📰 Understanding windfall tax
Why has the Union government introduced such a tax recently? What are the benefits of imposing this tax?
•Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event — for instance, the energy price-rise as a result of the Russia-Ukraine conflict.
•In early August, Antonio Guterres, the United Nations Secretary-General, sharply criticised the “grotesque greed” of big oil and gas companies for making record profits from the global energy crisis on the back of the world’s poorest people. He urged all governments to tax these excessive profits.
•Analysts say that companies are confident in investing in a sector if there is certainty and stability in a tax regime. Since windfall taxes are imposed retrospectively and are influenced by unexpected events, they can brew uncertainty in the market.
•The story so far: Finance Minister Nirmala Sitharaman on September 2, defended the windfall tax imposed by the Centre on domestic crude oil producers, saying that it was not an ad hoc move but was done after full consultation with the industry.
What is a windfall tax?
•Windfall taxes are designed to tax the profits a company derives from an external, sometimes unprecedented event — for instance, the energy price-rise as a result of the Russia-Ukraine conflict. These are profits that cannot be attributed to something the firm actively did, like an investment strategy or an expansion of business. The U.S. Congressional Research Service (CRS) defines a windfall as an “unearned, unanticipated gain in income through no additional effort or expense”.
•Governments typically levy this as a one-off tax retrospectively over and above the normal rates of tax. One area where such taxes have routinely been discussed is oil markets, where price fluctuation leads to volatile or erratic profits for the industry. There have been varying rationales for governments worldwide to introduce windfall taxes, from redistribution of unexpected gains when high prices benefit producers at the expense of consumers, to funding social welfare schemes, and as a supplementary revenue stream for the government.
•The Central government on July 1, introduced a windfall profit tax of ₹23,250 per tonne on domestic crude oil production, which was subsequently revised fortnightly four times so far. The latest revision was on August 31, when it was hiked to ₹13,300 per tonne from ₹13,000. Ms. Sithraman explained the introduction of the windfall tax as a way to rein in the “phenomenal profits” made by some oil refiners who chose to export fuel to reap the benefits of skyrocketing global prices which affected domestic supplies.
Why are countries levying windfall taxes now?
•Prices of oil, gas, and coal have seen sharp increases since last year and in the first two quarters of the current year, although they have reduced recently. Pandemic recovery and supply issues resulting from the Russia-Ukraine conflict shored up energy demands, which in turn have driven up global prices. The rising prices meant huge and record profits for energy companies while resulting in hefty gas and electricity bills for households in major and smaller economies. Since the gains stemmed partly from external change, multiple analysts have called them windfall profits.
•In early August, Antonio Guterres, the United Nations Secretary-General, sharply criticised the “grotesque greed” of big oil and gas companies for making record profits from the global energy crisis on the back of the world’s poorest people. He said it was “immoral” that the largest energy companies in the first quarter of the year made combined profits of close to $100 billion. The UN chief urged all governments to tax these excessive profits “and use the funds to support the most vulnerable people through these difficult times.”
•In July, India announced a windfall tax on domestic crude oil producers who it believed were reaping the benefits of the high oil prices. It also imposed an additional excise levy on diesel, petrol and air turbine fuel (ATF) exports. Also, India’s case was different from other countries, as it was still importing discounted Russian oil. Sources told The Hindu Business Line that the windfall tax was targeted mainly at Reliance Industries Ltd and Russian oil major Rosneft-backed Nayara Energy, who the government believed were making a killing on exporting large volumes of fuel made from discounted Russian oil at the cost of the domestic market. Analysts also saw the windfall tax as a way for the Centre to narrow the country’s widened trade deficit.
What are the issues with imposing such taxes?
•Analysts say that companies are confident in investing in a sector if there is certainty and stability in a tax regime. Since windfall taxes are imposed retrospectively and are often influenced by unexpected events, they can brew uncertainty in the market about future taxes. Stuart Adam, a senior economist at the Institute for Fiscal Studies in London, told Deutsche Welle (DW) that he isn’t keen on such taxes. “It’s better to say in advance how much tax you are going to levy in different circumstances and then do it rather than creating sudden one-off surprises in the tax system.” German economist Andreas Peichl told Reuters that such taxes are populist and politically opportune in the short term.
