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Gotabaya Rajapaksa, the President of Sri Lanka, declared a nationwide state of emergency on Friday, giving a free-hand to the security personnel following the violent clashes which erupted outside his residence when hundreds of supporters tried to storm his house in anger over the ongoing economic crisis in the country. Gotabaya, in a statement, explained that imposing emergency was needed for “protection of public order, and the maintenance of supplies and services essential to the life of the community.”

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<ins>How bad is the situation?</ins>
The Government of Sri Lanka has exhausted their foreign exchange reserves, which are used to import goods from other countries. In the last few weeks, experts have claimed that the Lankan Government has witnessed a 70 percent drop in foreign exchange reserves which led to the currency devaluation of Sri Lankan Rupee, resulting in further deepening the economic crisis.
As of now, the situation in Sri Lanka is a cause of concern. Due to limited supply and the currency devaluation, prices of almost all goods and products have skyrocketed. While the retail inflation is being reported at 18.7%, food inflation is being reported at 30% compared to last year.
The nation is also going through crippling power cuts, which sometimes even extend up to 13 hours. While public offices have been advised to avoid using ACs, the Government has also directed for the street lights to be turned off. To make matters worse for the common citizens, the Lankan Government is also struggling to meet the daily need for fuel. Huge queues outside the petrol pumps have become a daily spectacle.
The SL regulatory body said, “what we are facing is not an issue of electricity capacity, but a foreign exchange crisis, as the country does not have enough reserves to import fuel.” In fact on February 23, the Bank of Ceylon had released $35.5 billion to pay for a shipment of 40,000 tonne of fuel which was kept waiting at the Colombo port for four days as the government struggled to find funds to pay for it. The Public Utilities Commission is still seeking assistance from the Government to pay for the three ships of fuel that arrived at the port last week.

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Other than that, basic amenities like cooking gas cylinders have also become scarce as the cylinders are running low on supply, but are high in demand. The supply shortage has caused an unprecedented inflation in their prices. Over the past four months, the price of a standard cooking gas cylinder has shot up from $7.50 to $13.25 – an increase of around 85%.
Mrs. Dilrukshi, a mother of four says, "I used to provide fish and vegetables daily to my children. Now we are giving them one vegetable with rice. Earlier we used to have three meals a day, now sometimes we can afford only two."
In the markets, where the green of veggies and the red of fruits is all around, the shoppers are tense due to the soaring prices. One such shopper said, "with our current monthly salary, we can survive only for two weeks because the prices have shot up. We do not have any hope for the future. Rice prices have also increased. There is a long queue outside government-run shops."
Now, to address the elephant in the room, Sri Lanka is under a mountain of debt, totaling up to more than 45 billion dollars. The country needs to find 6 billion dollars just for debt servicing alone. Sri Lanka owes this money to a multifold of creditors, among whom China is at the forefront as the Chinese Government has lent billions as part of its Belt and Road Initiative (BRI) over the past decade for infrastructure projects like ports and a coal power plant. Sri Lanka has asked China to restructure debt repayments of about $3.5 billion, while the Asian Development Bank and Japan have also lent billions of dollars to the Lankan Government.
The debt that has been mounting for quite some time now has become around 119 percent of Sri Lanka’s GDP. This means that the country has effectively borrowed more value than what it could produce in terms of goods and services. The situation in Sri Lanka has become so bad that the Lankans have started fleeing from their country. Last week, 16 Sri Lankans, including eight children, boarded illegal ferries to India. They were intercepted by the Coast Guard off the Tamil Nadu coast. The state is caring for them, but they will almost certainly not be the last batch of refugees. School exams have been canceled in the country because of the lack of paper. Hospitals have suspended surgeries owing to the lack of medical facilities.

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Reports from Reuters bring forward heart-breaking stories of the less privileged class struggling to make ends meet in Sri Lanka, many of whom are now working two jobs, just to survive.
"We cannot survive here anymore," said Indika Perera, 43, a security guard at a private company in Colombo. Perera now spends over half his salary on groceries for his family, but still cannot get more than rice once a day for his three children.
<ins>What led to the crisis?</ins>
Experts have identified multiple reasons behind the crippling economy of Sri Lanka. Although, the major reason remains economic mismanagement by several Governments over a period of 10 years which led to the creation of a twin deficit – a budget shortfall alongside a current account deficit.
In a 2019 Asian Development Bank’s paper, it was said that “Sri Lanka is a classic twin deficits economy.” Further explaining what a twin deficit economy is, the paper read “twin deficits signal that a country’s national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate.”
There were, however, several other factors which brought the doomsday closer for Sri Lanka. The Rajkapasan Government had promised deep tax cuts during its 2019 election campaign which were enforced just months before the pandemic struck which led to wiping out huge chunks of Sri Lanka’s economy.
To make matters worse, Sri Lanka’s tourism industry, which had taken a blow after 2019’s Easter bombing, was torpedoed by the onset of COVID-19, further deepening the economic crisis. Credit agencies all over the world went on to downgrade Sri Lanka and effectively locked it out of the international capital markets. As a result, Sri Lanka’s debt management programme, which was totally dependent on accessing those markets, derailed and foreign exchange reserves plummeted by almost 70 per cent in two years.
The Lankan Government’s decision to ban chemical fertilizers also went against them, and led to a drop in the critical rice crop. Moreover, with Russia invading Ukraine, the crisis further deepened as Sri Lanka relied on Russian fuel. Additionally, high freight rates accelerated the crisis for the Lankan Government. According to a report, “the average cost of shipping a standard container from Europe to Asia has increased from around $2,000 in 2020, to over $10,000 last year.”
<ins>What does the future hold?</ins>
Since November, when experts had predicted the crumbling of the Lankan economy, rating agencies like Moody's, Fitch, and Standard &amp; Poor had all downgraded Sri Lanka on debt default worries. Fitch has estimated Sri Lanka will also need to arrange for $2.4 billion to help state-owned and private firms in the country to honor 2022 debt obligations; these will be over and above the $4.5 billion Central Government debt. As of now, the country will also need to gather around $20 billion for essential imports such as fuel, food, and intermediate goods for exports.
For months, the Rajkapasan Government had been dodging calls from opposition leaders and economic experts, who were suggesting the government to seek help from the IMF, but as the crisis deepened, the government eventually drew up a plan to approach the IMF in April. The IMF is willing to initiate discussions with the Sri Lankan authorities for a possible loan programme in the “coming days,” said an IMF spokesperson. In the interim, Rajkapasa has also seeked help from its neighboring countries – India and China. The Chinese have lent heavily to the Lankans in the past through a series of infrastructure projects, and after providing the CBSL (Central Bank of Sri Lanka) with a $1.5 billion currency swap, and a $1.3 billion syndicated loan to the Government, China is considering offering the island nation a $1.5 billion credit facility and a separate loan of up to $1 billion.
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Also Read: <a href="https://policharcha.com/article/internationalrelations/17090f41-ba84-4f5f-b9a1-4b175cc5e28b/indias-another-blow-to-china-in-the-indopacific" target="_blank">India’s another blow to China in the Indo-Pacific</a>&nbsp;
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<ins>What is India doing to help?</ins>

