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- By the time PM Modi lands in Kigali, Rwanda on the first hop of his tour, China’s president Xi Jinping would have completed his trip to the central African nation
- Defence diplomacy is certainly a part of Modi’s agenda
- In Kigali, Modi is expected to preside over the signing of a broad agreement for bilateral defence cooperation
- While Delhi struggles to meet the growing demand in Africa for security cooperation, Beijing, a latecomer in this business, is racing ahead
Beijing’s stride in defence agreements in Africa
- China’s military diplomacy culminated recently in a fortnight-long China-Africa Defence and Security Forum in Beijing that saw senior military leaders from 50 nations across the continent in attendance
- At the forum, China promised “comprehensive support” for the modernisation of the armed forces of African nations
- This support includes the supply of new technologies as well as lending personnel and strategic advice
- According to the Stockholm Institute of Peace Research, China’s arms exports to Africa have increased 55 per cent during the period 2013-17 in comparison to the preceding five years
China’s strategy: Being Cost effective & Cooperative
- China does not boast of high-quality conventional weapons, its military gear is seen as quite cost-effective in Africa
- China has, over the last decade, ramped up its role in the peacekeeping missions in the African continent
- China has offered $100 million in grant aid to establish an African Rapid Response Force to cope with regional crises
- Besides the traditional areas of military security, Beijing has taken big steps towards cooperation with the African governments on internal security, including in the areas of countering terrorism and money laundering
- Strengthening domestic police forces has become an important element of China’s security strategy in Africa
- Beijing has also begun to invest considerable energy into what is being called “law-enforcement diplomacy”
Sharing new technologies
- China is also exporting artificial intelligence software that is boosting the surveillance capabilities of the African states through the use of such new technologies as facial recognition
- Beijing is now eager to export this technology to Africa’s security establishments
- Beijing collaboration with Africa on AI is mutually beneficial: It will promote social and political stability in Africa while improving the performance of China’s algorithms
What can India do?
- Almost all of the African leaders who came to the Third India-Africa Summit in October 2015 sought greater defence engagement with India
- But the gap between Delhi’s promise and performance on defence diplomacy continues to grow
- India does not have much of a defence industrial base to enter the African arms bazaar
- But India’s military training facilities have always been attractive to other developing countries, including those in Africa
- India has seen African peacekeeping in narrow diplomatic terms, for example in reinforcing its claims for a permanent seat in the UN Security Council
- India can’t match the massive resources that China deploys in the continent. But it does not mean Delhi can continue to ignore its responsibility to put India’s defence diplomacy in Africa and beyond
Both investment and its productivity should pick up as the deleveraging phase gets over, crowding-in benefits of public investment kick in and efficiency-enhancing reforms start bearing fruit.
- Both investment and its productivity should pick up as the deleveraging phase gets over, crowding-in benefits of public investment kick in and efficiency-enhancing reforms start bearing fruit.
What needs to be done?
- The recovery in investments will continue in fiscal 2019, led by government efforts to build roads and houses. Capacity utilization, which is a pre-condition to revival in private sector investments, should also keep improving.
- Additionally, the crowding-in impact of public investments is expected to kick in later. Yet a broad-based and decisive pick-up in the investment cycle will take time.
Facts and figures
- The share of gross fixed capital formation—fresh investments in the form of plant and machinery, dwellings and other buildings—in India’s gross domestic product (GDP), which is also called the investment rate, averaged 31% in fiscals 2015-2018, compared with 33.6% in fiscals 2010-2014. It touched a decadal low of 30.3% in fiscal 2016.
- The uptick in fixed investment growth (14.4%) in the fourth quarter of fiscal 2018, as shown by the recent Central Statistical Office (CSO) release, should be taken with a pinch of salt as the CSO numbers have a tendency to undergo revisions.
Why have investments been slow to pick up?
- Reasons for the decline in investments.
- The sticky share of private corporate sector investments in GDP
- A secular decline in household investments.
- CSO data shows private non-financial corporate investments have remained subdued, barring some improvement in fiscal 2017.
- Data from the Reserve Bank of India (RBI) paints a similar picture. It suggests capital expenditure by the private sector declined for the sixth straight year in fiscal 2017.
- However, it is important to note that the coverage of the RBI data is limited to institutional financing and does not include projects below ₹10 crore.
- Projects with private ownership below 51%, or undertaken by trusts, Central and state governments, and educational institutions are also excluded.
- The household sector was the biggest contributor to investments in fiscal 2012 (share of about 45%), but its share has declined consistently since then and was about 31% in fiscal 2017.
- Government investments improved from 3.7% of the GDP in fiscal 2015 to 4.2% as of fiscal 2017. But the government does not have the fiscal muscle to offset the sluggishness in household and private corporate investments, which pulled down the overall investment ratio.
A broad-based pick-up in private corporate investments
- The capacity overhang. Data from the RBI suggests overall capacity utilization declined to 74% at the end of December 2017 from 81% at the end of March 2011. CRISIL Research analysis corroborates this trend. Capacity utilization in some large industrial sectors, such as thermal power, two-wheelers, tractors, cars, cement and steel, remains below the peak, though we expect improvement in fiscal 2019.
