The Hindu Editorial Analysis | 6th Dec’19 | PDF Download

In a surprise, RBI keeps interest rate unchanged

There is space for further policy action: Shaktikanta Das

• The Reserve Bank of India (RBI) surprised the market by keeping the policy interest rate unchanged at 5.15% at the fifth bi-monthly monetary policy review meeting, despite slowing economic growth, citing inflation concerns.
• The market was expecting the central bank to cut interest rates for the sixth straight time. All six members of the monetary policy committee voted for keeping the rate unchanged. The accommodative stance of the monetary policy was retained.
• “…the MPC has committed to maintaining an accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target,” RBI Governor Shaktikanta Das said at a briefing.
• “This forward guidance in itself indicates that there is space for further monetary policy action. However, there is a need to optimize the impact of rate reductions. The key consideration has to be the timing of further actions, even as we monitor the impact of actions taken so far,” Mr. Das said.
• He said the RBI paused to wait for further clarity on the inflation front and the steps that the government might take in the Budget to prop up growth.

RS clears Bill to lower corporate tax rate

 Amendment replaces ordinance

• The Rajya Sabha on Thursday cleared a Bill amending the taxation law to enable lowering of the corporate tax rate.
• The Taxation Laws (Amendment) Bill, 2019 was cleared by voice vote in the Rajya Sabha, for returning to the Lower House. The amendment replaces an ordinance that reduced the tax rate for domestic companies from 30% and 25% (for those with annual turnover of over ₹400 crore) to 22% if they don’t claim certain exemptions under the Income Tax Act. The rate for new domestic manufacturing companies set up after October 1 was lowered to 15%.
• Responding to a comment from Congress member Jairam Ramesh earlier during the discussion that the reduction in tax rates “may be good PR” but won’t address the “structural decline” in the economy, Finance Minister Nirmala Sitharaman said: “Cutting down the corporate tax is not just good for headlines; it is not just good PR; it is not just good atmospherics, it is a good reform.”
• ‘Continue with reforms’
• She said the government under Prime Minister Narendra Modi would continue rolling out reforms as it had done in its first term. She said the task force on direct taxation code had submitted its report and it was “under examination of the Ministry.”
• On the issue of ordinance, which was questioned by MPs, including CPI(M) member K.K. Ragesh, Ms. Sitharaman said ordinances on financial matters had been brought by the UPA government in the past.
• She said the government decided to act looking at global factors, including the trade war between the United States and China, which was leading to companies leaving China and other Asian countries offering tax concessions.

