PM IAS FEBRUARY 02 CURRENT EVENTS

Cross border insolvency: UN model UNCITRAL

Context:

The Economic Survey 2021-22 has called for a standardised framework for cross-border insolvency as the Insolvency and Bankruptcy Code (IBC) at present does not have an instrument to restructure firms involving cross-border jurisdictions.

Relevance:

GS-II: International Relations

Dimensions of the Article:

1. What are Cross border insolvency proceedings?
2. About UNCITRAL
3. The UNCITRAL model
4. Indian framework’s difference with the model law

What are Cross border insolvency proceedings?

• Cross border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions.
• A framework for cross border insolvency proceedings allows for the location of such a company’s foreign assets, the identification of creditors and their claims and establishing payment towards claims as well as a process for coordination between courts in different countries.

Current status of foreign stakeholders in other jurisdictions under IBC

• While foreign creditors can make claims against a domestic company, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries.
• In the case of Jet Airways, when one of the company’s aircraft was grounded in Amsterdam over non-payment of dues to a European cargo firm, the National Company Law Tribunal had declined to “take on record” any orders of a foreign court regarding domestic insolvency proceedings in the absence of enabling provision in the IBC.
• The National Company Law Appellate Tribunal, however, permitted the recognition of Dutch proceedings as “non-main insolvency proceedings” recognising India as the Centre Of Main Interests (COMI) for the company.
• However, current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.

About UNCITRAL

• The United Nations Commission on International Trade Law (UNCITRAL) is a subsidiary body of the U.N. General Assembly (UNGA) responsible for helping to facilitate international trade and investment.
• Established by the UNGA in 1966, UNCITRAL’s official mandate is “to promote the progressive harmonization and unification of international trade law” through conventions, model laws, and other instruments that address key areas of commerce, from dispute resolution to the procurement and sale of goods.
• UNCITRAL carries out its work at annual sessions held alternately in New York City and Vienna, where it is headquartered.

The UNCITRAL model

• The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues. It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.
• The law allows automatic recognition of foreign proceedings and rulings given by courts in cases where the foreign jurisdiction is adjudged as the COMI for the distressed company. Recognition of foreign proceedings and reliefs is left to the discretion of domestic courts when foreign proceedings are non-main proceedings.
• The COMI for a company is determined based on where the company conducts its business on a regular basis and the location of its registered office.
• The framework for cross border insolvency adopted in India may like in the case of some other countries require reciprocity from any country which seeks to have its insolvency proceedings recognised by Indian courts. This would allow Indian proceedings for foreign corporate debtors to be recognised in foreign jurisdictions.

Indian framework’s difference with the model law

• Many countries that adopt the UNCITRAL model law do make certain changes to suit their domestic requirements.
• A report by the MCA has recommended that the Indian cross border insolvency framework exclude financial service providers from being subjected to cross border insolvency proceedings, noting that many countries “exempt businesses providing critical financial services, such as banks and insurance companies, from the provisions of cross- border insolvency frameworks.”
• The report has also recommended that companies undergoing the Pre-packaged Insolvency Resolution Process be exempted from cross border insolvency proceedings as the provisions for PIRP have been introduced recently, and the “jurisprudence and practice under the pre-pack mechanism are at a nascent stage”.

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What the Economic Survey says

Context

Putting the spotlight on the way forward after the pandemic, the Economic Survey of 2021-22  has analysed aspects such as inflation, global liquidity measures, and rising energy prices to detail the risks for the economy going ahead.

• It has also taken stock of growing revenues to indicate the availability of fiscal space, should the government see the need to provide additional support.

Relevance:

GS III- Indian Economy

Dimensions of the article:

1. Fiscal space
2. Vaccine economics
3. Inflation pressures
4. Global uncertainty
5. Energy risks
6. Supply side reforms
7. Industrial growth
8. Public spending
9. Way forward

Fiscal space

• The Survey notes that buoyant tax revenues and government policies have created “headroom for taking up additional fiscal policy interventions”.
• Stressing the need to continue the focus on capital expenditure, it has indicated that the government is on course to achieve the fiscal deficit target of 6.8% of GDP for the current year.
• Revenue receipts of the Centre during April-November 2021 have gone up by 67.2% (YoY) as against an estimated growth of 9.6% in the 2021-22 Budget Estimates.
• The Survey also argues that the banking sector is well placed to support the economy, as it is now “well capitalised and the overhang of Non-Performing Assets seems to have structurally declined”.

