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25 December 2020: The Hindu Editorial Analysis

1)Learning to let go: the matter of retrospective tax

GS 3  Indian economy


CONTEXT:

Recently the Permanent Court Of Arbitration ruled in favour of Cairn Plc, an energy firm, over a retrospective tax demand by India's tax authority since 2014.

 

PERMANENT COURT OF ARBITRATION:

  1. It was established in 1899.
  2. It is an intergovernmental organization.
  3. This court is located in The Hague, Netherlands.
  4. In the traditional sense, this is not a court but it provides services of arbitral tribunal to resolve disputes of international agreements between member states, international organizations or private parties.
  5. The cases in this court involve legal issues of:

                        a. territorial and maritime boundaries,

                        b. sovereignty, human rights,

                        c. international investment,

                        d. international and regional trade.

     6.  There are 122 states as members.

     7. The court is not a United Nations agency but is an official United Nations      Observer.

 

RETROSPECTIVE TAXATION:

  1. This taxation effectively allows a country to pass a rule on taxing certain products, items or services.
  2. Here the government can charge companies from a time before the date on which the law is passed.

 

ABOUT CAIRN ENERGY PLC:

  1. Location:It is Europe's independent oil and gas exploration and development company.
  2. This is listed on the London Stock Exchange.
  3. Works:The firm has discovered and developed oil and gas reserves in various locations around the world.

 

MATTERS RELATED TO THIS TAXATION:

  1. This court of Hague has ruled that the tax levy, be the case to a corporate reorganisation exercise undertaken in 2006­ 07, falls illegal of the India­ U.K. bilateral investment pact.
  2. Another case related to retrospective taxation, the government lost against Vodafone this September.
  3. But in this Vodafone case, the government would only need to diverge out around ?80 crores if it were to concede defeat.
  4. But in this energy firm's verdict includes a sharp $1.4 billion payable as damages.
  5. The damages of Cairn arise from tax authorities’ decision like:

                        a. They use force and subsequently sell the company’s shares.

                        b. They freeze dividend payments and tax refunds.

c. The arbitration process was also underway by them to recover the disputed tax dues.

 

CONSEQUENCES FOR INDIA:

  1. There is also an arbitration plea filed over the same tax demand by Cairn’s parent firm, Vedanta, but its verdict is awaited.
  2. fiscal implications: of such a large payout to Cairn when the national treasury is cash bonded.
  3. It may have shocked the government’s mind about challenging the Vodafone verdict after much hesitating.
  4. But the Centre has now filed an appeal in the Vodafone matter in Singapore. A similar appeal too can be expected on Cairn.

 

GOVERNMENT'S THOUGHTS:

  1. Finance Minister Nirman has repeatedly declared that India retains the sovereign right to levy taxes.
  2. Changes In this law: As well as the government has declared from the outset it is not in favour of retrospective legislative changes.
  3. As well as the prime minister of India had promised to resolve concerns on retrospective taxation.
  4. In the global consternation, this retrospective taxation introduced in 2012 by then Finance Minister. It was after losing a tax battle with Vodafone in the Supreme Court.

 

2) The farmers’ protest, truths and half-­truths

GS 2 – Govt. policies and interventions


CONTEXT:

  1. With the agitation continuing, finding a meeting ground for farmers and the government could be difficult
  2. The farmers’ protest that currently ring-fences Delhi resists resolution as the air is dense with contrary sets of truths and half-truths.

 

PROTESTERS’ TRUTH:

  1. APMC AND MSP: Farmers of Punjab and Haryana alone provide as much as 45% of the marketable surplus of wheat and rice by leveraging Agricultural Produce Market Committee (APMC) regulations and the Minimum Support Price (MSP).
  2. Productivity: This programme worked best in Punjab and Haryana is because progressive farmers were at the political helm in these States. As a result, the MSP became identified with wheat and rice, the two main crops of Punjab and Haryana.
  3. Middlemen: The arhtiyas or middlemen are not seen as villains by farmers in Punjab and Haryana but function as lifeline links.
  4. APMC use: APMC mandis charge a transaction fee, or cess, which the State pockets. The proceeds of this money are used primarily to make better roads and storage facilities.
  5. Contract farming:  It has not been a success for two reasons.
  1. Small farmers complain that big contractors easily renege on their commitments and either refuse to buy the produce or beat down the price once harvesting is done.
  2. Second, if they give their lands to them then they may not get them back for no contractor will invest in land if the contract is just for a year and is renewable annually.
  1. Anti-zamindari policy: This land policy to the tiller might now work against the interest of farmers if they are not the actual tillers for an extended period.

 

GOVERNMENT’S TRUTH:

  1. MSP reality: The Minimum Support Price has never been a law, only a policy. Therefore, to demand it be made a law now is unfair. Like everything else, agricultural produce should also obey market price fluctuations.
  2. Ups and downs is a part: There will be good years and bad years and this is how agricultural markets function everywhere, and for every other crop in India as well.
  3. Give up older policies: As there is no food shortage today, the provisions of the Green Revolution should no longer be binding.
  4. Contract farming: It will help the mass of small farmers by freeing them from their tiny plots and they will now be free to move outside the village and seek jobs elsewhere.
  5. Subsidies: Farmers get huge subsidies from the State to the tune of 2%-2.5% of GDP. This is much higher than subsidies farmers receive in the United States, the European Union (EU), Latin America or Japan.Total subsidy in India is in the range of $45-50 billion, while in the U.S. it is about $20 billion, in the EU around $39 billion and Japan nearly $46 billion.

