11th APRIL 2016
GS II: REGIONAL(INDIA-SRI LANKA-CHINA)
Colombo port project not a security threat to India: Ranil
The Colombo Port City project, which both China and Sri Lanka have decided to develop into a financial hub, will not have any impact on Indian security, visiting Sri Lankan Prime Minister Ranil Wickremesinghe said .
“We have discussed it with India and we are willing to discuss it with India further. As you know, this is not going to be a China-Sri Lanka venture. It is going to open to everyone and already many Indian businessmen have told me that they are willing to come to the port city,” Mr. Wickremesinghe said.
“It will be a joint venture with a Chinese company and a Sri Lankan company and we want to put 40 per cent out into the stock market and it will give an opportunity to Indian companies to invest in the Sri Lankan venture.”
“Sri Lanka has been planning to establish a financial and business hub in the Indian Ocean and we selected the port city to be the location. So from a landfill and real estate [project], it has become a financial hub,” he added.
He pointed out that the Port City would become part of efforts to turn Sri Lanka’s western province into a mega-polis of eight million people. “[It will be] the bigger city in the Indian Ocean where there will be more opportunity for infrastructure development by Chinese and other companies.”
The Prime Minister highlighted that his government wanted to turn the port of Hambantota into another Shenzhen— the city that was at the heart of former Chinese leader Deng Xiaoping’s reforms. He rejected the contention that like Gwadar in Pakistan, the Chinese will manage the operations of the port.
“The second phase of the Hambantota harbour is on. Again, Hambantota development is not a Chinese-Sri Lankan development. Anyone can come and develop in the area. As far as the operation of the port and the airport are concerned, the state will become regulators and there will be separate independent operators. We will have a stake in the operation of both the port and the airport. The Sri Lankan navy will have a base in Hambantota shifting from Galle.”
Mr. Wickremesinghe said the Sri Lankans were talking to Andhra Pradesh Chief Minister Chadrababu Naidu about greater cooperation between Sri Lankan ports and Visakhapatnam once an economic and technology agreement with India is materialised.Sri Lanka is doing an economic and technology agreement with India, FTA with China, FTA with Singapore and GSP plus with EU.
The generalised system of preferences, or GSP, is a preferential tariff system.
Mr. Wickremesinghe said during his visit “a comprehensive economic strategy” between Sri Lanka and China had been defined, which would be relevant for the next two decades.
“I would call this a second rubber-rice pact,” he observed, refereeing to the 1952 agreement between Beijing and Colombo when Sri Lanka traded rubber with China in return for much needed rice.
The Prime Minister pointed out that with China as one of the core partners, his country had devised a regionally inclusive “economic plan”, which would establish Sri Lanka as a “financial, business and logistics hub”. He added that the framework of the plan aligns with China’s Belt and Road initiative, India’s Make-in-India policy, and Singapore’s vision of economic engagement with Colombo.
A Joint Statement issued at the end of the visit said: “The two sides will use the development of a 21st Century Maritime Silk Road as an opportunity to further advance infrastructure development, the China-Sri Lanka FTA negotiations and promote joint ventures…”
GS III: MONEY LAUNDERING
The problem of secretive tax havens
In popular Indian imagination, a tax haven is generally associated with Switzerland and its numbered bank accounts. But tax havens are numerous, have grown in importance, and are the routes through which half of international trade now takes place. Apart from high-net-worth individuals, tax havens are liberally used by multinationals and their army of accountants and lawyers for tax planning and transfer pricing. They are also wonderful places for money launderers.
Tax havens has its own comparative advantage, whether in terms of cost or time taken to set up structures, discretion used, or links to particular countries. Nevertheless, they have some common characteristics such as ease of setting up companies/trusts/foundations, minimal disclosure requirements, the possibility to hide beneficial ownership, and low or no effective taxation on income or wealth.
Threats posed by tax havens
Panama fits the bill perfectly. In Panama, there are firms that can help set up a company within 48 hours and provide nominee directors/shareholders. Many international banks operate from Panama, and banking confidentiality is guaranteed. Panama follows a strict territorial system of taxation. Consequently, all foreign incomes of non-residents are not taxable. Further, Panama has no official central bank and no exchange control.
