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GS 2 International groupings and agreements


BITs and pieces of trade with Israel: (The Hindu, Editorial) India-Israel relationship: Trade and Potential BIT Context

  • The bilateral relationship growing and potential of Investments seems increasing.

Growing trade relations

  • Bilateral merchandise trade increased from $200 million in 1992 to around $4 billion in 2016, an increase of 2,000% in 25 years.
  • Cumulative foreign direct investment (FDI) inflows from Israel, from April 2000 to March 2017, stood at $122 million.
  • Comprising only 0.04% of total FDI inflows to India, there is enormous potential for Israeli investment in fields such as renewable energy and water management (drip irrigation and desalination).
  • Defense production, which is at the heart of the ‘Make in India’ campaign, is another area with significant potential for Israeli investment, a move that will help India save billions of dollars it currently spends on importing weapons from Israel.
  • Israel is the third largest supplier of arms to India after Russia.
  • The U.S. Investment in defense production will also give a boost to domestic manufacturing, reduce dependence on bureaucratic state-owned ordnance factories and bring in new technology.

New Bilateral Investment Trade (BIT) on cards

  • In 1996, India and Israel signed a BIT.
  • The BIT was reportedly terminated by India when it unilaterally discontinued 58 BITs recently.
  • For a new BIT to be negotiated, both sides will have to start afresh.

Challenges countering BIT between India – Israel

  • The investor-state dispute settlement (ISDS) provision that allows foreign investors to bring claims against a host state for alleged treaty breaches at international arbitral forums.
  • Foreign investors prefer international arbitration, which is faster and independent, over litigating in domestic courts.

The Israeli model

  • The Israeli model gives an investor the choice to submit any investment dispute with a state to international arbitration if not resolved within six months through negotiations.
  • The Israeli model contains a broad most favoured nation (MFN) provision, a cornerstone of non-discrimination in international economic relations which is missing in the Indian model.
  • The absence of MFN, from Israel’s perspective, would mean that its businesses would have no remedy under international law if India were to discriminate against it, say, by offering greater incentives to another defense manufacturer over an Israeli one.
  • In the Israeli model, taxation-related measures are recognized as an exception only to MFN and national treatment provisions.
  • Foreign investors can still challenge taxation-related measures for violating other BIT provisions such as the fair and equitable treatment or expropriation.

The Indian model

  • The Indian model imposes many procedural and jurisdictional restrictions on an investor’s right to bring an ISDS claim.
  • These include a foreign investor having to litigate in domestic courts for five years before pursuing a claim under international law.
  • These requirements make it very difficult for a foreign investor to make efficient use of the ISDS provision.
  • The Indian model of 2016 defines investment narrowly as an enterprise (with its assets) that has to possess certain characteristics of investment including the investment having ‘significance for the development’ of the host country.
  • The Indian model excludes taxation altogether from the purview of the BIT.
  • Thus, the foreign investor cannot bring an ISDS claim even if taxes imposed are confiscatory, discriminatory or unfair.
  • However, in the Israeli model, taxation-related measures are recognized as an exception only to MFN and national treatment provisions.
  • Foreign investors can still challenge taxation-related measures for violating other BIT provisions such as the fair and equitable treatment or expropriation.
  • India’s recent record in administering its taxation laws has made foreign investors jittery.
  • The World Investment Report 2017 issued by the United Nations Conference on Trade and Development also points out that tax-related concerns are a deterrent for some foreign investors to invest in India.
  • Thus, Israeli investors will not be comfortable if taxation is completely outside BIT’s purview.

Conclusion

  • Indian position on BITs is very pro-state, offering limited rights and protection to foreign investors.
  • The Israeli position is the opposite.
  • An India-Israel BIT looks difficult till both sides move away from their stated positions.
  • Both sides need to work towards having a BIT that reconciles investment protection with a state’s right to regulate.

