TTBR (Topics To Be Read) 15 June 2024

Today's Topics To Be Read (TTBR)

1 Biannual admissions (The Tribune)

2 Empower the poor to mitigate effects of climate change (The
Tribune)
3 NEET controversy: An untidy exam (Indian Express)
4 Agnipath 2.0: A solution for armed forces and applicants
(Indian Express)
5 Why NEP implementation has been a failure (Indian Express)
6 Food factor: On food inflation (The Hindu)
7 One more chance: On Israel and the Biden three-phase
ceasefire plan (The Hindu)
8 India growth story has a ‘beneficial ownership’ hurdle (The
Hindu)
9 Financial regulators need a ‘quantum’ leap (Financial Express)
10 New ‘power’ equations (Financial Express)
11 India needs a long term development model (Business Line)
12 Law and order challenges for the new government (Business
Line)
TTBR (Topics To Be Read) 15 June 2024

Biannual admissions (The Tribune)

Implement in phases, ensure quality education

THE somewhat muted response to the announcement by the University Grants

Commission (UGC) to permit admissions to higher educational institutions twice a year
is on expected lines. The switch to a biannual admission process entails not only an
infrastructure upgrade, but a whole series of administrative and faculty
readjustments. Since it’s a voluntary provision, a majority of universities are likely to
adopt a wait-and-watch approach for now. UGC chairperson M Jagadesh Kumar would
be hopeful that the scepticism is short-lived. There is merit in his argument that the
decision will offer greater flexibility to the students and the institutions.
Students in India can now be admitted in January-February as well as in July-August,
as is the case in most foreign universities. The UGC chairperson feels the policy will
benefit students who missed admission due to a delay in the announcement of board
results, health issues or personal reasons. The education regulator’s experiment of
biannual admission for open and distance learning and online programmes, he claims,
has helped nearly five lakh students join degree programmes without waiting one full
academic year. That’s commendable, but what may work for online and distance
education programmes may not necessarily turn out to be feasible for on-campus
learning.
While one would advocate keeping an open mind on the new policy, what can’t be
discounted are the apprehensions regarding its potential impact on educational
quality. Allowing double the intake of students without ensuring a commensurate
presence of qualified teaching staff can spell chaos. Phased implementation, with an
ample scope for course correction, appears to be the ideal strategy. As the UGC
presses for biannual admissions, it will have to ensure that the process is not misused
as a money-making opportunity. The students must not lose out.
TTBR (Topics To Be Read) 15 June 2024

Empower the poor to mitigate effects of climate

change (The Tribune)

The present model of economic development perpetuates inequalities

and fails to reallocate and redistribute resources.

ENVIRONMENTAL conservation and climate issues were consigned to oblivion by

various political parties in the recent Lok Sabha elections, despite a heatwave
sweeping through many parts of the country. Delhi is making headlines over its
drinking water crisis. The AAP government has claimed that the Capital is facing a
water shortage of 50 million gallons per day. The most polluted capital city in the world
is struggling to cope with the heatwave. The weather conditions have hit poor people
the hardest; they lack access to basic needs, such as food, water, health, housing and
electricity, to fight or adapt to heatwaves.
The impact of climate change is not the same for the rich and the poor. Societal
inequalities exacerbate the effect of heatwaves on the poor, whereas the rich can
afford to adapt to them. Over 80 per cent of the street vendors surveyed in Delhi
reported a decline in customers amid the heatwave in April and May, and around 50
per cent experienced significant income loss, according to a report by think tank
Greenpeace India and the National Hawker Federation.
While the rich contribute to climate change, it is the poor that suffer its negative
effects, such as high temperatures or heatwaves. Rising temperatures cause a
multitude of problems, such as health issues, water scarcity and food adulteration.
Heatwave-related morbidities like dehydration, weakness, restlessness, headache,
diarrhoea, skin rashes, heatstroke and sleeplessness continue to affect people,
especially children, the elderly, women and those with comorbidities.
Climate change has adversely affected the adequacy, accessibility and affordability of
drinking water, with an increase in demand for it in Delhi. Residents, especially those
TTBR (Topics To Be Read) 15 June 2024

in slums, continue to grapple with water shortage. The fundamental right to access
clean water is denied even as the government proclaims the success of the Jal Jeevan
Mission for an assured supply of rural drinking water and the Atal Mission for
Rejuvenation and Urban Transformation for the universal coverage of drinking water
supply in urban areas.
Further, the past two months have seen a high demand for climate adaptation
appliances like fans, air coolers, air conditioners and refrigerators in India. And there
has been a huge surge in the consumption of electricity. Frequent incidents of fire are
reported amid high temperatures and a corresponding increase in the consumption of
electricity to ward off the heat. The NCR has around 750 slum settlements, housing
3,50,000 families with a total population of 20 lakh. Poverty, sweltering heatwaves
and an inadequacy of water have worsened the living conditions of slum-dwellers.
With limited economic resilience, the poor are unable to adapt to the climate.
The poor seek relief from the excessive heat inside their homes — which have plastic
and asbestos roofs — in open spaces like footpaths, parks and the areas under
flyovers. Children, the elderly and women remain the hardest hit. The rich, on the
other hand, can adapt to the heatwaves, as they have access to water and air
conditioners. These unsustainable human lifestyles and the extractive and exploitative
use of common property resources can create problems for the common man in India.
Governments are hardly prepared to face the greater developmental challenges posed
by climate change. There is an urgent need to economically empower the poor to
battle climate change. Sunstroke is not treated as a natural disaster in policy forums,
and there are no rehabilitation centres or livelihood support for the poor who suffer
because of heatwaves. There is an urgent need to assess urban climate risks for each
city for a holistic climate resilience policy in India. The urban climate risk and
vulnerability assessment — in terms of the number of people vulnerable to climate-
related disasters, the damage to humans and infrastructure and the financial support
needed to rebuild — is important for climate resilience.
The system requires three kinds of resources to fight climate change at the city level:
natural (forest and water), man-made (infrastructure) and human (technology and
employment). Without them, an individual’s capacity for climate resilience is highly
limited. Climate resilience largely relies on the sustainable development of cities
through practices like rainwater harvesting, replenishing groundwater and the
conservation of urban forests, land, biodiversity, lakes, rivers and trees.
Indian cities lack modern and sustainable infrastructure. Most of the infrastructure is
old, and it cannot support the growing demands, for example, multimodal public
transport, 24x7 water supply, sewage and solid waste management, green energy,
urban housing and public hospitals and schools.
TTBR (Topics To Be Read) 15 June 2024