The Panama papers are raising a storm across the world. However, shorn of all the razzmatazz, the terabytes of data released by the International Consortium of Investigative Journalists do not tell us anything new about the modus operandi adopted by the high and mighty to hide their assets.
The one definitive conclusion that one can draw from the Panama papers is that those in charge of designing the rules in the fight against such tax havens also took advantage of the same for diverse motives, whether for tax avoidance/evasion, masking conflict of interest, or for corrupt practices and money laundering.
It is not as if the threats posed by tax havens are not known to regulatory authorities. The Organisation for Economic Cooperation and Development never tires of proclaiming that due to its revised standard for exchange of information, the days of secrecy are over. Indian politicians and administrators say the same. As the current leaks show, the utility of such agreements in discouraging tax havens from offering their services, or for foreign clients from using their services, is rather limited.
OECD’s initial project on harmful tax practices, including the use of sanctions, came unstuck due to American opposition. While there has been improvement in the monitoring mechanism over time with a peer review process, jurisdictions carry on with business as usual even after declaring their intention to comply with OECD standards. OECD’s initial list of non-cooperative jurisdictions has been empty since 2009. Of course, following the U.S. Foreign Account Tax Compliance Act, OECD has come up with an automatic exchange of information and apparently only four jurisdictions have not committed to its standards — Bahrain, Nauru, Panama and Vanuatu. But does that mean that there are no worries about other tax havens such as the Channel Islands, the British Virgin Islands and the Cayman Islands? As the Panama papers show, the truth is far removed. ‘Don’t ask, don’t tell’ is the policy followed by many tax havens.
While examining the history of tax havens, Gabriel Zucman in his book The Hidden Wealth of Nations: The Scourge of Tax Havens has shown that action against them works only if there are credible sanctions, which he proposes in the form of trade tariffs. Considering the storm created by the Panama papers throughout the world, his proposals, including that of a global finance register of all financial securities in circulation, are worth considering at the international level.
Inviolability of corporate structure
The Panama papers prove the ease with which companies can be formed in jurisdictions which make a mockery of the concept of separate corporate existence. For example, the papers show how banks registered nearly 15,600 shell companies with only one law firm, and how difficult it is for the tax administration to get meaningful information. In the circumstances, one can question the concept of almost total inviolability of the corporate structure as propounded by the Supreme Court in the Vodafone case: “When it comes to taxation of a Holding Structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structure(s).” The Supreme Court-monitored Special Investigation Team now oversees the investigation of all the Indian cases emanating out of the various leaks. In two years, it does not seem that the SIT has made any significant headway in investigations of all the cases involving tax havens.
There are some apologists who believe that tax havens serve some important functions. Mauritius is often mentioned in this connection as being one of the largest foreign investors for India. Any action against the tiny nation is stonewalled. The Panama papers show that tax havens are used overwhelmingly for secrecy and dissimulation, putting distance between assets and owners thereof. Corporate structures help such dissimulation. Therefore, countries and jurisdictions that help in such efforts of tax planners, avoiders and evaders need to be put on alert. In the Indian scene, much of the alleged foreign investment apparently comes from Mauritius through Global Business Companies-1 that Mauritus allows non-residents to set up. If we are serious about tackling tax evasion and avoidance, there needs to be a rethink about the way these companies are allowed to be operated. There are many Mossack Fonsecas that specialise in offering their services for setting up such structures, including supply of directors and shareholders for routing investments through Mauritus (and others) and for availing of its treaty benefits. Panama is a tax haven, but Mauritius is a tax haven with which we have a comprehensive double tax treaty. That complicates the matter even more by allowing rampant ‘treaty shopping’, double non-taxation, and erosion of India’s tax base. It is therefore time to bury the Azadi Bachao theory of treaty shopping being good for developing countries. Nobody should believe in that theory.