Effects of developed and developing countries policies


U.S. blames Pakistan for going soft on Lashkar and Jaish The Country Reports on Terrorism Context

  • The State Department’s annual ‘Country Reports on Terrorism’ released identifies that the Indian leadership expressed resolve to redouble efforts, in cooperation with the United States and other like-minded countries, to bring to justice the perpetrators of terrorism.

The report on Pakistan

  • The report pinpointed that Pakistan remained “an important counter-terrorism partner” last year, but it did not take sufficient action against groups that target India and Afghanistan.
  • The Pakistani military and security forces carried out operations against groups that piloted attacks within Pakistan such as Tehrik-e-Taliban Pakistan.
  • Pakistan did not take substantial action against the Afghan Taliban or Haqqani Network, or significantly limit their ability to threaten U.S. interests in Afghanistan.
  • Although Pakistan supported efforts to bring both groups into an Afghan-led peace process.
  • Pakistan did not take adequate action against other externally focused groups, such as Lashkar-e-Taiba and Jaish-e-Mohammad in 2016, which continued to operate, train, organize, and fundraise in Pakistan.

The report on India – U.S. cooperation

  • The report said India and the U.S. pledged to strengthen cooperation against terrorist threats from groups including al-Qaeda, the ISIS, the Jaish, the Lashkar and D-Company, including through greater collaboration on designations at the UN.
  • The report said in 2016, U.S. and Indian officials exchanged terrorist threat information.

India and neighbors


Malabar naval exercise: Powerplay in the Indo-Pacific region: (Live Mint, Editorial) (Malabar Exercise – An Indo-Pacific Powerplay) Context:

  • The 2017 Malabar exercise was the 21st edition of the exercise and conducted from 10 to 17 July 2017. This edition involved navies from India, USA and Japan.
  • This exercise focused on Aircraft Carrier operations, Air defense, Anti-submarine warfare (ASW), Surface warfare, Visit Board Search and Seizure (VBSS), Search and Rescue (SAR), joint and tactical procedures.

Background:

  • Exercise Malabar is a trilateral naval exercise involving the United States, Japan and India as permanent partners.
  • Originally a bilateral exercise between India and the United States, Japan became a permanent partner in 2015.

Current Situation:

  • The “Malabar” naval exercises in the Bay of Bengal came to an end by second week of July, 2017.
  • The exercise ended with a drill involving Indian aircraft carrier INS Vikramaditya, the US flat-top Nimitz, and Japan’s new helicopter carrier, the JS Izumo.

Signal to China:

  • The expansive scope and complexity of the engagement led many to portray Malabar 2017 as a maritime response to China’s aggression in Dokalam where the Indian Army and People’s Liberation Army troops remain locked in a tense stalemate.
  • With over 20 ships, including two submarines and over 100 aircraft and helicopters involved in complex maneuvers, the strategic messaging to China seemed more than clear.
  • Notably, Indian commentators cast Malabar as a strategic precursor to a more proactive sea-denial strategy aimed at challenging People’s Liberation Army Navy (PLAN) ships and submarines in the Indian Ocean.

Signal from China:

  • In the run-up to Malabar, the media had reported a “surge” in Chinese naval presence in the sub-continental littorals.
  • PLAN units prowling India’s near-seas reportedly included the Luyang III class destroyers, hydrographic research vessels, and an intelligence-gathering ship, Haiwingxing, presumably to keep track of naval ships taking part in the trilateral exercises
  • Indian analysts seemed more distressed by the reported presence of a Chinese conventional submarine in the Indian seas, confirmed by the docking of the Chongmingdao, a submarine support vessel, in Karachi last month.

Implications of Malabar Exercise:

  • The emphasis on anti-submarine warfare (ASW) exercises in Malabar is a sign of India’s growing willingness to leverage its maritime partnerships in Asia to counter PLAN operations in the Indian Ocean.
  • Most of the focus was on exercises involving P-8I and P-8A reconnaissance aircraft, MiG-29K fighters and Japanese ASW helicopters, lending credence to accounts that an Indian “sea-denial” strategy was at work in the Bay of Bengal.

