The HINDU Notes – 11th June 2020 - VISION

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Thursday, June 11, 2020

The HINDU Notes – 11th June 2020

📰 China reaches accord with India on LAC spat

Beijing says positive consensus reached in talks last week

•China said on Wednesday it had “reached agreement” with India on the ongoing tensions along the Line of Actual Control (LAC), a day after India announced troops from both sides had begun a “partial disengagement” from some of the stand-off points.

•The Chinese Foreign Ministry said both sides had agreed to handle the situation “properly” and “in line with the agreement” to ease the situation, but did not provide specific details on some of the stand-off points, such as Pangong Lake, where Chinese troops are still present on India’s side of the LAC.

•Also on Wednesday, India and China held Major General-level talks to discuss further de-escalation at several stand-off points in Eastern Ladakh including Patrolling Point (PP) 14, following a broad accord reached on Saturday in talks held at the Corps Commander-level. As per the agreement, a series of ground-level talks would be held over the next 10 days, with four other points of conflict identified at PP15, PP17, Chushul and the north bank of Pangong Lake.

•The Chinese Foreign Ministry did not provide specifics on the sites of conflict. It only referred to the western section, which was the focus of Saturday’s talks, although a stand-off is also continuing at Naku La in Sikkim in the eastern section.

‘Taking action’

•“Through diplomatic and military channels, China and India have recently had effective communication and reached agreement on properly handling the situation in the west section of the China-India boundary,” spokesperson Hua Chunying said. “At present, the two sides are taking actions in line with the agreement to ameliorate the border situation.”

•Government officials said a partial disengagement had happened at some points in the Galwan area and at Hot Springs, but there was no change at Pangong Lake.

•The Global Times , a Communist Party-run newspaper, reported on Tuesday that the ongoing dispute “will not escalate into a conflict” but added “due to the complexity of the situation, the military stand-off could continue for a little longer”.

•The military-level talks showed “both sides do not want to escalate,” Qian Feng, director of the research department of the National Strategy Institute at Tsinghua University in Beijing, was quoted as having said.

📰 An unravelling of the Group of Seven

With the world in disorder, a new mechanism will have value only if it focuses on key global issues

•The next G7 summit, tentatively scheduled in Washington DC in mid-June, has been postponed by the host, U.S. President Donald Trump. His decision followed German Chancellor Angela Merkel’s decision to stay away from the meeting, ostensibly because of restrictions on travel imposed by COVID-19. She may not have wanted to go just for a photo opportunity. The recent meetings of G7 have had desultory results.

Logic of expansion

•While postponing the summit “to at least September”, Mr. Trump declared that in any case, the G7 “is a very outdated group of countries” and no longer properly represented “what’s going on in the world”. He asked, rhetorically, why not a G10 or G11 instead, with the inclusion of India, South Korea, Australia and possibly Russia?

•Elaborating this logic, the White House Director of Strategic Communications said the U.S. President wanted to include other countries, including the Five Eyes countries (an intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom and the United States), and to talk about the future of China. A Chinese Ministry of Foreign Affairs official immediately reacted, labelling it as “seeking a clique targeting China”.

•China’s objection to an expanded G7 is no reason for India to stay away from it, if invited to join. India has attended several G7 summits earlier too, as a special invitee for its outreach sessions. India’s Prime Minister was guest invited to Biarritz, France to the G7 summit last year, along with other heads of government (Australia, Burkina Faso, Chile, Egypt, Rwanda, Senegal, Spain, and South Africa).

•The G7 emerged as a restricted club of the rich democracies in the early 1970s. The quadrupling of oil prices just after the 1973 Arab-Israeli War, when members of the Organization of the Petroleum Exporting Countries (OPEC) imposed an embargo against Canada, Japan, the Netherlands, and the United States, shocked their economies.

•Although the French were spared the embargo, the chill winds of the OPEC action reverberated around the world. French President Valéry Giscard d’Estaing invited the Finance Ministers of five of the most developed members of the Organisation for Economic Cooperation and Development, the United States, Germany, Japan, Italy, and the United Kingdom, for an informal discussion on global issues. This transformed into a G7 Summit of the heads of government from the following year, with the inclusion of Canada (1976), and the European Commission/Community (later Union) attending as a non-enumerated member, a year later.