It is also imperative to improve the human capital through education, technology,

health, jobs and a decline in poverty and income inequality. Inclusive development,
such as social protection, acts as an insurance against climate change. The poor need
financial, technical and institutional support in the form of poverty reduction
programmes, social security schemes, etc, to improve their quality of life and develop
climate resilience. Indian cities need to have institutional capacity to adapt to climate
change. Systemic wealth and income inequalities have exacerbated the impact of
climate change on the poor.
The present model of economic development perpetuates inequalities and fails to
reallocate and redistribute resources. Economic inequality and climate change are
intricately linked to an unequal distribution of income and resources, limiting the
economic resilience of the poor to fight climate change. Therefore, there is an urgent
need to restructure economic and environmental governance systems to achieve
inclusive development and strike a balance between ecological and economic stability
to tackle climate change in India.
Krishna Raj, Prof, Institute for Social and Economic Change, Bengaluru

NEET controversy: An untidy exam (Indian

Express)

Controversy over this year's examination points to systemic gaps and

issues that need to be addressed

The controversy over this year’s qualifying examination to medical colleges, the
National Eligibility-Cum-Entrance Test (NEET), draws attention to longstanding
systemic deficits. The National Testing Agency (NTA) has reversed the grace marks of
TTBR (Topics To Be Read) 15 June 2024

more than 1,500 candidates and given them the option of a re-test. These students
were initially given the wrong question paper. They were then given compensatory
marks to make up for the time lost in switching over to the correct paper. It required
the Supreme Court’s nudge, in response to a slew of petitions, for the NTA to admit
this “technical glitch”. Education Minister Dharmendra Pradhan has said that the error
happened in only six of the more than 4,500 examination centres. Even then, such a
mess is consequential, especially in a high-stakes examination in which every mark is
seen as decisive. The NTA was created in 2017 to conduct national-level examinations
to higher institutions of learning. It does a fairly creditable job of holding the joint
entrance examination of the IITs. But this year, the agency’s conduct of the NEET has
left much to be desired. As the Supreme Court observed on Tuesday, the
examination’s “sanctity has been compromised”.
The petitions to the Supreme Court have drawn attention to the extraordinarily high
number of students who secured perfect marks. Sixty-seven students maxed this
year’s exam, and a number of others have received a mark or two less — compare this
to two toppers last year, one top ranker in 2022 and three toppers in 2021. The
unusual numbers triggered allegations of arbitrary marking. The NTA’s response has
been unconvincing. The agency first ascribed the maximum scores to “a comparatively
easy paper”. It has since then shifted the needle to grace marks. However, as this
newspaper’s report points out, only six of the 67 toppers benefited from
compensatory marks.
The number of students appearing for the NEET examination has more than doubled
in a decade. This year, more than 24 lakh students competed for less than 1,10,000
seats. The high social value placed on medical — and engineering — education across
India and the mismatch between demand and supply has fuelled hyper-competition.
In such a situation, the NEET has become more of an elimination test than an
examination that tests the aptitude of prospective doctors. The examination is also
extremely brutal — only 0.25 make it to the top colleges. In recent years, the
government has initiated conversations to reform the educational landscape. It should
conduct similar exercises to address the shortfalls in medical education. For starters,
it could take a cue from the UGC’s recent provision that allows bi-annual admissions
in colleges and universities. Holding the NEET examination twice a year could ease
some of the pressure on the medical education system. In the long run, ways must be
found to increase opportunities and make them accessible, thereby making the
examination system less fraught.
TTBR (Topics To Be Read) 15 June 2024

Agnipath 2.0: A solution for armed forces and

applicants (Indian Express)

The inverse induction model can effectively address the three main
objections to the Agnipath scheme. Through it, soldiers would be
retained in the national security system, alleviating the concerns of
those disheartened by the exit from armed forces

The future of the Agnipath scheme is a pressing concern for the new government at
the Centre. The narrative that this scheme dampened the NDA’s prospects gained
momentum during the election campaign. The spokesperson of the JD(U), a key NDA
partner, has publicly stated that the scheme upset some sections and needs to be
modified. Despite these political rumblings, there is a noticeable lack of specific
alternatives to address the original problems that led to the crafting of the Agnipath
scheme. This article proposes an “inverse induction model” as a solution to make
Agnipath 2.0 meet its operational, political, and fiscal objectives.
The need for reform
Any discussion on Agnipath must start with an acknowledgement that the quality of
defence expenditure in India has worsened over the past couple decades. The One
Rank One Pension (OROP) scheme further tipped the scales in favour of incumbent
beneficiaries at the cost of future soldiers. In FY20, the defence pension expenditure
exceeded the outlay marked for defence equipment purchases. Meanwhile,
worsening relations with a technologically superior power made India realise that
spending with a focus on a human-heavy force is militarily ineffective; the armed
forces need to make a decisive shift from more “humanpower” to more “firepower”.
At around the same time, Covid-19 happened, which led to a pause in the normal cycle
of armed forces recruitment. These were the circumstances in which the government
started looking for reform ideas.
TTBR (Topics To Be Read) 15 June 2024