Since 2011, we have a provision in the Income Tax Act in Section 94A to deal with jurisdictions that do not effectively exchange information. So far, only Cyprus has been notified. There are reports that perhaps Panama will also be put on that list. But considering that in almost all collusive international deals at least one tax haven is involved, there needs to be a review of all tax havens and the provision used effectively. Otherwise, the promise of bringing back black money stashed abroad will remain a chimera. We are smug about the relative lack of political names from India being disclosed in the Panama papers. But had the leak occurred elsewhere, things might have been different. We should not wait for another leak to break out, but need to take proactive actions both internationally and domestically.
GS III: DISASTER MANAGEMENT
Kollam temple pyrotechnics display was conducted despite ban
The Kerala Fire and Rescue Services had not given clearance for the fireworks display that ended in a massive disaster at the Puttingal Devi temple in Kollam.
The Director General, Kerala Fire and Rescue Services, Lokanath Behera visited the site along with senior officials to assess the situation and Director, Technical, E. B. Prasad has been asked to submit a report.
A preliminary investigation at the site by the Fire and Rescue Services has revealed that banned chemicals were used for the pyrotechnics, reportedly for louder crackers.The investigation by the Forensic team will reveal the exact nature of the chemicals used, a senior official, who inspected the site, told The Hindu.
With an increase in the number of fireworks display contests in the State, the authorities are worried about the safety of the people and property, especially where such displays are organised in violation of norms.
Collector denied nod
The District Collector and later Additional District Magistrate too had denied permission for the pyrotechnics at the site, following an appeal against the Collector’s order.
GS III: INVESTMENT
India offers to invest $20 bn in Iran, seeks land, cheap gas
India has sought land and cheap natural gas for investing about $20 billion in new petrochemical, fertilizer and liquefied natural gas (LNG) facilities in Iran, primarily for importing these commodities into India.
Oil Minister Dharmendra Pradhan, who is in Iran with a delegation comprising industry executives on a two-day visit, discussed several issues related to the energy sector with his Iranian counterpart.
“Pradhan conveyed to the Iranian side that Indian companies could invest up to $20 billion and were interested in setting up petrochemical and fertilizer plants, including in the Chabahar SEZ, either through joint venture between Indian and Iranian public sector companies or with private sector partners,” a statement from the Indian oil ministry said, adding that in this regard, he requested Iran to allocate appropriate and adequate land in the SEZ.
He also requested the Iranian side for favourable treatment in the pricing of gas for India, besides the supply of rich gas at a competitive price and on a long-term basis for the life of the joint venture projects that the Indian companies are interested in setting up.
India is also keen to start a gas cracker unit and a liquefied petroleum gas (LPG) extraction unit in Chabahar. Both the sides also discussed ways of transporting gas to India from Iran including through a proposed Iran-Pakistan-India pipeline, said the statement.
The two sides also discussed the award of rights to develop Farzad-B gas fields to Indian firms as well as the pending payment by Indian refiners towards oil purchases from Iran but no concrete agreements were reached.
ONGC Videsh Ltd, the overseas investment arm of ONGC, along with its partners Indian Oil Corporation and Oil India had made the discovery in the Farsi offshore fields in Iran in 2008. The Farzad B block has estimated in-place reserves of 21.68 trillion cubic feet.
Tehran, which was India’s second largest crude oil supplier till 2010-11 and subsequently lost its share due to sanctions imposed by the US and the European Union, wants to increase its crude oil supplies to India. India imports close to 12 million tonnes of oil from Iran a year -- the fifth largest oil supplier to the country after Saudi Arabia, Iraq, Nigeria and Venezuela.
The issue relating to payment of dues by Indian refineries to Iran towards purchase of crude oil were also discussed. Pradhan conveyed that India was committed towards making payments as and when banking channels, acceptable to both sides, were available, said the government statement.
India and Iran are trying to enhance their energy ties following the lifting of some sanctions this year on Iran.
Iran wants India to boost its crude import from the West Asian nation quickly to take it to the level of pre-sanction years while India wants the lucrative purchase terms to continue.
Pradhan's visit to Iran comes comes nine years after the previous such visit by an Indian minister of petroleum and natural gas. It is the first after economic sanctions were lifted in January.
