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Editorial
Two judgments and the principle of accountability (Page no. 6)
(GS Paper 2, Polity and Governance)
Two Constitution Benches of the Supreme Court of India delivered important judgments last week. The first case decided that the Delhi government headed by the Chief Minister — and not the Lieutenant Governor appointed by the central government — will control civil services working for the Delhi government.
The second case involved the formation of the current government in Maharashtra following the “split” in the Shiv Sena party.
Both judgments, which were unanimous, were authored by the Chief Justice of India; they explain the constitutional position clearly.
However, the Maharashtra judgment contradicts the core principle applied in the Delhi case. The problem arises from the fact that the Maharashtra judgment adheres to the Tenth Schedule of the Constitution (the anti-defection law), which, at its heart, is incompatible with the structure underlying parliamentary democracy.
The issue in the Delhi case was to determine whether the civil services in the Delhi government would be accountable to the Delhi cabinet or to the Union government.
Delhi is a Union Territory with a legislature, and the demarcation of powers is spelt out in Article 239AA. The Supreme Court stated that parliamentary democracy implied a government accountable to the people.
The judgment explains that this entails a triple chain of command: civil service officers are accountable to Ministers; Ministers are accountable to the legislature; and the legislature is accountable to the electorate.
Severance of any link of this triple chain would be antithetical to parliamentary democracy. Therefore, the civil services will have to report to the Delhi Cabinet.
The Maharashtra judgment dealt with a sequence of events that included several petitions under the anti-defection law. Two factions of the Shiv Sena had issued contradictory whips, and the Maharashtra Speaker had recognised the whip of one of the factions (which claimed more Members of the Legislative Assembly) as representing the party.
One of the questions considered by the Court was to determine which faction had the right to appoint the leader and whip of the legislature party — and, therefore, have the power to issue binding directions on every member of the party in the Assembly.
Timely caution (Page no. 6)
(GS Paper 2, Governance)
The Supreme Court’s exhortation to the Enforcement Directorate (ED) not to create an atmosphere of fear indicates how much the agency needs to temper its zeal in investigating allegations against political opponents of the current regime.
Responding to complaints that the ED is harassing employees of the Excise Department in Chhattisgarh in the name of investigating the money-laundering aspects of an alleged liquor scandal, a Bench has made the pertinent point that even a bona fide cause would seem suspect if a law enforcement agency conducted itself in a way that created fear.
The observation is both a caution against transgressing the limits of a lawful investigation and a warning against letting a perception gain ground that the agency would go to any lengths to implicate someone.
Given that several leaders and Ministers from States ruled by parties other than the BJP have been summoned by the ED, or arrested and imprisoned, not many will be surprised at the charges levelled on behalf of the Chhattisgarh government that the agency is running amok and that its officers were threatening State officers, in an alleged bid to implicate the State’s Chief Minister, Bhupesh Baghel.
These charges may or may not be accurate, but the core problem is that the number of political adversaries under the agency’s adverse notice is unusually high.
Text
Why are financial regulators transitioning from LIBOR? (Page no. 8)
(GS Paper 3, Economy)
The RBI stated that some banks and financial institutions were yet to facilitate an absolute transition away from the London Interbank Offered Rate (LIBOR) benchmark.
They had not inserted fallback clauses into all their financial contracts that reference U.S.$ LIBOR or the corresponding domestic Mumbai Interbank Forward Outright Rate (MIFOR). Both LIBOR and MIFOR would cease to be a representative benchmark from June 30 this year.
LIBOR is a global benchmark interest rate that combines individual rates at which banks opine they may borrow from each other (for a particular period of time) at the London interbank market.
It is used as a benchmark to settle trades in futures, options, swaps and other derivative financial instruments in over-the-counter markets (participants engaging directly without using an exchange) and on exchanges globally.
Further, consumer lending products including mortgages, credit cards and student loans, among others, too use it as a benchmark rate.
Every business day before 11 a.m. (London time), banks on the LIBOR panel make their submissions to news and financial data company, Thomson Reuters.
The panel consists of commercial bankers such as J.P. Morgan Chase (London branch), Lloyds Bank, Bank of America (London branch), Royal Bank of Canada and UBS AG, among others. Following the submission, the contributed rates are ranked.