•On the initiative of U.S. President Bill Clinton and British Prime Minister Tony Blair, the G7 became the G8, with the Russian Federation joining the club in 1998 . This ended with Russia’s expulsion following the annexation of Crimea in 2014.

Economic circumstances

•When constituted, the G7 countries accounted for close to two-thirds of global GDP. According to the 2017 report of the accountancy firm, PwC, “The World in 2050”, they now account for less than a third of global GDP on a purchasing power parity (PPP) basis, and less than half on market exchange rates (MER) basis.

•The seven largest emerging economies (E7, or “Emerging 7”), comprising Brazil, China, India, Indonesia, Mexico, Russia and Turkey, account for over a third of global GDP on purchasing power parity (PPP) terms, and over a quarter on MER basis. India’s economy is already the third largest in the world in PPP terms, even if way behind that of the U.S. and China.

•By 2050, the PwC Report predicts, six of the seven of the world’s best performing economies will be China, India, the United States, Indonesia, Brazil, and Russia. Two other E7 countries, Mexico and Turkey, also improve their position. It projects that India’s GDP will increase to $17 trillion in 2030 and $42 trillion in 2050 in PPP terms, in second place after China, just ahead of the United States. This is predicated on India overcoming the challenge of COVID-19, sustaining its reform process and ensuring adequate investments in infrastructure, institutions, governance, education and health.

The limitations of G7

•The success or otherwise of multilateral institutions are judged by the standard of whether or not they have successfully addressed the core global or regional challenges of the time. The G7 failed to head off the economic downturn of 2007-08, which led to the rise of the G20. In the short span of its existence, the G20 has provided a degree of confidence, by promoting open markets, and stimulus, preventing a collapse of the global financial system.

•The G7 has not covered itself with glory with respect to contemporary issues, such as the COVID-19 pandemic, climate change, the challenge of the Daesh, and the crisis of state collapse in West Asia.

•It had announced its members would phase out all fossil fuels and subsidies, but has not so far announced any plan of action to do so. The G7 countries account for 59% of historic global CO2 emissions (“from 1850 to 2010”), and their coal fired plants emit “twice more CO2 than those of the entire African continent”.

•Three of the G7 countries, France, Germany, and the U.K., were among the top 10 countries contributing volunteers to the Daesh, which had between 22,000-30,000 foreign fighters just two years ago. West Asia is in a greater state of turmoil than at any point of time since the fall of the Ottoman Empire, leading to a migrants crisis that persuaded many countries in Europe to renege on their western liberal values, making the Mediterranean Sea a death trap for people fleeing against fear of persecution and threat to their lives.

Need for a new institution

•The world is in a state of disorder. The global economy has stalled and COVID-19 will inevitably create widespread distress. Nations need dexterity and resilience to cope with the current flux, as also a revival of multilateralism, for they have been seeking national solutions for problems that are unresolvable internally. Existing international institutions have proven themselves unequal to these tasks. A new mechanism might help in attenuating them.

•It would be ideal to include in it the seven future leading economies, plus Germany, Japan, the U.K., France, Mexico, Turkey, South Korea, and Australia. If Mr. Trump loses his re-election bid, this might have to wait for a few years. The 2005 ad hoc experiment by Prime Minister Tony Blair in bringing together the G7 and the BRICS countries was a one-off.

•A new international mechanism will have value only if it focuses on key global issues. India would be vitally interested in three: international trade, climate change, and the COVID-19 crisis. A related aspect is how to push for observing international law and preventing the retreat from liberal values on which public goods are predicated. Global public health and the revival of growth and trade in a sustainable way (that also reduces the inequalities among and within nations) would pose a huge challenge.

•Second order priorities for India would be cross-cutting issues such as counter-terrorism and counter-proliferation. An immediate concern is to ensure effective implementation of the 1975 Biological Weapons Convention and the prevention of any possible cheating by its state parties by the possible creation of new microorganisms or viruses by using recombinant technologies.

•On regional issues, establishing a modus vivendi with Iran would be important to ensure that it does not acquire nuclear weapons and is able to contribute to peace and stability in Afghanistan, the Gulf and West Asia. The end state in Afghanistan would also be of interest to India, as also the reduction of tensions in the Korean Peninsula and the South China Sea.