Of the options on the table, the government chose the most disruptive one. This
choice, which would lead to a significant reduction in personnel costs in the shortest
possible time, was a “Tour of Duty” scheme called Agnipath. Under it, only a quarter
of the recruits would be retained for permanent service after a four-year term. The
government, however, presented the scheme as a means of “attracting young talent
from the society who are more in tune with contemporary technological trends and
plough back skilled, disciplined and motivated manpower into the society.” There was
no mention of the fiscal urgency. This move created an impression outside that the
government was needlessly imposing another disruptive scheme. Therefore, before
proceeding with changes in Agnipath, the defence ministry must clarify the economic
reasons for reform to the people through a white paper.
Agnipath 2.0: Reverse Induction
Once that’s done, the ministry can modify the Agnipath scheme to better manage the
interests of key stakeholders. The bone of contention right now is what happens to 75
per cent of the Agniveers who are let go from the armed forces after the four-year
contract ends. Apprehension about the future prospects of such cohorts led to mass
protests in 2022. A solution that retains this section of Agniveers in the broader
national security system can address these concerns. Here’s how.
The alternative, called “Inverse Induction”, was proposed by us [Lt Gen (Dr) Prakash
Menon and I] in a Takshashila Discussion Document (September 2019). The name
implies that the recruitment of Agniveers first happens through the Central and State
Armed Police Forces (CAPF/SAPF) and not the Indian armed forces directly. These new
CAPF recruits are then inducted into the Indian armed forces for a colour service of
seven years. The Indian armed forces train the incoming personnel per their standards
for one year, after which they serve for six years. After the Agniveer term ends, the
recruit is sent back to the parent CAPF.
They undergo reorientation training for around three months and are then absorbed
on duty along with the retention of their seniority in the parent CAPF/SAPF. Retirees
receive pensions as applicable to the recruiting CAPF. On exiting the national security
system at any point after their colour service in the armed forces, Agniveers are
entitled to receive their SevaNidhi package, which accumulates on account of their
term in the forces.
More savings, better capabilities
Defence pension savings come from two pathways. First, the personnel are retained
within the National Security System for a longer period of time, as the retirement age
for all CAPF personnel is 60. Second, the pension bill per Agniveer is lower as the
CAPF/SAPF provide pensions as per the National Pension System (NPS). Unlike OROP,
NPS is a “defined contribution” scheme, where the pension is paid out of a corpus the
TTBR (Topics To Be Read) 15 June 2024

employee co-creates using their own salary package. Moreover, the Ministry of
Defence does not have to bear the pension burden since CAPF/SAPF falls outside their
funding mandate. Our thumb rule is that the pension savings achieved per recruit
amount to a net present value of Rs 1 crore.
The proposed inverse induction model can effectively address the three main
objections to the Agnipath scheme. First, retaining the soldiers in the national security
system alleviates the concerns of those disheartened by the exit from armed forces
after four years of gruelling service. Second, there are likely to be significant positive
effects — the recruiting paramilitary organisations’ combat capabilities will improve
due to the training of Agniveers by the armed forces. It will also build capacity in the
severely understaffed state armed police forces. Third, extending the service term to
seven years can also address the operational concerns of the armed forces as a shorter
service term and high turnover are believed by some to reduce military effectiveness.
In short, Agnipath can be improved through inverse induction. The National Security
Council Secretariat (NSCS) first proposed a variant of this model in 2015. The proposal
was accepted by the defence ministry but not the home ministry. Political intervention
is required for the Home Ministry to change its stance. Tackling the fiscal problems of
the national security system requires a whole-of-government approach.
The writer Pranay Kotasthane is deputy director at the Takshashila Institution
TTBR (Topics To Be Read) 15 June 2024

Why NEP implementation has been a failure

(Indian Express)

What we need to ask ourselves is: Will we meaningfully engage in

attempting to define the true purpose of higher education? That is how
education reform must be approached

