Editorials/Opinions Analyses For UPSC 20 September 2021

Contents

1. Auto Industry and Drone Industry PLI Scheme explained
2. Holding transnational corporations accountable

Auto Industry and Drone Industry PLI Scheme explained

Context:

The Union government has approved a Production Linked Incentive (PLI) Scheme for Auto Industry and Drone Industry with a budgetary outlay of Rs. 26,058 crore.

Relevance:

GS-III: Industry and Infrastructure (Industrial Growth, Industrial Revolution), GS-III: Indian Economy (Growth and Development of Indian Economy)

Dimensions of the Article:

1. PLI Scheme for Auto Industry
2. PLI Scheme for Drone Industry
3. Significance of the schemes

PLI Scheme for Auto Industry

• The PLI scheme for the auto sector will incentivize high value Advanced Automotive Technology vehicles and products.
• It envisages overcoming the cost disabilities to the industry for the manufacture of Advanced Automotive Technology products in India.
• The incentive structure will encourage industry to make fresh investments for indigenous global supply chain of Advanced Automotive Technology products.
• It is expected to bring in fresh investments to the tune of ₹42,500 crore, and lead to an incremental production of over ₹2.3 lakh crore.
• It is also estimated that it will create employment opportunities of over 7.5 lakh jobs.
• India’s share in the global automotive trade will get a push with this scheme.
• The scheme is open to existing automotive companies as well as new investors who are currently not in automobile or auto component manufacturing business.
• Two components of the scheme:
  1. Champion OEM Incentive Scheme: It is a ‘sales value linked’ scheme, applicable on Battery Electric Vehicles and Hydrogen Fuel Cell Vehicles of all segments.
  2. Component Champion Incentive Scheme: It is a ‘sales value linked’ scheme, applicable on Advanced Automotive Technology components of vehicles, Completely Knocked Down (CKD)/Semi Knocked Down (SKD) kits, Vehicle aggregates of 2-Wheelers, 3-Wheelers, passenger vehicles, commercial vehicles and tractors, etc.
• This scheme, along with the PLI scheme for Advanced Chemistry Cell (ACC) and the Faster Adaption of Manufacturing of Electric Vehicles (FAME) scheme will help India push towards the faster adoption of environmentally cleaner, sustainable, advanced and more efficient Electric Vehicles (EV) based system.

PLI Scheme for Drone Industry

• This scheme addresses the strategic, tactical and operational uses of drone technology.
• It is expected to help build capacity in this sector and make it the key driver of India’s growth strategy.
• It will lead to investments worth ₹ 5,000 Crore, increase in eligible sales of ₹ 1500 crore and create additional employment of about 10,000 jobs.
• The PLI scheme comes as a follow-through of the liberalised Drone Rules, 2021 released by the Central Government.
• The total outlay for the scheme is INR 120 crore spread over three financial years.
• The incentive for a manufacturer of drones and drone components shall be as high as 20% of the value addition made by the manufacturer.
• This PLI rate of 20% has been kept constant for the next three years only for the drone industry as an exceptional treatment. In other PLI schemes, the PLI rate reduces every year.
• The minimum value addition norm is at 40% of net sales instead of 50%, another exceptional treatment given to the drone industry.
• The minimum value addition norm is at 40% of net sales instead of 50%, another exceptional treatment given to the drone industry.
• The incentive payable to a manufacturer of drones and drone components shall be simply one-fifth of the value addition.

Significance of the schemes

• The scheme will provide a much needed boost to the auto sector railing under the impact of the pandemic.
• Incentivising local production through this scheme could translate into more investments in the auto segment. The government expects the scheme would lead to fresh investments of more than Rs. 42,500 crore, incremental production worth over Rs. 2.3 lakh crore and creation of an additional 7.5 lakh jobs.
• The incentive scheme could provide a much needed impetus to EV vehicles as well as those that use hydrogen fuel cells. The emphasis on these alternate fuel vehicles will help lower fossil fuel emissions as part of the efforts to meet commitments under climate change agreements. This will also help India reduce dependence on oil imports and ensure some degree of energy security for India.

-Source: The Hindu

Holding transnational corporations accountable

Context:

Given the enormous power that transnational corporations (TNCs) wield, questions about their accountability have arisen often. There have been many instances where the misconduct of TNCs has come to light such as the corruption scandal involving Siemens in Germany.

Relevance:

GS-III: Indian Economy

Dimensions of the Article:

1. Issue regarding TNCs
2. Background on holding TNCs accountable
3. Using BITs to hold TNCs accountable
4. Takeaways for India

Issue regarding TNCs

• The UN working group on human rights, transnational corporations (TNCs) and other businesses has published a new report on human rights-compatible international investment agreements which urges states to ensure that their bilateral investment treaties (BITs) are compatible with international human rights obligations.
• The UN report lays emphasis on investor obligations at the international level i.e., the accountability of TNCs in international law.
• There have been instances where the misconduct of TNCs has come to light – like the corruption scandal involving Siemens in Germany.
• In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability. However, these employ soft law language. They do not impose positive and binding obligations on foreign investors.
• The recalibrated BITs of the states also fall short of creating a framework to hold TNCs accountable under international law.

Background on holding TNCs accountable

• An effort was made at the UN to develop a multilateral code of conduct on TNCs, however, due to differences between developed and developing countries, it was abandoned in 1992.
• An integral feature of the neoliberal project was to use international law to institutionalise the forces of economic globalisation, leading to the spread of BITs. These treaties promised protection to foreign investors under international law by bestowing rights on them and imposing obligations on states.
• In 2011 the issue of holding TNCs accountable gathered momentum again.
• In 2014, the UN Human Rights Council established an open-ended working group with the mandate to elaborate on an international legally binding instrument on TNCs and other businesses concerning human rights. Since then, efforts are being made towards developing a treaty and finding ways to make foreign corporations accountable.

Using BITs to hold TNCs accountable

• BITs can be harnessed to hold TNCs accountable under international law.
• The issue of fixing accountability of foreign investors came up in an international law case, Urbaser v. Argentina (2016).
• Subjecting corporates to international law: In this case, the tribunal held that corporations can be subjects of international law and are under a duty not to engage in activities that harm or destroy human rights.
• The case played an important role in bringing human rights norms to the fore in BIT disputes.
• It also opened up the possibility of using BITs to hold TNCs accountable provided the treaty imposes positive obligations on foreign investors.
• Recalibrating BITs: In the last few years, states have started recalibrating their BITs by inserting provisions on investor accountability.
• Issues with BITs: However, these employ soft law language and are hortatory.
• They do not impose positive and binding obligations on foreign investors.
• They fall short of creating a framework to hold TNCs accountable under international law.

Takeaways for India

• The recent UN report has important takeaways for India’s ongoing reforms in BITs.
• Best endeavour clauses not enough: India’s new Model BIT of 2016 contains provisions on investor obligations.
• However, these exist as best endeavour clauses. They do not impose a binding obligation on the TNC.
• India should impose positive and binding obligations on foreign investors, not just for protecting human rights but also for imperative issues such as promoting public health.
• Example for India: The Nigeria-Morocco BIT, which imposes binding obligations on foreign investors such as conducting an environmental impact assessment of their investment.
• These reforms would help in harnessing BITs to ensure the accountability of foreign investors and creating a binding international legal framework to hold TNCs accountable.

-Source: The Hindu