02 and 03 FEB 2016 (One Belt One Road- Complete Coverage, Section 377 & LGBT,RBI and FDI norms, Companies Law ,Trai and Bharat Net)

---

One Belt One Road :-

Background:-

In just 30 years, China has developed from a poor inward-looking agricultural country to a global manufacturing powerhouse. Its model of investing and producing at home and exporting to developed markets has elevated it to the world’s second-largest economy after the USA.

Now faced with a slowing economy at home, China’s leadership is looking for new channels to sustain its appetite for growth at a time when developing neighbors are experiencing rapidly rising demand.

At the heart of One Belt, One Road lies the creation of an economic land belt that includes countries on the original Silk Road through Central Asia, West Asia, the Middle East and Europe, as well as a maritime road that links China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean.

The project aims to redirect the country’s domestic overcapacity and capital for regional infrastructure development to improve trade and relations with ASEAN, Central Asian and European countries.

Historical roots:-

The Silk Road was a network of trade routes, formally established during the Han Dynasty. The road originated from Chang’an (now Xian) in the east and ended in the Mediterranean in the west, linking China with the Roman Empire.

As China’s silk was the major trade product, German geographer Ferdinand von Richthofen coined it the Silk Road in 1877. It was not just one road but rather a series of major trade routes that helped build trade and cultural ties between China, India, Persia, Arabia, Greece, Rome and Mediterranean countries.

It reached its height during the Tang Dynasty, but declined in the Yuan dynasty, established by the Mongol Empire, as political powers along the route became more fragmented. The Silk Road ceased to be a shipping route for silk around 1453 with the rise of the Ottoman Empire, whose rulers opposed the West.

From Past to Present:-

The Asia Development Bank estimates that Asia needs US$8tn to fund infrastructure construction for the 10 years to 2020. China well knows its development is linked to Asia and beyond and, in part, is banking its future on responding to its neighbours’ huge infrastructure needs via One Belt, One Road.

Meanwhile, China’s growing domestic market means the chance for the region and the world to capitalise by providing goods and services. The initiative is not without its challenges; cooperation and coordination with partner countries over the long term are paramount for it to be a lasting legacy.

Key to One Belt, One Road’s success is the development of an unblocked road and rail network between China and Europe.  The plan involves more than 60 countries, representing a third of the world’s total economy and more than half the global population. China’s ultimate goal is to extend the initiative to Africa and Latin America.

Politics of trade:-

Strategic agreements

There are compelling geopolitical reasons, such as energy security, for China to push forward with its One Belt, One Road plans at a time when its trading partners are potentially excluding it from strategic agreements.

Trans-Pacific Partnership countries, the Transatlantic Trade and Investment Partnership and the EU-Japan agreement show comprehensive liberalisation agendas, but do not include China and have the potential to increase trading costs.

In response, China plans to negotiate free-trade agreements with 65 countries along the OBOR. Until now China has signed 12 free-trade agreements including Singapore, Pakistan, Chile, Peru, Costa Rica, Iceland, Switzerland, Hong Kong and Taiwan and a further eight are under negotiation with Japan, Korea, Australia, Sri Lanka, Norway, the Regional Comprehensive Economic Partnership, Asean and the Gulf Cooperation Council.

Some worry that China has ulterior motives for naval expansion and energy security. What the many miss is that securing economic growth is at the core of national security, as it legitimises the party’s rule. To ease worries, President Xi Jinping has emphasised “Three Nos”

1. No interference in the internal affairs of other nations
2. Does not seek to increase the so called “sphere of influence”
3. Does not strive for hegemony or dominance

Domestic Silk Road Plan

One Belt, One Road could have as much impact on China’s internal economy as it will have internationally. China’s top priority is to stimulate the domestic economy via exports from industries with major overcapacity such as steel, cement and aluminium.

Many will be build-transfer-operate schemes in which large SOEs will lead the way, but smaller companies will follow. The domestic plan divides China into five regions with infrastructure plans to connect with neighbouring countries and increase connectivity.