•The International Monetary Fund (IMF), which released an advice note on how windfall taxes need to be levied also said that taxes in response to price surges may suffer from design problems—given their expedient and political nature. It added that “introducing a temporary windfall profit tax reduces future investment because prospective investors will internalise the likelihood of potential taxes when making investment decisions”.
•There is another argument about what exactly constitutes true windfall profits; how can it be determined and what level of profit is normal or excessive. A CRS report, for instance, argues that if rapid increases in prices lead to higher profits, in one sense it can be called true windfalls as they are unforeseeable but on the other hand, companies may argue that it is the profit they earned as a reward for the industry’s risk-taking to provide the end user with the petroleum product. Another issue is who should be taxed — only the big companies responsible for the bulk of high-priced sales or smaller companies as well— raising the question of whether producers with revenues or profits below a certain threshold should be exempt.
Its participation in the SCO summit is a clear signal of pursuing multi-alignment with its partners worldwide
•In his book The India Way, External Affairs Minister S. Jaishankar offers a critique of India’s traditional policy of “non-alignment” where he distinguishes between the “optimistic non-alignment” of the past, which he feels has failed, that must give way to more realistic “multiple engagements of the future”. He writes, “This is a game best played on the front foot, appreciating that progress on any one front strengthens that on all others.”
•By announcing his visit to the Shanghai Cooperation Organisation (SCO) summit in Samarkand, Uzbekistan this week (September 15 and 16), Prime Minister Narendra Modi has certainly spoken with his feet, as have the other leaders attending the event, at a time when lingering strains of the COVID-19 pandemic, the Russian war in Ukraine, the upcoming Chinese Party Congress (in October), and floods in Pakistan could well have given them reason to hold the summit virtually — as they have for the past two years. Instead, the Uzbekistan SCO summit will host a full house: 15 leaders including eight member states from four Central Asian States, China, India, Pakistan and Russia, the observer states: Belarus, Mongolia and Iran (which will become member this year) — Afghanistan is not invited — and leaders of guest countries Armenia, Azerbaijan, Turkey and Turkmenistan.
Balancing the blocs
•Even before the summit begins, Mr. Modi, by his plans to attend, is sending the world a number of messages. To begin with, the visit reinforces his commitment to an Indian foreign policy that balances various blocs — pitting India’s membership of the SCO and BRICS (Brazil, Russia, India, China and South Africa) against its membership of the Quad (Australia, India, Japan, the U.S.), groups such as the I2U2 ( India-Israel-U.S.-UAE), and the Indo-Pacific Economic Framework (IPEF). This was highlighted more recently with India joining the Russian-led ‘Vostok’ Army Exercises along with China, and plans to host SCO-RATS (or the Regional Anti-Terrorist Structure of the Shanghai Cooperation Organization) counterterror exercises while the Indian Air Force took part in the Australian ‘Pitch Black’ exercises, and the Indian Army is planning exercises with the U.S. (Yudh Abhyas) next month close to the Line of Actual Control (LAC). In a Venn diagram, India is the only country that would form the intersection, a part of all of those groupings.
•Another juxtaposition is that of values over interests, or that of the western brand of a “coalition of democracies”, against a more Eurasian brand of a “coalition of common goals”. It is worth noting that the SCO membership is not premised on India’s traditional non-aligned posture. While Mr. Modi has skipped all the Non-Aligned Movement summits in his tenure (the only Indian Prime Minister to do so, apart from caretaker Prime Minister Charan Singh in 1979), he chose to lead India into the SCO in 2017. Next year, India will host the SCO summit, and is expected to invite all members — this includes Chinese President Xi Jinping and Pakistan’s Prime Minister Shehbaz Sharif — showing how far New Delhi will be willing to go in its commitment to the SCO.
On Russia’s Putin
•The next basket of signals Mr. Modi sends out is to individual members of the SCO, regardless of whether he will hold a one-on-one with each of their leaders on the sidelines or not. The first is to Russian President Vladimir Putin, who is under a western siege over his invasion of Ukraine. Since February, India has refused to heed pleas from the U.S. and Europe to endorse resolutions critical of Russia at the United Nations, and has most often abstained on voting. The Government has not only rejected calls to cut its Russian oil imports but it has also done the reverse: imports of Russian oil jumped from 0.66 million tonnes in the first quarter to 8.42 million tonnes in the second this year. In particular, Rosneft-part owned Gujarat-based refinery Nayara Energy has imported a substantial part of the oil, much of it for export of crude products. During a virtual address at the Putin-led Eastern Economic Forum last week, Mr. Modi also said India wants to further strengthen energy ties, building on the $16 billion investment Indian public sector units already have in Russian oil and gas fields. A Modi-Putin summit at this point would send out a much more powerful message to western leaders, who are planning to boycott Mr. Putin at the upcoming G-20 summit in Bali in November.
