Editorials/Opinions Analysis For UPSC 31 December 2024

Content:

1. The Sheikh Hasina extradition demand, India’s options
2. States and the danger of poorly manufactured drugs
3. Currency concerns
4. UPI duopoly’s rise and market vulnerabilities

 The Sheikh Hasina Extradition Demand, India’s Options

Context

• Sheikh Hasina, ousted former Prime Minister of Bangladesh, fled to New Delhi in August 2024 amid anti-government protests.
• On December 23, 2024, Bangladesh formally requested India to extradite her for judicial proceedings.
• She faces charges of genocide, crimes against humanity, and state-sponsored violence against protesters during her regime.

Relevance : GS 2(International Relations)

Practice Question : Sheikh Hasina’s extradition demand by Bangladesh has raised several legal and diplomatic issues for India. Discuss India’s legal obligations in this case, the challenges involved, and the implications for India-Bangladesh relations.(250 Words)

Legal Frameworks and Challenges

Bangladesh’s Legal Position

• Arrest warrants issued by the International Crimes Tribunal on October 17, 2024.
  • Section 339B of the Bangladeshi Code of Criminal Procedure allows trial in absentia.
  • International Criminal Court (ICC) precedent for in absentia hearings (e.g., Joseph Kony case).

India’s Legal Obligations

• India and Bangladesh share a 2013 bilateral extradition treaty.
  • India’s Extradition Act, 1962 governs extradition requests.
  • Customary International Law Principle: Aut dedere aut judicare (extradite or prosecute).

India’s Defenses

Political Offense Exception

• Extradition can be denied if the accused is charged with political offenses.
  • However, crimes like genocide and torture do not qualify as political offenses.

Non-Inquiry Rule in Common Law

• Traditionally, extradition is an executivedecision, but this practice has limited contemporary support.
  • Articles 20 and 21 of the Indian Constitution protect Hasina’s human rights, even as a non-citizen.

Proposed Solutions for India

Conditional Cooperation

• Allow Sheikh Hasina to remain under house arrest in India.
  • Facilitate her trial via video conferencing with legal representation in Bangladesh.
  • Ensure access for Bangladeshi investigators while safeguarding her human rights.

Judicial Oversight

• India’s judiciary may oppose extradition citing risks of torture or unfair trial in Bangladesh.
  • Past judgments (e.g., NHRC vs. State of Arunachal Pradesh, 1996) support non-citizen protection.

International Dimensions

Role of the ICC

• Bangladesh is a party to the Rome Statute, enabling ICC jurisdiction.
  • ICC can intervene if domestic trials lack impartiality, per Articles 17 and 53.
  • Hasina’s rights under Article 14 of the ICCPR and Article 21(3) of the Rome Statute must be ensured.

Complementarity Principle

• ICC acts as a court of last resort, intervening only if national proceedings fail to deliver justice.

Broader Implications for India-Bangladesh Relations

Diplomatic Sensitivities

• India must balance its support for democraticprocesses in Bangladesh with bilateral ties.
  • Ensuring a fair trial for Hasina aligns with international human rights standards.

Geopolitical Considerations

• Any perceived interference in Bangladesh’s judiciary could impact India’s regional standing.
  • Collaboration could strengthen India’s image as a responsible global actor.

States and The Danger of Poorly Manufactured Drugs

Context: The recent deaths of five young mothers in Ballari, Karnataka, due to contaminated drugs highlight systemic issues in India’s drug regulatory framework. This incident underscores the challenges posed by poorly manufactured drugs from other states flooding local markets.

Relevance : GS 2(Health)

Practice Question : What are the key challenges in India’s drug regulatory framework, and how can inter-state coordination be improved to ensure drug safety?(250 Words )

Issues Involved:

Fragmented Regulatory Framework:

• The Drugs and Cosmetics Act, 1940, assigns responsibility for licensing and inspecting manufacturing units to the state where the pharmaceutical company operates.
  • States receiving drugs from other states lack regulatory authority to act against non-standard quality (NSQ) drugs unless criminal prosecution is initiated.

Data on Substandard Drugs:

• Of 894 drug samples tested in Karnataka over three years, 601 NSQ samples originated from manufacturers outside the state.
  • Enforcement measures are slow, as criminal prosecutions often take years.

Lack of Information Sharing:

• No centralised database exists to track inspection reports, licensing information, or NSQ test results from across the country.
  • Procurement agencies rely on the self-disclosures of pharmaceutical companies, often with no means of independent verification.

