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Daily Category  (Indian Economy )

Google and Competition Commission of India (CCI)

Context:

  • Google has moved the Delhi High Court against the Competition Commission of India (CCI) over the leak of a report.

CCI Denies Leaking Confidential Probe Report Against Google; Tells Delhi  High Court That Google Should Sue Media Houses

Abuse of dominance:

  • It entails allegations of abuse of dominance in the Android smartphone market.

  • CCI had concluded that Google had “restricted” the ability of manufacturers to develop and reportedly sell alternative versions of its Android operating system.

Google approached the high court:

  • It protested against the leak of the report claiming that the leak impairs the company’s ability to defend itself.

  • Because an investigative report by the Director General of the CCI does not constitute final orders by the CCI.

    • The report is reviewed by members of the CCI before the regulator passes any final orders which could include penalties.

  • Google said it was “protesting against the breach of confidence.

  • Google had “cooperated fully and maintained confidentiality throughout the investigative process,” and expected the “same level of confidentiality” from the CCI.

Allegations against Google:

  • The CCI had ordered an investigation into the conduct of Google in the smartphone market.

  • Google required smartphone manufacturers to sign to pre-install google play store restricted the ability of manufacturers to develop and sell alternative versions of android.

  • The commission had also noted that a requirement by Google that any manufacturer pre-installing the google play store on their devices also pre-install the entire suite of google apps was also prima facie a violation of competition law.

  • Google is also facing a similar antitrust probe for its conduct in the smart television market.

Competition Commission of India (CCI):

  • CCI is the competition regulator in India.

  • It is a statutory body responsible for enforcing the Competition Act, 2002.

  • It promotes competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.

  • It was established in 2003. It became fully functional in 2009.

  • Prohibition: It prohibits

    • Anti-competitive agreements,

    • Abuse of dominant position by enterprises

  • Regulation: It regulates combinations (acquisition, acquiring of control), which causes or likely to cause an appreciable adverse effect on competition within India.

Source: Indian Express

Telecom Industry Revival

Context:

  • The Union Cabinet approved a set of financial relief measures to help major telecom companies in trouble.

Telecom Trouble:

  • Companies such as Vodafone Idea and Bharti Airtel have seen their business hit hard by

    • Financial demands made by the government and

    • Cut-throat competition.

  • In 2019, the Supreme Court had ordered telecom companies to pay dues worth over ?1.4 lakh crore to the government, which they are yet to complete.

See the source image

Telecom companies in trouble:

  • Telecom companies traditionally paid a fixed fee to purchase spectrum under lease from the government.

  • Since 1999, however, apart from the spectrum licence fees, they have also had to share a certain proportion of their adjusted gross revenue (AGR) with the government.

  • Disagreement: The government and the telecom companies have disagreed on what counts as AGR.

  • Companies have argued that the government cannot classify their non-telecom revenues as AGR and demand a share of it.

  • The dispute landed in court and eventually ended in favour of the government with the Supreme Court ordering companies to pay all their accumulated AGR dues.

  • The order put immense stress on the balance sheets of the companies which were already in trouble owing to an intense price war.

Directions given by the Supreme Court:

  • Raise no dispute: The apex court directed the telecom companies shall raise no dispute nor will they be any reassessment of the dues.

  • Payment of dues: The telecom operators would make the payment of 10% of the total dues as demanded by the Department of Telecom by March 31, 2021.

  • Yearly installments: The yearly installments would commence from April 1, 2021, up to March 32, 2031. The installments would be paid by March 31 every year.

  • Payment of arrears: The Managing Director/Chairman or other authorized officer should give an undertaking within four weeks, to make payment of arrears.

  • Bank guarantee: The telcos shall keep alive the existing bank guarantees they had submitted regarding the spectrum until the payment is made.

  • Telecom majors like Vodafone had mentioned they were in no position to give fresh bank guarantees for repayment of the AGR dues.

Adjusted gross revenue (AGR):

  • AGR is the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT).

  • It is divided into spectrum usage charges and licensing fees, pegged between 3-5 % and 8 % respectively.

  • As per DoT, the charges are calculated based on all revenues earned by a telco – including non-telecom related sources such as deposit interests and asset sales.

  • Telcos, on their part, insist that AGR should comprise only the revenues generated from telecom services.

Concessions offered by the government:

  • The Centre has offered the companies a four-year moratorium on spectrum and AGR dues to relieve them of their financial stress.

  • They can now opt to pay these dues and the interest accumulated on them at the end of the moratorium period.

