- A nuanced approach on Chinese investments
- How reverse repo rate became benchmark interest rate?
- The occasion to revisit the sovereign’s role
- The invisible face of the fallout
- Nurturing air power to meet rising demand
- Implement Aarogya Setu, but only through law
A NUANCED APPROACH ON CHINESE INVESTMENTS
Focus: GS-III Indian Economy, GS-II International Relations
Why in news?
- The government’s decision to ban foreign direct investments (FDI) through the automatic route from neighbouring countries that share a land border with India has raised eyebrows.
- This is mainly because the move is seen as aimed at Chinese investors who could exploit cheap valuations in the depressed economic conditions post-lockdown to pick up equity interest in select companies.
- India is not alone in this fear of “opportunistic takeovers” – Italy, Spain, France and Australia have already taken similar action to protect their businesses from foreign (read Chinese) investors fishing for distressed entities in need of cash in the post-COVID-19 scenario.
Significance of Chinese presence
- China’s investment in India has been on a sharp upcurve in the last five years.
- Chinese capital is invested not just in brick-and-mortar industries but in technology and fintech start-ups where Alibaba and Tencent have funded a host of Indian names such as Paytm, Swiggy, Ola, Zomato and BigBasket.
- It is quite possible that a move to curb or control Chinese investment in Indian companies was always on the cards and that COVID-19 was a good excuse to pull the trigger.
Another option: A more nuanced approach
- So, while the decision to introduce a layer of government approval is probably valid in the current circumstances, the government could have adopted a more nuanced approach.
- Greenfield investments should have been kept out of the purview as they do not pose a threat of takeover of existing business; to the contrary, they create new capacities and businesses in the country.
- (Greenfield investments are a type of foreign direct investment where a company starts its operation in the other countries as its subsidiary and invests in the construction of offices, plants, sites, building products, etc thereby managing its operations and achieving the highest level of the controls over its activities.)
- A distinction should also have been made based on the class of investors: venture capital funds are financial investors who may not necessarily be interested in taking over and running a business.
- While the FDI route has been plugged, it is not clear what happens to investments that come through the market route. SEBI has already sent out missives to custodians asking for details of Chinese holdings in listed entities.
- Now that the wall has been raised, approvals should be quick for investment proposals in the technology start-up space, where cash burn is high and existing investors are often tapped for a top-up investment.
HOW REVERSE REPO RATE BECAME BENCHMARK INTEREST RATE?
Focus: GS-II Indian Economy
Like most other central banks in the world, the Reserve Bank of India, too, has tried to cut interest rates to boost the economy.
However, unlike in the past, when the RBI used its repo rate as the main instrument to tweak the interest rates, this time, it is the reverse repo rate that is effectively setting the benchmark.
What are repo and reverse repo rates?
- The repo rate is the rate at which the RBI lends money to the banking system (or banks) for short durations.
- The reverse repo rate is the rate at which banks can park their money with the RBI.
- With both kinds of repo, which is short for repurchase agreement, transactions happen via bonds — one party sells bonds to the other with the promise to buy them back (or repurchase them) at a later specified date.
- In a growing economy, commercial banks need funds to lend to businesses. One source of funds for such lending is the money they receive from common people who maintain savings deposits with the banks. Repo is another option.
When is the Repo Rate the benchmark?
Under normal circumstances, that is when the economy is growing, the repo rate is the benchmark interest rate in the economy because it is the lowest rate of interest at which funds can be borrowed and, as such, it forms the floor rate for all other interest rates in the economy — for instance, the interest rate consumers would have to pay on a car loan or the interest rate they will earn from a fixed deposit etc.
What is different this time?
- Over the last couple of years, India’s economic growth has decelerated sharply. This has happened for a variety of reasons and has essentially manifested in lower consumer demand.
- In response, businesses have held back from making fresh investments and, as such, do not ask for as many new loans. Add to this, the pre-existing incidence of high non-performing assets (NPAs) within the banking system.
- Thus, the banks’ demand for fresh funds from the RBI has also diminished. This whole cycle has acutely intensified with the ongoing lockdown.
