IASbaba’s Daily Current Affairs – 16th February, 2017

IASbaba’s Daily Current Affairs – 16th February 2017

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ELECTORAL REFORM 

TOPIC: General Studies 3

  • Conservation, Environmental pollution and degradation, environmental impact assessment
  • Government Budgeting – issues

Budget – Reforms on Election Funding

Introduction

The fundamental of a vibrant democracy is periodic elections. Elections to be meaningful should be conducted free and fair with a level playing field to all in the fray. The Representation of People’s Act 1950 and 1951 aim to achieve the same through the Election Commission, a constitutional body. The problem in recent days has been use of immense money power in elections and hence disturbing the balance.

Issue:

The Union Budget 2017 saw the finance minister announce a slew of reforms aimed at cleaning the field of election funding. The four elements of the scheme announced by the Finance Minister to “cleanse the system of funding of political parties” are –

  • First, he claimed to follow the Election Commission in proposing a ceiling of ₹2,000 on the amount of cash donation that a political party can receive from one person in a year.
  • Second, he announced that political parties would be “entitled to receive” donations by cheque or digital mode from their donors.
  • Third, he proposed a new scheme of Electoral Bonds.
  • Fourth, he said that every political party would have to file its Income Tax return within the prescribed time limit in order to enjoy exemption from payment of income tax.

He insisted that this scheme will bring about “greater transparency and accountability in political funding, while preventing future generation of black money”.

Analysis:

The second and the fourth components of this scheme are redundant, as these are no different from what the existing law provides for.

  • It does not require a new law to say that political parties are “entitled” to receive donations by cheque or digitally. They were always entitled to this and were already doing so.
  • We needed a new law to mandate that the parties would be “required” to receive donations by cheque or digitally. The Finance Minister did not propose any such thing.
  • Similarly, the existing law requires political parties to file their income tax returns to enjoy tax exemption. The Finance Bill now proposes a new proviso in Section 13A clause (d) of the Income Tax Act 1961 that explicitly says that the return should be filed within the stipulated time limit.
  • So far, all major parties have routinely flouted this requirement. Big national parties file their return months after the due date and many parties don’t file the return at all. No one gets penalised for this non-compliance. The government really did not need this amendment if it had the will to enforce the existing law.

The case of ‘Limiting cash donations’

  • The proposal about limiting cash donations to ₹2,000 has been widely misunderstood and therefore welcomed as a first step in the right direction.
    • Everyone was made to believe that the limit for anonymous donations, contributions that are exempt from reporting, has been reduced from the existing ₹20,000 to ₹2,000.
    • That is what the Election Commission (EC) had asked for in its revised compendium of Proposed Electoral Reforms in December 2016. The Finance Minister’s speech claimed to follow the EC’s advice.
    • The Finance Bill reveals something different. The existing limit of ₹20,000 on anonymous donation as per Section 23 of the Representation of the People Act (RPA) has been left untouched.
    • The Minister has merely proposed a new, additional, clause that limits cash donation from one source to ₹2,000 in one year.
  • Notice that there was and is no requirement to disclose a contribution by cheque or digital transfer up to ₹20,000. There was and is no limit to how much a party can receive from anonymous donations.
  • More importantly, there was and is no limit to how much overall a party can receive in cash from all sources put together.
  • Following the Law Commission’s recommendations, the EC had proposed that no party should be allowed to receive more than ₹20 crore or 20% of its overall donations from anonymous sources. The Minister did not pay heed to this.
  • A small amount enters the coffers of the party and becomes party funds. A tiny fraction of party funds is placed in the bank accounts of the party to meet some expenses that cannot remain invisible.
    • The figures widely discussed in the media relate to that tiny fraction of party funds, which is a small proportion of political funds. Most of this is not voluntary contribution or donation.
    • Much of what political parties show as donations is black money generated by party leaders which is turned into white money by way of book entries as donations to the party.
    • So far, the accountant who had to covert, say, ₹100 crore had to make sure than the entire amount was broken down into entries of ₹20,000 or below. Now they will absorb the same amount by breaking it down into entries of ₹2,000 or below. All that the proposed law would ensure is more book entries and perhaps a higher fee for the accountant. Otherwise, it would be business as usual.

Trouble with ‘Electoral Bonds’:

The new proposal of Electoral Bonds, although the detailed rules are yet to be framed, the basic outline of the scheme is clear.

  • Anyone who wants to donate to a political party would be able to purchase bonds from authorized banks. This purchase will have to be in ‘white money’ against cheque and digital payments only.
  • Once purchased, these bonds will be like bearer bonds and will not contain the name of the eventual beneficiary.
  • These bonds shall be redeemable only in the designated account of a registered political party within a prescribed period.
  • So, the donor’s bank would know about who bought how much of Electoral Bonds, but not the name of the party which received it.
  • The party’s bank would know the amount deposited through Bonds, but not the identity of the donor.
  • The Income Tax authorities and the EC would not know anything: reporting of donor, beneficiary, or even the amount of contribution has been exempted by amending the Income Tax Act Section 13A (b) and the RPA, Section 29C.
  • The net effect, and indeed the purpose, of the Bonds will be that no one except the fund giver and the fund receiver would know about this exchange done in white money with full tax exemption.