GS III: CYBER SECURITY.
Centre plans anti-terror cyber-push
Alarmed that an increasing number of young people are being radicalised by the Islamic State (IS) through online videos and social media groups, the Union government will come up with a “national social media policy” to counter the cyber-threat.
The policy, which follows a “blueprint” circulated by the Home Ministry to State agencies that deal with de-radicalisation, will focus on countering social media propaganda that follows any communally polarising incident in the country.
“The incident can be of any nature, it can be a communal riot, student’s unrest or even a petty fight between two communities. It can be used to invoke extreme sentiments among vulnerable people and twisted to suit a particular line of thought. Almost all the cases of recruitment of Islamic State in India have been done through the Internet and we want to be a step ahead in thwarting these attempts,” said a senior government official.
“We will see to it that positive content is pushed through social media and there is effective monitoring,” said the official.
He explained that IS recruiters begin by identifying possible candidates who ‘share’ or ‘like’ pro-IS literature, and then encourage them to share more content before trying to inveigle them into travelling to IS-controlled areas in Iraq and Syria.
During countrywide raids in January-February this year, the National Investigation Agency (NIA) had arrested 25 men for links with the Islamic State.
Consequently, the government has been working closely with intelligence agencies in UAE, Syria and Turkey to try and cut off the routes for Indian nationals, with both the National Security Adviser, Ajit Doval, and the Prime Minister’s Special Envoy for Counter radicalisation, Asif Ibrahim, making repeated visits to the region.
“The most preferred route for Indians is to travel to Dubai, Saudi Arabia or Bahrain on a tourist visa and from there to Turkey. Once in Turkey, it was easier to cross over to Syria. Recently Turkey has tightened vigil along its border and deported at least six Indians in the past when they were trying to cross over to Syria,” said the official.
The official said 48 Indians have been arrested in the past two years for IS links and 25 Indians have already travelled to Syria to fight alongside the radical outfit.
“We are planning to collaborate with the online community to strengthen reporting mechanisms and complaint procedures. We are also planning to take deterrent action in specific cases against producers and circulators of radical content under penal law,” said the official.
GS III: ECONOMY
India-EU free trade impasse may end: CII
Indian industry is ready to grant greater market access to European Union firms in areas such as automobiles, wines and spirits in return for gains in garments, automobiles, automobile components and services sector in a bid to end a deadlock on the proposed EU Free Trade Agreement, a trade body official told The Hindu.
“We hope to soon see some forward movement in the FTA negotiations,” said Naushad Forbes, the new President of the premier industry body the Confederation of Indian Industry. “We are not looking for reciprocal access or equal gains necessarily in the same sector, but it should be an FTA with an overall win-win outcome for European and Indian firms.”
During last month’s 13th India-EU Summit, which was attended by Prime Minister Narendra Modi and EU leaders, both the side failed to reach an agreement on free trade and a specific date to restart talks. The leaders welcomed the re-engagement of discussions for furthering the proposed pact.
India is open to giving greater market access to EU firms by lowering duties for automobiles, wines and spirits under the FTA provided it gets in return what it wants in other sectors, Mr. Forbes said. The automobile industry body Society of Indian Automobile Manufacturers and the auto-component industry body Automotive Component Manufacturers Association are on the same page with the CII on this issue, he said.
The talks on the FTA (officially known as the broad-based Bilateral Trade and Investment Agreement) had commenced in 2007 and both the sides had held 16 rounds of negotiations till 2013. Though India and the EU had held one stock-taking meeting each in the last three months on the FTA, formal negotiations are yet to re-start. The talks have been stalled as the negotiators have so far been unable to come up with a compromise solution to address the key demands of the EU — that India lower or eliminate duties on automobiles and wines & spirits, and India's main demands on data security status (crucial for India's information technology sector to do more business with the EU firms), easier temporary movement of skilled professionals and seamless intra-corporate movement.
While India looks into reducing or eliminating tariffs in sectors such as auto and liquor, the EU should do away with their non-tariff barriers that seem to have been erected mainly to protect some of their local firms but not as much for better safety or quality, Mr. Forbes said.