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History is a testament to the fact that India has always helped its neighbors, and this time the Government of India (GoI) has stepped in to help the neighboring country of Sri Lanka. India in February had sent 40,000 tonne of fuel to the country to help allay its crisis. In January, India signed off on a $400-million credit swap facility, and deferred an Asian Clearing House settlement of $515.2 million.
On February 2, India had extended a line of credit of $500 million to Sri Lanka to buy petroleum products. “The Government of India support for fuel imports by Sri Lanka from India, through the line-of-credit of USD 500 million is in response to GoSL’s urgent requirement. This critical support comes in the wake of a virtual meeting between the External Affairs Minister of India, and his the SL Minister of Finance Basil Rajapaksa on January 15, 2022, during which they discussed a range of issues,” the High Commission of India in Sri Lanka had stated in a press release.
Basil Rajapaksa will also be visiting India to formalise an economic relief package for the country. He had earlier visited India in December 2021 to discuss Sri Lanka’s economic crisis.
<ins>Way forward</ins>
Experts have suggested that Sri Lanka should establish a three-year repayment structure as doing so would lessen the burden on the citizens of Sri Lanka. Verité Research Executive Director and Economist Dr Nishan de Mel told Reuters, "Sri Lanka is unreasonably committed to repaying its debt. It is more prudent to press pause on debt repayment and take care of critical economic needs."
Sri Lanka’s economic crisis could have been avoided, but the economic mismanagement, and the welfarism schemes launched by successive Governments have created a grave crisis for the people of Sri Lanka, who are now paying thousands for food and gas, and are deprived of electricity. The country is now trapped in a vicious cycle of borrowing, which will be difficult to get out of, until the IMF bails them out once again.&nbsp;
The citizens of Sri Lanka have taken it to the streets, protesting against the government and the mighty Rajkapasas, who the people are blaming for the crisis. The SL Government responded by imposing an emergency in the state which has given the army the right to detain anyone without any warrant. The army is now arresting and detaining anyone they deem appropriate, and several journalists and protestors have fallen prey to this disgusting practice. According to several news reports, cases of torture have also been came to light.
The Government now should focus on restoring normalcy in Sri Lanka, rather than using emergency as a tool to suppress the dissenting voices. Diplomacy will play a key role in this situation as Sri Lanka will need to engage with multiple international organisations for a bailout or relief package. While several countries like India and China have come forward to help the island nation, it still will not be enough to turn the tide.

Explained: The Sri Lankan economic crisis

<img src="https://api-discussion.policharcha.com/1649077872220" alt="Freebies can make states go bust like SL, officials told PM" style="float:none;height: auto;width: auto"/>

In a long meeting, which lasted for around 4 hours, between PM Narendra Modi and senior bureaucrats, a few officials raised concern over the populist schemes announced by several states. The officials claimed that ‘freebies’ or populist schemes are economically unsustainable in the long run, and can take India down the same path of Sri Lanka or Greece, according to reports from several outlets. PM Modi held the meeting with secretaries of all departments at his camp office at 7 Lok Kalyan Marg on Saturday.
The meeting was also attended by National Security Advisor Ajit Doval, Principal Secretary to Prime Minister PK Mishra, and Cabinet Secretary Rajiv Gauba along with other top bureaucrats of the Union Government. During the meeting, Modi categorically told bureaucrats to come out of the mentality of managing shortages to the new challenge of managing surplus. PM further told the officials to give up the old story of citing “poverty" as an excuse for not taking up major development projects, and asked them to adopt a bigger perspective, the sources told news outlets.
Citing the teamwork shown by the secretaries during the COVID-19 pandemic, PM Modi said they should act as secretaries of the Government of India, not merely as secretaries of their respective departments, and should work as one team. He also asked secretaries to give feedback and suggest loopholes in policies of the Government, including those which are not related to their respective Ministries.
This was the ninth such meeting of the PM with secretaries since 2014 in which more than two dozen secretaries expressed their views, and shared their feedback with PM Modi, who heard them with an open mind.&nbsp;
As per several reports, the officials, who held prominent positions in the states before going to the Centre, warned that numerous states were in dire financial straits, and would have gone bankrupt if they had not been a member of the Union.
<ins>Freebies announced before polls</ins>
Many political parties including the Aam Aadmi Party (AAP), and the All India Trinamool Congress (TMC) have offered tonnes of freebies just before the polls as an election-promise. This trend is growing as several other political parties are imitating this strategy to win elections
In the recent assembly elections in five states, these political parties had announced various schemes in which they promised free electricity for households, and free money to all women who have attained a certain age.
However, no matter how good they seem from the outside, the reality is these schemes are not economically viable, and moreover, sends a wrong message to the population, which ultimately gets dependent on such schemes, and resultantly negatively impact the social fabric of a state or nation, Sri Lanka is the prime example in front of us.

Freebies can make states go bust like SL, officials told PM

<img src="https://api-discussion.policharcha.com/1642432717048" alt="BrahMos deal, potential Tejas deal to give impetus to India’s defence exports" style="float:none;height: auto;width: auto"/>

While India has considerably reduced its defense imports and is trying to become more self-sufficient in this regard, the government is also trying to make India a major Defense goods exporter.
Recently, India has been ranked in the world’s top 25 defense goods exporters by SIPRI, a Stockholm based think-tank. Through this article we will look into India’s Defense Exports, and some major developments made by the government.
The Government of India is eyeing to achieve the export target of about ₹35,000 crore in aerospace and defense goods and services by 2025. While India is known for its competence and its capability to provide low-cost, high-quality production of defence goods, the target is an ambitious one, and the government is trying to achieve it the best it can.
<ins>BrahMos Deal</ins>

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Recently, the Philippines government approved a contract worth 374 million dollars with BrahMos Aerospace limited, an Indo-Russian joint venture aimed at increasing defense exports. The Philippines government was interested in the supersonic cruise missile system for quite a while, but the deal could not move ahead because of the pandemic.
With this development, BrahMos will successfully mark India’s first major export order. Mr. Lorenza, the Secretary of Central Defense of Philippines said on social media, “As Head of Procuring Entity (HOPE), I recently signed the Notice of Award for the Philippine Navy shore-based anti-ship missile acquisition project. Negotiated with the Government of India, it includes the delivery of three batteries, training for operators, and maintainers as well as the necessary Integrated Logistics Support (ILS) package.”
Developed by BrahMos Aerospace Limited, the cruise missiles can be launched from land, sea, sub-sea, and air against surface and sea-based targets, and has been inducted into the Indian armed forces long ago. The system will be most likely equipped by the coastal defense regiment of the Philippines marines.
With this development, BrahMos Aerospace limited has also moved into talks with several other nations interested in buying its cruise missile system, which is gaining popularity by the second. According to defense officials, discussions with Indonesia are at an advanced stage, and a deal is most likely to be signed in the coming months. Thailand is also eyeing BrahMos’s cruise missile system, and has joined the negotiations.
These ASEAN countries are looking to strengthen their naval arsenal as most of these are in conflict with China in the South China Sea, while India is countering China’s expansion in the India Ocean Region, especially in its ‘sphere of influence’.
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Also Read: <a href="https://policharcha.com/article/internationalrelations/17090f41-ba84-4f5f-b9a1-4b175cc5e28b/indias-another-blow-to-china-in-the-indopacific" target="_blank">India’s another blow to China in the Indo-Pacific</a>&nbsp;
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<ins>India’s Tejas vs Turkey’s Hurjet</ins>

