Wednesday, July 24, 2019

Mauritius Leaks

According to the recently released data by the International Consortium of Investigative Journalists (ICIJ), as many as 50 entities, or one-fourth of those disclosed in the Mauritius leaks, had India as their only country or one of the countries of activity.
§  Although Investment in India through Mauritius is declining but Mauritius has seen a sizeable amount of funds getting routed through by entities operating or investing in India.

Mauritius Leaks

§  In Mauritius Leaks, data of 200,000 leaked documents (in the form emails, contracts and bank statements) reveal how one country’s low tax rates (like Mauritius) were leveraged and misused by Multinational Companies for tax avoidance.
§  After Swiss leaks, Panama papers and Paradise papers, Mauritius leaks show how the island nation was used by a long list of corporates to facilitate partnerships with multinationals and, without paying any capital gains tax, remit profits as Foreign Direct Investment (FDI) to India.

Tax treaty between India and Mauritius

§  The Double Taxation Avoidance Agreement (DTAA) was signed between India and Mauritius in 1982. Under this, any entity could apply for tax residency and pay zero capital gains tax. This became the principal reason why Mauritius emerged as a top channel for investments being routed into India.
§  In 2016 India amended its Double Taxation Avoidance Agreement (DTAA) with Mauritius, and the new provisions related to capital gains tax were introduced.
§  GAAR (General Anti Avoidance Rule): It is an anti-tax avoidance law under Income Tax Act, 1961 of India and is framed by the Department of Revenue under the Ministry of Finance.
§  Common Reporting Standard (CRS): It is an information standard for the Automatic Exchange Of Information (AEOI)regarding bank accounts on a global level, between tax authorities with the objective of combating tax evasion.
International Consortium of Investigative Journalists
§  ICIJ is a United States based nonprofit organization with a global network of reporters and media organizations who work together to investigate the most important issues in the world.
§  ICIJ has released several important investigations – including the Pulitzer Prize-winning Panama Papers.
§  ICIJ is fully funded by donations.
§  ICIJ encourages tips, leaks and story ideas from the public, whistleblowers, as well as from outstanding investigative journalists.
Source: B.S

In Situ Crop Residue Management

The Central Sector Scheme on ‘Promotion of agricultural mechanization for In-Situ management of crop residue in the states of Punjab, Haryana, Uttar Pradesh and National capital territory of Delhi’ has been launched for the period from 2018-19 to 2019-20.
§  The scheme aims to address the problem of air pollution (caused due to stubble burning in the areas of Punjab, Haryana, Uttar Pradesh and National capital territory of Delhi) by subsidizing the machinery required for in-situ management of crop residue.


§  Reducing the air pollution and preventing loss of nutrients and soil microorganisms caused by burning of crop residue.
§  Promoting in-situ management of crop residue through the use of appropriate mechanization inputs.
§  Promoting Farm Machinery Banks (FMB) or Custom Hiring Centres (CHC) for custom hiring of in-situ crop residue management machinery to offset the adverse economies of scale arising due to small landholding and high cost of individual ownership.
§  Creating awareness among stakeholders through:

o    Demonstration of crop residue management methods
o    Capacity building activities
o    Education and communication strategies for effective utilization and management of crop residue


§  By providing financial assistance to:

o    Farmers for procurement of in-situ crop residue management machinery and equipments.
o    Co-operative societies of farmers, self-help groupsregistered farmers societies / farmers groups, privateentrepreneurs for establishment of farm machinery banks or custom hiring centres.
o    State governments, Krishi Vigyan Kendras (KVK) , Indian Council of Agricultural Research (ICAR) institutions, Central Government institutions, Public Sector Units (PSU) etc. for the activities to be undertaken towards Information, Education and Communication (IEC).


§  Stubble burning releases particulate matter, CO, CO2, ash and SO2 and these gases affect human health due to general degradation in air quality resulting in aggravation of eye and skin diseases.
§  Stubble burning results not only into loss of nutrients from soil but also alters soil properties like soil temperature, pH, moisture, available phosphorus and soil organic matter.
Source: PIB

International Conference on Electric Mobility

In order to discuss the various challenges and opportunities in creating an ecosystem for electric vehicles, the Associated Chambers of Commerce & Industry of India (ASSOCHAM) is organizing an International Conference on “Electric Mobility: Challenges and Opportunities” on 26th July, 2019 in New Delhi.
§  The global automotive industry is at the cusp of a paradigm shift from internal combustion engine vehicles to zero emission vehicles.
§  India, too, is actively going ahead for cost effective and viable solutions to the problem of poor air quality in a number of its cities.
§  The country has announced a significant shift to an all electric public fleet by 2030, necessitating attention and action by players across sectors including automobile, power and utilities, oil and gas, etc.
§  The Conference would bring together all concerned groups and stakeholders of various segments of Electric vehicle Industry to a common platform to discuss and explore the future opportunities and creating and ecosystem for Electric Mobility.