The first problem is the NEP’s structure itself. The credit-based eight-semester format
seeks to create a standardised interoperable and mobility-based higher education
ecosystem, where students can transfer their credits theoretically anywhere.
Education is a function of reception and reciprocation, of learning, absorbing,
evaluating and responding critically. We are, from a young age, asked to sit down and
study. The mind needs to be sthir (steady) to engage in meaningful academic work.
The gurukuls of the past created such an environment. The reimagining of higher
education as an adjunct to the frenetic demands of an anxious world is to internalise
the American view — education as a means to survive in the marketplace, with a huge
price attached to it.
As a result of the credit-based system (where the structure determines the content
and not vice versa, as it ought to be) syllabi in all disciplines have been stunted. Instead
of the five units per paper students were earlier taught in my subject (for example),
they are now taught three. Even the chapters prescribed have been truncated in many
instances. There is a poem by Walt Whitman named ‘Passage to India’. It has 255 lines
across 13 sections. Earlier, we were required to teach the entire poem; under the NEP
syllabus, just 68 lines across 4 sections have been prescribed. It is a philosophical
poem. It needs to be understood in its entirety. In section 12, Whitman writes “Passage
to more than India/ Are thy wings plumed indeed for such far flights?”, thereby asking
the West whether it is ready for the wisdom of the East. Is the soul prepared he asks,
for the “Sanskrit and the Vedas?” It is exactly these things that are not to be taught to
students.
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Unfortunately, having to study a truncated core syllabus is not the biggest problem
with NEP pedagogy. The bigger problem is one of dilution. Let us peek into the St
Xavier’s University, Kolkata, syllabus for Economics Honours. In semester one,
“Introductory Microeconomics” is taught as a major core subject, and “Basic Statistics”
as a minor. Then there are two multidisciplinary subjects, “Understanding Human
Behaviour” and “Introduction to Media Studies”. Next, there is an ability enhancement
course called “Communicative English – 1”. Add to that a skill enhancement course on
“personality development”. It does not end there. There are two value-added courses
as well — “inter-religious studies for global citizenship” and “environmental
education”. The same pattern is followed in semester two. Of the eight courses being
taught, only one is in the honours subject proper; one could argue statistics is
important enough as a minor subject for economics. What of the other six subjects?
Are the students learning enough about the core honours subject to make them
optimally employable, even if one were to argue the programme has been designed
for enhanced employability? Can the other subjects not be self-learnt in the age of the
internet?
The purpose of higher education is to develop the ability to engage in critical thinking
in one’s chosen field of inquiry and expertise. The adjuncts to knowledge gathering do
not need to be formalised into prescribed pedagogy. By diluting the core content and
breadth of the subject chosen for study by an honours student, NEP is causing the
lowering of standards in domain-centric knowledge dispensation and absorption.
Both of the aforementioned problems, that of a credit-based standardised protocol
and the dilution of core content to accommodate the former, create the third of the
many problems unleashed by NEP. Students are required to take seven to eight exams
per semester. Add to that the internal assessment burden for each of these subjects,
with one assignment and one class test per subject, not to mention continuous
assessment. This, combined with marks for attendance separately and for continuous
assessment classes attended (yes they get marks for attending classes!), creates a
huge bureaucratic load that the system is not primed for. If all this is too much to take
in, imagine what it must be to actually deliver in the classroom.
Earlier, under NEP, practicals were prescribed for even non-core Arts subjects, to be
held on designated days with external experts on board, wherein students had to be
in college for an entire day for a practical examination a few days before the university
examination. Imagine teaching a value-added course like “The Art of Being Happy” and
having to design a practical examination along with a viva voce. Mercifully, the
University of Delhi at least has seen the impracticality of such practical examinations
and removed them via a recent notification; instead, it has prescribed 40 marks
continuous assessment (without specific directions on how these marks are to be
TTBR (Topics To Be Read) 15 June 2024

determined). Such constant amendments to rules, processes and content have

become so much the norm that we practitioners merely smirk at the constant churning
By and large, nobody who is a stakeholder in the university system likes NEP 2020.
Clearly, the message has gone around, and there is speculation that many of the
peripheral courses currently prescribed as part of the curriculum are likely to be done
away with. But the bigger question remains: Will we meaningfully engage in
attempting to define the true purpose of higher education? Till we do, even a revised
NEP will fail to deliver what the future possibly demands of academia. The world will
belong to those who produce knowledge and not to those who merely acquire the
tools to consume knowledge.
The question that remains to be addressed therefore is this: How do we design
universities that facilitate students into becoming producers (albeit in the smallest of
orbits) of knowledge?
The writer Debraj Mookerjee is associate professor, Ramjas college, University of
Delhi

Food factor: On food inflation (The Hindu)

Policymakers must keep in mind that inflation hits the poor the hardest

May’s provisional headline retail inflation may have marginally eased to a 12-month
low of 4.75%, but food price gains remained unrelenting last month giving little reason
to cheer. Yet again, vegetables and pulses were key contributors in keeping food
inflation as measured by the Consumer Food Price Index little changed at 8.69%, with
urban consumers feeling the heat more than their rural counterparts as the pace of
year-on-year change in food prices in India’s cities and towns hit a three-month high
of 8.83%. Vegetable inflation not only continued to hover above 27% for a sixth
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straight month, at 27.3%, but month-on-month gains too accelerated by almost 200
basis points to a six-month high of 3.22%. Tomato, onion and potato prices led the
charge, with these heavyweights in the vegetables sub-group logging sequential gains
of 1.5%, 0.5% and a bruising 15.1% in the case of potato. Nor is the outlook for
vegetable inflation particularly reassuring with June’s retail price trends as well as the
lag from escalating wholesale costs pointing to more pain ahead for consumers
running their household budgets. Data from the Department of Consumer Affairs Price
Monitoring Division show the all-India average retail price of tomato, onion and
potato, as on June 14, were 21%, 14% and 8% higher, respectively, month-on-month,
and a significantly steeper 35%, 58% and 44% costlier, respectively, when compared
with their year-earlier prices. At the wholesale level, sequential inflation in tomato,
onion and potato was disconcertingly faster at 28%, 18% and 9%, respectively,
underlining the challenges policymakers face in containing prices through trade
measures.
Food inflation also manifested last month with a quickening in price gains in the
category’s largest constituent — cereals and products — to a five-month high of
8.69%. Retail cereal prices from the price monitoring division’s daily dashboard show
rice was 13% costlier than on June 14, 2023, wheat was 5.7% more expensive and
inflation in wheat flour (atta) was 4.7%, signalling that here again the prospects of a
let-up in price pressures are remote, at least for now. Pulses saw inflation quicken
again, after a mild slowing in April to 17.1% with the pace of sequential price rise
hitting a six-month high of 1.53%. Official price data for June 14 showed gram dal, tur,
urad and moong costlier by 17%, 27%, 13% and 8.5% than a year earlier, respectively.
Rainfall data from the India Meteorological Department as on June 14 that show a 12%
deficit since June 1 is also a cause for mild concern, an ‘above normal’ monsoon
forecast notwithstanding. With food inflation particularly hitting hardest the poorer
sections, policymakers can ill afford to drop their guard.
TTBR (Topics To Be Read) 15 June 2024

One more chance: On Israel and the Biden three-

phase ceasefire plan (The Hindu)