📰 Needed, a transfusion for public health care

Health services cannot be left to private medicine in a developing country, or indeed, in any country

•A news channel in India alleged recently that several private hospitals in the country were “exposed” by a “sting operation” to be levying fees in excess when COVID-19 patients went to them for care. It is not clear why a “sting operation” was necessary; the high cost of medical care in the top hospitals of the country is well known. Anyone who has had major surgery or received intensive care in any of the hospitals can testify to that. The debate now is whether such exorbitant rates are justified during a pandemic such as the one we are in the midst of , or indeed, ever.

•Before we address this question, however, an equally important question arises: why do we have so many private hospitals in a poor country such as India. We have more hospital beds in the private sector than in the public sector. It is estimated that there are 19 lakh hospital beds, 95,000 ICU beds and 48,000 ventilators in India. Most of these are concentrated in seven States, Uttar Pradesh, Maharashtra, Tamil Nadu, Kerala, Karnataka, Telangana and West Bengal. Except for Tamil Nadu, Delhi and West Bengal, there are far more beds and ventilators in the private sector than in the public, according to the Center For Disease Dynamics, Economics & Policy.

A mirror to public care

•The reason for this abundance of private health care is obviously the lack of adequate public health care. This situation has developed due to two main reasons. Since Independence, India has, quite rightly, focused attention on the larger picture. The priority in a developing country would be the provision of primary care at the peripheral level, preventive measures, immunisation, maternity and paediatric care as well as dealing with common infections such as tuberculosis. We have done this well, resulting in impressive improvements in many health-care indices in the last few decades. However, not enough hospital beds and specialised facilities were provided by the public sector during this time. At the same time, the burgeoning middle class and increasing wealth produced an explosion in the demand for good quality health care. Private medicine was quick to capitalise on this demand.

•The second reason for the dominance of private medicine in India is the lack of adequate investment in public health. The Indian government spends an abysmally low 1.3% of GDP on public health care, which is woefully inadequate. Allocation has to be at least double this to address some of our pressing needs. Greater transparency and tighter administration are necessary to ensure that our resources are utilised appropriately. Specialists should be adequately compensated to obviate their need for private practice.

•Private medicine in India is by no means uniform. It is estimated that there are more than one million unqualified medical practitioners, mostly in the rural areas. Most of them provide basic health care, charging a modest fee. Some may have claims of expertise (often unproven) in alternative systems of medicine such as ayurveda and homoeopathy. It is not unheard of them to sometimes venture into minor surgery. At the other end of the spectrum are state-of-the-art corporate hospitals, that are well equipped and well-staffed and which provide excellent service at high cost. These are often set up in metro cities at huge cost and have successfully engineered a reverse brain drain of many specialists from pursuing lucrative jobs abroad and staying back in or returning to India. Between the two extremes are a large number of private practitioners and institutions providing a wide range of services of varying quality. Some are run by trusts, charitable organisations and religious missions, often providing excellent quality at modest costs.

•The wide range of quality in medical services in India reflects the wide range of income and wealth in India. It is estimated that the wealth of the top 1% in India is four times the combined wealth of the bottom 70%. The wealthy demand, pay for, and often get, world-class health care. The middle class, seeing what is possible, is beginning to demand similar care at affordable cost. The poorer 70% are left to the vagaries and mercy of an unpredictable public health-care system and low cost charlatans.

What needs to be done

•The public health-care system desperately needs higher government spending. Health care cannot be left to private medicine in a developing country, or indeed, in any country. The United States, despite spending more than 15% of its enormous GDP on health care in the form of largely insurance-based private medicine, has poorer health-care indices than Europe, where government-funded universal health care (e.g. The National Health Service of the United Kingdom) is available, though the per capita health-care expenditure in Europe is substantially less than in the U.S.

•Health-care spending by the government must be appropriate, based on evidence, and transparent and accountable. Training of doctors and health-care workers also need to be the responsibility of the government mainly. Recent reforms in the selection of medical students need to be scrutinised to see if they are having the desired result.

•Private hospitals and institutions will need to be regulated. Costing and auditing of care and procedures need to be done by independent bodies. This will not only ensure appropriate care at the right cost but also prevent unreasonable demands of suspicious patients and family.