Major Focus Areas of the Conference

§  Central and State level policy framework on EV adoption in India
§  Roadmap for achieving the target of FAME-II policy
§  Indian EV market and key trends
§  Assessment of manufacturing ecosystem etc.
ASSOCHAM as a Knowledge Chamber, initiated its endeavour of value creation for Indian industry in 1920.
§  Having in its fold more than 300 Chambers and Trade Associations, and serving more than 4 lakh members from all over India.
§  It has contributed significantly in shaping up the Trade, Commerce and Industrial environment of the country.
§  Not only large industry and trade but also small and medium industrial enterprises, engaged in agriculture and transport, as well as professional bodies and several new industry associations have entered ASSOCHAM's fold.
Source: Business Standard

Bharatmala Project

A total of 225 road projects with an aggregate length of 9,613 km have been appraised and approved till March, 2019 under Bharatmala Pariyojana.


§  Optimizing efficiency of the movement of goods and people across the country.
§  Generating large number of direct and indirect employment opportunities in the construction & infrastructure sector and also as part of the enhanced economic activity resulting from better road connectivity across the country.
§  Connecting 550 Districts in the country through NH linkages.

Highlights of Bharatmala Pariyojana

§  It calls for improvement in efficiency of existing corridors through development of Multimodal Logistics Parks and elimination of choke points.
§  It enhances focus on improving connectivity in North East and leveraging synergies with Inland Waterways.

o    North East Economic corridor enhancing connectivity to state capitals and key towns.
o    Multimodal freight movement via 7 Waterway terminals on River Brahmaputra – Dhubri, Silghat, Biswanath Ghat, Neamati, Dibrugarh, Sengajan, Oriyamgh.
§  It emphasis on the use of technology & scientific planning for project preparation and asset monitoring.
§  It calls for seamless connectivity with neighboring countries:
o    24 Integrated check posts (ICPs) identified
o    Transit through Bangladesh to improve North East connectivity
o    Integrating Bangladesh – Bhutan – Nepal and Myanmar – Thailand corridors which will make NorthEast hub of East Asia
§  Satellite mapping of corridors to identify upgradation requirements

Components of Bharatmala Project

Terror Financing and Fake Indian Currency

In written replies to questions in the Lok Sabha, the Minister of State for Home Affairs mentioned steps taken to combat the menace of terror financing and fake Indian currency.
§  Strengthening the provisions in the Unlawful Activities (Prevention) Act, 1967 

o    by criminalizing the production or smuggling or circulation of high quality counterfeit Indian currency as a terrorist act,
o    and enlarging the scope of proceeds of terrorism to include any property intended to be used for terrorism.
§  Terror Funding and Fake Currency (TFFC) Cell has been constituted in the National Investigation Agency (NIA) to conduct focused investigation of terror funding and fake currency cases.
§  FICN Coordination Group (FCORD): Fake Indian Currency Notes (FICN) network is one of the channels of terror financing in India. FICN Coordination Group (FCORD) has been formed by the Ministry of Home Affairs to share intelligence/information among the security agencies of the states/centre to counter the problem of circulation of fake currency notes.
§  Memorandum of Understanding (MoU) has been signed between India and Bangladesh to prevent and counter smuggling and circulation of fake currency notes. Also, security at the international borders has been strengthened by using new surveillance technology, deploying additional manpower for round the clock surveillance, establishing observation posts along the international border, erection of border fencing and intensive patrolling.
Source: PIB


Economic Growth Forecast

According to the IMF’s World Economic Outlook, July 2019, India’s economy will grow at 7% in the year 2019, picking up to 7.2 % in the year 2020.
§  In its April Report, International Monetary Fund (IMF) expected India to grow at 7.3% and 7.5% in the year 2019 and 2020 respectively.
§  The downward revision of 0.3% for both years is due to weaker-than-expected outlook for domestic demand. However, India will still be the fastest growing major economy of the world.