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In 2019, after an air show display of India’s light-weight fighter jet in Langkawi International Maritime and Aerospace Exhibition (LIMA) in the ASEAN nation Malaysia, the RMAF (the Air Force of Malaysia) had expressed its interest in buying the fighter jets from India. Developed by HAL (Hindustan Aeronautics Limited), the aircraft is said to be the world’s lightest supersonic aircraft.&nbsp;
Later, Malaysia had released a tender, looking for 36 low-cost lightweight fighter aircraft for its Air Force. As of now, the Malaysian government has received 6 bids in total, out of which, two bids – one by India and the other one by Turkey – seem to be in close competition to win the contract.
Turkey’s Hurjet and India’s Tejas LCA are close competitors, but according reports, India’s Tejas might make the cut as the proposal sent from HAL is expected to meet all the parameters set by Malaysia, and is low cost.
Talking about the price of LCA Tejas, HAL’s CMD R Madhavan had said, “Per aircraft is pegged at a vanilla price of just Rs 309 crore. However, the export version of the aircraft is going to be different from those being produced for the Indian Air Force.” The export version of this aircraft is also globally the cheapest fighter jet available.
When the HAL’s Tejas gets exported, it will give a huge boost to India’s defense export programme, and it will also bring some much needed validation and recognition to HAL, and its unique line of fighter jets.
<ins>India’s Growth in Defense Exports</ins>
The Modi government has been trying to step up India’s defense exports, and have been fairly successful in it. In an answer to a question raised in the parliament, the Ministry of Defense said India exported defense equipment worth ₹8,434.84 crore in 2020-21 compared to ₹1,940.64 crore in 2014-15.
The government’s policy to increase India’s defense exports included rescinding a section of the Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) list that will allow easier exports, opening of an online portal for receiving and processing export authorization permission, allowing the legitimate export of parts and components of small arms and body armor for civil use after prior consultation with the foreign ministry, and delegating powers to defense public sector units to explore opportunities for export and participation in global tenders.
According to the ministry, some of the other measures are the creation of a separate office in the department of defense production to coordinate and follow up on export related action, including enquiries received from various countries, sharing leads with private and public sector companies, and facilitating exports and a scheme to provide financial support to defense attaches for taking up actions for promoting exports of India-made defense products both of public and private sector in the countries to which they are attached.
<ins>Future of India’s Defense Exports</ins>
A very important point that the current Prime Minister made was that India has to stop relying on imports for its defense requirements. He had also urged Indian companies to take up manufacturing of defense equipment and goods to reduce India’s dependency on foreign goods and services. The government has also modified a 2016 Defence procurement policy into the Defence Acquisition Procedure 2020.
The Defence Ministry had responded to a question in the parliament by saying, “In order to promote indigenous design and development of defence equipment, the ‘Buy Indigenously Designed, Developed and Manufactured’ category has been accorded top most priority for procurement of capital equipment."
“The Ministry of Defence has notified two ‘positive indigenization lists’ of a total of 209 items for which there would be an embargo on import beyond the timeline indicated against them. This is a big step towards self-reliance in defence," the minstry added.
This would offer a great opportunity to the Indian defence industry to manufacture these items using their own design and development capabilities to meet the requirements of the armed forces.
The government’s strategy to push domestic production of defense goods and services over defense imports is a strong initiative as it will make India self-reliant. At the same time, it will increase employment as the production of these goods and equipment will require a lot of workforce.
It is important for India to be self-reliant for defense goods for its security purposes also. All in all, India’s defense exports will grow in the near future if the government plans on executing its plans and strategies in a proper and functional way.

BrahMos deal, potential Tejas deal to give impetus to India’s defence exports

<img src="https://api-discussion.policharcha.com/1624266364842" alt="India’s Rs 4k cr Mission to strengthen the Blue Economy" style="float:none;height: auto;width: auto"/>

Recently the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi has approved the Ministry of Earth and Science’s proposal for a ‘Deep Ocean Mission’, which sets out to explore the deep ocean for resources and develop deep-sea technologies for sustainable use of ocean resources.&nbsp;&nbsp;
The Deep Ocean Mission is a multi-ministerial and multidisciplinary approach which emphasises the development of deep sea technology, exploration of the deep sea mineral resources and biodiversity, acquisition of a research vessel for exploration, deep sea observation, and capacity building. The Ministry of Earth and Science as the nodal ministry for the implementation of the programme.
The Deep Ocean Mission consists of the following six major components:-
<ol>
<li>Development of Technologies for Deep Sea Mining, and Manned Submersible: A manned submersible will be developed to carry three people to a depth of 6000 metres in the ocean with a suite of scientific sensors and tools. Only a very few countries have acquired this capability. An Integrated Mining System will be also developed for mining Polymetallic Nodules from 6000 m depth in the central Indian Ocean. The exploration studies of minerals will pave the way for commercial exploitation in the near future as and when commercial exploitation code is evolved by the International Seabed Authority, a UN organization. This component will help the Blue Economy priority area of exploring and harnessing of deep sea minerals and energy.</li>
<li>&nbsp;Development of Ocean Climate Change Advisory Services: A suite of observations and models will be developed to understand and provide future projections of important climate variables on seasonal to decadal time scales under this proof of concept component. This component will support the Blue Economy priority area of coastal tourism.</li>
<li>&nbsp;Technological innovations for exploration and conservation of deep-sea biodiversity: Bio-prospecting of deep sea flora and fauna including microbes and studies on sustainable utilisation of deep sea bio-resources will be the main focus. This component will support the Blue Economy priority area of Marine Fisheries and allied services.</li>
<li>&nbsp;Deep Ocean Survey and Exploration: The primary objective of this component is to explore and identify potential sites of multi-metal Hydrothermal Sulphides mineralisation along the Indian Ocean mid-oceanic ridges. This component will additionally support the Blue Economy priority area of deep sea exploration of ocean resources.</li>
<li>&nbsp;Energy and freshwater from the Ocean: Studies and detailed engineering design for offshore Ocean Thermal Energy Conversion (OTEC) powered desalination plant are envisaged in this proof of concept proposal. This component will support the Blue Economy priority area of off-shore energy development.</li>
<li>&nbsp;Advanced Marine Station for Ocean Biology. This component is aimed at the development of human capacity and enterprise in ocean biology and engineering. This component will translate research into industrial application and product development through on-site business incubator facilities. This component will support the Blue Economy priority area of Marine Biology, Blue trade, and Blue manufacturing.</li>
</ol>
The mission also proposes to collaborate with non-governmental organisations for research collaboration for various components of the Deep Ocean Mission. Under the mission, the Government proposes to develop mining technology, which has strategic implications and is not commercially available. It, thus, attempts to develop indigenous technologies.
The Mission also creates job opportunities in relevant sectors. The research vessel to be used for research and exploration will be made in an Indian shipyard which would create employment opportunities. It is also directed at the capacity development in Marine biology, providing job opportunities in Indian industries. Additionally, the designing, development, and fabrication of specialised equipment for the mission will mean the setting up of such infrastructure in India, helping the growth of the Indian industries, especially the MSMEs and Start-ups.&nbsp;
The entire cost of the mission is projected to be around Rs 4077 crore for a period of 5 years to be implemented in a phase-wise manner. With the estimated cost of the first phase, spanning three years from 2021-2024 to be Rs 2823.4 crore.
<ins>Blue Economy</ins>
As the Government of India envisions New India by 2030 enunciated in February 2019, it highlighted the aspect of Blue Economy as one of the ten core dimensions of growth. The Deep Ocean Mission in line to that is a modal project to support the Blue Economy.&nbsp;
As defined by the World Bank document, the Blue economy is a concept that seeks to promote economic growth, social inclusion, and the preservation or improvement of livelihoods while at the same time ensuring environmental sustainability of the oceans and coastal areas. Its core idea deals with the decoupling of socio-economic development from environmental degradation through ocean related sectors and activities.&nbsp;
The blue economy has many diverse components like established traditional ocean industries such as fisheries, tourism, and maritime transport, but also new and emerging activities including offshore renewable energy, aquaculture, seabed extractive activities, and marine biotechnology and bioprospecting.
India’s 7517 km long coastline is home to nine coastal states and 1382 islands, which creates a great maritime potential, opening a wide range of possibilities for India to develop in the sector. With around 30% of India’s population living in coastal areas, the ocean is also a major economic factor supporting fisheries and aquaculture, tourism, livelihoods and blue trade, which the Blue Economy policy proposed by the governments accounts for.&nbsp;
Considering the importance of the ocean and its resources the United Nations declared the decade of 2021-2030 as the Decade of Ocean Science for Sustainable Development.&nbsp;
The Ocean, which makes up almost 70% of the world, is a major storehouse for power and harnessing its benefits can be key to the economic development of any country, and more specifically a country like India, which is surrounded by oceans on three sides.
The Deep Ocean Mission is thus an important step towards the plan of harnessing powers of the Blue Economy, said Madhavan Rajeevan, secretary, MoES as the TOI reported.
Countries around the world have already created different national and global initiatives towards harnessing the Blue Economy. Countries like the UK, Norway, USA, and Russia have in place dedicated ocean policies with measurable outcomes and budgetary provisions.