Extreme quartiles, on the top and bottom, are excluded and the middle quartiles are averaged to derive the LIBOR. The idea is to be as close to the median as possible.
The central flaw in the mechanism was that it relied heavily on banks to be honest with their reporting disregarding their commercial interests.
It must be noted that the rates were made public. Therefore, it would not be particularly useful to impress upon potential and current customers the various disadvantages in obtaining funds.
The phenomenon was particularly on display during the 2008 financial crisis when submissions were artificially lowered (amid the crisis).
In 2012, Barclays admitted to the misconduct and agreed to pay $160 million in penalties to the U.S. Dept of Justice. The Wall Street Journal too had studied in May 2008 that several panelists were paying “significantly lower borrowing costs” than what other market measures were suggesting.
Another observed phenomenon was the tendency to alter (higher or lower) the submission as per the entities’ trading units’ derivative positions to acquire more profits.
News
Take steps to reduce unnecessary hysterectomies, Centre tells States (Page no. 12)
(GS Paper 3, Science and Technology)
Worried that poor, less-educated women, particularly in rural areas, continue to be at higher risk of undergoing unnecessary and often unjustified hysterectomies, the Health Ministry has written to all stakeholders to work towards plugging “such hysterectomies performed by certain medical institutions”.
The action comes following the Supreme Court’s direction last month, where the States and Union Territories were instructed to implement health guidelines formulated by the Centre to monitor “unnecessary” hysterectomies within three months. Hysterectomy is a surgical procedure to remove the uterus.
A public interest litigation (PIL) petition filed before the Supreme Court had said that in Bihar, Chhattisgarh, and Rajasthan, “unnecessary hysterectomies” were carried out under the Rashtriya Swasthya Bima Yojana as well as other government schemes related to healthcare.
The petition was filed in 2013 by Narendra Gupta, a doctor and public health expert, who based the petition on his fieldwork.
It also highlighted the involvement of private hospitals in performing such hysterectomies.
Dr. Gupta said that women who should not have been subjected to hysterectomies but should have been provided alternative treatment, were told to undergo the procedure, seriously endangering their health in the process.
The petitioner also submitted that most women who were subjected to hysterectomies of this kind belonged to the Scheduled Castes, Scheduled Tribes, or Other Backward Communities. It was also noted with concern that several healthcare institutions were found to be misusing the procedure only to claim expenses under various health insurance schemes offered by the government.
Cabinet gives approval for fertilizer subsidy of ₹1.08 lakh crore for kharif (Page no. 12)
(GS Paper 3, Agriculture)
With fertilizer prices continuing to remain high due to global factors — such as a fall in production and hiked logistics costs, especially due to the Ukraine situation — the Centre expects this year’s fertilizer subsidy to cross ₹2.25 lakh crore.
Accordingly, the Union Cabinet approved a ₹1.08 lakh crore subsidy for the ongoing kharif or monsoon season. Out of this, ₹38,000 crore will subsidise phosphatic and potassic (P&K) fertilizers, while ₹70,000 crore will go toward the urea subsidy.
Last year, the total fertilizer subsidy was about ₹2.56 lakh crore. Mr. Mandaviya told journalists that the Centre would ensure that the prices of urea and diammonium phosphate (DAP) would remain unchanged during the season.
At present, the subsidised rate of urea is ₹276 per bag and the price of DAP is ₹1,350 per bag. The decision will benefit about 12 crore farmers.
The total consumption of urea in the country is about 325 to 350 lakh tonnes (lt). Apart from this, 100 to 125 lt of DAP; 100 to 125 lt of NPK; and 50 to 60 lt of muriate of potash (MoP) are also sold in the country. “Farmers should get fertilizers on time. They should not be burdened at a time international prices are high,” he said.
The Minister said that the fertilizer subsidy usually ranged between ₹1 lakh crore and ₹1.25 lakh crore. “Last year, it was ₹2.56 lakh crore,” he said, adding that as cultivation takes place on 1,400 lakh hectares of land across the country, the fertilizer subsidy for one hectare is ₹8,909.
World
Key climate threshold likely to be breached in 5 years: UN (Page no. 13)
(GS Paper 3, Environment)
It is near-certain that 2023-2027 will be the warmest five-year period ever recorded, the United Nations warned on Wednesday as greenhouse gases and El Nino combine to send temperatures soaring.