- As such, the banking system is now flush with liquidity for two broad reasons: on the one hand, the RBI is cutting repo rates and other policy variables like the Cash Reserve Ratio to release additional and cheaper funds into the banking system so that banks could lend and yet, on the other, banks are not lending to businesses, partly because banks are too risk-averse to lend and partly because the overall demand from the businesses has also come down.
How has reverse repo become the benchmark rate?
- The excess liquidity in the banking system has meant that during March and the first half of April, banks have been using only the reverse repo (to park funds with the RBI) instead of the repo (to borrow funds).
- As of April 15, RBI had close to Rs 7 lakh crore of banks’ money parked with it.
- In other words, the reverse repo rate has become the most influential rate in the economy.
What has the RBI done?
Recognising this, the central bank has cut the reverse repo rate more than the repo (see graph) twice in the spate of the last three weeks.
The idea is to make it less attractive for banks to do nothing with their funds because their doing so hurts the economy and starves the businesses that genuinely need funds.
Will the move to cut reverse repo work?
- It all depends on the revival of consumer demand in India. If the disruptions induced by the outbreak of novel coronavirus disease continue for a long time, consumer demand, which was already quite weak, is likely to stay muted and businesses would feel no need to borrow heavily to make fresh investments.
- If consumer demand revives quickly, the demand for credit will build up as well.
- From the banks’ perspective, it is also important for them to be confident about new loans not turning into NPAs, and adding to their already high levels of bad loans.
- Until banks feel confident about the prospects of an economic turnaround, cuts in reverse repo rates may have little impact.
THE OCCASION TO REVISIT THE SOVEREIGN’S ROLE
Focus: GS-II Governance
What is so different about the Coronavirus Crisis?
Unlike other threats to humanity such as global warming and a nuclear Armageddon, this threat is now, not in the future; it is here simultaneously for everyone, not for someone else and somewhere else; its casualties are around us, not in faraway battlefields or polar regions and coastal areas. No country can rescue another; it is each one fending for itself.
Huge changes inbound
- Political systems, economic architectures and cultural mores are on trial.
- Work patterns, production and distribution practices are up for redefinition.
- Denial and wishing away unpleasant, yet probable, realities by governments, global organisations and public intellectuals will only compound economic, social, political and human costs.
- We must now be quick in seizing lessons from the present crisis and get ready to embark on measures to build a new paradigm of life, work and governance.
The retreat of the state
- India embarked on the path of trimming the role of the state, initially, with such caveats as ‘safety net’ and ‘reform with a human face’.
- The Indian state’s role in health care, education, creation and maintenance of infrastructure and delivery of welfare has shrunk or become nominal, half-hearted, inefficient, and dysfunctional.
- As a result, ‘private sector’ became the new holy cow in place of the ‘state sector’.
- Today, those who bear the brunt of the consequences of shrunken and unresponsive state are the farmer and farm labour, the migrant worker, the unemployed, those in the unorganised sector, the rural poor, and the small entrepreneur.
- They are paying the highest price for the necessary but unbearable lockdown.
- They are either stranded far away from home, or confined to their homes with no work and incomes, unsupported by the state.
- Underfunded public health systems are unable to serve them.
Time for tough questions
- But the state’s first responsibility is the marginalised. They are also the crucial part of our economy. They lubricate its wheels and generate demand.
- Announcing stimulus packages that address the supply side alone without beefing up the demand side will be self-defeating to corporates.
- Prioritising the needs of corporate entities will lead to convulsions in our body politic in the wake of COVID-19.
- The state is in danger of forfeiting legitimacy if it does not ensure the survival and revival of the marginalised sections.
The need to redefine
- This is the appropriate context to revisit the political economy of the Indian state and its role.
- The country should begin a vigorous discourse on redefining every aspect of its involvement in our collective political, economic and social life.
- The relation between the state and economy, its role in allocating resources and addressing questions of inequality, its duty to provide basic human needs, the extent of the market’s role in providing services such as health, education, civic amenities, and the responsibility of the state and private enterprise towards deprived sections, need urgent attention.
- We should re-examine the efficacy of our political structures too: the equation between citizens and government and what its implications are for individual freedom, privacy and national security; the equation between legislature and executive; the balance of administrative and financial power between provinces and the union on the one hand and provinces and local bodies on the other.
