GS PAPER: II

Recession Outlook

Why in the news?

• The US economy managed to shake off Wall Street’s gloomy forecasts and dodge a long-predicted slump last year — but the same can’t be said for two other members of the G7.
• Japan and the UK are both officially in recession according to figures published, after Gross Domestic Product (GDP) fell for two consecutive quarters to close out 2023.
• Here’s why the world’s fourth and sixth-largest economies are struggling, even as the US goes from strength to strength.

Situation in Japan: Slumping yen, shrinking population

• Japan officially lost its title as the world’s third-largest economy to Germany, as Cabinet Office data showed that its economy shrank by 0.4% over the final three months of 2023.
• The contraction, which followed a 3.3% third-quarter slump, defied forecasters’ prediction of a 1.4% jump.
• The plunging Japanese yen  is one issue that’s plagued Japan in recent years.
• The currency has tumbled 30% against the US dollar since the start of 2022. It’s been dragged down by the Bank of Japan’s refusal to follow the Federal Reserve’s lead and raise interest rates, making it less attractive to foreign investors seeking juicier returns.
• Japan’s economy has tended to rely on its exports of cars and other goods — and a weaker yen means that its companies bring in less money when they sell products abroad.
• Like its neighbor china, Japan is also suffering due to an aging and shrinking population. A well-publicized fertility crisis means that Japanese women have just 1.3 children on average , well below the rate that demographers believe is needed to maintain a stable number of citizens. That could result in chronic labor shortages in the decades ahead.

U.K

UK: Cost –of-living crisis, weak spending

• Britain also got some bad economic news Thursday, as official data showed its economy shrank by 0.3% between October and December — its second straight quarterly contraction.
• That officially put the UK into recession. In 2023, it logged dismal growth of just 0.1%, for its worst 12-month performance since the year following the financial crisis in 2008.
• Since the pandemic, the UK has been battling an even worse cost-of-living crisis than other developed countries. Inflation surged as high as11% in october2022 and is still running at 4%, double the Bank of England’s 2% target.
• Soaring prices have eroded British consumers’ spending power — which has played a major role in keeping the US economy afloat. Meanwhile, Goldman Sachs analysts also warned this week that the UK is still suffering from the decision to leave the European back in 2016.

 

GS PAPER – II

India emerges as top buyer of Venezuelan crude oil

Why in the news?

• After a gap of over three years, India emerged as the top buyer of Venezuelan crude for two consecutive months of December 2023 and January 2024, as per shipping fixtures and ship tracking data. 

How did this happen?

• Indian refiners had stopped oil imports from the Latin American country in 2020 after the United States (US) imposed sanctions on Caracas. With Washington temporarily easing restrictions on Venezuela’s oil sector in October 2023, Indian refiners — mainly Reliance Industries (RIL) — are back in the market for Venezuelan oil that is likely available at a discounted price.
• Crude oil dispatches from Venezuela to India in December were almost 191,600 barrels per day (bpd), while in January, the loadings rose to over 254,000 bpd — nearly half of the Latin American nation’s total oil exports of almost 557,000 bpd for the month.
• The data shows that Venezuela last dispatched crude oil to the South Asian country in September 2020, with the last of the deliveries at Indian ports in November of that year.
• India — specifically private sector refiners RIL and Nayara Energy (NEL) — was a regular buyer of Venezuelan crude prior to imposition of US sanctions in 2019. Following the sanctions, oil imports from Venezuela stopped within a few months. As per India’s official trade data, Venezuela was New Delhi’s fifth-largest supplier of oil in 2019, providing close to 16 million tonnes of crude to Indian refiners.
• In October 2023, the US eased sanctions on Venezuela’s petroleum sector, authorising oil exports without limitation for six months. Venezuela, a member of the Organization of the Petroleum Exporting Countries (OPEC), has the largest proven oil reserves in the world.

How did India deal with volatility in the oil markets?

