the nationalisation of private sector losses.
4. In the garb of privatisation, valuable assets and profit-making companies will be undervalued and sold to cronies who will make a killing. On the other hand, defaulters with huge loan burdens will be bailed out using public funds.
There are serious long-term consequences being ignored (in LIC case):
1. The disinvestment of part of the government’s stake in LIC, and its proposed Initial Public Offer (IPO), are suggestive of clearing the decks to privatise the crown jewel of India’s insurance sector.
2. Question arise, will a privatised LIC meet our crucial long-term financing needs for infrastructure projects with long gestation periods.
Impact on social justice:
1. The government’s privatisation policy betrays its disdain for social justice. PSUs have historically played an active role in developing backward regions. Importantly, through reservations,
2. PSUs have ensured high-quality jobs for Dalits, Adivasis and Other Backward Classes. Once PSUs are privatised or disinvested to below 50% government ownership, reservations for these historically marginalised sections will become history.
Banks in danger:
1. The government has presided over an exponential rise in non-performing assets, or NPAs. Gross NPAs under its watch between 2014-15 and 2019-20 were nearly 365% higher than in the last six years (2008-14).
2. Wilful defaults have ballooned under the government. And Unable to fix the NPA crisis, the government wants to privatise public sector banks.
3. Alongside, Reserve Bank of India is reversing its principled, long-standing opposition to ownership of banks by industrial houses. Such a move will only lead to further concentration of the economy in a few hands, heighten conflict of interest and risk diversion of funds.
Case-by-case strategy needed:
1. The PSUs and public sector banks are profitable institutions that aid crucial developmental outcomes. Others require a realignment of incentives or an infusion of capital to effect a profitable turn around.
2. To derive maximum value from PSUs for the exchequer, the government should calibrate an appropriate strategy for each individual case. That requires careful, detailed hard work and a commitment to the government’s role as trustee of the nation’s assets.
1. Government Unable to manage the nation’s finances, unable to inspire trust in the private sector to boost investment, the government has turned to distress sale of our national assets. The selling assets for short-term gains make up for the long-term loss of public wealth,
2. “The government has no business being in business”, The Government needs to be reminded that it is a government that cannot manage the country’s finances that cannot generate jobs that is unable to ensure inclusive growth, that has to sell the nation’s carefully built-up assets to survive that has no business being in government.
3. Disinvestment Process suppose to improve efficiency and performances of PSU ,provide better service to customers, and do away political interference and raise adequate resources for government to meet it diverse needs.
2) Despite arbitration tug of war, mutual settlement is key.
Given increased FDI in India, it may not be conducive to weave a web of litigation, affecting stakeholders and exit routes.
GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
1. The 2020 may have been a welcome bag of enhanced equity inflows, bold policy changes and billion-dollar milestones for Indian foreign direct investment (FDI) landscape.
2. The Permanent Court of Arbitration at The Hague (PCA) ruled against Government of India in the cases of Cairn Energy and Vodafone in the final quarter of 2020.This international agency decisions against India are course of concern for India.
3. the decision by India to appeal against these awards, have served to puncture the bag of investor trust and India’s promise to honour its commitments to foreign investors under bilateral investment treaties (BITs).
The Hague rulings:
1. Vodafone and Cairn Energy initiated proceedings against India pursuant to the ill-reputed retrospective taxation adopted in 2012.
2. On September 25, 2020, the PCA ruled that India’s imposition on Vodafone of ?27,900 crore in retrospective taxes, including interest and penalties, was in breach of the India-Netherlands BIT.
3. The Permanent Court of Arbitration ordered the Government of India to reimburse legal costs to Vodafone of approximately ?45 crore. There was no award on damages, India challenged this decision.
4. The Permanent Court of Arbitration ordered the Government of India (failed to uphold its obligations to Cairn under the India-United Kingdom BIT) to pay Cairn approximately ?9,000 crore for the ‘total harm’ suffered by Cairn (UK firm).
India and PCA:
1. PCA, Established by the Convention for the Pacific Settlement of International Disputes concluded at The Hague (Netherland) in 1899 and the convention revised in second Hague Peace Conference in 1907.
2. PCA settles disputes between member states, International organizations or private parties like territorial and maritime disputes, sovereignty, human rights, International investments and regional trade etc.
3. PCA, has Observer Status in UN, and India is member of PCA. India ratified the 1899 convention in 1950.
Cairn (UK firm) versus India:
1. Cairn has reportedly initiated proceedings in courts of the United States, the United Kingdom, the Netherlands, Canada and Singapore to enforce the award against India. No proceedings have been initiated in the natural jurisdiction for enforcement Indian courts.
2. The reasons For instance, delays in Indian courts, uncertainty in Indian public policy vis-à-vis assessment of tax demands by foreign tribunals, and the Indian judiciary’s exceptional stance on non-enforceability of treaty awards in India may have been pivotal in Cairn’s decision.
3. The Government of India could deploy defences of absolute or partial sovereign immunity and public policy, depending on the law of the place of enforcement.
Viewed from the prism of state conduct:
1. In Cairn case, Government of India enforced the tax demand by a series of unilateral measures such as the seizure and sale of Cairn’s shares, seizure of its dividends, and withholding of tax refund due to Cairn as a result of overpayment of capital gains tax in a separate matter.