o    Both investment and consumption demand is low in India. This is partly a reflection of the uncertainties associated with the just concluded general elections in India, as well as tightening of borrowing conditions for small and medium enterprises.
§  The 7% forecast for the year 2019 is in line with the projections made by the Reserve Bank of India, Chief Economic Adviser and the Asian Development Bank.
§  Global growth has been forecast at 3.2% in 2019, picking up to 3.5% in 2020 (0.1 percentage point lower than in the April WEO projections for both years).
§  The emerging market and developing economy group is expected to grow at 4.1% in 2019, rising to 4.7% in 2020 ( a cut by 0.3% points for 2019 and by 0.1% points for 2020).
§  Reasons: Among the factors cited by the report for the lower growth forecast includes increased trade and technology tensions between the United States and China, prolonged uncertainty on Brexit, and weaker-than-expected activity in emerging market and developing economies.
§  Solution: As per the IMF, multilateral and national policy actions are vital to place global growth on a stronger footing. Also, fiscal policy should balance multiple objectives such as smoothing demand as needed, protecting the vulnerable, bolstering growth potential with spending that supports structural reforms, and ensuring sustainable public financesover the medium term.
§  If growth weakens relative to the baseline, macroeconomic policies will need to turn more accommodative, depending on country circumstances. Priorities across all economies are to enhance inclusion, strengthen resilience, and address constraints on potential output growth.

World Economic Outlook

§  It is a survey by the IMF that is usually published twice a year in the months of April and October.
§  It analyzes and predicts global economic developments during the near and medium term.
§  It is also updated twice a year, usually in the months of July and October.
Source: The Hindu

India enters 37-year period of demographic dividend 
Context: Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population (defined as children aged 14 or below as well as people above 65 years of age).
This bulge in the working-age population is going to last till 2055, or 37 years from its beginning.

This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilised. 
Many Asian economies — Japan, China, South Korea — were able to use this ‘demographic dividend’, defined by the United Nations Population Fund (UNFPA) as the growth potential that results from shifts in a population’s age structure.

What does the data say about India’s TFR?
The government’s Sample Registration System in 22 states shows that TFR for India declined to 2.2 in 2017 after being stable at 2.3 between 2013 and 2016. TFR indicates the average number of children expected to be born to a woman during her reproductive span of 15-49 years.

How does TFR vary between urban and rural areas?
The total fertility rate has more than halved in both urban and rural areas, falling even below the replacement level in the former where it is 1.7, down from 4.1 in 1971. In rural areas, TFR has fallen from 5.4 to 2.4 during the same period. For rural areas, it varies from 1.6 in Delhi and Tamil Nadu to 3.3 in Bihar. For urban areas, the variation is from 1.1 in Himachal Pradesh to 2.4 in Uttar Pradesh and Bihar. Of the 22 states, only six have a TFR of 2 or more in urban areas. There are 10 states where TFR is below 2 in rural regions.

How does fertility vary between age groups?
The 25-29 age is the most fertile, except in Bengal, Chhattisgarh, Andhra Pradesh and Maharashtra, where it peaked between 20 and 24. Only J&K hits the peak after 30.

Why is TFR falling?
Higher education, increased mobility, late marriage, financially independent women and overall prosperity are all contributing to a falling TFR. It goes below 2 in both urban and rural areas, where girls complete schooling and reduces further as they pass college. Bihar, with the highest TFR of 3.2, had the maximum percentage of illiterate women at 26.8%, while Kerala, where the literacy rate among women is 99.3%, had among the lowest fertility rates. As more cities come up, people move for jobs and employment tenure gets shorter, TFR may fall further.

What does this mean for policymakers?
  1. India has entered a 37-year period of demographic dividend, which could spell faster economic growth and higher productivity.
  2. As such, the government needs to engineer its policies to harness the opportunity.
  3. It must also formulate policies to take care of higher medical costs as the population ages and productivity shrinks.
  4. As more people live away from their parents, India will also need to have an affordable social security system that provides pension to the elderly and takes care of their daily needs and medical expenses.
Sources: the Hindu.

                                Data Localization
Context:  American digital payments player PayPal is working with its partners on localisation of data as mandated by the Reserve Bank of India.

What does Data Localization mean?
Data localization is the act of storing data on any device that is physically present within the borders of a specific country where the data was generated.

Why data localization is necessary for India?
  1. For securing citizen’s data, data privacy, data sovereignty, national security, and economic development of the country.
  2. Recommendations by the RBI, the committee of experts led by Justice BN Srikrishna, the draft ecommerce policy and the draft report of the cloud policy panel show signs of data localisation.
  3. The extensive data collection by technology companies, has allowed them to process and monetize Indian users’ data outside the country. Therefore, to curtail the perils of unregulated and arbitrary use of personal data, data localization is necessary.
  4. Digital technologies like machine learning (ML), artificial intelligence (AI) and Internet of Things (IoT) can generate tremendous value out of various data. It can turn disastrous if not contained within certain boundaries.
  5. With the advent of cloud computing, Indian users’ data is outside the country’s boundaries, leading to a conflict of jurisdiction in case of any dispute.
  6. Data localization is an opportunity for Indian technology companies to evolve an outlook from services to products. International companies will also be looking at the Indian market, and this will benefit the growth of the local ecosystem.
  7. More data centres in India could mean new, power-hungry customers for India’s renewable energy market. That means Data localisation could boost India’s renewable energy.