A strategic pause

•  In holding the interest rate, the RBI is waiting to see what is in the coming budget
• After a breathless run of five consecutive rate cuts, beginning February, the Reserve Bank of India (RBI) decided to pause and catch its breath in the December policy announced on Thursday. And rightly so too. Though growth concerns are still paramount, a lot has changed between the earlier policies and now — inflation is rearing its head up again and the government’s approach to the fiscal deficit glide path is still unclear even as the macro numbers indicate a considerable slippage in the target of 3.3% for this fiscal. Monetary policy works with a lag and the 135 basis points cut since February needs to percolate down through the system and its impact analysed.
• The RBI runs the risk of blunting the repo rate weapon if it continues to cut rates without the cuts being transmitted down the line. The Monetary Policy Committee (MPC) has taken care to point out that “there is monetary policy space for future action” and that the accommodative stance will continue. This should smoothen the ruffled feathers of the market which was expecting a 25 basis point cut. In that sense, the RBI has surprised the market after a long time, but also clearly indicated that facilitating growth is still at the top of its agenda A strategic pause In holding the interest rate, the RBI is waiting to see what is in the coming budget
• Though the Governor, Shaktikanta Das, went out of his way to clarify that fiscal concerns were only one input in the decision, it is obvious that the MPC wants to watch the government’s moves in the budget before easing rates again. A cut now followed by a big slippage on the fiscal deficit would have complicated matters for the MPC.
• Acknowledging the dismal growth in the second quarter, the MPC has revised the growth projections for fiscal 2019-20 sharply downwards to 5% from the 6.1% it had projected in the October policy. How did the MPC go so much off the mark?
• The Governor has referred to green shoots in the economy such as in the rise in the November Purchasing Managers’ Index for manufacturing and the late catch-up in rabi sowing. He also referred to a study of the unaudited financial results of 1,539 listed companies which shows companies shifting funds from financial investments into fixed assets indicating a possible revival in the capex cycle. But these are early days yet and incoming data need to be watched carefully before a final assessment can be made.
• On inflation, the central bank has projected a significant rise in the second half of this fiscal but it is sanguine that the spike is temporary driven largely by rising prices of food items due to unseasonal rains that destroyed standing kharif crops. All things considered, this seems to be a strategic pause by the MPC to watch how inflation moves and what the government does in the budget. The rate cut cycle still has some steam left.
• After passing through at least two versions, Seeds Bill 2019 is now under Parliament’s consideration.
• The earlier versions of the Bill, in 2004 and 2010, had generated heated debates. The present version promises to be no different.
• In 1994, India signed the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
• In 2002, India also joined the International Union for the Protection of New Varieties of Plants (UPOV) Convention.
• Both TRIPS and UPOV led to the introduction of some form of Intellectual Property Rights (IPR) over plant varieties. Member countries had to introduce restrictions on the free use and exchange of seeds by farmers unless the “breeders” were remunerated.
• Balancing conflicting aims
• TRIPS and UPOV, however, ran counter to other international conventions. In 1992, the Convention on Biological Diversity (CBD) provided for “prior informed consent” of farmers before the use of genetic resources and “fair and equitable sharing of benefits” arising out of their use.
• In 2001, the International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) recognized farmers’ rights as the rights to save, use, exchange and sell farm-saved seeds. National governments had the responsibility to protect such farmers’ rights.
• As India was a signatory to TRIPS and UPOV (that gave priority to breeders’ rights) as well as CBD and ITPGRFA (that emphasized farmers’ rights), any Indian legislation had to be in line with all. It was this delicate balance that the Protection of Plant Varieties and Farmers’ Rights (PPVFR) Act of 2001 sought to achieve.
• The PPVFR Act retained the main spirit of TRIPS viz., IPRs as an incentive for technological innovation. However, the Act also had strong provisions to protect farmers’ rights.
• It recognized three roles for the farmer: cultivator, breeder and conserver. As cultivators, farmers were entitled to plant-back rights. As breeders, farmers were held equivalent to plant breeders. As conservers, farmers were entitled to rewards from a National Gene Fund.
• According to the government, a new Seeds Bill is necessary to enhance seed replacement rates in Indian agriculture, specify standards for registration of seed varieties and enforce registration from seed producers to seed retailers.
• While these goals are indeed worthy, any such legislation is expected to be in alignment with the spirit of the PPVFR Act.
• For instance, a shift from farm-saved seeds to certified seeds, which would raise seed replacement rates, is desirable. Certified seeds have higher and more stable yields than farm-saved seeds.
• However, such a shift should be achieved not through policing, but through an enabling atmosphere.
• Private seed companies prefer policing because their lowvolume, high-value business model is crucially dependent on forcing farmers to buy their seeds every season.
• On the other hand, an enabling atmosphere is generated by the strong presence of public institutions in seed research and production. When public institutions, not motivated by profits, are ready to supply quality seeds at affordable prices, policing becomes redundant.
• But this has not been the case in India. From the late-1980s, Indian policy has consciously encouraged the growth of private seed companies, including companies with majority foreign equity. Today, more than 50% of India’s seed production is undertaken in the private sector.
• These firms have been demanding favourable changes in seed laws and deregulation of seed prices, free import and export of germplasm, freedom to self-certify seeds and restrictions on the use by farmers of saved seeds from previous seasons.
• Through the various versions between 2004 and 2019, private sector interests have guided the formulation of the Seeds Bill. As a result, even desirable objectives, such as raising the seed replacement rates, have been mixed up with an urge to encourage and protect the business interests of private companies.
• Not surprisingly, many of the Bill’s provisions deviate from the spirit of the PPVFR Act, are against farmers’ interests and in favour of private seed companies.
• Problematic provisions
• I shall, for illustration, highlight six examples where the Bill, despite revisions, continues to be tilted against farmers’ interests.