- The focus of corporates on improving their capital structure: High leverage has also been haunting the corporate sector and has been a deterrent for fresh investments in the economy. Companies are, therefore, focused on improving capital structure than investments. Consequently, debt/equity and interest coverage ratios have improved, not so much investments.
- The transitory shocks from demonetization and implementation glitches in the roll out of the goods and services tax (GST) added to the uncertainty, which further delayed investment decisions.
What about productivity of investment?
- After a significant decline between fiscals 2012 and 2014, productivity of investments, as measured by incremental capital output ratio (ICOR), has shown some improvement in the last four years.
- Between fiscals 2015 and 2018, ICOR averaged 4.3 compared with 5.5 between 2012 and 2014—a period of growth slowdown and policy paralysis. Lower the ICOR, higher is the productivity of capital because ICOR measures the capital required to produce an additional unit of output.
- The recent ICOR, however, is still higher than the 3.4 achieved during the high-growth (over 9%) years of fiscals 2005 to 2008.
The way ahead
- This fiscal is expected to see a mild improvement in investments, given the government’s sharp focus on affordable housing, rural infrastructure and roads.
- The government has initiated a number of steps to ease the business environment:
- Big moves such as the GST and Insolvency and Bankruptcy Code (IBC).
- Introducing online single-window model for providing clearances and filing compliances.
- Fast-tracking foreign investments.
- Surpassing the Foreign Investment Promotion Board, have helped.
- So, both investment and its productivity should pick up as the deleveraging phase gets over, crowding-in benefits of public investment kick in and efficiency-enhancing reforms start bearing fruit. That will lead to faster economic growth.
- The government told the Supreme Court that live-streaming of court proceedings should start with the Chief Justice of India’s courtroom.
- It said live-streaming should be initially restricted to constitutional issues decided by the top judge.
- Appearing before a Bench led by Chief Justice of India Dipak Misra, Attorney-General K.K. Venugopal assured the court that the government was treating the proposal as a very serious and significant step to reach out to the ordinary litigant.
- In an earlier hearing, the Supreme Court had said it was ready to go live on camera, while the government had mooted a separate TV channel for live-streaming court proceedings.
- The court had referred to live-streaming as an extension of the “open court” system allowing the public to walk in and watch the court proceedings.
- Chief Justice Misra had said live-streaming would help litigants conveniently follow the court proceedings and assess their lawyers’ performance.
- People from far-flung States did not have to travel all the way to the national capital for a day’s hearing. Attorney-General K.K. Venugopal agreed that live-streaming would keep a check on the lawyers’ conduct.
- Indira Jaising, senior advocate who filed the petition in the Supreme Court in person, said agreements with broadcasters should be on a non-commercial basis.
- The fate of the governance of the National Capital Territory of Delhi was decided earlier this month by the Supreme Court
- But one had to pore over 500 pages of widely awaited judgment in order to understand the demarcation of powers between the Lieutenant Governor and the elected government
- It was yet another reminder about the need for crisp and on-message judgments
The need of crisp judgments
- First, erroneously drafted judgments run into pages and state the same point repeatedly
- Second, insensitive comments made in judgments can tarnish the quality of pronouncements
- Third, several judgments do not record submissions or issues raised by both parties, which often results in a reader being unable to make out the link between the legal provisions used to arrive at a judgment and the facts to which they are applied
- Lastly, in most judgments, a uniform structure (recording of facts, issues, submissions and then reaching the decision) is lacking
What can be done?
- Judicial academies play a significant role in equipping trainee judges to deliver lean, to-the-point judgments
- As judgment writing is one of the most requisite skills that a judge should possess, there has to be focussed training in this area
- To eliminate bias, training sessions could have diverse socio-economic scenarios which would also help trainee judges apply theories
- There can be variations of the same case scenario and the facts that are likely to induce value judgments
- Evaluation and a full class discussion must follow
- Another useful exercise is in re-writing judgments, particularly those that are difficult to understand due to a seeming lack of structure
- Trainee judges can be asked to identify structural lapses and rework them
- Judicial training must lay emphasis on the need for concise and reasoned judgments
Attempts in this direction
- The attempt towards improving judgment quality (in the form of training sessions on judgment writing conducted by judicial academies) appears to be ineffective
- Several judgments in lower and higher courts continue to remain verbose
- Judges-in-training do not go to areas of law or management that they want to be trained in and a generic syllabus is thrust upon them
- The pedagogical methodology of training is classroom-like, with little or no post-training evaluation
- Judicial academies must focus on practical-based training
- In the interim, higher courts and also the Supreme Court must consider summarising the crux of lengthy decisions into a separate official document
- Judicial decisions are the law of the land and if the law is unclear, it becomes increasingly difficult to follow or enforce them
- Prime Minister Narendra Modi will encounter challenges of Chinese competition as well as declining Indian trade and investment figures on his three nation, five-day tour to Africa, part of what officials called an unprecedented engagement with the continent by his government.
