PM IAS FEB 20 EDITORIAL ANALYSIS

Editorial 1: An effort to go green

Introduction:

• Can urban growth and expansion of green cover take place at the same time? Can new roads be laid in old neighbourhoods without uprooting avenue trees and roadside gardens? Telangana has proved yes.
• Over the past two years, Hyderabad, which has emerged as a powerhouse of infrastructure growth in Telangana, has won multiple awards for being a green city with an improving forest cover.

Achievements of Telangana and criticisms:

• Hyderabad now hosts country’s largest Miyawaki forest. Spread over 18 acres in Kavaguda near the airport, the forest has 126 species of native fruit and flowering trees and is a birds’ paradise.

The Miyawaki method — pioneered by Japanese botanist Akira Miyawaki — helps build dense, fast-growing forests with native plants, in a relatively shorter period of time than naturally grown forests.

• The State government has provided impressive numbers of tree plantations to show the state of the forest. An afforestation programme called Telangana Ku Haritha Hāram (the green garland of Telangana) is the key green initiative of the Telangana government.
• However, environmental advocates are puzzled by the numbers. They say they have seen the steady loss of tree cover. Further, reports regularly cite instances of fully grown trees being cut down for construction. Over the past few months, the pruning, cutting and translocation of trees for the Hyderabad E-Prix has also illustrated the conflict between green initiatives and so-called development. Citizens are campaigning to save nearly 900 banyan trees that are about 100 years old each, on the road to Chevella on the outskirts of Hyderabad.

• Hyderabad was also recognised as a ‘2020 Tree City of the World’ by the Arbor Day Foundation and the Food and Agriculture Organisation of the United Nations (FAO), along with 51 other cities in the world (during 2020 & cumulative 120 cities from 63 countries).
• Most of the cities were from countries – USA, UK, Canada, Australia etc. It is the only City in India to get this recognition so far.
• Questions have also been raised about the awards. It is the administrators who nominate the city for the Arbor Day Foundation’s ‘Tree City of the World’ award by providing a certification from the Mayor on the number of trees. There is no external auditing to establish the truthfulness of the information.

Way forward:

• Nevertheless, while the green initiatives have gained recognition, the State faces the challenge of encroachments into forest lands by the indigenous people. The right for permanent settlement in areas that were once considered forest has been a divisive issue and could impact voting patterns.
• Of the 119 constituencies in the State Legislature, 9 are reserved for Scheduled Tribes. According to the 2011 Census, STs form 9.3% of the State’s population. Speaking on the floor of the Assembly, Chief Minister promised distribution of ‘pattas’ (documents of ownership of land) to STs. He added a caveat. The land distribution, he said, is among the last efforts to regularise ownership of land and more encroachments into forests will not be allowed.

Conclusion:

• Will this dual approach of protecting forests and doing plantation drives pay dividends? It is too early to say. But it is clear that the Telangana government, with its initiatives, has its eyes set on becoming a ‘green State’. While the counting of trees planted in a park may not be a barometer of change, it is a step in the right direction. It creates awareness about the environment, which was sorely missing until a few years ago.

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Editorial 2: How is the stock market regulated in India?

Context:

• After short-seller Hindenburg Research published a report in January accusing the Adani Group of stock market manipulation and accounting fraud, its shares plummeted and investors were reported to have lost lakhs of crores.

The laws governing the market :

• The securities market in India is regulated by four key laws —

1. The Companies Act, 2013,
2. Securities and Exchange Board of India (SEBI) Act, 1992
3. Securities Contracts (Regulation) Act, 1956 (SCRA)
4. Depositories Act, 1996.

• The framing of these laws reflect the evolution and development of the capital market in India.

SEBI Act, 1992:

• This Act empowers SEBI to protect the interests of investors and to promote the development of the capital/securities market, besides regulating it. SEBI was given the power to

1. register intermediaries like stock brokers, merchant bankers, portfolio managers
2. regulate their functioning by prescribing eligibility criteria, conditions to carry on activities and periodic inspections.
3. It also has the power to impose penalties such as monetary penalties, including suspending or cancelling the registration.

SCRA, 1956:

• It empowers SEBI to :

1. recognise (and derecognise) stock exchanges
2. prescribe rules and bye laws for their functioning
3. regulate trading, clearing and settlement on stock exchanges.