- The way we elect our representatives to legislatures must also come under the lens.
- The issue of atrophied local authorities and enfeebled legislatures needs attention.
THE INVISIBLE FACE OF THE FALLOUT
Focus: GS-II Social Justice
Crises and gender: In history
- In the 2004 Indian Ocean tsunami, the coastlines of countries in the region, including India, were affected and more than 2,00,000 people were killed or listed missing; a fourth of them were women.
- The traditional ‘care giver’ role that women play has much to do in explaining this. Women stay around looking for their loved ones in order to see them safe. Besides this, women lack many life skills such as swimming and climbing.
- During tsunami recovery phases, aid organisations and governments house the homeless in camps where women face many difficulties including abuse by men.
- Gender-skewed tsunami deaths resulted in a disproportionate gender ratio where men largely outnumbered women.
- Women also faced hygiene challenges in these camps due to inadequate sanitation facilities.
- In Kerala, after the floods in 2018-19, thousands were housed in relief camps. Experts observe that relief measures focus on livelihood and assets, compelling aid agencies to focus on restoring livelihoods.
- Flood-destroyed kitchens forced women to cook in the open air with whatever they were left with. There was considerable added domestic work by women, which went unnoticed.
Now: COVID-19 Pandemic
- Coming to the current COVID-19 pandemic, its impact on both genders is beyond the mere death statistics. According to World Health Organization data, around 70% of the world’s health workers are women, 79% of nurses are women.
- Health workers in general are highly vulnerable and not ensuring their safety is a high risk that can severely impact the health system.
- India has a million-plus accredited social health activist (ASHA) workers who are an integral part of its health system. ASHAs, who work at the ground level, are reporting incidents of attacks while on COVID-19 duty. Stringent action against their tormentors is needed to ensure their professional safety.
Household pressure on Women
- In many households where both partners work, the work from home (WFH) concept is now common. The entire family is now together within the limited space of their dwellings.
- As traditional roleplay is still prevalent in most sections of Indian society, the equal division of household responsibilities among couples is still distant.
- Women from all strata face substantial additional household work. Alongside this is the fear of job loss and reduced income which can create mental pressure on women, in turn affecting their physical well-being.
- Women are twice as likely to face depression when compared to men. Premenstrual syndrome (PMS) among re-productive age groups, pregnancy-related depressive conditions, postpartum depression (PPDs) among new mothers as well as premenopausal and menopausal symptoms are common, interfering in everyday life and relationships. The lockdown is adding more intensity to these conditions.
Contributors to Women Abuse
- The lower income groups are already facing job losses and anxiety is leading to domestic tensions and violence against women.
- A large number of daily wageworkers resort to alcohol consumption.
- The ban on alcohol sales, as a part of the national lockdown, is contributing to domestic tensions, leading to women abuse.
Need for Prioritizing women safety
- Even in these disruptive times, women’s safety should become a priority.
- Be it domestic violence, women’s depression and anxiety-related matters, or their safety while at work, all these issues need to be addressed and responded to.
- According to 2015-16 National Family Health Survey, around 30% of women in the age group 15 to 49 years face domestic violence. A recent report highlighted how the National Commission for Women has received 587 complaints relating to crimes against women from March 23 to April 16, out of which 239 were related to domestic violence.
- Assigning ASHA workers to specifically address women’s welfare during this pandemic, setting up exclusive cells to quickly address domestic violence and women’s health-related issues, including men in conversations, and even online counselling for alcoholism in men are not difficult to implement.
- Steps such as roping in non-governmental organisations, psychology students, teachers and volunteers and also using technology platforms would help speed action.
- What is important is to develop a culture of including women’s safety in the planning phase itself irrespective of whatever the nature of the crisis is.
NURTURING AIR POWER TO MEET RISING DEMAND
Focus: GS-III Industry and Infrastructure, Disaster Management
How Air India is serving during these times?
Soon after the novel coronavirus began spreading, Air India evacuated Indian nationals from Wuhan, China. India’s flag carrier has since continued its yeoman service by evacuating Indians from other countries as well as foreign nationals from India on the request of their embassies.