Meetings with these leaders
•The other most closely watched engagement will be between Mr. Modi and Mr. Xi. The two leaders, who met 18 times between 2014-2019, have not spoken directly once since the standoff that began in April 2020 between the Indian Army and the People’s Liberation Army (PLA). India-China bilateral ties have come to a virtual standstill on most fronts, with the exception of trade, and many have been sceptical that the latest round of disengagement at the LAC’s Patrolling Point (PP)-15 can pave the way for summit-level discussions at this point in the relationship. It seems likely that the leaders will come face to face during the summit, and any discussion will be significant.
•It should be remembered that during the Doklam conflict, it was a “brush by” meeting between Mr. Modi and Mr. Xi at the G-20 summit venue in Hamburg, in July 2017, that led to the “breakthrough” in talks and resulted in Mr. Modi’s visit to Xiamen for the BRICS summit two months later (in September 2017); a similar trajectory may be pursued, leading up to the G-20 summit in Bali. To those aghast at the idea that India can hold such a meeting despite the PLA’s transgressions into Indian territory, it must be recalled that the Government has never formally stated that Chinese troops are on Indian soil, or updated Mr. Modi’s June 2020 assertion that “no one came inside, nor is anyone inside Indian territory”.
•Other important signals would come from a proposed summit with Iranian President Ebrahim Raisi, given that Mr. Modi, at the SCO summit, is expected to pitch the Chabahar port terminal India is developing (Shahid Beheshti) as an important route for trade to Central Asia and Russia. Although India is no longer a part of the railway connectivity project from Chabahar, Iran has asked for support with “above ground” equipment and parts for its plans to extend the rail line from the Afghan border outpost to Turkmenistan, the shortest possible route for India. This would also tie in with the Modi government’s plans to build a connectivity framework that counters the China-Pakistan-Economic Corridor from Gwadar, which China plans to connect through Afghanistan to Central Asia. Last week, Afghanistan, China, Uzbekistan and Kyrgyzstan signed a railway agreement for a new “Regional Economic Corridor” to take their plan forward.
The oil issue
•In addition to connectivity, Iran will focus, in meetings with India, on restoring Indian imports of Iranian crude at the earliest. While India cancelled its Iran oil purchases, a sizeable 12% chunk of its imports, in 2019 after the Donald Trump administration in the U.S. threatened New Delhi with sanctions, it is clear the geopolitical map has changed since then. The Biden administration is back in negotiations with Iran for its re-entry to the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement (the P5+1, the European Union, and Iran), and is much more focused on curtailing Russia’s oil revenues than on Iran’s.
•It is puzzling that the Modi government — it asserts its right to buy discounted Russian oil in order to stave off inflation for the Indian consumer — has not yet considered reviving its old, cheaper and sweeter crude contracts that Indian refineries are better suited for. New Delhi may also review its decision to kowtow to the U.S.’s unilateral, non-UN sanctions on Iran (and Venezuela). More recently, the Modi government’s decision to push back against the American threats of sanctions on the S-400 Triumf missile defence system deal and on oil trade with Russia, has forced the U.S. to blink.
Finally, Pakistan
•Finally, there are the optics of the Indian and Pakistan Prime Ministers attending the same conference, which will undoubtedly lead to speculation about a possible thaw in a frozen relationship. After the Modi government’s claim in 2016 that it would ensure Pakistan is “isolated” on the terror issue, and the decision by the government of Imran Khan in 2019 that no trade with India is possible without a reversal of New Delhi’s Article 370 moves in Jammu and Kashmir, formal communication has all but ended. However, a powerful backchannel with National Security Adviser Ajit Doval and Pakistani military interlocutors is evidenced by the ceasefire being largely maintained at the Line of Control, regular border commander talks and the relative calm after the misfiring of an Indian ballistic missile into Pakistan this year (March). With Pakistan reeling from massive floods, an economic crisis, and growing worries of an unstable Afghanistan at its border, it remains to be seen whether Pakistan leader Sharif can find a way to hold a conversation with Mr. Modi at the SCO, and if Mr. Modi, with an eye to hosting the SCO and the G-20 next year, is willing to reciprocate.