  • If a company is unable to pay the accumulated dues by the end of the moratorium it can negotiate with the government to give it an equity stake in lieu of the accumulated dues.

  • Moreover, the government has eased its policy stance in order to decrease the future liabilities of the companies.

  • It has declared that they do not have to share with the government revenues that they receive from non-telecom sources.

  • Foreign direct investment: Further, to make investment in telecom companies easier, the Centre has allowed 100% foreign direct investment without the need for government clearance.

  • It has also eased bank guarantee requirements against licence fee and done away with penalties imposed on late payment of fees.

Government measures to help telecom companies:

  • The relief measures announced by the government are expected to free up cash from the balance sheets of the companies.

  • The hope is that they will use this cash to invest in expanding and strengthening their business, thus becoming more capable of paying back their dues.

  • It should be noted that the government has not agreed to waive off dues that companies already owe the government or the dues that will arise over the next four years.

  • Government’s decision to waive off charges on future non-telecom revenues as significant because it puts to rest the two-decades long controversy in the telecom sector over what counts as AGR.

  • It will not relieve the pain of the companies like Vodafone Idea, which has a total debt of nearly ?2 lakh crore.

  • Government’s offer to convert the spectrum and AGR dues of the companies into equity may cause Vodafone Idea to come under government control.

  • This risk could deter investors from infusing fresh capital into the company.

Impact on telecom tariffs:

  • A major reason for the crisis in the telecom sector has been the intense competition.

  • This has led to the overwhelming supply of telecom services, in turn leading to lower prices that have made India a country with one of the lowest telecom tariffs in the world.

  • Government should let troubled telecom companies like Vodafone Idea to fail and exit the market, just as other telecom companies have done in the past.

    • This will cause supply to drop and prices to rise.

  • The last major increase in tariffs came in December 2019. A further rise in tariffs is expected as the companies try to boost their average revenue per user to match the rising costs.

Source: The Hindu

Changing the Agricultural Export Basket

Context:

  • The Indian government has been encouraging agricultural exports to meet an ambitious target of $60bn by 2022.

Agricultural Exports:

  • Contribution of agricultural and processed food products in India’s total exports is 11%.

  • Major commodities: Primary processed agricultural commodities form the majority share.

  • Value-added products: India’s export earnings will increase by focusing more on value-added processed food products rather than primary processed agricultural commodities.

  • From 2015-16 to 2019-20, the value of agricultural and processed food increased significantly from $17.8bn to $20.65bn.

  • Agricultural Shift: The Indian agricultural economy is shifting from primary to secondary agriculture where the focus is more on developing various processed foods.

  • The Indian food processing industry promises high economic growth and makes good profits.

INDIA'S AGRICULTURAL EXPORTS SECTOR

Changes over the years:

  • India’s agricultural export basket is changing from traditional commodities to non-traditional processed foods.

  • Traditionally, Basmati rice is one of the top export commodities. However, now there is an unusual spike in the export of non-basmati rice.

    • In 2020-21, India exported 13.09 million tonnes of non-basmati rice ($4.8bn), up from an average 6.9 million tonnes ($2.7bn) in the previous five years.

  • Similarly, Indian buffalo meat is seeing a strong demand in international markets due to its lean character and near organic nature.

    • The export potential of buffalo meat is tremendous, especially in countries like Vietnam, Hong Kong and Indonesia.

  • In 2020-21, the export of poultry, sheep and goat meat, cashew kernels, groundnuts, guar gum, and cocoa products went down in terms of value and total quantity.

  • The export of processed food products has not been growing fast enough because India lacks comparative advantage in many items.

    • This may imply that the domestic prices of processed food products are much higher compared to the world reference prices.

  • The main objective of the Agriculture Export Policy is to diversify and expand the export basket.

Difficulties and non-tariff measures to Agri Export:

  • Mandatory pre-shipment examination by the Export Inspection Agency being lengthy and costly;

  • Compulsory spice board certification being needed even for ready-to-eat products which contain spices in small quantities;

  • Lack of strategic planning of exports by most State governments;

  • Lack of a predictable and consistent agricultural policy discouraging investments by the private sector;

  • Prohibition of import of meat- and dairy based-products in most of the developed countries;

  • Withdrawal of the Generalised System of Preference by the U.S. for import of processed food from India;

  • Export shipments to the U.S. requiring an additional health certificate; and

  • Absence of an equivalency agreement with developed countries for organic produce.