Depositories Act, 1996:

• As part of the development of the securities market, Parliament passed the Depositories Act and SEBI made regulations to enforce the provisions. This Act introduced and legitimised the concept of dematerialised securities being held in an electronic form. Today almost all the listed securities are held in dematerialised form.
• SEBI set up the infrastructure for doing this by registering depositories and depository participants. The depository regulations empower SEBI to regulate functioning of depositories and depository participants by prescribing eligibility conditions, periodic inspections and powers to impose penalties including suspending or cancelling the registration as well as monetary penalties.

Can SEBI step in to curb market volatility?

• While SEBI does not interfere to prevent market volatility, exchanges have circuit filters — upper and lower — to prevent excessive volatility. But SEBI can issue directions to those who are associated with the market, and has powers to regulate trading and settlement on stock exchanges.
• Using these powers, SEBI can direct stock exchanges to stop trading, totally or selectively. It can also prohibit entities or persons from buying, selling or dealing in securities, from raising funds from the market and being associated with intermediaries or listed companies.

What are the guidelines on fund-raising?

• The Companies Act, which regulates companies incorporated/registered in India, has delegated the authority to enforce some of its provisions to SEBI, including:

1. regulation of raising capital
2. corporate governance norms such as periodic disclosures, board composition, oversight management
3. resolution of investor grievances.

Guidelines:

1. In order to regulate fund-raising activities, SEBI first brought out a set of guidelines called the Disclosure and Investor Protection Guidelines which were thereafter subsumed into a more comprehensive Issue of Capital and Disclosure Requirement Regulations.
2. In order to ensure that listed companies followed corporate governance norms, SEBI notified the Listing Obligations and Disclosure Requirements Regulations in 2015.
3. Besides these regulations, the Collective Investment Regulations define a CIS (collective investment scheme) and provide for penal actions against those running unregistered CIS schemes.

Regulation of stock exchanges:

• The SCRA has empowered SEBI to recognise and regulate stock exchanges and later commodity exchanges in India. The term “securities” is defined in the SCRA and powers to declare an instrument as a security remain vested in SEBI.
• The rules and regulations made by SEBI under the SCRA relate to listing of securities like equity shares, the functioning of stock exchanges including control over their management and administration. These include powers to determine the manner in which a settlement is done on stock exchanges (and to keep them with the times for e.g. T+1) and recognising and regulating clearing corporations, which are central to the management of the trading system.
• An important aspect of the regulation of stock exchanges is also the provision for arbitrating disputes that arise between stock brokers who trade on stock exchanges and investors who are clients of such stock brokers. The Act also seeks to protect the interests of investors by creating an Investor Protection Fund for each stock exchange.

The safeguards against fraud :

• Fraud undermines regulation and prevents a market from being fair and transparent. SEBI notified the Prohibition of Fraudulent and Unfair Trade Practices Regulations in 1995 and the Prohibition of Insider Trading Regulations in 1992 to prevent the two key forms of fraud, market manipulation, and insider trading.

Insider trading is the trading of a public company’s stock or other securities based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make.

• These regulations, read with provisions of the SEBI Act, define species of fraud, who is an insider and prohibit such fraudulent activity and provide for penalties including disgorgement of ill-gotten gains.
• The violation of these regulations are predicate offences that can lead to a deemed violation of the Prevention of Money Laundering Act, 2002.
• SEBI has been given the powers of a civil court to summon persons, seize documents and records, attach bank accounts and property, and to carry out investigations. Using these powers, SEBI has acted against entities and individuals like Satyam, Sahara India, Ketan Parekh and Vijay Mallya.
• Corporate activities include acquisition of other companies, merger of companies and buy back of shares; SEBI has notified the Substantial Acquisition of Shares and Takeovers Regulations to ensure that acquisitions and change of management are done only after giving an opportunity to public shareholders to exit the company if they want to.
• The wealth of investors includes a portfolio of securities. SEBI ensures protection of investors’ interests by regulating the listing and trading of equity shares and other securities, and by registering and regulating institutions handling public funds.
• Appeals against orders of SEBI and the stock exchanges can be made to the Securities Appellate Tribunal (SAT) comprising three members. Appeals from the SAT can be made to the Supreme Court.

Conclusion:

• Supreme Court (SC) recently asked the Securities and Exchange Board of India (SEBI) and the government to produce the existing regulatory framework in place to protect investors from share market volatility. The current Adani controversy shows the need for periodic judicial- and Parliamentary- scrutiny over the functioning of SEBI.