•Above all, India’s participation in the SCO summit, and Mr. Modi’s decision to stand shoulder to shoulder with Putin-Xi-Raisi-Erdoğan-Lukashenko just months after he met with Biden-Kishida-Albanese at the Quad summit affirms Mr. Jaisankar’s prognosis: that “hedging” is the name of the game today, as India fights for its unique brand of multi-alignment or “all-alignment” with partners worldwide, without having to choose between them. As in Tokyo and Samarkand, just “showing up” is half the battle won.
📰 India to hold G-20 summit in 2023
Bangladesh, UAE, Singapore, Spain, Mauritius, Oman will be ‘guest countries’
•India will hold over 200 G-20-related meetings across the country during its presidency of the grouping that will begin on December 1, 2022 and continue till November 30, 2023.
•The G-20 Leaders’ Summit will be held in New Delhi on September 9 and 10 in 2023, and Bangladesh, Egypt, Mauritius, the Netherlands, Nigeria, Oman, Singapore, Spain and the UAE will be the “guest countries” at the event, the Ministry of External Affairs (MEA) announced on September 13.
•“India is currently part of the G-20 Troika [current, previous and incoming G20 presidencies] comprising Indonesia, Italy and India. During our Presidency, India, Indonesia and Brazil would form the troika. This would be the first time when the troika would consist of three developing countries and emerging economies, providing them a greater voice,” the Ministry of External Affairs said in an official statement. The announcement said the priorities of the upcoming summit are being “firmed up”, and said discussion among all the member countries will include issues related to “women’s empowerment, digital public infrastructure, health, agriculture, education, culture, tourism, climate financing, circular economy, global food security, energy security, green hydrogen, disaster risk reduction and resilience, fight against economic crime and multilateral reforms”.
•A major challenge of the G-20 session in India will involve the ongoing crisis in Ukraine which has vitiated relation between Russia and the industrialised nations of the West most of which are members of the G-20 which represents 85% of global GDP and 75% of international trade. G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.K., the U.S. and the European Union (EU).
📰 Connecting the dots to boost the patent ecosystem
Increasing the efficiency of processing patent applications and wider academia-industry collaboration are crucial steps
•The recent report of the Economic Advisory Council to the Prime Minister (EAC-PM), ‘Why India Needs to Urgently Invest in its Patent Ecosystem?’, highlights the significance of a robust patent system for a knowledge economy and for the promotion of technological innovations. It highlights the rising share of residents in the total number of patent applications filed in India, which has more than doubled during the last decade. And, for the first time, the number of patent applications by residents has surpassed that of foreign applications during the last quarter of the financial year 2021-22. The Economic Survey 2022-23, for instance, highlighted the rising share of Indian residents in patent applications.
•A major concern expressed in the EAC-PM report is the long pendency of processing patent applications in India. Therefore, it has recommended several measures to reduce this. Increasing the efficiency of processing patent applications will certainly improve the patent ecosystem in the country. At the same time, we need to investigate the patent ecosystem more closely to connect the dots so that appropriate measures are adopted to improve the patent ecosystem, keeping in view the national innovation ecosystem.
On abandoned applications
•The total number of patent applications to the Indian patent office has increased by 48% between 2010-11 and 2020-21, largely driven by applications by residents. Interestingly, the number of abandoned patent applications also increased at an astonishing rate during this period.
•The latest Annual Report (2019-20) of the Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications (CGPDTM) shows that the number of abandoned patent applications, on account of not meeting the requirements under Sections 9(1) and 21(1) of the Patents Act, grew from 5,186 in 2010-11 to 23,291 in 2019-20, an increase by almost 350%. The share of such abandoned patents in the total number of patent applications soared from 13.6% in 2010-11 to 48% in 2019-20.