International Relations over Sea-Waters:

  • Modern-day trading nations regard the oceans as a shared global common, with equal opportunity rights for all user states.
  • Thus, unless a sea-space is a site of overlapping claims (as in the case of the South China Sea) or a contested enclave in a geopolitically troubled spot (as the Persian Gulf), no coastal state ever actively denies another the use of the high seas.
  • This balance only changes during war, when navies seek to block adversaries from entering critical sea spaces in the contested littorals.
  • During peace-time operations, however, maritime forces enjoy assured access to the seas that lie beyond national territorial waters.

India’s Concern:

  • The idea that Indian naval power can prevent Chinese warships and submarines from accessing India’s near-seas is flawed.
  • Given Beijing’s key role in the politics and geo-economics of the Indian Ocean region, a peacetime plan to deny its warships entry into India’s surrounding seas is unlikely to succeed
  • With the PLAN expanding its diplomatic engagements along the Indian Ocean rim, many regional states have been welcoming of Beijing’s maritime initiatives and investments in the Indian Ocean.
  • India’s plans to constrain Chinese naval power in South Asia are bound to meet with regional opposition.
  • In recent years, the PLAN has sought to project power in the Indian Ocean region through a constant naval presence in India’s near-seas.
  • By refusing to accept the Indian Ocean as an Indian backwater, it has made successful inroads into India’s geopolitical sphere of influence.

Strategies for India:

  • Firstly, India too must now resort to a strategy of counter-power projection by expanding the scope of its naval deployments in the South China Sea, long considered a Chinese preserve.
  • Secondly, by gradually expanding security presence along the critical sea lanes of the Western Pacific, the Indian Navy must plan to use the South China Sea’s geopolitically sensitive spaces for the strategic power projection.
  • Thirdly, China’s vulnerability in its near-seas must be taken advantage of by India.
  • Finally, to challenge PLAN incursions into the Indian Ocean, the Indian Navy must plan for counter-presence in China’s near-seas, where Beijing cannot prove a territorial infringement, and yet feel the pinch of a perceived violation of its political sphere of influence.

GS 3 Indian Economy. Planning, Growth and Employment


Buffalo meat exports fall 4.35% in April-May: (artha, summary) (Centre has been trying to ban cattle sale for slaughter) Considerable drop in Buffalo meat exports Context:

  • The export of buffalo meat has considerable decline in the recent few months for the Centre has been trying to ban the sale of cattle for slaughter.

Introduction:

  • India’s buffalo exports fell 4.35% in the April-May, 2017 i.e. $530 million compared with the same period last year.
  • This trend of declining exports is consistent with what is seen for other meat as well. For example:
  • Sheep and goat meat exports fell from 23,612 million tonnes in 2014-15 to 22,049 million tonnes in 2016-17.
  • Exports of ‘other meat’ declined to just 12 million tonnes in 2016-17 from 262 million tonnes two year previously.

Conclusion:

  • Because of the ban the meat industry worries that it will come to a “standstill”.

Ministry, NITI Aayog moot privatisation of select services in district hospitals (NITI Aayog’s Public Private Partnership) Context

  • Under proposed PPP model of NITI Aayog, private players will get 30-year leases on space in district hospitals

NITI Aayog and Health Ministry’s Stand

  • As a part of a radical ‘privatisation project’, the Health Ministry and the NITI Aayog have developed a framework to let private hospitals run select services within district hospitals, on a 30-year lease.
  • In consultation with the World Bank, the government will be allowing “a single private partner or a single consortium of private partners” to bid for space in district level hospitals, especially in tier 2 & 3 cities.
  • Under this Public Private Partnership (PPP), care for only three non-communicable diseases — cardiac disease, pulmonary disease, and cancer care — will be provided.
  • A model contract drawn up by NITI Aayog has been sent out to State giving the states a two-week window to furnish responses.