The way forward:

  • The Centre’s policy should be in the direction of

    • Nurturing food processing companies,

    • Ensuring low cost of production and

    • Global food quality standards, and

    • Creating a supportive environment to promote export of processed food.

  • Higher standards: Developed countries have fixed higher standards for import of food items.

  • Reputed Indian brands should be encouraged to export processed foods globally as they can comply with the global standard of codex.

  • Indian companies should focus on cost competitiveness, global food quality standards, technology, and tap the global processed food export market.

  • India has competitive advantages in various agricultural commodities which can be passed onto processed foods.

  • It has the potential to become a global leader in the food processing sector.

Source: The Hindu

Stable Coins - Innovation of The Cryptocurrency

CONTEXT:

  • Stablecoins might be the most ironically named innovation of the cryptocurrency era, at least in the eyes of many Washington regulators and policymakers.

Stablecoins, are these a solution for volatile cryptocurrencies? - Blogs -  Televisory

What is a stablecoin?

  • A stablecoin — stablevalue coin, if you’re feeling proper — is a type of cryptocurrency that is typically pegged to an existing government-backed currency.

  • To promise holders that every $1 they put in will remain worth $1, stablecoins hold a bundle of assets in reserve, usually short-term securities such as cash, government debt or commercial paper.

  • Stablecoins are useful because they allow people to transact more seamlessly in cryptocurrencies that function as investments, such as Bitcoin.

  • They form a bridge between old-world money and new-world crypto.

  • But many stablecoins are backed by types of short-term debt that are prone to bouts of illiquidity, meaning that they can become hard or impossible to trade during times of trouble.

  • Despite that somewhat shaky backing, the stablecoins themselves promise to function like perfectly safe holdings.

Key Features:

  • These digital currencies promise to maintain their value, which is generally pegged to a government currency like the dollar or euro, by relying on stable financial backing like bank reserves and short-term debt.

  • They are exploding in popularity because they are a practical and cheap way to transact in cryptocurrency.

  • Stablecoins have moved from virtual nonexistence to a more than $120 billion market in a few short years, with the bulk of that growth in the past 12 months.

Stablecoins, Explained: The Convenience of Crypto with the Stability of a  Standard Currency

Are they all equally risky?

  • Stablecoins are not all created equal. The largest stablecoin, Tether, says it is roughly half invested in a type of short-term corporate debt called commercial paper.

  • The commercial paper market melted down in March 2020, forcing the Fed to step in to fix things.

    • If those types of vulnerabilities strike again, it could be difficult for Tether to quickly convert its holdings into cash to meet withdrawals.

  • Other stablecoins claim different backing, giving them different risks.

  • But there are big questions about whether stablecoins actually hold the reserves that they claim.

  • Tether and Bitfinex, a cryptocurrency exchange, was investigated alleging in part that Tether had at one point obscured what the stablecoins had in reserve.

  • The companies’ settlement with the state included a fine and transparency improvements.

  • It is also difficult to track just how stablecoins are being used.

What can regulators do?

  • The trouble with stablecoins is that they slip through the regulatory cracks.

  • They aren’t classified as bank deposits, so the regulators have limited ability to oversee them.

  • The Security market regulator has some authority if they are defined as securities, but that is a matter of active debate.

  • State-level regulators have managed to exert some oversight, but the fact that significant offerings — including Tether — are based overseas could make it harder for the federal government to exercise authority.

  • Regulators are looking into their options now.

A few of the top regulatory options include:

  • Designate them as systemically risky. Because stablecoins are intertwined with other important markets.

  • Financial Stability Oversight Council could designate them a systemically risky payments system, making them subject to stricter oversight.

  • While the market may not be big enough to count as a systemic risk now, the Dodd Frank Act gives regulators the ability to apply that designation to a payments activity if it appears to be poised to become a threat to the system in the future.

  • If that happened, the Fed or other regulators would then need up to come up with a plan to deal with the risk. Treat them as if they were securities.

  • The government could also label some stablecoins securities, which would bring bigger disclosure requirements.

  • Regulate them as if they were money market mutual funds.  Stablecoins operate much like money market mutual funds, which also act as short-term savings vehicles that offer rapid redemptions while investing in slightly risky assets.

What are the government’s next steps?

  • The President’s Working Group on Financial Markets, anchored by Treasury, is expected to issue a report on the topic imminently.

  • An upcoming Fed report on central bank digital currencies could also touch on stablecoin risks.

SOURCE: Indian Express

What’s good about a ‘bad bank’?

Context:

  • Finance Minister Nirmala Sitharaman has announced the formation of India’s first-ever “Bad Bank”.