Israel will have to accept the ceasefire proposal or face isolation

President Joe Biden’s three-phase ceasefire plan for Gaza got a major boost on
Monday with the U.N. Security Council (UNSC) resolution asking Israel and Hamas to
accept the proposal. The U.S. says Israel has already agreed to the deal laid out in the
resolution, adding that Hamas’s tough position was the main hindrance to a ceasefire.
This is the second time since the war began on October 7, 2023 that the UNSC is calling
for a Gaza ceasefire. In March, the Council’s call was ignored by Israel. If the U.S. had
abstained from voting then, letting the resolution pass, this time, Washington is the
force behind the proposal. According to the Biden plan, which the U.S. President says
was laid out by Israel, there would be a six-week long ceasefire in the first phase. Israeli
troops would pull back from densely populated areas, allow more aid trucks into Gaza,
and release Palestinian prisoners in exchange for 33 hostages held by Hamas. In the
second phase, Hamas is to release the remaining hostages while Israel is expected to
withdraw from the Gaza Strip. The third phase would see the enclave’s reconstruction.
While the Biden administration, which backs Israel’s war on Gaza, is actively pushing
for this plan, there are serious hindrances on both sides. The U.S. has repeatedly said
that the proposal has the blessings of Israel, but the Benjamin Netanyahu government
has not publicly endorsed the plan. Mr. Netanyahu was politically weakened last week
when opposition politician Benny Gantz quit the unity government, leaving Prime
Minister Netanyahu more dependent on his far-right allies. And the far-right parties in
the ruling coalition have threatened to break the government if he accepted the
ceasefire proposal. So the question is whether Mr. Netanyahu could place the
country’s interests above his political survival. On the other side, Hamas demands an
immediate Israeli withdrawal from Gaza’s Rafah crossing with Egypt, total freedom in
choosing the Palestinian prisoners to be released and guarantees from China, Russia
TTBR (Topics To Be Read) 15 June 2024

and Türkiye for a final agreement with Israel. As both sides harden their stances, truce
remains elusive. Since the war began, at least 37,000 Palestinians have been killed by
Israel and 2.3 million people displaced. Israel has repeatedly ignored pleas to protect
civilian lives, while Hamas has shown little interest in making concessions to clinch a
ceasefire deal. Israel wants the hostages to be freed. Hamas wants the war to be over
and Israeli troops to be out of Gaza. They should realise that the only way to meet
these objectives is to strike a negotiated deal, rather than prolonging the war that has
destroyed much of Gaza and turned Israel into an internationally isolated rogue state.

India growth story has a ‘beneficial ownership’

hurdle (The Hindu)

The amendment to the Indian Foreign Exchange Management (Non-

debt Instruments) Rules, 2019 is a challenge

Foreign investments will play a crucial role in aiding the government’s goal of a $5
trillion economy by the end of the financial year 2025-26. But, in order to attract
foreign investment, it is essential to remove all the bottlenecks for the Indian
companies receiving this investment, and also foreign investors who are willing to bet
on the India growth story.
Amendment conundrum
The amendment to the Indian Foreign Exchange Management (Non-debt Instruments)
Rules, 2019 (“FEMA NDI”) through the press note number 3 of 2020, has posed a
significant challenge for Indian companies, especially start-ups and smaller enterprises
seeking foreign investments. This amendment stipulates that any investments in
Indian companies, whether direct or indirect, originating from entities located in
TTBR (Topics To Be Read) 15 June 2024

countries that share land borders with India (“Neighbouring Countries”), or where the
“beneficial owner” of the said Indian investment is situated in, or is a citizen of any of
these Neighbouring Countries would necessitate prior government approval (“PN3
Requirement”).
While the aim of the amendment which was promulgated during the COVID-19
pandemic was salutatory — i.e., to curb opportunistic takeovers or acquisitions of
Indian companies by Neighbouring Countries during difficult times created by a black
swan event — it created vast incertitude as the term ‘beneficial owner’ has not been
explained or defined, and other laws that have a definition of the term are context-
specific. When the PN3 requirement was first introduced, the industry in general was
comfortable taking a lenient view, relying on the beneficial ownership thresholds that
were legislated in other laws. But since the latter half of 2023, the Reserve Bank of
India (RBI) has begun taking a more conservative view concerning issues on which the
law was silent, especially under FEMA NDI.
For example, last year, numerous Foreign Owned or Controlled Companies (“FOCCs”)
began receiving notices from the RBI regarding their downstream investments. The
industry has since taken the view that FOCCs will be placed under the same restrictions
as non-residents on the aspects on which the law is silent. However, when this notion
was challenged by the RBI recently, investors began to question other industry
practices on which the FEMA NDI was silent. Even law firms that were once fine with
adopting a lenient view in cases of beneficial ownership thresholds, are now advising
clients that they cannot offer assurance by relying on the beneficial ownership
thresholds legislated under other laws.
Further, the obstacle of navigating the prior government approval route is
exacerbated by its time-consuming nature and high rejection rate. Although
consolidated official data on pending or rejected applications is not published by the
Government of India, some government officials have stated that proposals worth
₹50,000 crore from the Neighbouring Countries are either pending, withdrawn or
rejected; and a staggering 201 applications have been rejected in the past three years.
With the PN3 Requirement, the onus of compliance is on the Indian company that
receives foreign investment, with the regulatory authorities having the discretion to
impose fines of up to three times the investment received. The inherent vagueness
within the legislation, along with severe penalties, can cast doubts on the survivability
of these companies.
Many of these start-ups receive investments far beyond their revenue or assets. So,
such fines could leave them insolvent, even if they liquidate. Non-compliance would
likely trigger legal battles, adding to India’s already significant backlog of court cases.
Issues and solutions
TTBR (Topics To Be Read) 15 June 2024