History of India’s Air Support During Crisis
- In 1957, and then in 1978, the IAF was sent to Sri Lanka for flood relief efforts, as it was to Bangladesh in 1991 after the cyclone.
- Following the Indian Ocean tsunami of December 2004, 30 transport aircraft and 16 helicopters flew round the clock in India’s island territories; two IL-78 aerial refuelling tankers were stripped of their fuselage fuel tanks overnight and the aircraft pressed into relief. In addition, six Mi 8 helicopters were sent to help Sri Lanka.
- Following Iraq’s invasion of Kuwait in 1990, Indian nationals were flown out via Amman. Air India, along with IL-76s of the IAF, flew home 1,11,000 Indians (some documents say 1,76,000) in 488 flights from Amman to Mumbai in just two months.
- The Uttarakhand flash floods in 2013 saw what was perhaps the biggest helicopter evacuation in history, with 23,892 pilgrims evacuated in only a week.
India and HADR
The foresight exhibited by the civilian and military leadership in the past to equip the IAF with these assets, as a result of which India can confidently claim to be a regional humanitarian assistance and disaster relief (HADR) provider, is now bearing fruit. The same far-sightedness is required to meet the challenges of the coming decades.
Challenges and the need for upgrades
- The biggest challenge is that all of India’s medium- and heavy-lift assets are foreign sourced, except the Dhruv and Chetak/Cheetah helicopters.
- The IL-76 and An-32, which have been the IAF’s workhorses, will be phased out soon and so will the short haul Avros.
- Finances will have to be found for their replacements. Planning for this must happen now.
- As India takes on a greater regional leadership role and as climate change results in an increase in the frequency and number of natural calamities, the demands on Indian air power for HADR will mount, including from countries in the neighbourhood.
- The requirements for internal law and order and air maintenance airlift for the Army for forward areas, both of which are substantial, will also continue.
- Increased utilisation of airlift assets would mean higher maintenance requirements, and since most are foreign sourced, they will have to be sent abroad for major servicing.
- This will result in reduced aircraft availability for long durations.
IMPLEMENT AAROGYA SETU, BUT ONLY THROUGH LAW
Focus: GS-III Science and Technology, GS-II Governance
Concern: Shifting purposes of apps
- In China, it’s alarming to note that a phone app was started as a voluntary service for informing users of their potential exposure to infected persons, but soon began to be used as an e-pass for allowing access to public transport. The situation in China raises similar concerns in India.
- Aarogya Setu app launched by the government is designed to enable users who have come in contact with COVID-19 positive patients to be notified, traced and suitably supported.
- It has been criticised for not complying with data protection principles of data minimisation, purpose limitation, transparency and accountability, all of which are crucial to protecting the privacy of its users.
- Such vague articulation weakens the app’s purpose limitation.
- Given the design of the app, it is not difficult to conceive of the wide dangers of its misuse to carry out surveillance of users.
- Concomitantly, the app also equips the government with an instrument for restricting and regulating the right of freedom of movement of citizens, especially due to its fluid terms of service.
- Some reports suggest that the government is considering using the app as a criterion for restricting users’ movement.
- The potential restriction on freedom of movement will have considerable impact on an individual’s access to basic government benefits and services, thus endangering citizens’ right to life.
The unconstitutional bargain
- A seemingly benign app based on voluntary consent is thus loaded with potential to be used as a tool to violate fundamental rights.
- Individuals may be forced to download the app to be able to access basic amenities and services.
- This situation could posit the problem of an unconstitutional condition or barter — a situation where citizens are forced to give up their rights (right to autonomy and privacy in this case) in exchange for government benefits.
- Further, the existing users of the app could be subject to arbitrary restrictions in their fundamental rights without their informed consent as they would not have foreseen such restrictions at the time of giving their consent to downloading the app.
Need for a data protection or surveillance law
- To avoid unforeseeable dangers of mass surveillance and disproportionate restrictions of fundamental rights, it is therefore imperative that the Aaorgya Setu app is implemented only through law, especially since India lacks a comprehensive data protection or surveillance law.
- It is already a settled legal principle that any limitation of fundamental rights must be implemented only through a law pursuing legitimate state interest.
- Enacting such a law will not only subject government actions to limitations but will also facilitate its constitutional scrutiny.