Consider an example:

Let us think of a classic quid pro quo. A government favours a business house in a mining or spectrum or oil deal to the tune of ₹5,000 crore. Both of them have a fifty-fifty deal. Under the existing arrangement, the business house would have to either declare in its balance sheet a ‘donation’ of ₹2,500 crore to the ruling party, or find that much cash to secretly hand over to the party bosses.

If the payment is in white, the party will have to declare the amount and the name of the company to the Income Tax authorities and to the EC. Now, the company could simply purchase Election Bonds worth ₹2,500 crore and hand it over to the party. The company’s balance sheet will show “purchase of Election Bonds” with no name of the beneficiary, while it enjoys 100% tax deduction on that amount.

The party will simply deposit the money in its account, with no obligation to report anything to the IT authorities or to the EC. It may well report an innocuous amount of, say, ₹3.8 crore as its annual reportable income! So much for transparency!

The Problem with the bonds:

Once introduced, these bonds will mask whatever little transparency exists in the current system. Instead of the usual practice of converting black money into white, these bonds will push white money into a grey, if not black, trail.

Indeed, the black money in politics might go down, as the white money has been provided a perfect cover of secrecy. Why would anyone give any money to a political party through cheque or digital payment and face all the hassle of disclosure?

Conclusion

The need for electoral reforms is less emphasised. But the reforms should be designed in the right spirit and aim to bring change at the ground level. The reforms in the current budget are less transparent than the transparency they seek to bring about.

Connecting the dots:

  • Critically analyse the need for electoral reforms in light of growing money power and issues of paid news.

 

NATIONAL 

TOPIC:

General Studies 3

  • Issues relating to intellectual property rights.

General Studies 2

  • Effect of policies and politics of developed and developing countries on India’s interests

India and IPR- what now and what next

Background

  • India ranked 43 out of 45 countries in the US Chamber of Commerce’s (USCC) annual IP index, just above Pakistan, which was added to the index this year, and Venezuela.
  • In 2015, India was placed 37 out of 38 countries whereas US continues to be at the top of the index.
  • The index ranked countries based on points received on various aspects of patents, copyrights, trademarks, trade secrets and market access, enforcement, and ratification of international treaties.

India is lagging behind

  • The national IP policy cleared by the Union cabinet in May 2016 was considered a positive for the index.
  • However, as per USCC, the policy failed to address the fundamental weaknesses in India’s IP framework. The IP-intensive industries faced challenges on the patentability of computer-related inventions and Section 3(d) of India’s Patent Act 1970 which relates to restrictions on patenting incremental changes.
  • One of the factors that went against India was Delhi HC’s ruling which permitted photocopying of copyrighted material for educational purposes.

Does it demand serious consideration?

  • However, many IP experts have dismissed India’s poor ranking. They explain that USCC’s IP index is a work of fiction as it is benchmarked against the Trans-Pacific Partnership agreement.
  • India is even below Brunei, a nation known more for its rich royalty (not of IP) than innovation/ technology, only because it signed up to the Trans-Pacific Partnership.
  • India has been complying well in four areas of the index
    • Protection of IP- India is TRIPS compliant
    • Protection of well-known trademarks
    • Design protection is in accordance with TRIPS
    • Brilliant border protection measures.
  • But, India has not been objectively assessed in these parameters.
  • Yet, India should continuously adhere to WTO agreements in order to save itself from unnecessary litigations.

Where India should focus?

  • India’s National Intellectual Property Rights policy is a boost but filling the large gaps in India’s IPR regime must be balanced with Indian trade and public interest considerations. This is with reference to constant US pressure to impose standards that go beyond those mandated by the World Trade Organization (WTO).
  • The weaknesses of Indian IPR lies at
    • Low private-sector research and development spending
    • Pending patent applications (around 2,50,000) and trademark applications ( around 5,00,000)- due to lack of patent examiners and prolonged examination periods
    • These bottleneck create real economic costs.
  • A study on link between IPR and economic growth found a strong consensus on a positive relationship. The degree of benefits accrued may vary but the relationship holds true for both developed and developing economies.
  • This is the reason why government’s flagship initiatives—Make In India and Start-Up India—require a strong IPR framework.

Where IP law adherence is not a solution

  • The last decade was almost engulfed in negotiation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 1994 to the Doha Declaration clarifying its scope in 2001—for developing nations to balance their rights with obligations, particularly in ensuring access to medicines to all.
  • It is a positive stand that Patent Act 1970 is compliant with TRIPS and not with more stringent US standards.
  • Here, Indian government and courts have been judicious in stopping ‘evergreening’ of patents by global pharma multinationals who prevent new formulations of existing medicines from being patented unless they improve therapeutic efficiency. This helps them maintain market dominance and high prices.
  • In 2012 Indian company Natco Pharma was allowed to make a generic version of German company Bayer’s cancer drug Nexavar.
  • In 2013, the Supreme Court denied Novartis a patent for its cancer drug Glivec, citing evergreening.