First, the indemnity challenge. Indian companies could consider having foreign
investors to furnish representations backed by indemnities regarding their compliance
with the PN3 Requirement. However, this may discourage foreign investment due to
potential liabilities.
Therefore, there is a pressing need to amend the PN3 Requirement to define
“beneficial owners” comprehensively, including ownership thresholds and control
tests.
Second, defining ‘Beneficial Owners’. The definition of ‘beneficial owner’ should
specify a precise threshold for ascertaining beneficial ownership, potentially ranging
from 10% (as provided under the Indian company law) to 25% (as recommended by
the Financial Action Task Force). The selection of the specific threshold can be
customised to align with the government’s objective of scrutinising varying levels of
foreign investment across different sectors. For example, sectors such as telecom and
defence, which are sensitive in nature, may warrant heightened scrutiny when
compared to sectors such as manufacturing and construction, where India requires
additional capital.
The definition should also specify control-conferring rights, beyond ownership
thresholds, to capture entities with significant influence. For example, rights regarding
board meeting quorums or veto powers over operational matters such as incurring
any capital expenditure or availing any loan may confer control and should be outlined.
However, investor value protection rights, such as veto powers over mergers or right
of first offer, should be excluded from the definition, as they do not constitute control.
Third, consultation mechanism. Even with the clarification of control-conferring rights
in the definition, some ambiguity may persist due to the skilful drafting of peculiar
clauses in the charter documents. To mitigate this issue, FEMA NDI, akin to Indian
competition law, could be amended to incorporate a time-bound consultation
mechanism with regulatory authorities, to determine whether specific clauses are
control-conferring.
Dev Jain is a corporate lawyer and has previously worked with AZB & Partners and
TTA
TTBR (Topics To Be Read) 15 June 2024

Financial regulators need a ‘quantum’ leap

(Financial Express)

Failing to prepare for quantum computing could pose severe risks to

financial stability and expose the Indian system to significant security
threats

Indian financial regulators, who are already under pressure to keep up with the rapid
pace of digital finance and frame adequate regulations, will be further challenged by
the advent of quantum computing. The complexity and advanced capabilities of
quantum technology will outstrip current regulatory frameworks and supervisory
methods.
Quantum computing’s potential to revolutionise encryption, risk assessment, and
algorithmic usage in financial processes will demand rapid adaptation and even stress-
test assessment for fair transactions by the regulators. Its development can bring a
significant threat to cybersecurity, especially due to its potential to render almost all
encryption schemes obsolete.
For example, RSA encryption is widely used to secure online communications and
financial transactions. Its security relies on the difficulty of factoring large prime
numbers, a task that classical computers find extremely time-consuming and
computationally intensive.
Quantum computers, however, can use Shor’s algorithm to factor these large numbers
exponentially faster. This means, if a malicious actor had access to a quantum
processor, it could decrypt sensitive financial information, potentially compromising
everything from secure transactions to private communications.
Failing to prepare for the advent of quantum computing could pose severe risks to
financial stability and expose the Indian financial system to significant security threats.
TTBR (Topics To Be Read) 15 June 2024

Quantum computing’s ability to break current cryptographic standards could lead to

widespread data breaches, financial fraud, and loss of trust in institutions. Unprepared
financial markets might also face increased volatility and inefficiency as some entities
gain disproportionate advantages through quantum-enhanced trading and risk
analysis. A lack of preparedness could destabilise the entire financial ecosystem, with
far-reaching consequences for the economy and national security.
Quantum computing is a groundbreaking technology that goes beyond the capabilities
of traditional computers. While regular computers use bits to process information as
either a 0 or a 1, quantum computers use quantum bits, or qubits, which can be both
0 and 1 at the same time. This unique property, known as superposition, along with
entanglement — a phenomenon where qubits become interconnected and the state
of one instantly influences the state of another — allows quantum computers to do
complex calculations at unprecedented speeds. Quantum computing has the potential
to transform the financial sector by solving complex optimisation problems more
efficiently, leading to improved asset management and risk mitigation strategies.
Not all of our financial regulators are at the same level of comprehension of emerging
technologies. While cybersecurity and artificial intelligence (AI) are buzzwords in
regulatory circles, quantum is yet to debut — a unknown risk, as financial regulators
would term them.
Regulatory lag could pose further challenges, with outdated frameworks failing to
address quantum computing’s capabilities, leading to compliance issues and
fragmented global regulations. Economic inequality may worsen, as larger institutions
and technologically advanced countries gain a disproportionate advantage. National
security threats could also arise, with potential for economic espionage and financial
warfare by nations equipped with quantum technology.
The US and China have been investing large amounts to race towards a quantum-pole
position. IBM is expected to achieve the 1,000 qubit quantum capability later this year.
While the Indian Quantum mission has been announced, it has a funding allocation of
less than what a medium-sized bank’s payroll cost.
The Reserve Bank of India, Securities and Exchange Board of India and Insurance
Regulatory and Development Authority of India must urgently develop their own
understanding of quantum computing and ensure the institutions they oversee are
prepared for this breakthrough. Quantum computing will alter the landscape of
financial operations, risk management, and cybersecurity. Regulators need to
understand these changes to create effective policies and standards that safeguard
financial stability.
Quantum computing’s ability to rapidly solve complex problems and process large data
sets can alter market dynamics, necessitating regulators to ensure stability and
TTBR (Topics To Be Read) 15 June 2024