•Section 9(1) of the Patents Act provides that those applications accompanied by provisional specifications be supported by complete specifications within one year. Section 21(1) requires patent applicants to re-file documents if the patent examiner finds them not meeting the requirements. A plausible reason could be that the applicants are not confident about their applications passing scrutiny and, therefore, do not pursue their applications. It may also be possible, especially in the case of innovations with short-life spans, that the long pendency discourages applicants from following up on their applications. But certainly, this is an aspect of the patent ecosystem where we need more information to connect the dots.
Another key issue
•Since the adoption of the National Intellectual Property Rights Policy 2016, a lot of emphasis has been attached to the filing of patent applications. It is worth examining if perverse incentives have been created in the process, which encourage the filing of patent applications even when the innovator knows that their claims will not pass scrutiny. If that is the case, eliminating such perverse incentives itself will add to improving the patent ecosystem of India.
•The higher education sector of India is rising in prominence in the research and development spending and patenting landscape of India. The share of this sector in the gross domestic expenditure on R&D (GERD) has increased from 5% in 2013 to 7% in 2018, as UNESCO’s data on science, technology and innovation shows. The number of patent applications filed by the top 10 academic institutes and universities in India (in terms of the number of patent applications) rose by more than two times in four years, from 838 in 2015-16 to 2,533 in 2019-20. Their share in the patent applications by residents also doubled from 6.4% to 12.2% during the same period.
•The growing prominence of this sector in patenting activity indicates the priority it attaches to commercially significant technological innovations. When the higher education sector is increasingly focusing on the development component of R&D, it is also expected that the collaboration between industry and academia will also increase in the area of R&D. But the reverse is true in the case of India.
Low score for this indicator
•The Global Innovation Index (GII) is prepared based on the score that each country gets under 80 indicators — industry-academia collaboration is one. India’s score for this indicator has in fact declined over the last few years, from 47.8 in 2015 to 42.7 in 2021. Consequently, India’s ranking in this indicator in the GII declined from 48 to 65 during this period. However, improvements in some other indicators have resulted in India’s overall ranking in the GII improving from 81 in 2015 to 46 in 2021.
•The draft of the National Auto Policy 2018 (Draft) points out that collaboration between the industry and academia in India has been limited to niche research areas that have low commercial significance. It also admits that innovations from India, originating from collaborative research projects, and implemented and commercialised in the automotive space have been scarce. This is not confined to the automotive sector but is a phenomenon prevalent across most sectors in India.
•As the patent system is a critical aspect of the national innovation ecosystem, investing in the patent ecosystem will help in strengthening the innovation capability of India. The right interventions should be made for the promotion of the quality of patent applications and collaboration between academia and industry.
📰 An improved Bill, but still contentious
The draft Indian Ports Bill of 2022 has not resolved the main issue between the Centre and maritime States
•The Indian Ports Act of 1908 is obsolete in many respects and needs a complete overhaul. Pre-legislative consultation of a draft Bill with stakeholders is good practice, and the Union Ministry of Ports, Shipping and Waterways needs to be commended for holding four rounds of consultations on the draft Indian Ports Bill that will replace the 1908 Act. The 2022 draft of the Bill is an improvement over the 2021 draft, but it has only tinkered at the margins without resolving the main issue of disagreement between the Centre and the maritime States.
•India has 12 major ports and 212 non-major ports. Most of the non-major ports are small fishing harbours and only a few of them cater to international shipping. Major ports figure in the Union List and come under the jurisdiction of the Central government. Non-major ports are in the Concurrent List and come under the respective State governments, but the Centre has overriding legislative and executive powers.
Problems of the 2021 draft Bill
•In 1997, a Maritime State Development Council (MSDC) was created by an executive order, with the Union Minister of Shipping as chairperson and the Ministers in charge of ports of the maritime States/Union Territories (UTs) as members. The MSDC serves as an apex advisory body for the coordinated development of major ports and non-major ports. It has met only 18 times in the last 25 years. The Union Ministry of Shipping provides secretarial services for the MSDC’s meetings. What made the 2021 draft of the Indian Ports Bill controversial were the provisions of Chapters II and III which sought to give statutory status along with wide-ranging powers and functions to the MSDC and make it a permanent body with its own office, staff, accounts and audit. A body like the MSDC is necessary, but the nature and quantum of its work do not call for either statutory status or a permanent body. It may be recalled that even the Union Planning Commission (now NITI Aayog) was created only by an executive order. Maritime States suspect that the real aim of a statutory-cum-permanent MSDC is to curtail their powers to develop and manage non-major ports; it is less about efficient allocation of resources and more about control by the Centre.