Breaking the old regime

  • The present IP law is based on a 15th century old Venetian model which provides for that patents might be granted for “any new and ingenious device, not previously made”, provided it was useful.
  • Barring some tweaks here and there, these principles still remain the basic principles of patent law.
  • Hence it is a bit paradoxical that when IP rights are meant to further innovation, the legal regimes themselves have been safeguarded from innovative experimentation.
  • India has to do the experimentation and ‘break’ the IP standards. India’s technological proficiency in pharmaceuticals came through the active breaking of multinational IP, yielding a world-class generic industry and affordable medications for public- local as well as global.
  • Now the time is ripe to break the ancient IP paradigm of old laws as it rests on the assumption that IP and the technological information that it protects can be treated as real property.
  • Centuries ago, there was a jurist which theorised that water could never be appropriated in the same way as land, since it “flowed”. From that the notion of high seas developed which was available by all and no exclusive nation could claim it.
  • Similarly, now is the time that IP regime is equated with water and provide access to all rather than equating it to land and making it a property.

Patent acceptance is not the same

  • India has high rate of patent invalidation but the number are even higher (50%) in US and Germany. This has a reason behind it- the patent offices often get it wrong because of less resources, limited information etc.
  • More than it, the art of adjudicating the merits of a patent rests on the subjective test of whether or not an alleged invention is cognitively superior to what existed before (“prior art”), leading to highly differential results across the world on the very same patent application.

The new challenge- Artificial Intelligence

  • With incoming of age of artificial intelligence where machines can think as well as humans and are inventing by the dozen (since its now possible to code them with creativity, the skilled person could soon be this artificially intelligent machine.
  • The more problematic will be the fact that the test of cognitive advancement that is central to patent law rests on the notion that person is skilled in that particular art/technology.
  • Under AI’s infinitely vast range, almost nothing would count as inventive or non-obvious, given that every potential combination of prior art (which is what most patents are about) is known or at least knowable to these machines.

Conclusion

The patents now present uncertainty of an order that is far more significant than most other legal instruments and are also inefficient even on their own internal economic logic. It is a little wonder that some of the finest minds in the technology space such as Elon Musk are now giving up on patents.

Hence, there is no point to be racing in the obsolete patent game.  India should now leapfrog and think through alternative innovation incentives such as prizes and open source formats. It can be done in the same way as done in smartphones where huge cost was avoided that might have come with investing significantly in landlines, laptops and the like.

Connecting the dots:

  • What are different types of IPRs? With respect to WTO’s IP policy and US pressure, critically examine India’s stand on IPR.
  • What is India’s new IPR policy? State its merits and demerits.

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  • Meiji

    Babaji!! Electoral reforms ko Environment mein daal diye? :/

  • H K A

    Rs 20,000 limit for anonymous donations – those which need not be reported (either cash or digital) is set as per Section 29C and not Section 23. Please correct.
    It has been erroneously mentioned in the original article as well.

  • CSE2017 aspirant (ABG)

    Dear IASbaba and my dear fellow aspirants,

    I have one doubt – If someone wants to make donation more than Rs 2000 /- and less than Rs 20,000 /- , he will have to do it via cheque or digital means – If he does so, he will leave trail of the transaction which he made and authorities may well have a watch on it.

    How can transactions through cheque and Digital be anonymous – Does anonymity just mean that party has no obligation to reveal the source of donations ?

    • Simi

      I suppose it refers to no obligations on the part of party to reveal

    • bhawana

      Yes, Digital and cheque transactions can’t be anonymous.

      Same anomaly was there in an article of Hindu ….Notice that there was and is no requirement to disclose a contribution by cheque or digital transfer up to ₹20,000 (16feb).

      The same article later mentions..Why would anyone give any money to a political party through cheque or digital payment and face all the hassle of disclosure.

      According to me, anonymity principle is more in the context of electoral bonds than the cash/digital transactions which are to reduce flow of cash only and are quite old mode of electoral funding.

      Anonymity principle basically means all transactions would be done under the label of “electoral bonds” and no one except the banks would know who has purchased the bonds, to whom they have been given and are of what amount.

      It is what I understood, may be wrong too :))

      • CSE2017 aspirant (ABG)

        Yes, The idea is to keep anonymity of donors in front of the voters and other political party members, but not in front of the revenue and income tax authorities.
        If someone wants to say that TRANSPARENCY is affected because it’s the right of common person to know from where political parties is getting funds – article makes sense. However, the money involved in donation will not be black money due to this anonymity.
        Furthermore, system of decreasing cash transfer limit to Rs 2000/- means donation has to be divided 10 more times than before. This is what I consider as the MAJOR DRAWBACK of this decision. Cash donations should have been totally banned or if it is allowed, they should not be anonymous at all. ELECTORAL BONDS and DIGITAL PAYMENTS should be made mandatory for any kind of anonymous donations.

        I fully concur with you Bhawana!!!

        • bhawana

          Yes, cash transactions should have been banned or a limit on the number of such anonymous cash transactions should have been placed. Govt is so much committed to transparency and digital economy so it should go ahead with mandatory electoral bonds and digital donations without any delay to set an example.

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