prevent systemic risks. As quantum advances threaten current cryptographic

methods, regulators must adapt financial systems to post-quantum cryptography to
protect sensitive data and maintain trust.
In financial services and public finance, any cyberattack or data breach would simply
mean that all client data of private citizens and governments can be accessed. The
attacker, be it a state-sponsored or non-state actor, can further tamper and
manipulate manipulate encrypted records and also create fraudulent transactions.
Regulators should invest in education and training programmes, collaborate with
industry stakeholders, and support relevant research. Developing policies and
guidelines for the adoption of post-quantum cryptographic methods and secure
quantum algorithms is crucial. Additionally, comprehensive risk management
strategies, including scenario planning and stress testing, are essential to identify,
assess, and mitigate potential risks.
For financial regulators, risks can outweigh all other positives of a new technology or
process. They strive to achieve risk resilience. For example, the Monetary Authority of
Singapore advised its regulated entities on quantum risks and asked them to create an
inventory of cryptographic assets and to identify assets to be prioritised for migrating
to quantum-resistant encryption.
Developing new regulatory frameworks around quantum computing, with as much
fervour and urgency as AI, is needed. While one might think that quantum dangers are
years away, just one bad actor attempting to destabilise a system — national or private
— will send shock waves across the sector.
To safeguard the pillars of financial stability and to maintain resilience, regulators must
bring urgent attention to quantum computing. This technology will redefine the
landscape of risk and opportunity, and our preparedness today will determine the
resilience and trustworthiness of our financial systems tomorrow.
The author Srinath Sridharan is a Policy researcher and corporate advisor
Disclaimer: Views expressed are personal and do not reflect the official position or
policy of FinancialExpress
TTBR (Topics To Be Read) 15 June 2024

New ‘power’ equations (Financial Express)

Any let-up in capacity addition across the electricity value chain is

unaffordable; connecting RE to the grid is key

A serious crisis of electrical power shortage has the potential to derail the plan to vault
the economy into a high-growth phase, unless the sector witnesses massive
investments in the short term. During the recent days of scorching summer, the peak
demand for power overshot all projections, nudging close to a staggering 250 gigawatt
(Gw). The government had to forcefully put even the stranded gas-based plants on
stream to boost supplies, yet the demand-supply balance was dangerously tenuous
during peak hours. That there are enough buyers for the hugely expensive gas-based
power is proof that the situation is already grim. With the demand expected to rise by
5-6% or at higher rates over the next five-six years, things could go awry even with a
minor slippage in the short-to-medium-term plan for rapid capacity addition. Such an
eventuality would have enormous economy-wide costs.
Thankfully, the Modi 2.0 government was quick to put a contingency plan in place.
Another 35 Gw of coal-based capacity is being added to the 50 Gw that was in the
works, and retirement/re-purposing of old coal-based stations has been put off. Also,
the pace of renewable energy (RE) capacity creation is largely being sustained despite
a few hiccups, although the ambitious target of 500 Gw by 2030 still looks daunting.
Renewed efforts are being made to attract large-scale private investments into
transmission and distribution (T&D), so that RE power is optimally shipped to demand
centres. This shows the policymakers recognise that the key is to cut wastage of RE.
Currently, RE power is 43% of the installed capacity, but actual supplies are still less
than a quarter, due to the intermittent nature of such energy. According to the Central
Electricity Authority’s estimate, India would require 60.6 Gw of energy storage
capacity by 2030, up from minuscule levels now. While investors are wary about
battery energy storage systems, the government seeks to enthuse them with a 40%
TTBR (Topics To Be Read) 15 June 2024

viability gap funding. Moreover, the latest tariff regulations (2024-29) have brought
about more certainty about the rate of returns from each business segment, and
allowed almost seamless cost pass-through, keeping investor interest in mind. There
is also a new regulatory stiffness in dealing with payment defaults.
Given all this, and the composite planning for the sector that has been under way over
the last few years, the new government’s decision to divide the portfolio between two
Cabinet ministers — Manohar Lal Khattar for thermal-plus-T&D and Pralhad Joshi for
RE — is a bit puzzling. This is an artificial separation, when the industry is naturally
interconnected, and almost every major player seeks to straddle multiple areas. State-
run NTPC, for instance, eyes RE capacity of 60 Gw by 2032, sharply up from 3.6 Gw at
present, plans to double its coal output in three years, and is aggressive on nuclear
power. Joshi, as minister for RE, would have to rely heavily on how Khattar
consolidates the T&D segment, with massive investments. The stored RE would reach
the consumer only if the grid has enough capacity to handle the load without much
frequency alterations. Though some don’t see it as a problem as the two departments
always functioned separately with two secretaries, the fact is that a common minister
in the previous government played the role of an effective coordinator. Somebody has
to play that role in this government in the interest of common goals — energy security
and affordability.

EU Parliament polls suggest anti-immigration

mood (Business Line)

Europe is sliding downward and it’s natural for it to direct the blame to
immigrants
TTBR (Topics To Be Read) 15 June 2024

Looking at Europe today Karl Marx might well have said that “a spectre is hanging over
Europe, the spectre of the Far Right”. And the reason is that in France, the Right wing
National Rally (RN) received 31 per cent of the vote in the June 9 election to the
European Parliament. In Germany, the far Right Alternative for Germany came second.
In Austria, the anti-immigrant Freedom Party won for the first time. In Italy the Right
won 28 per cent. And so on. It’s an unmistakable trend.
So why is Europe shifting to the Right? After all, for the last 60 years much of it has
prided itself on having politics that placed a premium on rejecting aggressive
nationalism, embracing Christian compassion and being socially responsible for the
welfare of the world. These values led it to adopt policies that are loosely labelled as
Left and liberal whose hallmark was benignity. This stance happened because
Europeans, after the excesses of the Nazis between 1933 and 1945, their own colonial
excesses and the looming malignant shadow of the USSR developed a deep yearning
for a more humane society. To their credit, they succeeded in creating one. Europe
became a haven for both ideas and people. Tolerance has been the defining feature.
Broadly, this worldview earned the name ‘social democracy’ because governments
ruled with a light touch, and because of wholehearted cooperation from the people.
But that has been changing for about 15 years now. The people are refusing to
cooperate with liberal ideas and governments are adopting an increasingly heavy
hand. It’s hard to say exactly why but the proximate reason is immigrants from strife-
torn north African countries, West Asia, the Ukraine war and the overall distress in the
economy. Europe is sliding downward and it’s natural for it to direct the blame
outwards. This shift of voter preferences is now large enough to eventually cause
major political changes. Indeed, such has been the impact of this that the French
president has called for snap election. Others may follow.
There have also been wounded and panicky calls by the Left to “take the Right wing
bull by the horns”. Many of them fear that they may already have lost the battle which
was joined in earnest a couple of years ago. An entire way of life now seems in danger.
All the things that are dear to the Left — immigration, green policies and welfare —
now appear to be at risk, not least because of the defensive strategy of the Centrists
copying the Right. This has happened recently in many countries, including India where
both BJP and the Congress have been imitating each other. The hope is that both the
far Right and the far Left will move to the centre. But as it often happens the centre
also moves. Or as the English poet William Butler Yeats wrote in 1918: “Things fall
apart; the centre cannot hold…the best lack all conviction, while the worst are full of
passionate intensity.”
TTBR (Topics To Be Read) 15 June 2024