Each zone will be led by a core province: Xinjiang in the Northwest, Inner Mongolia in the Northeast, Guangxi in the Southwest and Fujian on the coast.

Funding for the project:-

One Belt, One Road’s vast scale has elevated it to high-profile status given China’s financial resources. But even China’s deep pockets have limits, with the country’s total debt to GDP at 250%. Three financial institutions have been set up to support its development, which have met some resistance in the West given they provide alternatives to the World Bank, IMF and ADB.

Seizing the ‘One Belt, One Road’ opportunity:-

The first of the novel idea is ‘entity diplomacy’. This construction argues for engaging within and across regions to secure the best interests of an entity that is necessarily larger and with interests broader than those of any sovereign. This follows from the argument of a revival of ‘continentalism’ as the Eurasian landmass deepens linkages and ‘Asia’ emerges. OBOR segues perfectly into this framework. It becomes, for the Chinese, an Asian undertaking that needs to be evaluated on the gains it accrues to the entity, i.e. Asia, as opposed to China alone. It therefore follows, from Beijing’s perspective, that Indian and other Asian nations must support and work for the OBOR initiative.

Entity diplomacy also translates into the establishment of “one economic continent”, the second theme undergirding the conversation. OBOR, then, becomes a vehicle that promotes alignment of infrastructure, trade and economic strategies. Indeed, for some Chinese speakers, India is already part of the initiative, as its own projects like Project Mausam and economic initiatives such as Make in India and Digital India complement and complete OBOR. Indian participation in the Asian Infrastructure Investment Bank and joint ownership of the New Development Bank only reaffirm India’s partnership in this Asian project for many in Beijing.

To counter popular allegations of OBOR being a “Chinese scheme”, à la the U.S. Marshall Plan, the Chinese were quick to clarify that the original project is named the Belt and Road Initiative; the ‘One’ has been an English effect that has popularised a mien of exclusivity around OBOR, to the primary advantage of China, instead of an inclusive Asian economic project.

The third formulation was that of a mutually beneficial ‘swap’ — India protecting Chinese interests in the Indian Ocean, and China securing India’s essential undertakings in their part of the waters, read the South and East China Seas. However, there was unambiguous clarity that if India cannot assume more responsibility in the Indian Ocean, China will step in.

Core conflicts

Structural challenges confront the Chinese formulations and the OBOR proposal. First, the perception, process and implementation to date do not inspire trust in OBOR as a participatory and collaborative venture. The unilateral ideation and declaration — and the simultaneous lack of transparency — further weaken any sincerity towards an Asian entity and economic unity. The Chinese participants explained that Beijing is committed to pursuing wide-ranging consultations with the 60-plus nations OBOR implicates; an ‘OBOR Think Tank’ is also being established to engage scholars from these countries.

The second poser for the Chinese is on Beijing’s appetite for committing its political capital to the project. While for obvious reasons the Chinese would not want to be seen as projecting their military and political presence along OBOR, it was clear that China is willing to underwrite security through a collaborative framework.

The third challenge deals with the success of the ‘whole’ scheme, given that the Chinese vision document lays out five layers of connectivity: policy, physical, economic, financial and human. While no developing country will turn away infrastructure development opportunities financed by the Chinese, they may not necessarily welcome a rules regime built on a Chinese ethos.

Finally, how can this initiative navigate the irreconcilable geometries of South Asia that prevent India from providing full backing to OBOR? A formal nod to the project will serve as a de-facto legitimisation to Pakistan’s rights on Pakistan-occupied Kashmir and Gilgit-Baltistan under the China-Pakistan Economic Corridor (CPEC) that is “closely related” to OBOR.