1. First, the Seeds Bill insists on compulsory registration of seeds. However, the PPVFR Act was based on voluntary registration. As a result, many seeds may be registered under the Seeds Bill but may not under the PPVFR Act. Assume a seed variety developed by a breeder, but derived from a traditional variety. The breeder will get exclusive marketing rights. But no gain will accrue to farmers as benefit-sharing is dealt with in the PPVFR Act, under which the seed is not registered.
2. Second, as per the PPVFR Act, all applications for registrations should contain the complete passport data of the parental lines from which the seed variety was derived, including contributions made by farmers. This allows for an easier identification of beneficiaries and simpler benefit-sharing processes. Seeds Bill, on the other hand, demands no such information while registering a new variety. As a result, an important method of recording the contributions of farmers is overlooked and private companies are left free to claim a derived variety as their own.
3. Third, the PPVFR Act, which is based on an IPR like breeders’ rights, does not allow reregistration of seeds after the validity period. However, as the Seeds Bill is not based on an IPR like breeder’s rights, private seed companies can re-register their seeds an infinite number of times after the validity period. Given this “ever-greening” provision, many seed varieties may never enter the open domain for free use.
4. Fourth, while a vague provision for regulation of seed prices appears in the latest draft of the Seeds Bill, it appears neither sufficient nor credible. In fact, strict control on seed prices has been an important demand raised by farmers’ organizations. They have also demanded an official body to regulate seed prices and royalties. In its absence, they feel, seed companies may be able to fix seed prices as they deem fit, leading to sharp rises in costs of cultivation.
5. Fifth, according to the PPVFR Act, if a registered variety fails in its promise of performance, farmers can claim compensation before a PPVFR Authority. This provision is diluted in the Seeds Bill, where disputes on compensation have to be decided as per the Consumer Protection Act 1986. Consumer courts are hardly ideal and friendly institutions that farmers can approach.
6. Sixth, according to the Seeds Bill, farmers become eligible for compensation if a plant variety fails to give expected results under “given conditions”. “Given conditions” is almost impossible to define in agriculture. Seed companies would always claim that “given conditions” were not ensured, which will be difficult to be disputed with evidence in a consumer court.