- Despite the ramping up of high-level visits, various studies and statistics show that Indian interest in the Africa growth story has not kept pace, and even declined through most of the period. The greatest slump appears to have been in investment figures.
- According to the “World Investment Report for 2018”, issued by the United Nations Conference on Trade and Development (UNCTAD), Indian FDI in Africa in 2016-17 at $14 billion was even lower than it was in 2011-12 at $16 billion.
- In fact, with the exception of the 2015 figures, which jumped due to a single investment of $2.6 billion by ONGC Videsh Ltd. for a stake in the Rovuma gas field of Mozambique in 2014, Indian investment in Africa has steadily decreased year-on-year since 2014.
- While one of the issues has been the investment climate in African countries itself, which has seen FDI flows drop 21% in 2016-17 according to UNCTAD, India is the only one of the big investors in Africa to have reduced its investment.
- China, for example, increased from 2011-12, when its investment levels were identical to India’s at $16 billion, to a massive $40 billion in 2016-17.
- A similar slump both in actual and comparative terms has been seen in India-Africa trade figures from 2013 to 2017, when export and import figures fell from $67.84 billion to $51.96 billion.
- The China-Africa bilateral trade, in comparison, has hovered around the $170 billion mark. In 2017-18, where only April-October figures have been released, the figure was $34.65 billion, indicating this year may finally see an increase.
- One of India’s biggest problems has been its concentration on East African trade and investment opportunities, as well as a dependence on petroleum and LNG, say experts. India’s exports to African countries have also been dominated by petroleum products, and a diversification is needed to broaden economic engagement.
- Leading lenders of the country signed an agreement among themselves to grant power to the lead lender of the consortium to draw up a resolution plan for stressed assets.
- The plan would be implemented in a time-bound manner before bankruptcy proceedings kick in, as was the mandate of the Reserve Bank.
- The move comes after the banking regulator, in its February 12 circular, dismantled all the existing resolution mechanisms, such as the joint lenders’ forum, and asked lenders to start resolution for the asset even if the default was by one day.
- It had also mandated that if the resolution plan was not finalised within 180 days, the account had to be referred for bankruptcy proceedings.
SBI, BoI on board
- The agreement, known as Inter-Creditor Agreement (ICA) was framed under the aegis of the Indian Banks’ Association and follows the recommendations of the Sunil Mehta Committee on stressed asset resolution.
- Lenders including State Bank of India, Bank of India, and Corporation Bank have already signed the pact.
- The ICA has been executed by 24 lenders, primarily those who have obtained their board approvals. Other lenders are expected to execute the ICA shortly after getting approval from the respective Boards. Non-banking financial companies are also expected to sign the agreement.
- The ICA is applicable to all corporate borrowers who have availed loans for an amount of Rs. 50 crore or more under consortium lending / multiple banking arrangements.
- The lender with the highest exposure to a stressed borrower will be authorised to formulate the resolution plan which will be presented to all lenders for their approval.
- The decision making shall be by way of approval of ‘majority lenders’ (i.e. the lenders with 66% share in the aggregate exposure). Once a resolution plan is approved by the majority…, it shall be binding on all the lenders that are a party to the ICA.
- Dissenting lenders can either sell their exposure to another lender at a 15% discount or buy the entire exposure of all the banks involved, at a 25% premium.
- One of the major issues that we identified was a lack of consensus among the lending banks on what should have been a common resolution plan which would have benefited the banks, so that there is a resolution in getting the asset back into the resuscitation mode rather than allowing it to impair over a period of time.
- This is primarily focussed on the Rs. 50 crore-Rs. 500 crore and the Rs. 500 crore-Rs. 2,000 crore categories. If there are any specific assets of more than Rs. 2,000 crore, we will deal with that separately.
- India in 2018 has fallen out of the top 10 destinations for FDI in terms of its attractiveness, according to an AT Kearney report, which says this could be due to teething troubles in the implementation of the goods and services tax and the government’s demonetisation decision in 2016.
- India ranks 11 in the 2018 AT Kearney FDI Confidence Index, down from 8 in 2017 and 9 in 2016.
- Some policies, however, may have deterred investors — at least in the short term. The 2017 nationwide goods and services tax, for example, has faced implementation challenges, and the 2016 demonetisation initiative disrupted business activity and weighed on economic growth.
- That said, the report highlighted several of the reforms — such as removing the Foreign Investment Promotion Board and liberalising FDI limits in key sectors — that have maintained India’s high rankings in terms of FDI attractiveness.
Notable reforms done
- Notable reforms include the elimination of the Foreign Investment Promotion Board, a government agency responsible for reviewing all potential foreign investment, and the liberalisation of foreign investment thresholds for the retail, aviation, and biomedical industries.
- The report added that potential investors are likely to be cautious as they are monitoring political risks such as China abolishing presidential term limits and the upcoming general election in India.
- The sheer size of the Chinese and Indian markets, however, will continue to be a draw for investors, and they remain the highest-ranking emerging markets on the index.
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