The Drafting of the Document

  • The draft document was prepared by a working group comprising representatives from the industry, Health Ministry and representatives of a few states.
  • According to the draft model contract, private hospitals will bid for 30-year leases over portions of district hospital buildings to set up 50- or 100-bed hospitals in smaller towns across the country.
  • The State governments could lease up to five or six district hospitals within the State
  • Further, the State governments will give Viability Gap Funding (VGF), or one-time seed money, to private players to set up infrastructure within district hospitals.
  • The private parties and State health departments will share ambulance services, blood banks, and mortuary services.

Issues with the Drafted Model

  • While it is clear that insured patients will receive free care, it is not at all clear what will happen to the vast majority of the population.
  • In particular, it is not clear how the referral arrangements will be worked.
  • It says that states can, if they wish, refer 100% of patients for cashless care, it is a matter of concern that it also proposes that States can set a cap on this entitlement
  • But no statement has been released with regard to the execution of the same and neither any clarification has been issued that what would be the succeeding series of action once the cap is reached.
  • What is particularly disturbing is the suggestion that only Below Poverty Line (BPL) patients and those in insurance schemes will be able to access free care.
  • This would effectively exclude hundreds of millions of the Indian population from vital hospital services.
  • Also the policy document has come under sharp criticism for the Ministry’s failure to consult with key stakeholders from civil society and academia.

Underlying Implication: NITI’s Changing Role

  • The public private partnership model drafted by NITI Aayog highlights a changing role of the board.
  • Health policy is a State issue in India and NITI Aayog has no standing place for the same.
  • The logic behind shutting down the Planning Commission was to ensure that policies are not centralized
  • NITI Aayog was to be an advisory body but here they are rushing through a policy that will essentially hand over public assets to the private sector, leading to a further dismantling of the public services available for free.

‘Banks may need to forgo Rs. 2.4 lakh crore’: (60% haircut needed to settle 50 large stressed assets with Rs 4 lakh cr debt: Crisil) Context: Banks may have to take a haircut of 60 per cent, worth 2.4 lakh crore, to settle 50 large stressed assets with debt of 4 lakh crore, according to an analysis by credit rating agency Crisil. Introduction:

  • In banking parlance, haircut is the difference between the market value of an asset used to loan collateral and the amount of the loans. The amount of the haircut reflects the lender’s perceived risk of loss from the asset falling in value or being sold in a fire sale
  • These 50 companies are from the metals (30% of total debt), construction (25%) and power(15%) sector, and account for half of the Rs 8 lakh crore non-performing assets (NPA) in the banking system as on March 31, 2017.
  • The government recently promulgated an ordinance empowering the RBI to issue directives for faster and optimum resolution of stressed assets to make them viable.
  • According to the Crisil, the restructuring tools facilitated by the Reserve Bank of India that indebted firms had availed of earlier did not help because of very high debt levels that underscore the magnitude of stress.

Four categories:

  • Crisil has classified the haircuts into four categories- marginal (less than 25 %), moderate (25-50%), aggressive (50-75%), and deep (greater than 75%).
  • The agency observed that the majority of the debt requiring deep haircuts belongs to companies with unsustainable businesses.
  • Companies needing a marginal haircut are those facing temporary setbacks, which could be corrected over time.

Key points:

  • Companies from the power sector would require moderate haircuts, while those from the metals and construction sectors would need aggressive ones.
  • The focus now is on optimum debt reduction including through potential transfer of assets to a different management that can bring in resources needed to scale up cash flows.
  • The rating agency also estimated banks have provisioned for about 40% of this exposure.
  • Companies from the power sector would require moderate haircuts, while those from the metals and construction sectors would need aggressive ones.

Cropping pattern, Agriculture, e-technology


Think beyond loan waivers: (The Hindu, Editorial) (Farmer’s jeopardy – need to read between the lines) Context:

  • The farmer’s distress in India needs to be addressed with a firm and concrete solution than farm loan waivers.

Demerits of Indian Agriculture:

  • Indian agriculture is characterised by low scale and low productivity.
  • More than half of the area under cultivation does not have access to irrigation.
  • Agriculture income which is generated at average size of landholding is not adequate to meet farmers’ needs.
  • Other crucial drawback is weather and market risks.