•The 2021 draft contained several provisions that were a replay of the Socialist-era follies of Central planning and Inspector Raj. It sought to empower the MSDC to formulate a national plan, to be notified in the official gazette, for the development of major and non-major ports; to monitor the development of non-major ports and ensure their integrated development with major ports and the national plan; and to order an appropriate inquiry if any port contravenes the national plan. It also empowered the Centre to make a port non-operational if it was not in consonance with the national plan. It prescribed draconian penalties including imprisonment for non-compliance with the MSDC’s directions by port authorities, port officials and other persons.
Centralising tendencies
•The 2022 draft Bill has dropped or toned down many of these provisions, but it has retained the MSDC as a statutory-cum-permanent body. It has also retained open-ended provisions like Section 10(c) that authorise the Central government to entrust any administrative and financial functions to the MSDC. In order to ensure that the composition of the MSDC is in favour of the Centre, the draft Bill makes five Secretaries and one Joint Secretary to the Government of India, besides the administrators of the coastal UTs, as members. This is a bad precedent wherein the vote of an officer would count the same as the vote of a Minister. Like the Goods and Services Tax Council, the MSDC should consist only of the concerned Ministers of the Union and maritime States/UTs; officers should only be special invitees. A fair arrangement would be to give 50% weightage to the votes of the Ministers representing the Centre and 50% weightage to the votes of Ministers representing the maritime States/UTs in proportion to the number of functioning non-major ports.
•In contrast to the centralising tendency reflected in the draft Bill, most U.S. ports are owned and managed by counties and municipalities with port operations largely in private hands. Ports in Germany are managed at the municipal and regional levels. Even in China, ports are managed at the municipal level with the local authorities having a substantial stake in corporatised ports. Thus, international experience shows that ports are best managed by local and regional governments.
Performance of ports
•There could have been a case for the Centre/MSDC to play a more active role with regard to non-major ports if the latter had been performing poorly. But data show that non-major ports have fared much better than major ports. Between 1993-94 and 2021-22, the share of the total cargo of non-major ports went up from 8% to 45%, and the CAGR of cargo traffic of non-major ports was 14% compared to the 4.8% of major ports.
•While major ports performed the various port functions with their own staff and equipment and with all the usual shortcomings of public sector enterprises, maritime States developed non-major ports almost entirely on a public-private partnership (PPP) basis. Gujarat was the trendsetter. It developed India’s first private port at Pipavav (with APM Terminals); the largest captive port at Sikka (with Reliance Industries); the largest commercial multipurpose port at Mundra (with Adani); the first two LNG Terminals at Dahej and Hazira; and the first dedicated chemical port terminal at Dahej. Other maritime States — Maharashtra, Andhra Pradesh, and Tamil Nadu — followed suit. From 1996 onwards, the Centre also adopted the PPP model but the process of awarding concessions has been rather slow.
•A 2011 World Bank Report, ‘Regulation of the Indian Port Sector’, observed that non-major ports are perceived as “more business oriented, customer friendly, cheaper and in general more efficient” whereas “unnecessary regulatory and financial burdens are imposed upon Port Trusts, private terminal operators and investors” by the Central government. So, the last thing we should be doing is saddling non-major ports with the same handicaps as major ports. A statutory-cum-permanent MSDC will do precisely that. It will choke future development of non-major ports and stifle novel initiatives by the maritime States of the kind that Gujarat did on its own. Central planning has no place in a market-oriented economy where non-major ports (and now even major ports) are developed almost entirely through private investments.
•It is, therefore, recommended that Chapters II and III of the draft Bill relating to the MSDC be scrapped and that the MSDC remain an apex advisory body. In keeping with port reform strategies worldwide, the Centre should work towards greater decentralisation, deregulation, corporatisation and private sector participation. It should give the concerned maritime States and city municipal corporations a substantial equity stake in corporatised major ports. It should limit itself to overseeing only the ‘higher functions’ of border control, competition policy, port security, environment protection and hinterland connectivity.