India’s Rs 4k cr Mission to strengthen the Blue Economy

<img src="https://api-discussion.policharcha.com/1622282474142" alt="Amazon, a platform for small businesses?" style="float:none;height: auto;width: auto"/>
Amazon in the Indian e-commerce market has grown exponentially, but a recent report by Reuters has shed light on how the company has been innovatively dodging new e-commerce guidelines brought in by the Modi Government to protect the small businesses.
The company, from the very first day of its business in India, has run on the motto of strengthening the small business owners of the country; to give them a platform that helps their businesses grow, but it seems its strategy is far from the mission or vision that it has been selling to the Indian public.
The report by Reuters draws out how Amazon, for the longest time in India, has favoured a small group of sellers, rather than treating every seller on the platform equally which they claim to do on paper. The documents which were reported on by Reuters date back between 2012 and 2019 clearly paint a picture of how Amazon India has played the cat and mouse game with the GOI, adjusting its corporate structure every time the Government brought in a new e-commerce regulation in the country.
Indian traders, retail store owners, and small business owners have always claimed that Amazon has a biased marketplace, which benefits a tiny group of businesses, and that the company has consistently engaged in deep discounting and predatory pricing which have crushed many brick-and-mortar retailers.
Although, Amazon has been insistent that it complies with all e-commerce laws in India which only allows it to connect the seller and the buyer, unlike in America, where it is also allowed to sell its products, internal documents reveal a conflicting story.
They reveal how the American giant has consistently helped a small number of businesses with discounted fees or with important exclusive deals with big tech companies like Apple, One Plus, etc. These ‘preferred’ sellers in the marketplace sometimes being companies where Amazon has indirect stakes.
Globally, only about 58% of Amazon’s business came from selling third-party products, the rest is from direct sales to consumers, but in India, the company has been trying for a long time to navigate the laws which disallow direct selling.
<ins>Cloudtail &amp; Appario – The game of cat and mouse</ins>
Trying to deal with the restrictions of direct sales, Amazon entered a joint venture with a famous tech mogul, founder of Infosys, NR Narayana Murthy. The venture called Cloudtail which began to sell products on ‘Amazon.in’ in 2014 soon after it was made.
Although, Amazon publicly maintains, Cloudtail is an independent merchant and is treated equally, it has been deeply involved in expanding Cloudtail’s business, often referring to it as “SM” or “Special Merchants” in their internal documents.
“The Special Merchant (SM) was launched on Aug-14 and we helped SM quickly ramp up and gain scale through Q4,” stated an Amazon India report, dated Feb. 23, 2015.
To that measure, the report also suggests that Amazon had helped Cloudtail to acquire key relationships with big tech companies to sell their products such as smartphones. The companies got a new sales channel, while Cloudtail struck exclusive deals and listed these products on Amazon’s platform. This model of operations was largely successful, as by March 2016 Cloudtail accounted for 47% of the business on the platform.
2016 also came with new regulations which meant that the company needed to shift gears again. The Government capped the online marketplace sales for a single seller to 25% to level the playing fields and persuade the protesting retailers. This also meant that Cloudtail’s sales on Amazon were to be bought down.
The new rules also required that e-commerce platforms “will not exercise ownership over the inventory” sold on its site. This also created an extra obstacle as reports show Amazon was treating Cloudtail inventory as its own at that time.
Amazon, to comply with the 25% cap, moved the procurement of some smartphones which were being sold by Cloudtail to ‘Amazon Wholesale’, a wholesale business-to-business operation which was not affected by the foreign investment restrictions. Amazon, in turn, supplied these products to ‘certain’ sellers who in turn listed them on Amazon's e-commerce platform.
Addressing the 25% cap, Amazon also opened another “Special Merchant” called Appario in 2017, predicting both Cloudtail and Appario would account for 50% of the sales on the platform.One internal Amazon document from 2019 states that the two special merchants get “subsidised fees”, and access to Amazon global retail tools.
In 2018 December, with the election looming in 2019, and major protests by Indian traders and retailers, the Modi government brought in another restriction, prohibiting vendors in which marketplaces such as Amazon have equity interests from selling on such marketplaces. This meant Amazon again had to restructure their relationship with the two special merchants which accounted for 35% of the sales on their platform by then.

<img src="https://api-discussion.policharcha.com/1622282717934" alt="Amazon, a platform for small businesses?" style="float:none;height: auto;width: auto"/>

In early February 2019, Amazon bought down thousands of products sold by Cloudtail and Appario on their website, and relaunched those days later after they had reduced their stakes in the parent companies of the two vendors, maneuvering through the new laws for the third time.
The larger problem here, rather than Amazon maneuvering through the Centre’s laws which were supposed to protect the small and medium retailers from total annihilation by giant e-commerce companies, is the on-ground reality that disallows the law to work its course in protecting the small retailer.
While in 2013, 10% of the sales of smartphones were made online, by 2016, it jumped to 30%, and 2020 saw the highest at 45%. This growth in online sales of smartphones is also dominated by Flipkart and Amazon, accounting for around 90% of online smartphone sales.
Consequently, brick-and-mortar retailers are struggling to survive, as customers often opt for the e-commerce platforms that sell the same products at around 3000 INR less than the retailer can offer to make ends meet. This discounting often comes from deep discounting, or even as a report from Amazon suggests, cheaper fees for “some” sellers so that they could offer a more “competitive” price.
<ins>Company’s response</ins>
In a statement, Amazon addressed this by saying that to them, the reality is the opposite as retailers are discovering technology only to boost their business. Thus, these discounts are a boon to a lot of Indian consumers.
The current market share for all e-commerce is at 4% of the roughly 900 million dollars Indian retail market, according to Forrester Research, but experts suggest that with the pandemic and changing marketplaces for such new circumstances, the share will only increase.
However, Amazon, which made sales worth 10 billion dollars in India in 2019, with charged political environments, can face regulatory risks, which they have been able to avoid for 5 years now.
<ins>India’s resistance</ins>
India’s Union Minister of Commerce and Industry, Piyush Goyal has also been actively vocal about Amazon’s maneuvering. In a meeting in June 2019, with e-commerce executives, he had made it clear that the Government will not stand a negative impact of e-commerce on the small Indian retailers.
In January 2020, India’s antitrust watchdog, the Competition Commission of India had announced an investigation into Amazon and Flipkart following complaints by many trader groups. The investigation was to be conducted on four anti-competitive practices, namely the exclusive launch of mobile phones by the e-commerce firms, promoting preferred sellers on their websites, deep discounting, and prioritizing some seller listings over others.&nbsp;
The investigation, however, has been put on hold after it was challenged by Amazon and Flipkart.
Amazon has also been the focus of another investigation by the Enforcement Directorate, the federal financial crime-fighting agency, which has been investigating the company for possible violation of foreign investment rules, although the details have not been made public.
The feud between Amazon and the Indian Government over the years has only become more and more complex. The Trump administration had always been silent and let the law take its course, but with the change in the administration, the new government in Washington seems to want to take a more proactive stance in defending the American giant’s functioning in India.
When Biden’s envoy, John Kerry, was scheduled to meet Piyush Goyal, the US administration thought that the latter could bring up the issue with the former. This prompted the US Govt to prepare a note in defence of the stance took by Amazon.
“If Asked: Allegations of Amazon E-Commerce Violations,” the note stated, “We have seen a February 17 Reuters report raising concerns about US e-commerce companies’ practices in India and note many of the allegations have been previously reviewed by the Competition Commission of India without any negative findings.”
Amazon’s relationship with the Indian Government for the past few years has been in a Gordian knot, but there remains another looming concern, as Reliance, owned by Mukesh Ambani, has shown interests in capitalising on the e-commerce market as well. Reliance, being a local player is also not bound by regulation that restricts Amazon and Flipkart.
Despite all such challenges, Amazon has been able to grow its business in India. It has started multiple new ventures, offering insurances, launching online pharma services, and along with it, continuing to trumpet itself to be the platform for the little guy.

Amazon, a platform for small businesses?