Farm Loan waivers:

  • The ultimate goal of farm loan waiver is to lessen the debt burden of distressed and vulnerable farmers and help them qualify for fresh loans.
  • The success of the loan waiver lies on the extent to which the benefits reach the needy farmers.

Drawbacks of Farm Loan Waivers:

  • First, it covers only a tiny fraction of farmers.
  • Second, it provides only a partial relief to the indebted farmers as about half of the institutional borrowing of a cultivator is for non-farm purposes.
  • Third, in many cases, one household has multiple loans either from different sources or in the name of different family members, which entitles it to multiple loan waiving.
  • Fourth, loan waiving excludes agricultural laborers who are even weaker than cultivators in bearing the consequences of economic distress.
  • Fifth, it severely erodes the credit culture, with dire long-run consequences to the banking business.
  • Sixth, the scheme is prone to serious exclusion and inclusion errors
  • Seventhly, the loan waiver as a concept excludes most of the farm households in dire need of relief and includes some who do not deserve such relief on economic grounds.
  • Finally, loan waiving can provide a short-term relief to a limited section of farmers; it has a little chance of bringing farmers out of the vicious cycle of indebtedness.

Suggestions:

  • For providing immediate relief to the needy farmers, a more inclusive alternative approach is to identify the vulnerable farmers’ based on certain criteria; and give an equal amount financial relief to the vulnerable and distressed families.
  • The sustainable solution to indebtedness and agrarian distress is to raise income from agricultural activities and enhance access to non-farm sources of income.
  • Improved technology, expansion of irrigation coverage, and crop diversification towards high-value crops are appropriate measures for raising productivity and farmers’ income.
  • States need to undertake and sincerely implement long-pending reforms in the agriculture sector with urgency.
  • There’s an urgent need for the removal of old regulations and restrictions on agriculture to enable creation of a liberalised environment for investment, trading and marketing.

Prelims Related News


India hit by 34 ransomware attacks (CERT-In has advised remedial steps to contain damage) Context: A total of 34 incidents of infections from the two global ransomware attacks, WannaCry and Petya, were reported to the Indian Computer Emergency Response Team (CERT-In) by organizations and individuals in the country. Introduction:

  • WannaCry and Petya infected thousands of computers worldwide in May and June respectively.
  • The attackers in both cases had sought about $ 300 in Bitcoin as ransom.
  • Ransomware is a type of malicious software that infects a computer and restricts user’s access to affected files by encrypting them until a ransom in paid to unlock it.

Key point:

  • Parliament was informed that “as per the information reported to and tracked by CERT-In,” a total of 44,679, 49,455, 50,362 and 27,482 cybersecurity incidents were observed during the years 2014,2015, 2016 and 2017(till June) respectively.
  • These incidents included phishing, scanning/probing, website intrusions and defacements, virus/malicious code, ransomware and denial of service attacks.
  • The data from National Crime Records Bureau (NCRB) to state that a total of 9,622 and 11,592 cyber crime cases were registered during 2014 and 2015 respectively.
  • This includes cases registered under the IT Act, 2000 and related sections of Indian Penal Code and special and local laws involving computer as a medium/target

What is Ransomware?

  • Ransomware is a type of malicious software that threatens to publish the victim’s data or perpetually block access to it unless a ransom is paid.
  • Ransomware attacks are typically carried out using a Trojan that is disguised as a legitimate file that the user is tricked into downloading or opening when it arrives as an email attachment.
  • Starting from around 2012 the use of ransomware scams has grown internationally in June 2013, security software vendor Mc Afee released data showing that it had collected more than double the number of samples of ransomware that quarter than it had in the same quarter of the previous year.

How does it work?

  • When a computer is infected, the ransomware encrypts important documents and files and then demands a ransom, typically in Bitcoin, for a digital key needed to unlock the files. If victims don’t have a recent back-up of the files they must either pay the ransom or face losing all of their files

What should you do if you are affected by the ransomware?

  • The ransomware infects computers and then waits for about an hour before rebooting the machine.
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