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Context:
· In the recently concluded 12th Ministerial Conference (MC12) of the World Trade Organization (WTO), the European Union (EU) and some other developed countries are the overwhelming winners, while India finds itself on the losing side.
The COVID-19 fight:
· The ministerial outcome on the so-called TRIPS waiver represents the biggest gain for the EU.
· In October 2020, India and South Africa put forth a proposal seeking to temporarily suspend the protection of intellectual property rights such as patents, copyrights, industrial designs and trade secrets, so that the production of vaccines, therapeutics and diagnostics could be ramped up to help overcome the crisis and fight the COVID-19 pandemic.
· The proposal garnered the support of almost 100 countries at the WTO. The opponents of the proposal, i.e. Germany, the United Kingdom, Japan, Switzerland and the United States, found themselves on the wrong side of the global opinion on this issue.
· In June-July 2021, the U.S. gave its support to the proposal, but limited it to vaccines.
· Other developed countries, particularly Germany and the U.K., found themselves at the receiving end of the ire of their civil society organisations and prominent opinion makers.
EU’s proposal:
· The European Union (EU) made a counter-proposal to undermine the proposal made by India and South Africa. This counter proposal provided a cosmetic simplification in certain procedural aspects of compulsory licensing in patent rules.
· With the active support of the WTO’s Director-General, it also launched a process in December 2021 to reach a compromise. In a completely opaque process, by March 2022, India and South Africa were corralled into accepting the EU’s proposal.
· This formed the basis of the final outcome at the MC12. The ministerial outcome adds very little to what already exists in the WTO rulebook. To make matters worse for developing countries, it adds stringent conditions that are not in the WTO rulebook.
Victory for EU:
· The outcome of the TRIPS waiver has provided a facesaver to the EU, as it can now look in the eye of its civil society organisations and confidently say that it has done its bit to save the world from COVID-19. The final outcome is almost unworkable; a big public relations victory for the EU.
· The EU has also scored important gains in two other areas, WTO reform and environment issues.
· In the name of WTO reform, the EU sought to make fundamental changes to the institutional architecture of the WTO. It also sought to give a formal role to the private sector in WTO processes. And, it has secured both these objectives in the ministerial outcome.
· The EU has also managed to create a window to pursue negotiations on issues related to trade and environment at the WTO, an issue of concern for many developing countries.
Solution for public stockholding:
· Turning to India, the issue of a permanent solution to public stockholding was identified by the Indian Minister of Commerce and Industry, Piyush Goyal, as being its top most priority and nothing more important than it for the world.
· Despite having the support of more than 80 developing countries, this issue has not found mention anywhere in the ministerial outcome.
· Instead, the WTO members have succeeded in diverting attention from India’s interest by agreeing that food security is multi-dimensional, requiring a comprehensive solution.
Other issues of India:
· India has also failed in many of its other objectives, such as securing the right to raise revenues by taxing electronic transmissions.
· In the area of fisheries subsidies, it gets two years to have suitable regulatory mechanisms in place to monitor fish catch and reporting. Otherwise, subsidies to traditional fishermen will be prohibited.
· Although it has secured a temporary reprieve to provide subsidies for enhancing its fishing fleets, it will have to fight an uphill battle on this issue in future negotiations. Further, the outcome on the TRIPS waiver bears no resemblance to its proposals.
Way Forward:
· Overall, the path ahead for India at the WTO is difficult. India’s negotiators need to undertake soul searching to learn lessons from the dynamics at the MC12, and make course corrections.
Weighing in on India’s investment-led revival
(GS Paper 3, Economy)
Context:
· Indian Finance Minister, said recently that India’s long-term growth prospects are embedded in public capital expenditure programmes.
· She added that an increase in public investment would crowd in (or pull in) private investment, thus reviving the economy.
· The Minister was speaking at the third G20 Finance Ministers and Central Bank Governors (FMCBG) meeting hosted by Indonesia in Bali.
Lag in investment:
· Public investment-led economic growth forms a credible strand of explanation for India’s post-Independence economic growth.
Initiatives by India after 1997 crisis:
· When it was faced with a slow-down after the Asian financial crisis of 1997, the Atal Bihari Vajpayee led-National Democratic Alliance government initiated public road building projects.
· In the form of the Golden Quadrilateral (to link metro cities using a high-quality road network) and the Pradhan Mantri Gram Sadak Yojana (to ‘provide good all-weather road connectivity to unconnected habitations’), these initiatives sowed the seeds of economic revival, culminating in an investment and export-led boom in the 2000s; GDP grew at 8%-9% annually.
· In comparison, the investment record during the 2010s has been dismal. However, a recent uptick is evident in the real gross fixed capital formation (GFCF) rate, the fixed investment to GDP ratio (net of inflation). The ratio recovered to 32.5% in 2019-20 from a low of 30.7% in 2015-16.
Caution:
· The Finance Minister has claimed that the Government sustained the investment tempo even during the novel coronavirus pandemic (2020-21 and 2021-22).