Vaccine economics

• The Survey says the progress of vaccination should be seen not just as a health response indicator, but also as a buffer against economic disruptions caused by repeated pandemic waves.
• This is based in part on the assumption that private consumption “is poised to see stronger recovery with rapid coverage in vaccination and faster normalisation of economic activity”, and the importance of vaccination in the re-opening of contact-intensive sectors.

Inflation pressures

• The Survey flags inflation as an issue. It has noted in particular that while India’s CPI inflation — 5.2% in 2021-22 (April-December) — is within the targeted tolerance band, WPI inflation has been running in double digits.
• This is partly due to base effects; however, “India does need to be wary of imported inflation, especially from elevated global energy prices”.
• Elevated inflationary pressures could potentially lead to unwinding of liquidity measures by systemically important central banks, including the US Federal Reserve.

Global uncertainty

• While the sizeable accretion of foreign exchange reserves — $633.6 billion as of December 31, 2021 — makes India’s external sector resilient for the withdrawal of liquidity measures, the Survey points out that the overall balance of risks for global trade is tilted to the downside.
• The biggest downside risk comes from the pandemic, it says, along with longer port delays, higher freight rates, and the shortage of shipping containers and inputs such as semiconductors.
• Supply-side disruptions, exacerbated by recovery in demand, pose significant risks for global trade.

Energy risks

• The report calls for a “diversified mix of sources of energy of which fossil fuels are an important part”, but simultaneously calls for focus on building storage for intermittent electricity generation from solar PV and wind farms to ensure on-demand energy supply.
• It asks the government to focus on the pace of the shift from conventional fossil fuel-based sources; and encourage R&D to ensure an effortless switch to renewable sources of energy.

Supply side reforms

• The Survey says the post-Covid economy will not merely be a “re-inflation” of the pre-Covid economy and, therefore, simply building it back with demand measures “is not a solution”.
• It calls for emphasis on developing a supply-side strategy to deal with the long-term unpredictability of the post-Covid world, emanating mainly from factors such as changes in consumer behaviour, technological developments, geopolitics, climate change, and their potentially unpredictable interactions.

Industrial growth

• The industrial sector, which suffered due to pandemic disruptions, is likely to record a growth of 11.8% in 2021-22, the Survey says.
• Although performance slowed during the year, the gradual unlocking of the economy and measures such as the PLI scheme for various sectors, along with policy initiatives such as the emergency credit line guarantee to micro, small, and medium enterprises will help aid the pace of recovery, the Survey noted.
• “The pace of this recovery and further growth is likely to continue due to consistent efforts of the government to bring in various structural, fiscal and infrastructural reforms in addition to a slew of measures/schemes like the production linked incentive scheme (PLI) to support industries,” it said.

Public spending

• After a slowdown in the first half of the ongoing financial year, capital expenditure by the Centre revived during October-December, the Survey notes.
• The first-half slowdown was mainly on account of Covid-19-led restrictions.
• During April-November 2021, capital expenditure grew by 13.5% (YoY), with focus in infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs.
• This increase, the Survey says, was particularly substantial given the high YoY growth in capital expenditure registered during the corresponding period of the previous year as well.

Way forward

• Basis the macro-economic stability indicators, the Survey believes that the Indian economy is “well placed” to take on the challenges of 2022-23.
• The government’s strategy has been to not pre-commit to a “rigid response” while using safety nets for vulnerable sections, and responding iteratively based on Bayesian-updating of information.
• The Survey proposes use of the Agile approach to policymaking with 80 high-frequency indicators in an environment of “extreme uncertainty”.
• The approach, used in project management and technology development, assesses outcomes in short iterations while constantly making incremental adjustments.
• The suggestion is based on the availability of a “wealth of real-time data” to take feedback-based decisions, the Survey says.

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Fortified rice

Context:

The Centre has distributed 3.38 lakh metric tonnes of fortified rice till December 2021 through anganwadis and mid-day meal schemes at government schools, according to the Economic Survey.

Relevance:

GS III- Indian Economy, Public distribution system

Dimensions of the article:

1. Key Points
2. About Food Fortification
3. Need for Food Fortification
4. About Fortification of Rice

Key Points:

The Centrally Sponsored Pilot Scheme on “Fortification of Rice and its Distribution under Public Distribution System (PDS)” has been approved for a period of three years beginning 2019-20.