<img src="https://api-discussion.policharcha.com/1621691411201" alt="PLI scheme – A bid to boost manufacturing; focus on telecom sector" style="float:none;height: auto;width: auto"/>

To fulfil the vision of the National Policy on Electronics 2019 (NPE 2019), the Government of India had launched the Production Linked Incentive (PLI) scheme in April 2020 in the hopes of positioning India as a global hub for Electronic System Design and Manufacturing. Experts have welcomed the scheme, and it has already started showing results as many firms are already reaping benefits of it.
In April this year, the Government announced ₹12,000 crore under PLI to boost the telecom sector. The second round of this scheme incentivises investment in mobile phones and electronic component production which is expected to contribute to India's march towards not only attaining 5G network, but also becoming a net exporter of 5G related equipment and services.
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Also read: <a href="https://policharcha.com/article/scitech/19edb9d7-cb1b-4029-94dc-d763a66b41dd/g-second-wave-protests-and-china-factor-everything-you-need-to-know-about-g-trials-in-india" target="_blank">5G, Second Wave, Protests, and China factor: Everything you need to know about 5G trials in India</a> 
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<ins>How PLI scheme works?</ins>
The scheme offers a production linked incentive to boost domestic manufacturing, and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking, and Packaging (ATMP) units. The scheme would substantially boost the electronics manufacturing landscape, and establish India at the global level in the electronics sector.
"The scheme shall extend an incentive of 4% to 6% on incremental sales (over the base year) of goods manufactured in India and covered under target segments to eligible companies for a period of five years subsequent to the base year as defined,” said the Ministry of Electronics and Information Technology (MeitY).
After the success of the first round of the scheme, the MeitY also announced the second round of incentives to attract investments in mobile phone and electronic component manufacturing.
Simply put, under the scheme companies are rewarded for increasing their outputs over a certain base year.&nbsp;&nbsp;
<ins>PLI and the Telecom Industry</ins>
The struggling telecom industry got a boost with ₹12,195 crores notified through the PLI scheme for telecom and network products in February this year. The products that will benefit from this scheme are core transmission equipment, 4G/5G, next-gen RAN and wireless equipment, access and customer premises equipment, IoT access devices, and enterprise equipment like switches, routers, etc. The base year for these products' production would be 2019. This is going to give a major boost to manufacturers to scale up their productions.
With India trying to gain momentum in its bid for a 5G network, these steps are expected to act as a catalyst for the process.
Network vendors, telcos, and operators said that the 12,195 crore SoPs cleared by the Cabinet under the PLI policy for telecom gear can result in production worth Rs 2 lakh crore over the next five years. It would speed up India’s emergence as a global 5G gear manufacturing hub, boost network gear exports, and create a robust components ecosystem.
The scheme has also been able to win over foreign investment. Samsung, Foxconn, Hon Hai, Rising Star, Wistron, and Pegatron have benefited from the scheme. Of these, Foxconn, Hon Hai, Wistron, and Pegatron are contract manufacturers for Apple iPhones. In March this year, manufacturing giant Samsung joined hands with Jio to make 4G/5G gear for it in the country.
Industry experts believe that the scheme can make India a manufacturing hub in the 5G manufacturing sector.&nbsp;
An eye on the environment
One of the major issues in the world today is the environmental degradation the planet is facing. India is also under pressure to announce its ‘net zero’ plans. To help India manage and curb climate change, the PLI incentivises climate-friendly technologies. Companies that work towards replacing polluting technologies will be supported through this scheme. In April this year, a 4500 crore PLI scheme was announced for high-efficiency solar photovoltaic modules.
<ins>Other beneficiary Industries</ins>

<img src="https://api-discussion.policharcha.com/1621691681153" alt="PLI scheme – A bid to boost manufacturing; focus on telecom sector" style="float:none;height: auto;width: auto"/>

When launched in April 2020, the main sector this scheme targeted was Electronics manufacturing, but now 10 more sectors have been included, like food processing, telecom, electronics, textiles, speciality steel, automobiles and auto components, solar photovoltaic modules, and white goods such as air conditioners and LEDs as the project was expanded successfully.
A financial outlay for 5 years has been approved for each of the late entrants, as follows:&nbsp;
The total of these schemes amounts to ₹1,45,980cr. This is on top of ₹51,311 crores which was announced initially.
According to a Press Release by the Press Information Bureau, this scheme is in line with the Prime Minister’s call for 'Atmanirbhar Bharat'. The press release said, "Growth in production and exports of industrial goods will greatly expose the Indian industry to foreign competition and ideas, which will help in improving its capabilities to innovate further.”
Promotion of the manufacturing sector and creation of a conducive manufacturing ecosystem will not only enable integration with global supply chains, but will also establish backward linkages with the MSME sector in the country. This will also benefit the country's youth by enhancing employment opportunities, and will lead to overall growth in the economy.

PLI scheme – A bid to boost manufacturing; focus on telecom sector

<img src="https://discussion.policharcha.in/1612870880203" alt="Rs 19.7L cr needed to fund EV ecosystem, acc to Niti Aayog report called Mobilizing Finance for Electric Vehicles in India" style="float:none;height: auto;width: auto"/>

In a recently released report called Mobilizing Finance for Electric Vehicles in India, NITI Aayog has stated that the transition to Electric Vehicles (EVs) will require a cumulative investment of Rs 19.7 lakh crore in EVs manufacturing, charging infrastructure, and batteries between 2020 and 2030.
The report, published by Niti Aayog and Rocky Mountain Institute, has also identified a market size of Rs 3.7 lakh crore for the financing of EVs in 2030. Right now the biggest need for a successful transition from petroleum based vehicles to EVs is infrastructure updation which further requires capital financing.
“The need of the hour is to mobilise capital and finance towards EV assets and infrastructure. As we work to accelerate domestic EV adoption, and push for globally competitive manufacturing of EVs and components such as advance cell chemistry batteries, we need banks and other financiers to step up to lower the cost and increase the flow of capital for EVs,” said CEO of NITI Aayog, Amitabh Kant.
In order to develop India’s EV ecosystem, we need to overcome some issues such as infrastructure availability, technology cost, consumer behavior, and financing. The report’s main focus is on financing, because end users currently face multiple challenges like high interest rates, high insurance rates, and low loan to value rates.
The Niti Aayog’s report recommends bringing the financing of EVs under priority sector lending and interest subvention. It also suggested increasing the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) II subsidy, thus providing 50 per cent incentive to the buying consumer.
Digital lending, and development of a secondary market for increasing the resale value of EVs were also mentioned as steps to ease the transition. Furthermore, the study suggested a reduction in GST on EVs, charging components, and batteries. Overall, India looks to encourage domestic manufacturing EV and become a huge market for EV by 2030.
<ins>What was there in the budget?</ins>
The Budget 2021 presented by Finance Minister Nirmala Sitharaman did not bring a good news that could directly impact the EV industry, especially like reduction in the tax slabs that was expected otherwise. However, introduction of voluntary Vehicle Scrapping policy was welcomed by the EV industry which believes that this will boost the sale of EVs.&nbsp;
Also, the tax holiday for a year has relieved many startups who were into the production of EVs, especially two wheeler. The Government’s decision to introduce 20,000 buses under Public-Private Partnership with a budget of 18,000 crore has made EV manufacturers aspiring if as much as possible of these acquired buses will be electrically powered.
Another important and game-changer move is the introduction of Production Linked Incentive scheme. GOI has announced that it will spend 1.9 lakh crore in this scheme to lure global manufactures to make India a manufacturing hub. Talking of electronic industry, an additional 40,000 crore will be dedicated to them through this scheme, thus pushing the manufacturing of EV and other instruments, components, and devices in India.
According to experts, India is poised to become the fourth largest market for EV (with approximately 70% market share, and more than 70 lakh vehicles) by 2040. India’s domestic companies like Tata and Reliance are working towards manufacturing of EVs, and setting up of charging infrastructure respectively. There are numerous startups and other companies who have made their investments in Delhi, Pune, and Bengaluru to start production of batteries (lithium ion), chargers, and other components.&nbsp;
Tork Motors, Okinawa, Revolt Intellicorp, ION Energy, and Ather Energy are introducing their two wheeler EVs in India. Tata motors and Kia are trying to become pioneers in the EV car market of India.&nbsp;&nbsp;
The entry of Tesla as Tesla India Motors in Bengaluru has further electrified the Indian EV industry. It looks like that with the Government’s helping hand, the EV industry in India is going to rise as predicted and hopefully, we are advancing to a new age where India will be possessor of cutting edge technology and become a leading global manufacturer of high tech vehicles based on clean energy.
Need for Transition to Electric Vehicles
Is the need to adopt vehicles running on electricity only based on the need to secure a better source of energy which does not cause pollution? Well, not really, because there is so much more. We take a look at it, here.
First of all, yes, electricity is a better alternative to petroleum as it causes no air pollution at all. India is a country to 22 most (air) polluted cities out of top 30 in the world, and vehicular exhaust is responsible for one-third of the total pollution caused. In the developing nation India, its rapidly urbanising population has the potential to carry these numbers to more worrying levels. Therefore, we really need electric vehicles.
Secondly, India relies heavily on oil (petrol and diesel) as its vehicular fuel which is prone to volatile market conditions, and geopolitical factors. Adding to that, India is third largest importer of crude oil in the world, and has spent billions of dollars to buy crude oil. Thus, we need to not only adopt clean energy resources like electricity, but also develop advanced infrastructure to produce it and possibly move towards becoming a global supplier of such resources in the future. This will not only secure our environment, but also save us an enormous amount of capital that can be used to for the upliftment of poor. Also, an estimate shows that adopting such measures will help generate at least 2 million jobs in India.
Lastly, something we should be concerned about the most but still do not care enough, Climate Change. What good are vehicles when we would not be there to run them? Climate change is the biggest threat looming above the human civilization, and has the potential to starve us to death, maybe leading to mass extinction. The best we can do to prevent is by reducing the greenhouse gases emission, especially that caused by vehicular exhaust. <a href="https://policharcha.com/article/environment/6f1e52b8-73cc-4044-93c0-5af1fa85ab7d/paris-agreement-can-india-keep-its-big-promises" target="_blank">India has set goals</a> to cut its GHGs emissions by 33%-35% below 2005 levels by 2030, and thus EVs will be major factor in achieving that goal.
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Also read: <a href="https://policharcha.com/article/environment/1b99b568-8c30-441f-b55a-c44a702500e1/quest-for-a-green-future-hydrogen-energy-mission" target="_blank">India joins race to produce commercially viable Green Hydrogen</a>
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Investment worth Rs 19.7L cr needed to fund EV ecosystem, acc to Niti Aayog report