📰 An opportunity for India Inc
Corporate India’s response to the country’s job crisis has been more symbolic than substantial
•We live in an age when businessmen command considerable influence in society. Ratan Tata, Mukesh Ambani, and Azim Premji are seen not as wealth creators but as nation builders. A good deal of business news today captures the imagination of the average citizen. A public issue, a trade agreement, the rise of a new corporate brand, a start-up, a collaboration is big news today. The guilt complex associated with making money has long since disappeared from the nation’s conscience. India’s stock markets are now in an explosive phase of growth and start-ups are reaping huge funds without any credible record of performance, largely on the trust of retail investors. Corporate India receives a reservoir of trust, goodwill and confidence from the nation and must return it in equal measure. Has India Inc lived up to those expectations? How much does an inclusive India figure in its vision?
Response to job crisis
•Corporate India dreams big today. Brand power, digital technology, talent pools, scales of operations, and global connectivity are all part of its agenda. Yet, how much does the magnitude of India’s jobless growth overwhelm the big business? Mahatma Gandhi’s insight that “what we need is not mass production, but production by the masses” must be an enlightened vision of Indian business. Yet, the response of corporate India to the country’s job crisis has been more symbolic than substantial. The reality is that much of India’s blue-collar employment is generated in Small and Medium Enterprises (SMEs) and in its sprawling gig economy. Some 45% of India’s manufacturing takes place in the sweat shops of garments units, hazardous chemical factories and in unsafe engineering workshops. The jobs thus created are sub-optimal with low wages and unstable working conditions. India’s SME sector needs to modernise itself with the help of digital technology, professional management and better scale of operations. This is the ‘new economy’ and India’s corporate sector can extend a helping hand across the aisle to help the SMEs achieve this transformation. That act must not be seen as large-heartedness but market-driven and backed by a strong value proposition.
•The Indian SME sector has many hidden treasures waiting for this makeover. Take the case of Indian food, which is popular worldwide. Most Indian restaurants abroad are owned by individuals with limited resources for growth. The result is that India has not been able to create a McDonald’s or KFC to bring Indian food to the world stage as a global business in scale and sophistication. How many corporates here have seen an opportunity in this space? Many big houses in India have rushed to invest in electric mobility. Why hasn’t even one of them seen the prospects of globalising Indian food? That could have created a million jobs for Indians.
•Across the world, the informal sector is steadily evolving into the formal sector in partnership with the organised industry which is creating innovative business models. The most visible example is that of Uber and Ola, which have brought hundreds of individual taxi owners on their platforms to create a win-win situation for both, and added value to the consumer as well. This model could now be replicated in other situations. The vegetable vendor who wheels his cart to neighbourhood homes could be part of an e-commerce company and provide last-mile connectivity. The shoe shine worker at the street corner could be brought under the fold of a multinational shoe company to upgrade his work and quality of his life. The results could be overwhelming. They both could then open a bank account, be eligible for loans and credit cards, and be part of the formal sector with increased income and fixed hours of work. For the companies, the partnership offers a recognition for a meaningful contribution to the welfare of the community.
Learning from Taiwan
•One needs to only look at Taiwan to understand how a low-level economy can transform itself through technology and innovation and become part of a global value chain. A quarter of a century ago, Taiwanese SMEs were selling cotton shirts, plastic flowers and wooden toys. Today, they are producing memory chips and laptops and assembling smartphones. Foxconn is now the main assembler of iPhones in several Asian countries. Jeff Bezos, the founder of Amazon, said during his recent visit to India that Amazon plans to invest $1 billion in digitising SMEs. The Government of India has launched an ambitious new e-commerce platform, ONDC (Open Network for Digital Commerce). This is a strategic vision which should unleash India’s entrepreneurial dividend. A combination of these efforts must ensure that a job-enriched India is now within our sight.
📰 The fall in natural rubber prices in India
Why are natural rubber farmers protesting against the government? What has led to the decline in prices?
•After a moderate post-pandemic revival, the price of natural rubber (NR) has crashed to a 16-month low of ₹150 per kg (RSS grade 4) in the Indian market. Under the aegis of the National Consortium of Regional Federations of Rubber Producer Societies India, a day-long sit-in protest was staged in front of the Rubber Board headquarters in Kottayam, Kerala, last week.
•The current fall in prices is attributed primarily to a weak Chinese demand and the European energy crisis, along with high inflation and an import glut, among other things.
•The Rubber Board professes to be relatively sanguine as it regards the price fluctuation as cyclical and rests its hopes on the projections of a remarkable shortage of rubber seven years from now.