The way ahead

• Given the inherent nature of seeds, farmer-friendly pieces of seed legislation are difficult to frame and execute. This is particularly so as the clout of the private sector grows and technological advances shift seed research towards hybrids rather than varieties. In hybrids, reuse of seeds is technically constrained.
• The private sector, thus, has a natural incentive to focus on hybrids. In such a world of hybrids, even progressive seed laws become a weak defence.
• On the other hand, strong public agricultural research systems ensure that the choices between hybrids, varieties and farm-saved seeds remain open, and are not based on private profit concerns.
• Even if hybrids are the appropriate technological choice, seed prices can be kept affordable. For the seed sector and its laws to be truly farmer-friendly, the public sector has to recapture its lost space.
• Iran’s recent demonstrations in the wake of a drastic fuel price hike are reminiscent of the major uprisings that took place at the turn of 2018. Just as in 2018, the protests spread quickly and turned into a revolt against the Iranian regime. It is interesting to see why demonstrations in the country that are always primarily directed at high costs of living and financial difficulties quickly become politicized and begin to target the religious autocracy.
• Social unrest in Iran is not a new phenomenon. The present turmoil echoes a long list of social and political strikes, protests and confrontations since the establishment of the Islamic regime in 1979.
• Between 1980 and 1988, thousands of young Iranians, members of the Mojahedin-e Khalgh Organization (MKO) and Marxist groups, were killed by the Islamic regime. The darkest period of these killings happened in the summer of 1988, after the end of the eight-year war with Iraq. A military operation organized by the MKO forces was followed by heavy losses, but the regime initiated immediately the execution of thousands of political prisoners.
• Social protests of the 1990s
• Unlike the political confrontations and mass killings of the 1980s, the 1990s in Iran were characterized by social and economic protests of students, workers, feminists, teachers and trade unionists. Unsurprisingly, they were always in response to a specific government action. In 1992, there were revolts in the holy city of Mashhad, after Iranian authorities tried to demolish homes built without permits in a squatter area. Three police officers were killed, government buildings were destroyed, hundreds arrested and at least four protesters later executed.
• Two years later, in 1994, new protests took place in the northwestern city of Qazvin, triggered by a rejection of legislation by the Iranian Parliament to create a new province with Qazvin as its capital. In 1995, there was a crackdown on protesters in the city of Islamshahr, on the outskirts of Tehran, after an increase in public transportation costs. In all these three protests, the missing elements were the lack of political leadership and a clear absence of the Iranian middle class. However, the two major protests of 1999 and 2009 in Iran were clearly of a more political nature than the previous ones, with a huge impact on the political consciousness of the Iranian middle class.
• Iranian Tiananmen of 1999
• Named as the “Iranian Tiananmen”, though not as bloody as the Chinese uprising of 1989, the Iranian student movement of 1999 remains in the memory of Iranians as the outcome of a political confrontation between the reformist government of the thenPresident Mohammad Khatami and the conservative political and military forces of the Islamic regime. The student protests were organised against the closure of the reformist newspaper Salam and Parliament’s passage of a new law limiting freedom of the press, but it was mainly a night attack against the Tehran University’s dormitory by paramilitary elements which caused the anger and rage of the students. At least one person was killed. Many others were injured and imprisoned by the authorities. Undoubtedly, the student movement of 1999 laid the foundations for the ‘Green Movement’ of 2009. Though triggered by a fraudulent presidential election that reaffirmed a second term for hardliner Mahmoud Ahmadinejad against the favourite reformist contender Mir Hussein Mousavi, the Green Movement turned into a mass struggle for civil liberties and the removal of Iran’s theocratic regime. The demonstrations were not simply a reaction to unfair election results but were based on years of built-up frustration, dissatisfaction, and anger towards the theocratic rule.
• If we take a closer look at the trend of social protests in Iran in the past 30 years, we can say that the ‘Arab Spring’ started in Iran back in July 1999 or in June 2009. In other words, the ‘Arab Uprising’ had a ‘non-Arab’ beginning in Iran’s protest movements. However, the democratic transition in Iran has not been able to turn into a successful model of non-violent transition and negotiation because of the practice of absolute violence by the Iranian authorities.
• Unlike Tunisia in 2011, where street revolts succeeded because the armed forces decided not to share the destiny of the dictator, and refused to shoot on the people, protests in Iran have been quite limited in their tactics when confronting the harsh violence of the Islamic state. In each of the cases named above, including the recent protests in Iran, civic movements lost their unity and their momentum as soon as they faced a violent crackdown.
• In Tunisia, the removal of Ben Ali and free elections marked the “beginning of politics”. In Iran, on the contrary, politics will not start with the end of the dictators, but politics itself will bring about that end.
• As such, if Tunisia was a sprint, Iran will be a marathon. The ultimate question that remains is: if the Iranian political system cannot be reformed in a peaceful and non-violent way and through the ballot box because of its failure to heed to popular demand for change, then what is left of the Iranian dream of democracy? Nobody knows how long the Iranians should wait for this dream to become reality.

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