Options for India

Fundamentally, India needs to resolve for itself whether OBOR represents a threat or an opportunity. The answer undoubtedly ticks both boxes. Chinese political expansion and economic ambitions, packaged as OBOR, are two sides of the same coin. To be firm while responding to one facet, while making use of the opportunities that become available from the other, will largely depend on the institutional agency and strategic imagination India is able to bring to the table.

First and foremost, India needs to match ambition with commensurate augmentation of its capacities that allows it to be a net security provider in the Indian Ocean region. This will require  to take speedy decisions with respect to defence partnerships and procurement, but will also necessitate a sustained period of predictable economic growth; OBOR can assist in the latter.

Therefore, just as U.S. trade and economic architecture underwrote the rise of China, Chinese railways, highways, ports and other capacities can serve as catalysts and platforms for sustained Indian double-digit growth. Simultaneously, India can focus on developing last-mile connectivity in its own backyard linking to the OBOR — the slip roads to the highways, the sidetracks to the Iron Silk Roads.

Arguably, OBOR offers India another political opportunity. There seems to be a degree of Chinese eagerness to solicit Indian partnership. Can India seek reworking of the CPEC by Beijing in return for its active participation? Furthermore, for the stability of the South Asian arm of OBOR, can Beijing be motivated to become a meaningful interlocutor prompting rational behaviour from Islamabad? OBOR could potentially allow India a new track to its own attempt to integrate South Asia.

---

LGBT rights: the journey till now

Background :- The Section 377 is at the core of the LGBT issue which criminalizes “unnatural offences”

Two years ago, the Supreme Court declined to review its retrograde decision of 2013 upholding the validity of Section 377. By rejecting the review petition, the court then failed to make use of an opportunity to revisit the contentious Suresh Kumar Koushal verdict and bring the law in line with its own vision of fundamental rights, especially the idea that equality and dignity cannot be denied to any section.

The court has now paved the way for a comprehensive hearing on how to protect the dignity and rights of individuals with alternative sexual orientation by referring the matter to a five-judge Constitution Bench. The Chief Justice has noted that the case involves questions with constitutional dimensions. The court has indicated that the larger Bench could traverse beyond the limits of a curative petition, which is essentially a limited, additional remedy to aggrieved litigants after the Supreme Court’s final verdict and the rejection of a review.

There is new hope that the Delhi High Court judgment of 2009, reading down Section 377 to restrict its criminal import to non-consensual sexual acts involving adults and all sexual acts inflicted on minors, may be restored.

In April 2014, while recognising the transgender community as a third gender entitled to the same rights and constitutional protection as other citizens, a Bench of the Supreme Court subtly recorded its criticism of Koushal. Departing from the Koushal formulation that there was no evidence that Section 377 was an instrument of harassment, the Bench had highlighted the misuse of the provision as one of the principal forms of discrimination against the transgender community.

Further, it observed that “even though insignificant in numbers”, transgenders were entitled to human rights. That was obviously a rebuttal of the earlier Bench’s claim that those affected by Section 377 were only a “minuscule fraction of the population”, as though the relative smallness of a group’s size disentitled it from constitutional protection.

On the global front, the United States Supreme Court held last year that the gay community was entitled to due process and equal protection in the matter of marriage, thus allowing same-sex marriages.

In view of these developments, the time has come for an honest judicial evaluation of where India stands on the issue of homosexuality. Some may argue that it is up to the legislature to remedy the situation. In the backdrop of a provision that continues to have criminal and public health consequences for a section of society, the court has a duty to enforce their fundamental rights rather than wait for the political class to come up with a legislative remedy.

 

---

 

RBI relaxes FDI norms to boost start-ups

The Reserve Bank of India (RBI) has relaxed several rules including foreign direct investment norms to boost start-up activity in the country.