· As in the June edition of the Ministry of Finance’s Monthly Economic Review, the fixed investment to GDP ratio was 32% in 2021-22. However, there is need for caution in reading the most recent data, as they are subject to revision.
· Moreover, the budgetary definition of investment refers to financial investments (which include purchase of existing financial assets, or loans offered to States) and not just capital formation representing an expansion of the productive potential.
On gross capital formation:
· The National Accounts Statistics provides disaggregation of gross capital formation (GCF) by sectors, type of assets and modes of financing; over 90% of GCF consists of fixed investments.
· The upturn in the investment rate is welcome, though its productive potential depends on its composition. But the investment distribution has hardly changed over the last decade, with the public sector’s share remaining 20%.
Not a balanced approach:
· Between 2014-15 and 2019-20, the shares of agriculture and industry in fixed capital formation/GDP fell from 7.7% and 33.7% to 6.4% and 32.5%, respectively.
· Services’ share rose to 52.3% in 2019-20 compared to 49% in 2014-15. The rise in the services sector is almost entirely on transport and communications.
· The share of transport has doubled from 6.1% to 12.9% during the same period. Within transportation, it is mostly roads.
· As roads and communications are classic public goods, investment in them is welcome. But over-emphasising it may be lop-sided. For healthy domestic output growth, there is a need for balance between “directly productive investments” (in farms and factories) and infrastructure investments.
· And this balance was missed. Moreover, the share of agriculture and industry shrank even as the economy’s gross capital formation rate trended downwards.
Import dependence grew:
· The case of manufacturing is distressing. Its share in the investment ratio fell from 19.2% in 2011-12 to 16.5% in 2019-20. It is not surprising that ‘Make in India’ failed to take off, import dependence went up, and India became deindustrialised.
· Import dependence on China is alarming for critical materials such as fertilizers, bulk drugs (active pharmaceutical ingredients or APIs) and capital goods. This became acute during the COVID-19 pandemic, as China imposed export restrictions, prompting the Prime Minister to announce the ‘Atmanirbhar Bharat’ campaign.
· Instead of boosting investment and domestic technological capabilities, the ‘Make in India’ campaign frittered away time and resources to raise India’s rank in the World Bank’s (questionable and contested) Ease of Doing Business Index. India’s position did go up, from 142 in 2014 to 63 in 2019, but it failed to boost industrial investment, let alone foreign investment.
· The contribution of foreign capital to financing GCF fell to 2.5% in 2019-20 from 3.8% in 2014-15 (or 11.1% in 2011-12). With declining investment share, industrial output growth rate fell from 13.1% in 2015-16 to a negative 2.4% in 2019-20, as per the National Accounts Statistics.
Public investment:
· The Finance Minister has claimed that public investment is the pivot of the ongoing investment-led economic revival. The recent upturn in the aggregate fixed capital formation to GDP ratio is positive, though the rate is still lower than its mark in the early 2010s. The claim that the investment revival is public sector driven is not borne out by facts.
· The jury may still be out on the suggested rise in public investment during the COVID-19 pandemic. The budgetary figures refer to financial investment, not estimates of capital formation, indicating expansion of the economy’s productive capacity.
· During the 2010s, the investment shares of agriculture and industry fell but rose sharply in services. The percentage share for roads has doubled. The expansion of roads and communications is surely welcome.
· Considering such a skewed investment priority, the ‘Make in India’ strategy failed to take off, accentuating India’s import dependence, especially on China, leading to deindustrialisation.
Challenges:
· The lack of domestic capacity for essential raw industrial materials and capital goods could prove costly. It will likely test India’s ability to withstand external economic challenges.
· With a depreciating currency and rising (imported) inflation, prospects of sustaining investment recovery are likely to get harder. The deficit on balance of payment is already well above policy makers’ comfort level of 2.5% of GDP.
Indian sports bodies under scandal and scrutiny
(GS Paper 2, Governance)
Context:
· The sports administration in India was in the headlines frequently, all for the wrong reasons. Both the All India Football Federation (AIFF) and the Indian Olympic Association (IOA) face potential ban/suspension if elections to the executive body are not done immediately.
· Hockey India has also come under scrutiny by the International Hockey Federation (FIH) for the delay in conducting elections.
What happened?
· A seven-member delegation of the world football governing body FIFA and the Asian Football Confederation had come to the India in June 2022 for a meeting with the Committee of Administrators (CoA).
· The CoA was entrusted with the running of football by the Supreme Court after the executive committee of the AIFF was dissolved for violating the Central government’s sports code.
· It was mandated that by July 31, the amendments to the AIFF’s new constitution have to be made and the elections for the national football body completed by September 15. If not, India would face a FIFA ban.
· The IOA is also being warned of a possible suspension by the International Olympic Committee (IOC). The IOA elections, scheduled to have been held last December, have not been conducted yet.
· The recent letter from the IOC to the executive council members of the IOA expressed concerns about the multiple legal proceedings that caused delays and created unnecessary complications.