• Petroleum Minister Hardeep Singh Puri has maintained for long that India is willing to buy Venezuelan oil if the economics are favourable. Given the volatility in the oil markets over the past nearly two years, the government has held the view that India will buy cheaper oil from the available sources.
• India is the world’s third-largest consumer of crude oil and depends on imports to meet over 85 per cent of its requirement. 
• Venezuela was offering steep discounts to Chinese independent refiners, who were its biggest buyers of oil through the sanctions. Trade sources suggest that the discounts have narrowed considerably over the past few months due to the easing of sanctions and other buyers now willing to pick up Venezuelan oil. Nevertheless, even low levels of discounts can lead to massive savings for Indian refiners.
• The spurt in Venezuelan oil exports to India has come largely at the expense of Chinese refiners. Venezuelan oil exports to China averaged almost 244,000 bpd between January 2021 and October 2023, as per Kpler data.
• With the US easing sanctions in October, Venezuelan oil dispatches to Chinese refiners have dropped to under 70,000 bpd in the following months.
• Venezuelan oil dispatches to RIL in December stood at around 127,000 bpd, while nearly 37,000 bpd were dispatched to Indian Oil Corporation (IOC) and around 28,000 bpd to HPCL-Mittal Energy. January loading data shows similar volumes for RIL.
• The destination ports for the balance volumes headed to India — around 127,000 bpd — are not clear yet, though there are indications that a bulk of those volumes could be headed for RIL’s refineries. An RIL spokesperson did not respond to a request seeking comment on the matter.
• A total of four fully-laden very large crude carriers (VLCCs), equivalent to 255,000 bpd or half of Venezuela’s exports, sailed towards India last month, while the second-largest buyer US bought 100,000 bpd. So, India’s interest is really strong.
• The question is whether there would be a lull in buying before April (the month when the first six-month US sanctions waiver runs out), with Indian refiners prudently waiting for the Biden administration to extend the waivers for another six months.

Sanction waiver by the US

• It is not clear yet if the sanction waiver by the US will indeed be extended beyond April. The decision hinges on the understanding between the US and Venezuela over holding free and fair presidential polls in the Latin American country later this year.
• The US eased sanctions in October last year after Venezuela’s Nicolás Maduro government reached an understanding with the opposition for the conduct of free and fair presidential elections in the second half of 2024.
• The sanctions had been imposed in 2019 after Maduro retained power through an election that the US and its allies saw as unfair.
• There are some worrying signs for the deal already, with the US recently threatening to re-impose the sanctions after the Venezuelan Supreme Court upheld a ban on María Corina Machado, the opposition’s unity candidate for the 2024 presidential election.

 

GS PAPER – II

PM Modi Thanks Emir for Releasing ex-Navy Men

Why in news?

• Prime Minister Narendra Modi on Thursday thanked the Emir of Qatar, Sheikh Tamim bin Hamad Al Thani, at the Emiri Palace in Doha, expressing his “deep appreciation” for the Emir’s decision earlier this week to release eight Indian nationals and former naval personnel who were sentenced to varying prison terms on reported charges of espionage.

Background

• Arrest of eight navy personnel:
• On August 30, 2022, eight former Indian Navy personnel, along with two others, were arrested on undeclared charges.They were put in solitary confinement.
• These personnel were working at Al Dahra Global Technologies and Consultancy Services, a defence services provider company.
• As per different sources, the Indians had been working in their private capacity with the company to oversee the induction of Italian small stealth submarines U2I2.
• The company’s old website, which no longer exists, said it provided training, logistics and maintenance services to the Qatari Emiri Naval Force (QENF).

Charges against the officers

• The officers were jailed on charges that have not been made public.
• However, as per the media reports, the eight Indians had been charged with spying for Israel.

Death penalty

• In March 2023, the last of multiple bail pleas filed for the veterans was rejected.
• The trial began later that month and on October 26, 2023, the death sentence was handed to all eight men.

Appeal filed by India

• In November 2023, the MEA announced it had filed an appeal and that its legal team had details of the charges.

Death sentence commuted

• In December 2023, the Court of Appeal of Qatar commuted the death sentence of eight former Indian Navy personnel.

 

GS PAPER – II

Electoral Bonds Scheme

Why in news?

• The Supreme Court delivered its highly-anticipated judgment in the electoral bonds case, holding that anonymous electoral bonds are violative of the right to information under Article 19(1)(a) of the Constitution.
• Accordingly, the scheme has been struck down as unconstitutional.
• A constitution bench comprising Chief Justice DY Chandrachud, and Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra heard a batch of cases challenging the controversial electoral.

What are electoral bonds?

• Electoral bonds are money instruments that act as promissory notes or bearer bonds that can be purchased by individuals or companies in India.
• The bonds are issued specifically for the contribution of funds to political parties.
• These bonds are issued by the State Bank of India (SBI) and are sold in multiples of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh, and ₹1 crore.
• The donations made under this scheme by corporate and even foreign entities enjoyed 100% tax exemption while the identities of the donors are kept confidential – both by the bank as well as the recipient political parties.

What is the judgement?