<img src="https://discussion.policharcha.in/1592998045821" alt="Centre aims to reform power sector, but why are some states opposing?" style="float:none;height: auto;width: auto"/>

The Ministry of Power (MoP) has released the draft of the Electricity Amendment Bill 2020 amid the Coronavirus pandemic. The proposed amended version of the Electricity Act is brought to address the systemic problems the power sector has been facing for a long time.
After failed attempts in 2014 and 2018 due to protests from employees and states, the Modi Government is trying again to implement sweeping structural reforms. The draft bill had emerged on 17th April, with the Central Government asking stakeholders to respond to the Draft Bill within 21 days, and this period was further increased till June 2nd.
Although according to the MoP, the new electricity act will address the “critical issues weakening the commercial and investment activities in the electricity sector”, there has been opposition from many states, experts, and working professionals from the sector.

<ins>Key amendments proposed in the draft electricity amendment bill 2020</ins>
<ins>Establishment of the Electricity Contract Enforcement Authority (ECEA)</ins>: While there are several provisions provided for the sell and purchase of electricity in the current Electricity act, there are no provisions dealing the with issues regarding power purchase agreements (PPAs), which are executed for sale and purchase of electricity, or contracts relating to transmission. The Centre, through this proposed amendment, sets to establish the ECEA, which will adjudicate on matters regarding specific performances of PPAs between a generating company and a licensee, or between licensees.
The ECEA shall have exclusive power and jurisdiction to adjudicate on the matters related to performance of obligations under a contract pertaining to sale, purchase, or transmission of electricity. However, the Enforcement Authority will have no jurisdiction on any dispute involving tariffs.
The Amendment seeks to avoid a situation that was created in Andhra Pradesh after the change in Government. The existing authorities that are the APTEL, CERC, and SERCs under the Electricity Act, 2003 do not have the judicial authority over the enforcement of contracts, unless the matter are related to tariffs, licencing, metering or other related matters. Considering the importance of a robust and supervised contractual obligation and the fear of implementing agencies not honouring contracts, a body, which keeps constant vigilance, is reassuring to all existing and future stakeholders.&nbsp;
<ins>Phasing out of Cross-subsidies</ins>: When a group or subgroup consumes power at a subsidised rate, due to various reason of economic inequality, and need etc., there are some losses that take place, and these losses are made up by charging the other group for power at a higher rate; this is essentially how cross-subsidisation works. In India, the farmers are generally charged at a lower rate, while Industries at a higher rate. The new bill, if passed, grants for fixing of tariffs at the cost of supply, which does not account for cross-subsidies. It also puts up direct benefit transfers to the farmers of India from the state, in order to support those who cannot afford power at the market cost.
Although, it reduces the cost of power for industries, and thus their cost of production, this provision has been heavily criticized by experts and state officials.
The first problem is that the cost of supply of power to the farmer is higher, because of the longer power lines and lack of infrastructure. Thus, after the amendment, the farmer needs to pay more from their own pockets until the direct benefit transfers arrive. The question, therefore is, in such a catastrophic economic condition, will a farmer of India be able to pay upfront when he barely manages to feed his family?
The other question that experts have asked is about the efficiency of the direct benefit transfers. The Indian administrative system has been proven to be inadequate and inefficient, especially in terms of direct benefit transfers. The Centre has also shoved the burden of such transfer to the State Governments, which have barely stayed afloat financially in dealing with the pandemic, and even in such situations, the Centre, in multiple cases, has failed to provide relief, or even payout GST debts to respective states. In such a dire financial condition, direct fund transfer instead of cross-subsidies seems to financially strangle not only the state governments, but also the poor farmers of India.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<ins>The Distribution sub-licensee and Franchisee:</ins> The draft amendment bill also drives through the idea of privatisation, especially in the distribution of electricity. It proposes that distribution licensees, with the permission of the relevant State Commission, can recognise and authorise a person as "distribution sub-licensee" for the purpose of distributing electricity on its behalf in a particular area in its area of supply. However, the original distribution licensee will remain the licensee, and will ultimately be responsible for ensuring the quality of the distribution of electricity in its area of supply. It is also proposed that such distribution sub-licensee is not required to obtain a separate license.&nbsp;
The New Amendment only eases the burden of distribution licensees, and promotes some form of demographic specialisation. According to the MoP, this is supposed to drive down the cost of power procurement and cost of operation. On the contrary, historically, similar moves of privatisation have failed, even when only urban agglomeration had been taken up by private companies. For example in Mumbai, where most of the urban areas have private electricity providers, the end cost for customers has not been reduced, and prices have only risen which attracted several protests. Odisha, which was the only state to include rural areas to have private distributors in the past, has failed massively, and the entire distribution is again back to the Government.&nbsp;
&nbsp;It is not the first time that privatisation of the power sector has been pushed for, even the 2003 Electricity Act called for privatisation in the generation and distribution of electricity. Although, there have been a lot of investments in the generation of power, there is a lack of such drive when it comes to the distribution of the generated electricity. The Bill, thus, does not seem to address certain basic problems before implementing such a frontline solution.&nbsp;
<ins>Push for Renewable Energy</ins>: There is a mention of a National Renewable Energy policy in the projected legislation itself which surely pushes for cleaner energy use. The Amendment, via an insertion, delegates the Central Government with the power to prepare and notify a National Renewable Energy Policy “for promotion of generation of electricity from renewable sources”, in consultation with State Governments. The policy also mandates the purchase of a certain percentage of power by DISCOMs from renewable sources. This also assures power generators and incentivises the use of renewable sources for power generation.&nbsp;

<ins>Centre - State controversy</ins>&nbsp;
States like West Bengal, Tamil Nadu, Telangana, Bihar, amongst others have publicly spoken up about the new Electricity Amendment Draft Bill 2020. The Bill has had mixed responses, being opposed by many state ministers and officials, while few independent power bodies have supported it. Chief Ministers, including YS Jagan Mohan Reddy, and Mamata Banerjee have publicly criticised the bill for dismantling the federal polity and increasing central control over the sector. With bodies like the ECEA, centralisation of state electricity regulatory commissions’ powers, and NLDC undermine the already existing state agencies.&nbsp;
YS Jagan Mohan Reddy also commented on the direct fund transfer being a progressive policy, but the practicality of this solution seems far-fetched with the current situation of the state treasuries.&nbsp;

<ins>Can the Centre make laws on issues regarding electricity?</ins>
Laws are made regarding various subjects by the Centre and the states. For an effective policy making, and to ensure robust Centre-State relations, the Constitution of India provides for a three-fold distribution of legislative subjects between the Centre and the states. The Schedule 7th of the Constitution pertains to the Union List (List-I), State List (List-II), and Concurrent List (List-III), which contain subjects on which the Centre, states, and both can make laws respectively.
While ‘Taxes on the consumption or sale of electricity’ is in the State List, ‘Electricity’ (as a whole) finds a place in the Concurrent List. If a subject belongs to the Concurrent List, the Centre shall consult the states to make any new law or to propose any amendment to the existing law regarding that particular subject.&nbsp;

The Power Sector of the Indian economy had deep-rooted problems right from the start, and to solve those problems, multiple acts which have been passed by various governments in the past, but none have solved some of the basic problems fully, and only have implemented half-hearted solutions, which made the problem more complex. This new bill, with some of its provision, seems to be a step towards the right direction but, a structured roadmap to bridge the gaps between the existing problems and proposed solutions is what is needed, to mend the Indian Power Sector.