Challenges in Enforcement:

• Only inspectors in the home state of the manufacturing unit can suspend or cancel a manufacturing license.
  • Public procurement agencies face difficulties in screening and avoiding NSQ drugs.

Proposed Solutions:

Centralised Information Sharing:

• Unified Database for Drug Test Results:
  • Include all central and state drug testing lab results.
  • Facilitate risk-based enforcement decisions and improve procurement standards.

• Inspection and Licensing Records:
  • Establish a shared platform for inspection reports and licensing details of all pharmaceutical companies across states.
  • Procurement agencies can prioritize sourcing from states with rigorous regulatory practices.

Blacklist Registry for Manufacturers:

• A centralised register of pharmaceutical manufacturers blacklisted for supplying NSQ drugs.
• Ensure procurement agencies can verify claims independently before awarding tenders.

Empowering State Authorities:

• Amend the Drugs and Cosmetics Act, 1940 to:
  • Grant state drug controllers authority to block the sale of drugs from external manufacturers under investigation for adverse events.
  • Permit states to take immediate preventive action to safeguard public health.

Legislative Reforms at the Central Level:

• The Union Ministry of Health must lead reform efforts to modernize and harmonize drug regulation across states.
• Address inter-state gaps in enforcement, inspection, and data sharing.

Currency Concerns

Context: The Indian rupee has faced significant pressure in recent times, hitting an all-time low of 85 against the U.S. dollar on December 19, and approaching the 86-mark shortly thereafter. The Reserve Bank of India (RBI) has intervened to stabilize the currency, but a mix of domestic and global factors has compounded the rupee’s challenges.

Relevance : GS 3(Indian Economy )

Practice Question: Examine the factors behind the recent depreciation of the Indian rupee. Discuss its implications on India’s trade, inflation, and investment, and suggest measures to mitigate the impact.(250 Words)

Factors Affecting the Rupee:

Foreign Portfolio Investment Outflows:

• Sustained outflows of foreign portfolio investments (FPIs) have been a key driver of the rupee’s depreciation.
  • The peak of key stock market indices in late September, coupled with weak corporate performance during the July-September quarter, has led to a shift in investment portfolios from emerging markets, including India.

Global Factors:

• U.S. Dollar Strengthening:
  The rise in the U.S. dollar, especially after Donald Trump’s election, has added pressure on emerging market currencies, including the rupee. Trump’s protectionist policies, such as the proposed tariffs on BRICS nations, have rattled investor confidence.
  • China’s Economic Stimulus:
    China’s efforts to boost its economy have led to portfolio reallocation from India to China, further weakening the rupee.

India’s Trade Imbalance:

• Trade Deficits:
  India’s goods trade is facing record deficits, contributing to an increased current account deficit (CAD), which is expected to double to about 2.4% of GDP in the current quarter.
  • Import Bills:
    Rising import bills, especially for inelastic items like crude petroleum and edible oil, are putting additional strain on the rupee.
  • Services Trade Surplus:
    While India continues to benefit from a surplus in services trade, the uncertainty surrounding the H-1B visa regime, especially in light of U.S. immigration policies under Trump, could dampen future gains.

RBI’s Intervention Limitations:

• While the RBI has been actively intervening in the foreign exchange market to control the rupee’s fall, there is a limit to the extent it can deplete foreign exchange reserves.
  • The government’s recent acknowledgment that exchange rate fluctuations impact monetary policy flexibility further complicates the situation.

Implications for India:

Imported Inflation:

• A depreciating rupee increases the cost of imports, particularly for essential commodities like crude oil and edible oil. This imported inflation can affect domestic consumers and businesses, especially those reliant on these imports.

Exporters’ Benefits:

• While a weaker rupee may benefit exporters by making Indian goods and services cheaper for foreign buyers, the overall impact of the rupee’s fall could still be negative due to rising import costs and inflationary pressures.

Uncertainty in Foreign Investment Flows:

• Foreign investment flows remain uncertain, especially with the U.S. monetary policy outlook for 2025. If the U.S. Federal Reserve raises interest rates, it could lead to further capital outflows from emerging markets, exacerbating the pressure on the rupee.

Domestic Economic Drivers:

• India’s internal economic challenges, such as faltering consumption and weak investment sentiment, are exacerbating the impact of the rupee’s fall. These factors hinder the country’s overall economic growth prospects.

Policy Recommendations and Strategic Approaches:

Strengthen External Resilience:

• Policymakers must focus on strengthening the country’s external resilience, ensuring that the current account deficit remains manageable. This includes improving export competitiveness, diversifying trade partners, and reducing dependence on imports of inelastic goods.