There is a two-thirds chance that at least one of the next five years will see global temperatures exceed the more ambitious target set out in the Paris accords on limiting climate change, the UN’s World Meteorological Organization (WMO) said.
The hottest eight years ever recorded were all between 2015 and 2022, with 2016 the warmest — but temperatures are forecast to increase further as climate change accelerates.
There is a 98% likelihood that at least one of the next five years, and the five-year period as a whole, will be the warmest on record.
The 2015 Paris Agreement saw countries agree to cap global warming at “well below” two degrees Celsius above average levels measured between 1850 and 1900 — and 1.5 degrees Celsius if possible.
The global mean temperature in 2022 was 1.15 degrees Celsius above the 1850-1900 average. The WMO said there was a 66% chance that annual global surface temperatures will exceed 1.5 degrees Celsius above pre-industrial levels for at least one of the years 2023-2027, with a range of 1.1 degrees Celsius to 1.8 degrees Celsius forecasted for each of those five years.
WMO is sounding the alarm that we will breach the 1.5C level on a temporary basis with increasing frequency.
A warming El Nino is expected to develop in the coming months and this will combine with human-induced climate change to push global temperatures into uncharted territory.
This will have far-reaching repercussions for health, food security, water management and the environment. We need to be prepared.
Business
Centre more than doubles outlay on PLI for IT hardware to ₹17,000 crore (Page no. 14)
(GS Paper 3, Economy)
The Union Cabinet approved an updated Production Linked Incentive (PLI) scheme for IT hardware manufacturing, with the total budgetary outlay more than doubled to ₹17,000 crore, Minister of Electronics and Information Technology Ashwini Vaishnaw announced.
Electronics manufacturing in India has witnessed consistent growth with 17% CAGR in [the] last 8 years,” the government said in a statement.
This year it crossed a major benchmark in production – $105 billion. India crossed $11 billion in mobile phone exports, and was now the second-largest mobile handset maker behind China.
The PLI scheme for IT hardware, first notified in March 2021, provides upwards of 4% in incentives for incremental investment in domestic manufacturing for eligible firms, which include companies like Dell and Flextronics.
Based on industry feedback on improving... the scheme, the Cabinet has approved the changes,” Mr. Vaishnaw said. For instance, he said, the incentive had been increased to 5%.
An “additional optional incentive” has also been introduced for using domestically produced components. While Mr. Vaishnaw did not specify the rates of these optional incentives, he said that if they were availed as “envisioned,” the total incentive would amount to 8–9%.
Telecom hardware manufacturing had exceeded the projected ₹900 crore and reached ₹1,600 crore. “Two of those companies have become very important exporters in the world for complex radio equipment.
India, EU explore ways to resolve ‘carbon border tax’ (Page no. 14)
(GS Paper 2, International Policies & Agreements)
India and the EU are working to resolve a looming hurdle in their trade relationship, the EU’s Carbon Border Adjustment Mechanism (CBAM), with the two sides discussing it during a Minister-level meeting in Brussels this week. The EU is India’s second-largest trading partner as well as its second-largest export market.
The EU describes the CBAM as a ‘landmark tool’ that places a “fair price” on carbon emitted during the production of goods that are entering the EU and a mechanism to “encourage cleaner industrial production” outside the EU.
The CBAM regulations came into effect on May 16 and will begin their transitional phase of implementation on October 1.
An Indian delegation led by Commerce Minister Piyush Goyal and External Affairs Minister S. Jaishankar discussed the tax during a visit to Brussels for bilateral meetings and the first edition of the EU-India Trade and Technology Council (TTC).
The TTC said in a statement that the two parties would “intensify their engagement to address the issues that emerge in implementation” of the CBAM.
And we have a long time ahead of us within which we’ll be working together to find the right solutions to this,” he said, during a press conference of the ministers and their EU counterparts — EU Competition Commissioner Margrethe Vestager and Trade Commissioner Valdis Dombrovskis.
We were of course very careful to ensure WTO compatibility of the initiative,” Mr. Dombrovskis said. “And a key word for this is ‘non-discrimination’. So we apply the same price of carbon to imported goods that we are going to apply also on our domestic producers.