• A five-judge Bench headed by Chief Justice of India DY Chandrachud, in a unanimous judgment, held that the electoral bonds scheme and preceding amendments made to the Representation of People Act, Companies Act and the Income Tax Act violate the voters’ right to information about political funding under Article 19(1)(a) of the Constitution.
• The apex court ordered the State of Bank of India to stop issuance of electoral bonds herewith.
• The bank was directed to submit details of bonds purchased from April 12, 2019, till date to the Election Commission of India (ECI).
• On April 12, 2019, the top court had ordered the ECI to submit, in a sealed cover, the records of bonds purchased till then.
• The “details” would include date of purchase of each bond, the name of the buyer and the denomination of the bond.
• The bank would make a full disclosure to the ECI of political parties that had received contributions and encashed the electoral bonds from April 12, 2019.
• The bank would furnish the information to the ECI by March 6, 2024. The poll body, in turn, has to publish the entire information given by the State Bank of India on its website by March 13, 2024.

Why this decision taken?

• The lead opinion authored by Chief Justice Chandrachud said the absolute non-disclosure of the source of political funding through electoral bonds promoted corruption and a culture of quid pro quo with the ruling party to introduce a policy change or for bagging a licence.
• The scheme and the amendments authorised “unrestrained influence of corporates in the electoral process”.
• The scheme allowed the inflow of “huge contributions” by companies and multinational corporations with major business stakes in the country, overawing or even concealing the relatively small financial contributions of the ordinary Indian – the student, the daily wage worker, the artist or a teacher – who believes in the ideologies of a political party without expecting any substantial favours in return.
• Scheme and the amendments promoted “economic inequality” by giving corporations with money power an unsurpassable advantage over citizens in electoral process and political engagement.
• This is violative of the principle of free and fair elections and political equality captured in a value of ‘one person, one vote.

Proportionality test

• The judicial review of the electoral bonds scheme involved examining whether the extent of the state’s encroachment into the rights of individuals was proportional to achieve its objectives — curbing black money and protecting donor privacy.
• A law passed by Parliament cannot interfere with Part-III of the Constitution that lists out the inviolable fundamental rights.
• The only interference with Article 19(1) — which guarantees the fundamental right to free speech — permissible is to the extent that the “reasonable restrictions” listed in Article 19(2) are not flouted. The test to decide whether an action is a reasonable restriction is the proportionality test.
• In the 2018 SC ruling that upheld the Aadhaar Act, Justice Chandrachud in his dissenting opinion said that the proportionality test is “the dominant best practice judicial standard for resolving disputes that involve either a conflict between two rights claims or between a right and a legitimate government interest.”
• The test is deemed necessary to guard against arbitrary action, so that the state cannot extinguish the right entirely even in pursuance of a legitimate state interest. For example, the right to life cannot be taken away to ensure law and order.
• The test was formally laid down as the best practice in the 2017 seven-judge Bench Putt swamy ruling, which recognised the right to privacy as a fundamental right.

What is the government stand?

• In the electoral bonds case, the government had argued that curbing black money and protecting donor anonymity are both legitimate aims for the state.
• While tackling black money is fairly non-contentious, the government argued that donor anonymity is also a legitimate state interest since it seeks to give effect to a fundamental right — the right to privacy of the donor.
• On the extent of interference with the voter’s right to know, the government argued that the right to information only operates against information in the possession or in the knowledge of the state.
• It cannot operate for seeking information not in the knowledge or possession of the state, 

Views of court on government stand:

• It said “curbing of black money” was not a reasonable restriction under Article 19(2) of the Constitution to the exercise of the voters fundamental’ right to information about political funding enshrined in Article 19(1)(a).
• Chief Justice Chandrachud asked the Centre how the “absolute” non-disclosure of the sources of political funding introduced in the electoral bonds scheme had a rational nexus with curbing black or unregulated money.

Electoral bond received by parties:

Regulation of donations

• Some individuals or organisations, for instance, foreign citizens or companies, may be banned from making donations. There may also be donation limits, aimed at ensuring that a party is not captured by a few large donors — whether individuals, corporations, or civil society organisations.

Problems in India:

• Regulation of donation : Some individuals or organisations, for instance, foreign citizens or companies, may be banned from making donations. There may also be donation limits, aimed at ensuring that a party is not captured by a few large donors — whether individuals, corporations, or civil society organisations.
• Public financing of elections: Expenditure limits safeguard politics from a financial arms race. They relieve parties from the pressure However, some recent studies have pointed out that this system may promote more extremist candidates. More generally, one of the problems with public funding is that unless a decision is taken to ban private funding altogether (which is difficult in India), public funding only tops up party funds — it does not address the challenge of regulating private money. Of competing for money even before they start to compete for votes.
• Disclosure requirements: This aspect of the regulation of private money in politics formed the crux of the Electoral Bonds case.

Disclosure requirements do not outrightly prevent parties or donors from receiving or making donations. Instead, disclosures nudge voters against electing politicians who have used or are likely to use their public office for quid pro quo arrangements. As such, disclosures may discourage parties from using public office to benefit their donors.