Centre aims to reform power sector, but why are some states opposing?

<img src="https://discussion.policharcha.in/1588167673758" alt="RBI and other banks. Write-off of loans worth more than Rs 68,000 crore" style="float:none;height: auto;width: auto"/>

Replying to an RTI (Right to Information) query by social activist Mr. Saket Gokhale, RBI released the list of top fifty wilful defaulters, and maintained that banks have written off their loans worth more than Rs 68,000 crore. A mere misreporting of information by some news outlets led a section of civil society to believe that the RBI has waived off loans taken by absconding Mehul Choksi’s Gitanjali Gems Limited, <a href="https://policharcha.com/article/internationalrelations/dad8167e-ee83-4094-add6-2c496ac628a5/extradition-laws-in-india-vijay-mallyas-case" target="_blank">economic offender &amp; former liquor baron Vijay Mallya’s</a> Kingfisher Airlines Limited, among others.
Firstly, RBI lends to only banks and governmental bodies, therefore it was not the RBI, but the banks which wrote-off loans taken by the defaulters. Secondly, writing off loans does not mean that the banks have waived off the debt, and will not pursue the defaulters for recovery. The right to recovery by the banks stays intact in an event of a technical write-off.

<ins>Provisioning and Write-off</ins>
When a bank gives loan to a borrower, it keeps aside a percent of the amount to be used in the case of non-repayment of the said loan. This procedure is known as provisioning. In the case of non-performing assets (NPA), the banks have to keep 100 percent of the amount as provision.&nbsp;
Upon reporting an NPA to the RBI, a bank technically writes-off an equivalent amount as asset from its balance sheet. This is because the bank is no longer earning an income (interest) out of the said debt amount, and the debt has gone bad, so it will not be treated as an asset. Writing-off loans provides a clearer and truer picture about the bank’s money making assets to its customers, and help the bank to get a tax break in the losses incurred.
After a write-off when/if the banks make recovery of the concerned loan, the amount is treated as a profit for the banks and goes into their profit and loss accounts.

<ins>Non-performing assets</ins>
According to norms, a loan or advance is treated as an NPA when the borrower defaults the repayment by 90 days or more.
NPAs are further classified into three categories:-
Sub-standard asset – After defaulting for a period equal to or more than 90 days, if the debtor still does not pay back the interest or principal amount for 12 months, then the asset is considered as a sub-standard asset.
Doubtful asset – If the asset is remained in the category of sub-standard for another 12 months, it is considered as a doubtful asset, given that the loan is backed by a collateral of value more than the liability in the account.
Loss asset – When the sub-standard asset gets no recovery for 12 months, and is backed by a collateral the value of which is less than the liability in the account, the asset is considered as a loss asset.

<ins>Backdrop</ins>
The names of defaulters had been demanded months ago when Sandeep Singh Jadoun had asked through an RTI about this list, among other things, but the RBI and Finance Ministry did not comply, citing that the relation between a customer and a bank is a privileged one and not up for public scrutiny. Afterwards Dr. MS Acharyulu, former Information Commissioner, in November, had asked the RBI to release such list since it was not against any rules, plus “there is nothing wrong in telling the names of such people to the nation.” A month ago, Congress ex-president, Rahul Gandhi had also sought an answer about the same from the Government in the Lok Sabha, but neither Finance Minister Nirmala Sitharaman, nor Minister of State for Corporate Affairs, Anurag Thakur chose to reply to his <a href="https://policharcha.com/article/nation/00c8ea77-1a03-4b0d-a012-804001d95d16/question-hour-in-parliament-its-significance" target="_blank">starred question</a> . Although, after much contention, while answering to Saket Gokhale’s RTI, the RBI finally came out with the names.

A write-off is not a waiver – How are NPAs treated

<img src="https://discussion.policharcha.in/1587790673207" alt="Foreign currency" style="float:none;height: auto;width: auto"/>

The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, has released <a href="https://dipp.gov.in/sites/default/files/pn3_2020.pdf" target="_blank">Press Note No. 3</a> (2020 series), reviewing the current FDI policy with the clear objective to ‘curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic’. The amendment is framed such that investment from all entities that are either residents or citizens of a country sharing a land border with India can come through the Government Route only.
The amendment also obstructs any citizen of Pakistan or an entity incorporated in Pakistan from investing in defence, space, atomic energy, and sectors/activities prohibited for foreign investment.
Foreign Direct Investment or FDI is an investment made by an individual or a firm into a business incorporated in a foreign country. It is identified as when an investor establishes business operations or acquires assets in a foreign business. In India, FDI is allowed in sectors under two routes - Automatic route, where the foreign entity does not have to seek permission from the Government of India to invest in Indian businesses, and Government route, where approval from the Government is essential to make the investment.&nbsp;
Investors from Pakistan and Bangladesh were already liable to seek Government approval for investment in the country prior to the amendment, and neighbouring countries other than China, namely Myanmar, Bhutan, Nepal and Sri Lanka are not a major investors in India. Therefore, it is safe to assume that the decision taken by GOI is aimed at investors from China.
Additionally, the policy decision was taken by the Government of India after the People’s Bank of China raised their stake in HDFC, the largest housing mortgage provider in India, to 1.01 percent, and it is likely that the decision was taken by the Government of India to counter the possibility of China buying undervalued shares of companies listed on the Indian Stock exchange.
In the wake of the economic slowdown due to the pandemic, China is taking proactive steps to <a href="https://www.youtube.com/watch?v=4Q8-CCeJpGs&t=20s" target="_blank">strengthen its hold</a> on the economies where firms are susceptible to hostile takeovers due to losses incurred due to the pandemic.&nbsp;
Spokesperson from the Chinese Embassy, Ji Rong, has cited that China’s accumulated investment in Indian economy is over 8 billion USD in multiple sectors ranging from infrastructure, electronics, and automobile, and is key for the development of Indian Industries.
The embassy has also included in their statement that the revision in the FDI policy is clearly discriminatory to Chinese investors, especially in time where governments of various countries should band together to ensure resumption of economic activity in economies negatively impacted by spread of coronavirus.
China has accused India of not adhering “to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open”.
The real question is - Is it really fair and transparent when a country seizes an opportunity to increase its presence in a foreign country when the whole world is fighting against a deadly virus which has already infected more than 28 lakh people, and claimed the lives of almost 2 lakh people worldwide?
The Indian Foreign Ministry has not addressed these allegations so far but the policy decision taken by India is similar to policies implemented by Australia, Japan, and United States of America, as well as some countries in Europe to avoid opportunistic takeovers and acquisition in such a time for their economy.
FDI equity inflows in India stood at $36.79 billion during April-December 2019.
Highest Equity FDI inflow was recorded in Service Sector at US$ 6.52 billion, followed by Computer Software and Hardware sector at US$ 6.34 billion at second, and Telecom sector at $4.29 billion at third.
Country wise, during FY20, maximum equity FDI inflow was noted from Singapore ($11.65 billion), followed by Mauritius ($7.45 billion), Netherlands ($3.53 billion), Japan ($2.80 billion), and USA ($2.79 billion).