India needs a long term development model

(Business Line)

Such a model should evolve a range of strategies for managing

resources, to promote shared prosperity

India aspires to be in the league of developed countries by 2047 and legitimately and
deservedly so. Over the last three decades, the country has been on the reform path.
Some of the reforms like jettisoning the licensing system, introduction of GST, and
deregulation of banking and finance are highly consequential. There have been a series
of incremental reforms as well and all these have cumulatively helped the country
achieve a GDP of $4 trillion. But it is time for a long-term economic
model/development path to take the country to the coveted developed nation status.
Globally two distinct economic models/systems are worth debating. One goes by the
name Washington Consensus and the other, Beijing Consensus. The suggestion is not
to replicate or copy-paste any one of these models, but to develop a roadmap that is
appropriate to our own context and contingencies.
Washington Consensus
This model revolves around 10 policies popularly known as Decalogue. These
principles are: fiscal discipline; re-prioritisation of public expenditure towards
neglected fields with high economic returns, improving income distribution, and high
investment in health and education; provide incentives and broaden tax base; positive
real interest rate and market determined interest rates; competitive exchange rate;
trade liberalisation and move towards a uniform tariff of around 10 per cent; foreign
direct investment — foreign and domestic firms shall be allowed to compete on equal
terms; privatisation; deregulation; and property rights.
TTBR (Topics To Be Read) 15 June 2024

This consensus was unveiled over two-and-a-half decades ago by British economist
John Williamson reflecting the mood of the day in the Western markets. This
consensus has the backing of the World Bank and IMF. The basic philosophy revolves
around virtual combination of political democracy and free markets. But the
assumption is that free markets deliver best economic prospects. It argues that
government intervention misallocates resources and even represses creativity and as
such disfavours. It is not hard to miss its emphasis on market fundamentalism for best
outcomes.
The reforms in many poor and developing countries are inspired by the Washington
Consensus with mixed results. There is no shortage of economists who dismiss these
principles as an unjust set of neo-liberal policies and argue that economic
development is too complex and serious to be left to the markets.
In India, the 1991 reforms and thereafter had some elements of the Washington
Consensus.
Beijing Consensus
An alternative model for economic development and political principles goes by the
name Beijing Consensus, a term coined by Joshua Cooper Ramo.
It is radically different from the Washington Consensus, not least in ideology. Its design
emphasis is on: innovation; experimentation; equality; self-determination; and
sustainable development.
As opposed to market fundamentalism in Washington Consensus, state capitalism is
central to Beijing Consensus. Markets and competition also had a role. This model has
delivered superior and fast economic growth in China and per capita income grew by
a massive eight times in two decades. Contrary to popular belief the implementation
is marked by great degree of decentralisation. Flexibility and adaptability are the other
two important hallmarks and this is better explained by Deng Xiaoping’s Cat Theory —
it does not matter whether the cat is black or white as long as it catches mice. It is less
ideological and more data driven. It relies more on ground level survey to understand
people’s needs rather than theoretical models and thus it is more focussed on
improving the quality of life of ordinary citizens.
New Delhi Consensus
India successfully navigated the fallout of the global financial crisis and Covid 19. But
it does not have a long-term development path or framework on the lines of the
Washington and Beijing Consensuses. There are some elements of these Consensuses
in our economic policies. However, over the last three decades, since the 1991
reforms, India has jettisoned its policy of the state controlling the commanding heights
TTBR (Topics To Be Read) 15 June 2024

of the economy. Though not fully market oriented, markets have carved out a role to
play, though a far cry from Washington Consensus standards.
Though several economic reforms have been initiated from time to time, they have
been halting. In terms of intention and direction one may discern political
bipartisanship, but the pace has been hindered by too many pauses, mostly driven by
electoral cycles.
As India embarks on a new journey, it is time we have a broader inclusive economic
development path that evolves into a New Delhi Consensus, which can be a model for
the Global South like our Public Digital Infrastructure.
Such a Consensus will give a consistent and sustainable long-term direction with
flexibility and adaptability. The Modi 3.0 government can probably draw on the
experience of renowned, dissimilar economists like C Rangarajan, Arvind Panagariya
and Raghuram Rajan to develop the New Delhi Consensus — essentially a political and
economic roadmap for India to be a top developed country by 2047.
The Consensus would essentially be a compendium of strategies for mobilisation and
allocation of resources and the design of institutions to navigate the same. The new
narrative is shared prosperity. The government may constitute a bipartisan New Delhi
Consensus Commission. This is not revival of the Planning Commission. State
Governments are critical to success and they need to be involved. This must be top on
the agenda of the first 100 days of Modi 3.0.
The writers By B SAMBAMURTHY & VENKAT THIAGARAJAN are Mentor and
Chairman, respectively, of SYFX Treasury Foundation