•The story so far: After a moderate post-pandemic revival, the price of natural rubber (NR) has crashed to a 16-month low of ₹150 per kg (RSS grade 4) in the Indian market. The price of latex, which soared during the pandemic due to huge demand from glove makers, took a more severe drubbing with its prices rolling down below ₹120. With the impact of the falling prices beginning to reflect in their daily lives as well as the local economy, the growers are up in arms against the authorities for their perceived delay in checking the slide. Under the aegis of the National Consortium of Regional Federations of Rubber Producer Societies India, an umbrella organisation for rubber growers, a day-long sit-in protest was staged in front of the Rubber Board headquarters in Kottayam, Kerala, last week.
What has caused the sharp fall in prices?
•The current fall in prices is attributed primarily to a weak Chinese demand and the European energy crisis, along with high inflation and an import glut, among other things. While the unremitting zero COVID strategy in China, which consumes about 42% of the global volume, has cost the industry dearly, analysts have also flagged the acceleration of imports.
•The domestic tyre industry, according to them, is sitting pretty on an ample inventory, especially in the form of block rubber from the Ivory Coast and compounded rubber from the Far East.
Where does India stand in terms of the production and consumption of natural rubber?
•India is currently the world’s fifth largest producer of natural rubber while it also remains the second biggest consumer of the material globally. (About 40% of India’s total natural rubber consumption is currently met through imports)
•A latest report by the Rubber Board has projected the natural rubber production and consumption in India during 2022-23 as 8,50,000 tonnes and 12,90,000 tonnes respectively. The production of the material improved by 8.4%, to 7,75,000 tonnes, during 2021-22 compared to 7,15,000 tonnes in the previous year. An increase in yield, tappable area and area tapped during the year contributed to the rise in production.
•On the demand side, the domestic consumption rose by 12.9%, to 12,38,000 tonnes in 2021-22 from 10,96,410 tonnes in the previous year. The auto-tyre manufacturing sector accounted for 73.1% of the total quantity of natural rubber consumption. Import of the material, meanwhile, increased to 5,46,369 tonnes from 4,10,478 tonnes.
How does the falling price affect the growers?
•The turnaround has exposed the growers — mostly small and medium scale — to a painful reckoning, contributing to wide-spread panic in Kerala, which accounts for nearly 75% of the total production. The precipitous plunge in prices coupled with high costs have also left them staring at an uncertain future, forcing some to stop production for the time being.
•The impact of the price fall is felt more in the rural areas, where most people are solely dependent on rubber cultivation and have no other option but to cut expenses. This has caused a sluggishness in the respective local economies, which also coincided with the festive season in Kerala.
•If a reversal in prices seem distant, the trend may also trigger a crop switch or even a fragmentation of the rubber holdings in the long run.
What do the farmers demand?
•The key demands they have raised to the Union government include raising the import duties on latex products and compound rubber to make it on par with natural rubber, by either 25% or ₹30 per kg, whichever is lower.
•Its demands to the state government are to raise the replanting subsidy in Kerala, which remains at ₹25,000 per ha, and the support price of the crop under the price stabilisation scheme to ₹200 from ₹170.
What are the other implications of falling rubber prices in Kerala?
•As ripple effects of the price crash slowly unfold in the local economy, the issue has also assumed a new dimension in the Central Travancore districts — a political landscape crystallised through the anguish and anger among the rubber farmers over the past several decades. Expectedly, the sparring Kerala Congress factions were the first to take up the cudgels on their behalf.
•While Jose K. Mani, chairman of the Kerala Congress (M) has urged the Kerala government to hike the support price for the material to ₹200, P.C. Thomas, working chairman of the Kerala Congress, called for the constitution of a special fund to support the growers. Sensing trouble, the Bharatiya Janata Party, which governs the Centre and is responsible for the policy decisions on NR, has appealed against turning rubber into a ‘political crop’.
How is the Rubber Board reacting?
•Amidst all the gloom, the Rubber Board professes to be relatively sanguine as it regards the price fluctuation as cyclical and rests its hopes on the projections of a remarkable shortage of rubber seven years from now due to slow replanting in place of old trees in existing plantations. The agency, for the time being, is said to be also working on a set of programmes to arrest the free-falling of prices.