The EU is learnt to have asked India to substantially bring down the “high” duties on automobiles as a pre-condition for resumption of the FTA negotiations. India's import duty on cars are between 60 and 120 per cent as against the EU's 10 per cent.
The SIAM had earlier asked the commerce ministry not to buckle under pressure from the EU. The SIAM had sought continued protection for the sector saying reducing or eliminating duties on completely built units (CBU) as part of the India-EU FTA would encourage imports and in turn severely hurt the 'Make In India' initiative.
“An objective of the tariffs is protection of an infant industry till they can compete with experienced players in that industry. The problem is when it leads to permanent infancy where you have companies that never grow up. Therefore tariff measures are credible only if they are temporary. When a sector reaches a certain level of competitiveness, free trade should be encouraged, where if you are competitive you will survive and thrive, and if you are not, you will disappear,” Mr. Forbes said.
Official sources said if the EU persists with its demand on the automobile sector and seeks to keep it separate of the overall give-and-take involved in the FTA negotiations, India too would raise concerns regarding restrictions on temporary movement of skilled professionals to the EU. These curbs include the recent move by the UK to increase minimum salary threshold for intra-company transfers.
India has also sought agricultural market access in the EU as well as disciplining of Sanitary and Phyto-sanitary (norms related with plants and animals) and Technical Barriers to Trade to ensure that the concessions in the FTA that would be given by the EU result in effective market access. India is keen that the FTA outcome is balanced.
Since 2013, when the FTA talks were stalled, India has unilaterally undertaken several reforms (including those demanded by the EU) such as allowing 49 per cent foreign investment in insurance and pension, easing of foreign investments norms in the banking, defence and railways sectors.
It has also allowed 100 per cent FDI in telecom, single-brand retail and in the market-place model of e-commerce. These reforms were cited during the stock-taking meeting and the EU was asked about their internal reforms that would similarly benefit India, sources said.
The FTA negotiations were slated to restart in August 2015, but India deferred them saying it was disappointed and concerned over the EU imposing a ban on sale of around 700 pharmaceutical products clinically tested by GVK Biosciences. Both sides have since held talks to separately resolve the GVK issue.
GS III: DISASTER MANAGEMENT
Railway wagons carrying water for Latur reach Miraj
Railway wagons carrying water for parched Latur in Marathwada, which is battling the worst drought ever, reached Miraj in western Maharashtra from Kota in Rajasthan.
“Railway wagons reach Miraj. Filling of drinking water in process. Wagons to be sent to Latur soon,” Chief Minister Devendra Fadnavis said.
“The Maharashtra government and the Railway Ministry are working hard to bring relief to people in drought-affected region of Maharashtra,” Mr Fadnavis tweeted.
Railway Minister Suresh Prabhu said, “Fifty tank wagons steam-cleaned reached Miraj for Latur.”
“Water filling from Platform line 2-6 pm today on trial. We do our best for drought,” he tweeted.
On April 8, one of two goods trains carrying 50 tank wagons of water for drought-affected areas of Latur departed from Kota workshop for Miraj in the Pune division.
Rise in kidney stone cases
A significant rise in kidney stone and urinary tract infection cases due to consumption of borewell water has been witnessed in Latur.
“The administration is supplying water through tankers. This water is not pure and is contaminated. Due to lack of surface water, people are forced to drink water from borewells,” urologist Hansraj Baheti of Latur said.
“This water contains very high level of salts, calcium and oxalates. These salts make the water hard and people are more prone to kidney stone formation,” Mr Baheti said.
“In addition, people are facing scorching heat which is causing dehydration. This situation has given rise to many problems and led to serious health hazards such as increase in urinary stone and urinary tract infections,” he said.
“Compared to last year, the number of patients suffering from kidney stone disease has increased by more than two-fold this year,” Mr Baheti added.
“It has been found that women and children are the main victims. The situation is the same in the adjacent areas such as Kej, Ambajogai, Majalgaon, Parli, Omerga, and Osmanabad,” Mr Baheti said. — PTI