Monetary and Fiscal Coordination:

• To effectively manage the rupee’s volatility, the central bank and finance ministry need to coordinate their policies, balancing exchange rate management with broader macroeconomic stability.

Reassurance on Trade Policies:

• Given the uncertainties related to U.S. policies, particularly the H-1B visa and trade tariffs, the Indian government should reassure both domestic and international stakeholders regarding its commitment to maintaining an open and competitive trade environment.

Diversify Investment Sources:

• To mitigate the impact of foreign portfolio outflows, India should focus on increasing domestic investment and attracting more foreign direct investment (FDI), which is less volatile than portfolio investments.

UPI Duopoly’s Rise And Market Vulnerabilities

Context:

Unified Payments Interface (UPI) has experienced rapid adoption in India, becoming a cornerstone of digital payments. However, as UPI grows, there are significant concerns regarding market concentration and the emergence of a duopoly dominated by two foreign-owned Third Party App Providers (TPAPs) — PhonePe and Google Pay. Together, they control over 85% of the UPI market, raising critical issues regarding market risks, innovation, and competition.

Relevance : GS 3(Indian Economy)

Practice Question:
Critically analyze the implications of market concentration in India’s UPI ecosystem. Suggest measures to address systemic vulnerabilities, promote competition, and safeguard data sovereignty in digital payment systems.(250 Words)

Risks in the UPI Ecosystem:

Systemic Vulnerability:

• The market concentration in UPI’s payment infrastructure creates significant single points of failure.

• With PhonePe and Google Pay handling the bulk of transactions, any disruption in their services could have a cascading impact across the entire payments network, compromising the resilience and reliability of the system.

• To prevent this, the UPI ecosystem must build failsafes and backup systems that ensure uninterrupted service, safeguarding public trust in the payment infrastructure.

Decreased Competition and Innovation:

• The dominance of these two TPAPs has led to high barriers to entry for smaller competitors.

• With a zero-charge model for consumers, players in the UPI ecosystem compete primarily on user scale. Once a platform reaches critical mass, it can leverage its user base for cross-selling financial products rather than focusing on innovative solutions.

• Market consolidation reduces the incentive to invest in new technologies or service offerings, ultimately stifling competition and innovation in the payments sector.

Foreign Dominance and Data Concerns:

• Both PhonePe (owned by Walmart) and Google Pay (owned by Google) are foreign-owned, raising concerns about foreign control over critical national infrastructure.

• The dominance of foreign players presents risks, particularly around data privacy, sensitive information access, and potential geopolitical implications related to data handling.
  • While foreign participation is not inherently problematic, a more level playing field for Indian-owned TPAPs could mitigate risks related to data sovereignty and national security.

Regulatory Challenges and Delays:

National Payments Corporation of India (NPCI) Directive:

• In 2020, NPCI introduced a market share cap to prevent the two dominant players from monopolizing the market. The limit was set at 30% market share per TPAP, with a deadline for implementation.

• However, the deadline has been extended multiple times, allowing PhonePe and Google Pay to consolidate their dominance.

• As of August 2024, PhonePe holds 48.36% and Google Pay 37.3% of the market, far exceeding the initial cap.

Potential Increase in Market Share Cap:

• There are discussions within the NPCI to increase the market share cap from 30% to 40%, which could further entrench the dominance of the leading players.

• This extension of the cap, while addressing short-term concerns, might inadvertently prevent smaller Indian developers from competing and innovating, thereby stalling the broader UPI ecosystem’s growth.

Policy Recommendations:

Enforce Market Share Caps:

• To reduce systemic risks and encourage healthy competition, the NPCI must enforce the market share cap without further delays.

• Strict compliance with the cap will allow smaller players to carve out a niche in the market and drive innovation in service offerings.

Encourage Indian-Owned TPAPs:

• India should prioritize the development of domestic TPAPs, ensuring that Indian players have the necessary resources and incentives to compete at scale.

• This could include measures such as financial support, regulatory incentives, and technology partnerships to level the playing field and reduce the risk of foreign dominance.

Safeguard Data Sovereignty:

• The government and regulators must ensure that data protection policies are robust, especially with regard to foreign-owned platforms.

• This could involve stronger regulations around data storage, processing, and cross-border data flows to safeguard Indian users’ personal and financial information.

Promote Innovation in UPI:

• To make UPI more inclusive, the ecosystem should prioritize innovations that cater to underserved segments, such as rural populations and small businesses. This could include simpler user interfaces, local language support, and innovative payment solutions to drive adoption across India.