• The Pilot Scheme is funded by Government of India in the ratio of 90:10 in respect of North Eastern, Hilly and Island States and 75:25 in respect of the rest of the States.
• The Pilot Scheme focuses on 15 districts, preferably 1 district per State.
• The decentralized model of fortification by States/UTs has been approved in the Pilot Scheme with blending at the rice milling stage.
• The operational responsibilities and identification of the districts for implementation of the Pilot Scheme lie with the States/UTs.
• States/UTs have been requested to operationalize blending of fortified rice at milling stage and start its distribution through PDS as early as possible.
• So far, 15 States have consented for implementation of the Pilot Scheme.

About Food Fortification:

• It is defined as the practice of adding vitamins and minerals to commonly consumed foods during processing to increase their nutritional value.
• It is a  safe strategy for improving diets and for the prevention and control of micronutrient deficiencies.
• It is a cost-effective strategy with demonstrated health, economic and social benefits.
• Since the nutrients are added to staple foods that are widely consumed, this is an excellent method to improve the health of a large section of the population, all at once.
• As per the Indian Council of Agricultural Research (ICAR) website, 21 varieties of biofortified staples including wheat, rice, maize, millets, mustard, groundnut had been developed by 2019-20.

Need for Food Fortification:

• Maternal and child undernutrition cause 45% of all deaths in children under five in low- and middle-income countries (LMICs)
• A particularly widespread problem in LMICs is hidden hunger, or a chronic lack of essential vitamins and minerals in the diet.
• Deficiencies in one or more micronutrients such as iron, zinc, and vitamin A compromise the physical and cognitive capacity of millions of people.
• Overall, it has been estimated that micronutrient deficiencies account for about 7.3% of the global burden of disease, and iron and vitamin A deficiency rank among the 15 leading causes of the global disease burden, contributing to the deaths of over one million children annually.

About Fortification of Rice

• It refers to the addition of key vitamins and minerals to increase the nutritional value of rice.
• The fortified Rice generally contains Vitamin A, Vitamin B1, Vitamin B12, Folic Acid, Iron and Zinc.
• Rice can be fortified by adding a micronutrient powder to the rice that adheres to the grains or spraying the surface of ordinary rice grains in several layers with a vitamin and mineral mix to form a protective coating.

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Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme

Context:

Demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme has dropped from the peak of the first lockdown, but is still higher than pre-COVID levels, the Department of Economic Affairs said in its annual Economic Survey.

Relevance:

GS-II: Social Justice and Governance (Health and Poverty related issues, Government Interventions and Policies, Issues arising out of the design and implementation of Government Policies)

Dimensions of the Article:

1. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
2. How MGNREGA came to be?
3. Features of MGNREGA
4. Objectives of MGNREGA

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

• Mahatma Gandhi National Rural Employment Guarantee Act, MGNREGA, is an Indian labour law and social security measure that aims to guarantee the ‘right to work’. This act was passed in September 2005.
• It aims to enhance livelihood security in rural areas by providing at least 100 days of wage employment in a financial year to every household whose adult members volunteer to do unskilled manual work.
• It covers all districts of India except the ones with 100% urban population.
• MGNREGA is to be implemented mainly by gram panchayats (GPs). The involvement of contractors is banned.
• Apart from providing economic security and creating rural assets, NREGA can help in protecting the environment, empowering rural women, reducing rural-urban migration and fostering social equity, among others.

How MGNREGA came to be?

• In 1991, the P.V Narashima Rao government proposed a pilot scheme for generating employment in rural areas with the following goals:
  • Employment Generation for agricultural labour during the lean season.
  • Infrastructure Development
  • Enhanced Food Security
• This scheme was called the Employment Assurance Scheme which later evolved into the MGNREGA after the merger with the Food for Work Programme in the early 2000s.

Features of MGNREGA

• It gives a significant amount of control to the Gram Panchayats for managing public works, strengthening Panchayati Raj Institutions.
• Gram Sabhas are free to accept or reject recommendations from Intermediate and District Panchayats.
• It incorporates accountability in its operational guidelines and ensures compliance and transparency at all levels.

Objectives of MGNREGA

• Provide 100 days of guaranteed wage employment to rural unskilled labour
• Increase economic security
• Decrease migration of labour from rural to urban areas.