2. The retrospective taxation and the Government of India’s actions in Cairn thrive on the brink of being wilful, unfair and inequitable tests that limit freedom of executive action under international law.
The retrospective taxation law:
1. “retrospective” means taking effect from a date in the past and “tax” refers to a new or additional levy of tax on a specified transaction and It allows a country to pass a rule on taxing certain products, items or services and deals and charge companies from a time behind the date on which the law is passed.
2. The Indian government amended the Income Tax, 1961, retrospectively, to overturn the judgment of the Supreme Court. The amendment allowed tax authorities to retrospectively tax transactions.
3. Once Parliament passed the amendment to the Finance Act in 2012, the onus to pay the taxes fell back on Vodafone. The amendment was criticised by investors globally, who said the change in law was “perverse” in nature.
Arriving at a solution:
1. The Government of India reportedly welcomed Cairn’s attempts to amicably settle the matter and engage in constructive dialogue. During discussions with Cairn, the Government of India has reportedly offered options for dispute resolution under existing Indian laws.
2. One such possible option is payment of 50% of the principal amount, and waiver of interest and penalty, under the ‘Vivad se Vishwas’ tax amnesty scheme
3. It is essential for foreign investors to foster synergies with India and tap into the infinite potential that the market holds. India boasts of being among the top 12 recipients of FDI globally.
4. The increased FDI inflows in India over the years are testament to the attractive investment opportunities available for foreign investors in India.
5. Therefore, it is important for parties to foster open dialogue with investors and explore alternatives that lead to the road of settlement.
6. It may not be conducive to weave a web of litigation entangling stakeholders and closing exit routes.
1. It is hoped that the parties will actively continue, in parallel, to identify mutual interests, evaluate constructive options and arrive at an acceptable solution.
2. The Government of India has fervently defended its sovereign taxation powers. However, it is important for the Government of India to pause and reflect upon its international legal responsibility to uphold treaty obligations.
3. India government makes sure reciprocal and binding promises to protect foreign investment. In a tug of war, sovereign powers that are legal under national laws may not hold water before sovereign commitments under international law.
4. However, what it could use is a defence of international public policy against tax avoidance, and the sovereignty of a state to determine what transactions can or cannot be taxable.
3) “Climate and consciousness “
The Uttarakhand floods and the Texas cold snap must serve as lessons to galvanise climate action.
GS-3: Conservation, environmental pollution and degradation, environmental impact assessment & Disaster and disaster management.
1. The policymakers and the public response to natural disasters, such as this year’s Himalayan glacier flooding that overwhelmed Uttarakhand, or the cold snap that paralysed Texas, narrate as “acts of God”.
2. But cause for both events was not the hand of God, but human-made global warming. Unless climate change is tagged as a primary culprit, climate action will continue to falter.
The Effect of global warming across the world:
1. The melting of the Himalayan glaciers that prompted the floods and landslides in Uttarakhand has the fingerprints of global warming.
2. As glacier cover is replaced by water or land, the amount of light reflected decreases, aggravating warming a contributor to the sweltering heat in cities like Delhi and Hyderabad, or the epic floods in Chennai or Kerala
3. The United States has already witnessed many deadly avalanches since the beginning of 2021. Furthermore, the extreme cold weather in Texas,
4. The double-digit negative temperatures seen in Germany earlier this year, is connected to Arctic-peninsula warming, at a rate almost twice the global average.
Greenhouse gas emission;
1. India emits about 3 gigatonnes (Gt) CO2eq of greenhouse gases each year; about two and a half tons per person, which is half the world average. The country emits 7% of global emissions.
2. For India, the third-largest carbon emitter after China and the United States, a decisive switch is needed from highly polluting coal and petroleum to cleaner and renewable power sources.
3. China has announced carbon neutrality by 2060, Japan and South Korea by 2050, but India is yet to announce a target. The acceleration of hazards of nature should prompt countries to advance those targets, ideally by a decade.
4. The HSBC ranks India at the top among 67 nations in climate vulnerability (2018), Germanwatch ranks India fifth among 181 nations in terms of climate risks (2020).
1. A vital step should be explicitly including policies for climate mitigation in the government budget, along with energy, roads, health and education.
2. Specifically, growth targets should include timelines for switching to cleaner energy. The government needs to launch a major campaign to mobilise climate finance.
3. A big worry is that the Uttarakhand government and the Centre have been diluting, instead of strengthening, climate safeguards for hydroelectric and road projects.
1. The National Disaster Management Authority (NDMA), headed by the Prime Minister of India, is the apex body for Disaster Management in India.
2. Setting up of NDMA and the creation of an enabling environment for institutional mechanisms at the State and District levels is mandated by the Disaster Management Act, 2005.
1. The climate adaptation needs to be a priority in India. India’s Central and State governments must increase allocations for risk reduction, such as better defences against floods, or agricultural innovations to withstand droughts.
2. The global warming is still seen as a danger that lies over the horizon. So, while COVID-19 triggered the mobilisation of trillions of dollars in financing, the equally frightening climate scenario most be placed.
3. Sustainable growth depends on timely climate action. For that to happen, policymaking needs to connect the dots between carbon emissions, atmospheric warming, melting glaciers, extreme floods and storms.