The crisis now

•No hospital, business, institution or individual should profiteer from a national calamity such as the COVID-19 pandemic. Hospitals, like any other institution, have a social responsibility to provide care in times of need. But one should be also aware of the actual costs involved which have to be met. The cost of medical care often follows the law of diminishing returns; as the treatment gets more sophisticated, further and further increments, although small, cost enormously more. Some of the drugs used in the care of severely-ill COVID-19 patients may cost more than Rs. 50,000 a shot, for example, and may provide only a marginally better outcome. “Capping” costs may necessitate sacrificing some of these expensive options. Private hospitals should, and will, be prepared to forego profits and even suffer losses during a national disaster. But if losses become unsustainable, they may be forced to lay off employees, close beds or even entire hospitals, like any other business. That will hardly benefit anyone.

📰 The fault in our drafts

The ordinance inserting Section 10A in the Insolvency and Bankruptcy Code has opened itself up to a legal challenge

•Hours after India went into lockdown, the Finance Minister announced a slew of measures to alleviate the economic crisis. This included proposed changes to the Insolvency and Bankruptcy Code (IBC), 2016, a law enacted to bring about smooth and quick resolutions for companies facing insolvency and bankruptcy with a view to primarily avoiding liquidation. The government, the Minister said, was considering suspension of certain provisions of the IBC which enabled creditors to file insolvency petitions against Indian companies for a year’s time beyond April 30. April 30 came and went without any announcement in this regard.

•In mid-May, the Finance Minister announced that the government was planning to bring in an ordinance to suspend provisions enabling filing of fresh insolvency cases for a period of one year. This was followed by absolute silence on the modalities or mechanism of suspension of the provisions. Banks, financial institutions (FIs), and insolvency law practitioners had no idea where they stood with these announcements. Finally, on June 5, the government promulgated an ordinance which inserted Section 10A in the IBC. The government said the ordinance was promulgated because the lockdown has caused business disruptions which may lead to default on debts pushing such companies into insolvency. Therefore, it felt that suspending Sections 7, 9 and 10 of the IBC would be the right course of action.

Clear provision, unclear proviso

•Towards that end, Section 10A provides that “no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from this period, as may be notified in this behalf”. This means that these provisions shall remain suspended from March 25 till September 25, unless extended for another six months, which would extend the suspension up till March 25, 2021.

•However, the proviso to the section states that no application for insolvency resolution shall ever be filed against a corporate debtor for any default occurring during the suspension period. While the main Section 10A suspends such applications for a limited period, the proviso enlarges the scope to provide complete amnesty under the IBC for any default occurring during such period. The role of a proviso in a statute is to restrict the application of the main provision under exceptional circumstances. However, the proviso here expands the substantive provision in the main section. Further, if the main provision is unclear, a proviso may be given to explain its true meaning. In this case the main provision appears clear, only to be obfuscated by the proviso. The proviso therefore does not appear to be legally tenable. As creditors can still approach courts, and as banks/FIs can still approach Debt Recovery Tribunals, the protection given by this proviso seems illusory.

•Notably, Section 10A also suspends provisions of Section 10 of the IBC which enables voluntary insolvency resolution. This is difficult to understand as such voluntary insolvency resolution should have been made easier for companies facing distress.

Nature of default

•The ordinance appears to consider every default occurring during the suspension period to be a consequence of the pandemic. There could be cases where defaults were imminent due to other reasons, but which will now still enjoy this protection. The ordinance should have protected only such defaults which may occur as a direct consequence of the pandemic or the lockdown and should have left this determination to the National Company Law Tribunal. Also, a company defaulting on its payment obligations on March 24 (a day before the lockdown started) would not be provided any relief under the IBC as compared to a company defaulting on or immediately after March 25 due to similar reasons. This makes the suspension, in the absence of definition of a COVID-19 default, prima facie arbitrary.

•Earlier, the government increased the minimum default amount to trigger corporate insolvency resolution from Rs. 1 lakh to Rs. 1 crore. This was purportedly done to protect MSMEs from insolvency petitions. However, this also operates against such MSMEs because they will now be forced to approach civil courts to recover undisputed debts below Rs. 1 crore. The suspension of these provisions would now impact even claims above Rs. 1 crore for at least six months to a year.

•The ordinance has opened itself up to a legal challenge on grounds of arbitrariness and untenability of the proviso due to the flaw in its drafting. It is unfathomable how these flaws arose despite the government having ample time to think this through.