· The FIH wrote to the CoA, which is currently administrating hockey in the country as the Delhi High Court found Hockey India’s executive board in violation of the National Sports Code.
· The letter from the FIH stresses on the need to have elections based on the rules laid down by the Indian government. It also raised concerns about Hockey India getting its act together before the 2023 World Cup, which India is scheduled to host in January.
What is the Sports Code?
· The Sports Code, or National Sports Development Code of India to be precise, was introduced in 2011 by the Central government, which wanted good governance practices in the management of sports at the national level without interfering in the autonomy of the national sports bodies.
· It was widely accepted that such a sports code was needed as it was felt that most of the sports federations had become personal fiefdoms of certain individuals as they continued to remain in power for long periods.
· The National Spots Code laid down restrictions regarding age and tenure.
What happens when a sports body is found to be in violation of the Sports Code?
· The respective federations can be put under a CoA. That is what happened with the football and hockey associations. In May 2021, the Supreme Court had appointed a three-member CoA led by former Supreme Court judge A.R. Dave to run the AIFF, whose president Praful Patel had to resign.
· The Sports Ministry in an affidavit had said that Mr. Patel continuing in his post would be in violation of the Sports Code as he had been the president for more than 12 years.
· In a similar fashion, the Delhi High Court observed that the Sports Code was violated by Hockey India and a CoA was formed to run the game’s administration in India.
Why was Narinder Batra, a veteran Indian sports administrator, in the news recently?
· On July 18, Mr. Batra resigned from the IOC, IOA and FIH. He was the president of FIH and the IOA and a member of the IOC.
· On the day of his multiple resignations, the CBI registered a case against him for alleged misappropriation of Hockey India’s funds (₹35 lakh).
What have been the previous instances where a CoA was formed for administering sports bodies?
· In February, the Delhi High court appointed Gita Mittal as the chairperson of the CoA to run the Table Tennis Federation of India, which was suspended following an inquiry into the match-fixing allegations raised by one of India’s leading players, Manika Batra.
· She had alleged that national coach Soumyadeep Roy had asked her to throw her match to Sutirtha Mukherjee so that the latter could qualify for the Tokyo Olympics.
2017 CoA:
· In 2017, the Supreme Court had appointed a CoA to implement the reforms in the administration of cricket in the country suggested by the Justice R.M. Lodha committee.
· The CoA consisted of Vinod Rai, Ramachandra Guha, Vikram Limaye and Diana Edulji. However, Mr. Guha resigned the committee a few months later.
The Lodha committee had been appointed in 2015 following the report submitted by the Justice Mukul Mudgal Committee that investigated the IPL spot-fixing scandal in 2013. The CoA’s tenure came to an end in 2019 with former India captain Sourav Ganguly being elected as the BCCI president and Jay Shah as its
Development of Enterprise and Service Hubs (DESH) Bill
(GS Paper 2, Governance)
Why in news?
· The government plans to table the Development of Enterprise and Service Hubs (DESH) Bill during the ongoing monsoon session of Parliament, in a bid to overhaul the SEZ Act of 2005.
· The move is also aimed at making rules governing special economic zones more WTO compliant.
· In her budget speech 2022, Finance Minister said that the SEZ Act will be replaced by new legislation that will allow states to collaborate on development.
What is the DESH Bill?
· It will overhaul the existing Special Economic Zone law of 2005, aiming to revive interest in SEZs and develop more inclusive economic hubs.
· The new law will allow units to produce both for domestic and international markets. Evaluation based on net foreign exchange and direct tax incentives have been done away with in order to comply with WTO rules.
· According to the DESH Bill, net positive growth criteria will be used to judge performance.
· SEZs will be revamped and renamed Development Hubs. They will be free from several laws that currently restrict them. These hubs will facilitate both export-oriented and domestic investment.
· The government may impose an equalisation levy on goods or services supplied to the domestic market to bring taxes at par with those provided by units outside.
What were the shortcomings of the SEZ Act?
· According to the World Trade Organization’s dispute settlement panel, India’s export-related schemes, including the SEZ Scheme, were inconsistent with WTO rules since they directly linked tax benefits to exports.
· The SEZ Act was implemented in 2006 in a bid to create export hubs and boost manufacturing in the country.
· However, these zones started losing their sheen after the imposition of a minimum alternate tax and the introduction of a sunset clause for the removal of tax incentives.
· The dispute settlement panel of Geneva-based WTO in its report on October 31, 2019, ruled that India’s export-related schemes (including SEZ Scheme) were in the nature of prohibited subsidies under the Agreement on Subsidies and Countervailing Measures and were inconsistent with WTO norms. India has appealed against this order.
What has the govt said about the DESH Bill?
· The rationale behind the new law, is that India needs large industrial manufacturing zones, which have world-class infrastructure so that those places become manufacturing hubs of the future.
· The new SEZ Act will be WTO-compliant and will have a single window (clearance system). High-class infrastructure will be there and more benefits will be there.