India revises FDI policy, possibly to curb growing Chinese presence

<img src="https://discussion.policharcha.in/1582889168219" alt="Asian Development Bank" style="float:none;height: auto;width: auto"/>

Asian Development Bank (ADB) has listed 10-year Masala bonds, worth Rs 850 crores, on India INX and Luxembourg exchange. The proceeds from the issued bonds are to be used for supporting local currency lending and investment operations in India. Located at the International Financial Services Centre, GIFT City in Gujarat, India INX is the country’s first international exchange. ADB is the first supranational entity and foreign investor to do a primary listing with India INX.
Masala Bonds, also known as rupee denominated bonds (RDBs), are a debt instrument used by corporate entities to raise money through foreign markets by issuing bonds to overseas investors in Indian rupee denomination. These bonds aim to fund infrastructural development in India, and increase foreign investment in the country. The term ‘Masala’ was used by International Finance Corporation (IFC) while issuing the first RDBs, which were 10-year bonds worth Rs 10 billion, on London Stock exchange (LSE) in November, 2014.
Housing Development Finance Corporation Ltd. (HDFC) is the first Indian corporation to issue Masala Bonds. In July 2016, HDFC listed unsecured RDBs on LSE worth Rs 3,000 crores with a fixed semi-annual coupon of 7.875 per cent per annum and a tenor of 3 years and 1 month. The bonds were oversubscribed by 4.3 times.
Masala bonds transfer the risk from fluctuations in the foreign exchange rates from the issue to the investor. This is important for the issuers especially when domestic currency, i.e. rupee depreciates.
Typically, when a bond (not rupee denominated) is issued in foreign currency, say US dollar, and if the rate of rupee, with respect to dollar falls, the liability of the issuer increases while repaying the amount of the bond or paying the interest on the borrowing. Therefore, the issuer will have to pay more to compensate the fluctuations in exchange rate.
In the case of Masala Bonds, as they are issued in INR, the issuers are protected from the currency fluctuations as the repayment has to be done in INR only. Thus, if the rupee rates fall, investors bear the risk.
Masala bonds are helpful in mobilising foreign capital markets to invite foreign investment to overcome the shortage of capital for undertaking the development of infrastructural projects in the country.

Masala Bonds worth Rs 850 crore listed on India INX

<img src="https://discussion.policharcha.in/1580645436711" alt="Pump-priming at work as the government aims to boost economy through raising consumption by funding big infrastructure projects." style="float:none;height: auto;width: auto"/>

Development of physical infrastructure took a <a href="https://policharcha.com/article/economy/5dc74117-7154-401c-b9e3-df97dd4c0f72/union-budget-what-to-expect" target="_blank">centre stage</a> in the Parliament when Finance Minister Nirmala Sitharaman presented her maiden full-fledged budget. She has shed light on National Infrastructure Pipeline (NIP) worth Rs 103 lakh crore which will finance the infrastructure building. NIP will accommodate around 6500 projects across various sectors of the economy. NIP scheme aims to improve the ease of living for every citizen of the country and lead reforms in development, operations, and maintenance of infrastructure projects.
"In his Independence Day speech in 2019, the Prime Minister had highlighted that Rs 100 lakh crore would be invested on infrastructure over the next 5 years. As a follow-up measure, I have launched the NIP on December 31, 2019. It consists of more than 6500 projects across sectors and are classified as per their size and stage of development," she said.
She has assigned Rs 1.7 lakh crore in FY21 to better the transport infrastructure. Accelerated development of highways will be undertaken with 2,500 km access controlled highways and 9,000 km of economic corridor. There will be 2,000 km of strategic highway projects and port connectivity projects each. In addition, the minister said that Delhi-Mumbai Expressway and two other projects will be completed by 2023. 12 highway projects amounting to 6,000 kms will be monetised before 2021, she said.
Government aims to achieve electrification of 27,000 km of tracks. A proposal is under consideration for setting up a large solar powered capacity alongside rail tracks on land owned by railways. Railway transport infrastructure will be strengthened with 150 new passenger trains which will be acquired through Public Private Partnership (PPP) model. Government plans to introduce more Tejas type trains for popular tourist destinations. Four new station redevelopment projects were also envisaged.
A National Logistics Policy is to be released soon. Sighting the construction industry as an avenue for employment generation for the youth, the FM laid focus on National Skill Development Agency to give a boost to skill development opportunities in infrastructure related domain.
Setting up of a project preparation facility for infrastructure projects was also proposed. This programme would actively involve young engineers, management graduates, and economists from Indian universities and give a boost to the youth involved in the Start-up culture. The goal is to roll out value added services in quality public infrastructure.
The Government will consider corporatising at least one major port and plan its subsequent listing on the stock exchanges. There is a major focus on development of inland waterways under Jal Vikar Marg project. National Waterway 1, which runs from Haldia (West Bengal) to Prayagraj (Uttar Pradesh) across the Ganges, will be operational soon. Additionally, 890 km of Dhubri-Sadiya connectivity on River Brahmaputra in Assam will be done by 2022.
Furthermore, 100 more airports will be developed by 2024 to support the UDAN scheme and it is expected that the present air fleet number would get doubled, from 600 to 1200, in this time period.
While the objective was to boost the Indian economy on the back of infrastructure building, the Union Government has also covered <a href="https://policharcha.com/article/social/e219fc9c-8dc1-4968-bc5d-9ec9b5c05913/sociocultural-side-of-decades-first-budget" target="_blank">social, cultural, and environmental need of the country</a> comprehensively.

Government aims to revive economy on the back of infrastructure building

<img src="https://discussion.policharcha.in/1580421876238" alt="What to expect from the first Budget of the decade?" style="float:none;height: auto;width: auto"/>

With the country’s economy in shambles, every Indian has eyes on the upcoming Union Budget. This will be the first full-fledged budget of the government in Modi 2.0 era. While the last year’s budget has provided an impetus to the supply side of the economy, this year’s budget must focus on the demand side i.e. a rise in the consumption, both at micro and macro level.

<ins>A look at what is expected from the Union Budget 2020</ins>
Green light to infrastructure projects – The economy has come to a standstill and it must be the Union Government’s priority to increase demand, for which it will look to increase consumption through raising the autonomous investment – an economic phenomena which is known as Pump-priming. This would also generate employment. Similar to the strategy US adopted by following the Keynesian theory, and investing in infrastructure projects during the great depression of 1930. To tackle the major slowdown, US started building big projects like the Hoover Dam. Therefore, in the budget we can see the government giving green signal to various stalled infrastructure projects worth over ₹13 trillion as of the last December-ended quarter.
Income tax – Despite the expected loss in tax collection this year, going with the market expectations, the government might cut the personal income tax rate in the upcoming budget. A move that will leave working class with more disposable income, but the question arises that how the government will make up for a further cut in tax collection? Let’s see what government comes up with. An increase in capital gains tax maybe?
Policy shift – Keeping the Fiscal Deficit (FD) - difference between the total earning and total expenditure of the government, other than borrowing - under prescribed limit is of the utmost importance to the government. It is expected that the target of maintaining a FD at 3.3% of the GDP will not be met, and FD will be around 3.6%. The government can change its focus to Revenue Deficit (RD), which is the difference between the total revenue expenditure and total revenue receipts. Laying emphasis on RD will set a path towards economic rejuvenation. India should target RD like most of the emerging market economies as it will serve as an automatic counter cyclic stabilizer.
Foreign income – It has been a trend for foreign companies to invest in Indian stock market through Foreign Portfolio Investments (FPI). These investments are also called Hot Money as it comes fast and goes even faster. Through FPIs, a foreign investor realises a short term profit in the Indian market and then leaves it which makes us susceptible to fluctuation. Considering the openness of the economy when it comes to attract Foreign Direct Investment (FDIs), the government must focus on acquiring long term investment.
Sentiments and perception – Both the business and income class consumers are not very optimistic about the current state of economy as measures like demonetisation did not reap the desired results, and tax reforms like GST will prove to be fully beneficial in the long term only. The Finance Ministry might give a consumer centric budget revolving around the needs of the income class to revive their trust in the economy.

With a consumer base that is more than twice the population of the US, the dream of becoming a $5 trillion economy can surely come true if we make substantial structural changes backed by a few tweaks in our economic system!

Union Budget 2020 – What to expect?

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