Policies that imply data localization:
The Srikrishna Committee wants to localise data for law enforcement to have easy access to data, to prevent foreign surveillance, to build an artificial intelligence ecosystem in India, and because undersea cables through which data transfers take place are vulnerable to attacks.
Reserve Bank of India has also imposed a hard data localisation mandate on payment systems providers to store payment systems data only in India.
Barring limited exceptions, telecom service providers are not allowed to transfer user information and accounting information outside India.
Goals set in the Draft National Digital Communications Policy 2018, and the Guidelines for Government Departments for Contractual Terms related to Cloud Storage 2017, draft e-commerce policy and the draft report of the cloud policy panel show signs of data localization.

Concerns / Challenges:
  1. Several of the recommendations in including the draft e-commerce policy, falter on a key ground like they gloss over the negative economic impact of data localization. This approach exhibits lack of evidence-based policy making.
  2. Having data in India does not mean that domestic companies will be able to access this data. Localization might aid the growth of the data centre and the cloud computing industry in India, but as matter of wider public policy, such an approach is extremely myopic.
  3. Mandating localization is less of a solution for data protection and might be less relevant to promote e-commerce.
  4. Given the comparative trade advantages enjoyed by one section of Indian industry in this context, mandating a strict data localization regime could be perceived as a restrictive trade barrier and spur retaliatory measures.
  5. There is a possible rise in prices of foreign cloud computing services in case of a data localisation, and its impact on MSMEs as well as start-ups relying on these services.
  6. The possibility of triggering a vicious cycle of data localisation requirements by other countries as a response to India’s possible data localisation will be detrimental for the global data economy.
  7. Growth will be restricted if data cannot be aggregated internationally. Infrastructure in India for efficient data collection and management is lacking.

Need of the hour:
  1. There is an urgent need to have an integrated, long-term strategy for policy creation for data localisation.
  2. Data localisation needs to integrate a wide range of social, political and economic perspectives.
  3. Creating an opportunity for local data centres all over the country.
  4. Devising an optimal regulatory and legislative framework for data processors and data centres operating in the country.
  5. Adequate infrastructure in terms of energy, real estate, and internet connectivity also needs to be made available for India to become a global hub for data centres.
  6. Adequate attention needs to be given to the interests of India’s Information Technology Enabled Services (ITeS) and Business Process Outsourcing (BPO) industries, which are thriving on cross border data flow.
Sources: the Hindu

Inter-ministerial group suggests banning of private cryptocurrencies in India
ContextInter-Ministerial Committee on Virtual Currencies headed by finance secretary Subhash Chandra Garg has submitted its report to the government. The committee set up by Centre has also proposed a draft bill ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’.
Key recommendations:
  1. Ban on all forms of private cryptocurrencies.
  2. Impose a fine of up to Rs 25 crore and imprisonment of as much as 10 years for anyone dealing in them.
  3. RBI and the government may look at the introduction of an official digital currency in the country
  4. Establish a specific group by the department of economic affairs with participation by the RBI, department of financial services and the ministry of electronics and information technology (MeitY) for examining and developing an appropriate model of digital currency in India.
  5. The panel backed use of distributed ledger technology (DLT) or blockchain for selected areas. It has asked the department of economic affairs to take the necessary measures to facilitate the use of DLT in the financial field after identifying its uses. 
  6. It has also suggested the use of DLT to reduce compliance costs for know-your-customer (KYC) requirements.
  7. Data localisation requirements proposed in the draft Data Protection Bill may need to be applied carefully, including with respect to the storage of critical personal data so as to ensure that there is no adverse impact on Indian firms and Indian consumers who may stand to benefit from DLT-based services. 

The recommendations, if accepted by the government, will be a blow to digital currency aspirants in India such as Facebook as well as exchanges currently operating in the country by circumventing Reserve Bank of India (RBI) norms by undertaking peer-to-peer trading.

Cryptocurrency has been defined as “any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchange with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”

Why IMC proposed Ban on Cryptocurrency?
  1. All the cryptocurrencies have been created by non- sovereigns and are in this sense entirely private enterprises.
  2. There is no underlying intrinsic value of these cryptocurrencies back they lack all the attributes of a currency.
  3. There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.
  4. Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices.
  5. These crytocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence private cryptocurrencies cannot replace fiat currencies.
  6. A review of global practices show that they have not been recognised as a LEGAL tender in any jurisdiction.
  7. Committee also recommends that all exchanges, people, traders and other financial system participants should be prohibited from dealing with cryptocurrencies.

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