 

HALF-TRUTHS OF PROTESTERS:

  1. New law: The MSP was never law, it was always a policy. So the farmers’ demand is not really to roll back the new agricultural Bill, as they claim, but to bring in a fresh one that makes MSP a law.
  2. Changing Markets: The second half-truth protesters refuse to fully acknowledge is that when international prices are higher than domestic prices, they resent not being able to sell outside the country. Onions and sugar are recent examples.

 

HALF-TRUTHS OF THE GOVERNMENT:

  1. Lack of holistic approach: True, contract farming ought to release farmers from their uneconomical holdings, but this does not acknowledge the actual difficulties farmers face with contract farming.
  2. Farmer issues: Farmers face problems both in terms of selling their produce and when they want their lands back from the contractors.
  3. APMC mandi beneficiaries: It is true that mainly big farmers, not small or marginal ones, go to mandis. This conceals the fact that most small farmers find the transportation cost too expensive as APMC-run mandis are few and far between.
  4. Subsidy insufficient: It is true that the farm subsidy in India can be as high as $50 billion (about ?3.83-lakh crore), but per farmer the subsidy just about touches $48, compared to over $7,000 in the U.S. When this is contextualised, we find that only 2% of U.S. farmers are below poverty line, but 85% of Indian farmers are small and marginal.
  5. Socio-economic backwardness: We should not forget either that in India, the social cover for health, education and unemployment is poor.
  6. Disparity in MSP: MSP does not apply only to wheat and rice, but to 22 crops in all. If it is active only for wheat and rice, it is because there is a strong farmers’ lobby in the northwest.
  7. Soil degradation: Aided and abetted by the APMC and the MSP, farmers in the northwest primarily cultivate paddy and wheat and this has robbed the soil of vital nutrients besides depleting groundwater reserves.
  8. Water depletion: As rice is a thirsty crop and it does not rain very heavily in Punjab and Haryana, groundwater is increasingly being used, leading to its rapid depletion. If the APMC and the MSP were to go, farmers would diversify and the ecology would be restored, so also the economy.

 

POLITICAL TRUTH ABOUT SUBSIDIES:

Everybody benefits from subsidies:

  1. The farmers benefit (cheap electricity and fertilizers, for example), central Government employees benefit (the Central Government Health Scheme, for example), Ministers benefit, corporates benefit (for example, the “revenues foregone” by the government to help business; this increased by 16% in the 2018-19 Budget), the armed forces benefit (rations for the services are priced much lower, for example), poor children benefit (government schools), universities benefit (State and central universities), even prisons benefit (in the U.S., as many as 8% of prisoners are in privately-run prisons).
  2. When a particular subsidy is withdrawn, the population that was being served by it will protest.
  3. If the CGHS is shut down, bureaucrats will rise in opposition; withdraw perks to Members of Parliament, and our lawmakers will object; cease cancelling the “revenues foregone” provision in the Budget and businesses will complain. Subsidies are bad, but only for other people, never for oneself.

 

CONCLUSION:

  1. If there are so many truths, half-truths and an overwhelming politically unacceptable truth, a meeting ground will always be hard to find.
  2. But, civic participation (farmer protests) along with debate and discussions, India is experiencing the truest sense of democracy. Negotiations will surely lead to a solution one day.

 

3)Provocation trap: Attack on the USA Embassy

GS 2  International fora


CONTEXT:

Recently there were rocket attacks on the U.S. Embassy in Baghdad(Iraq). The American military leaders called this the largest attack on the fortified green zone in a decade.

 

REMARKS OF THE U.S.A.:

  1. President Donald Trump and senior leaders of the administration have blamed for this attack to Iran. According to them, Iran supplied the rockets.
  2. Radar defence system: This attack has been countered by the U.S.’s radar­ guided defensive systems.
  3. The attack comes at an unstable time when the Iran­ American relations have collapsed after the U.S. come out of the Iran nuclear deal unilaterally in 2018.
  4. New President, promising to revive the nuclear deal with Iran. It will be as a window of opportunity to restart the diplomatic process.
  5. But attacks like this, threaten to push both the countries into an open conflict.

 

WHAT IS GREEN ZONE:

  1. It is the most common name for the International Zone of Baghdad.
  2. It was a 10-square-kilometre area in central Baghdad, Iraq.
  3. The area was taken by US military forces in April 2003 during the capture of Baghdad.
  4. Current: Now this green zone houses the Embassy of USA.

 

ATTACK BY U.S.A AND OTHER ASPECTS:

  1. The U.S. killed top Iranian general Qasem Soleimani in this year, and American officials also claimed that the drone strike in the Iraqi capital had re-established America’s deterrence.
  2. After the American attack in Iran, it had launched revenge missile attacks on U.S. military camps in Iraq.
  3. And since then, pro-Iran Shia militias in Iraq have launched missile attacks at the Green Zone.
  4. But the U.S. had earlier downsized its Embassy staff, also closed the consulate in Basra and reduce the troops in Iraq.
  5. Previous President, Mr Trump's actions derailed an international deal.
  6. Also, his ‘maximum pressure’ campaign turned  Iran more dangerous.
  7. Besides targeting the American Embassy, Iran,  also directly or through proxies, had attacked oil facilities and tankers in the Gulf countries over the past two years.
  8. Earlier this month, Iran backed Houthi rebels of Yemen attacked a tanker offJeddah.
  9. last month, Mohsen Fakhrizadeh, a top scientist, was killed by Israeli agents inside Iran.

 

CONCLUSION:

  1. Iran should not sleep­ walk into the trap of revenge. The attacks on diplomatic missions are not acceptable.
  2. It must give the new administration of USA a chance to reboot diplomacy, which is in the larger interests of Tehran and for west Asia.