New norms:-

• Now, start-ups are allowed to receive foreign venture capital investment irrespective of the sector in which they operate. Currently only Venture Capital Funds (VCF) and Indian Venture Capital Undertakings (IVCU) are eligible to raise foreign venture capital investments.
• The new norms will enable transfer of shares from foreign venture capital investors to other residents or non-residents.
• The process of dealing with delayed reporting of foreign direct investment (FDI)-related transaction has also been simplified by building a penalty structure into the regulations itself.
• RBI has also tried to address the regulatory difficulties being faced by the promoters of a start-up by proposing to permit receipt of deferred consideration and enabling an escrow/indemnity arrangement. These clauses are generally insisted upon by an investor and the regulatory restrictions (under the current regime) acts as a roadblock for the start-ups.

RBI has also indicated that certain proposals are being considered and consulted with the government. These proposals include, permitting start-up enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders, issuance of innovative FDI instruments like convertible notes by start-up enterprises and streamlining of overseas investment operations for start-up enterprises.

---

 

Companies Law Committee submits report to Government:-

The Companies Law Committee — constituted in June 2015 to make recommendations on the issues related to implementation of the Companies Act, 2013 — has submitted its report to the Government.

Key recommendations:-

• The overall managerial remuneration payable by a public company should not exceed 11% of the net profits of that company except with the approval of the shareholders and the Central Government. Similar approvals are required for companies having inadequate or no profits.
• Simpler regulatory regime by proposing removal of government approval for managerial remuneration with few additional disclosures. This would be in sync with international practices and reduce procedural delays.
• Removal of restrictions on layering of subsidiaries since it was likely to have a substantial bearing on the functioning, structuring and the ability of companies to raise funds. Effectively, companies will be permitted to make investment through more than two layers of investment companies as per the report.
• The Act specifies that an independent director must not have or had any pecuniary relationship with the company, its holding, subsidiary or associate company or their promoters or directors, during the two immediately preceding financial years or during the current financial year. Even minor pecuniary relationships were covered due to this provision even though such transactions may not impact independence of directors. The report proposes to introduce a threshold for pecuniary relationships in relation to qualification for an independent director. This would further ease the implementation of provision for appointment of independent director by companies.
• Threshold has been proposed for punishment for fraud to avoid misuse of provision; frauds involving amounts below specified limits which do not involve public interest to be given differential treatment and compoundable. Penalty/fine proposed to be reduced in case of non-compliance with various sections of the Act.
• The Committee also recommended certain changes specifically for encouraging start-ups which include reducing compliance burden on account of private placement procedure, permitting start-ups to raise deposits for its initial five years without any upper limits, to issue ESOPs to promoters working as employees etc.

 A subsidiary company is defined as a company in which holding company controls the composition of the board of directors or exercise or controls more than one-half of the total share capital.

Similarly the term associate company would be defined to clarify that it covers company in which other company has a significant influence i.e. control of at least twenty percent of the total voting power or control of or participation in taking business decisions under an agreement.

Joint venture would be construed in the same manner as under Indian Accounting Standard 28 and would facilitate convergence.

 

---

TRAI for PPP model for Bharat Net Project :-

TRAI has recommended PPP model for the roll out of the Bharat Net project .

TRAI notes that rural broadband provision is prone to market failures as well as government failures (as is evident by the slow implementation of National Optical Fibre Network or NOFN), and hence employing a PPP-based model to expand broadband coverage is the only other viable option.

TRAI’s proposal:

• A PPP model that aligns private incentives with long-term service delivery in the vein of the Build-Own-OperateTransfer/Build-Operate-Transfer models of implementation be the preferred means of implementation.
• The regulator has also suggested that contract period should be of 25 years, which can be further extended in block of 10, 20 or 30 years.
• TRAI has also said that the task of rolling out broadband network should be given to a concessionaire selected through reverse bidding. The funding should be done to bridge the loss incurred due to higher operational expenses and lower commercial accruals.

Bharat Net Project:-

Bharat Net seeks to connect all of India’s households, particularly in rural areas, through broadband by 2017, forming the backbone of the government’s ambitious Digital India programme.It proposes broadband connectivity to households under village panchayats and even to government institutions at district level.

---