Mitras Analysis of News : 26-04-2017

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1.IMF quota reforms (The Hindu)

2.Data Exclusivity in pharma (THE HINDU)

3.Cities at crossroads: Starving the municipality (The Indian Express)

4.Conflict between tribal rights and tiger rights (The Hindu)

 

1.IMF quota reforms (The Hindu)

 Synoptic line: It throws light on the need of making IMF more representative and democratic.(GS paper II)

Overview

  • IMF as an institution is facing issues related to its representativeness as it is being alleged that IMF does not adequately represent the developing nations such as India.
  • Moreover, IMF is loosing its credibility to newly emerging institutions such as New Development Bank and Asian Infrastructure and investment Bank (AIIB). Therefore, more radical reforms are needed for IMF to preserve its reputation.

What are IMF Reforms

  • The IMF reforms were agreed upon by the 188 members of the IMF in 2010 in the aftermath of the global financial meltdown. However, there implementations were delayed due to the time taken by the US Congress to approve the changes. But, were finally approved by the US Congress in December 2015.
  • The United States (US) Senate has ratified reforms in the International Monetary Fund (IMF) to boost the representation of emerging economies. These proposed reforms are the biggest change in the governance of the Fund since it was established after World War Two in 1945 after the Bretton Woods Conference.

What are IMF quotas?

  • An important factor that helps the IMF’s functioning is the quota. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing.
  • When a country joins the IMF, it is assigned an initial quota in the same range the quotas of existing members of broadly comparable economic size and characteristics. The IMF uses a quota formula to help assess a member’s relative position.
  • The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent).
  • Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. The largest member of the IMF is the United States, with a current quota of SDR82.99 billion (about US$113 billion

14th General Quota Review (latest quota reforms)

  • The conditions for implementing the quota increases agreed under the 14th General Quota Review were met in January 2016. As a result, the quotas of each of the IMF’s 189 members increased to a combined SDR477 billion (about US$652 billion) from about SDR238.5 billion (about US$326 billion).
  • India’s voting rights increase to 2.6 per cent from the current 2.3 per cent, and China’s, to six per cent from 3.8, as per the new division. Russia and Brazil are the other two countries that gain from the reforms.
  • More than six per cent of the quota shares have been shifted to emerging and developing countries from the U.S. and European countries.
  • The reforms had brought India and Brazil into the list of the top 10 members of IMF, along with the U.S, Japan, France, Germany, Italy, the United Kingdom, China and Russia.
  • As part of the reforms, for the first time, the IMF’s Executive Board will consist entirely of elected Executive Directors, ending the category of appointed Executive Directors.
  • Now 15th GQR is pending to be completed by 2019;

Need for more reforms

  • Recently, Finance minister had called for more even more reforms in IMF to make it more democratic and symbolic. He has demanded reforms to the International Monetary Fund’s controversial quota system, shedding light on the problems facing the Bretton Woods institution in today’s global economy.
  • Though developing countries hold less than half the overall quota at the moment, with their rapidly increasing economic heft they have demanded a greater share with limited success.
  • Hence, there is a need to reform the quota system further. Else, the legitimacy and credibility of the IMF could be eroded.
  • The 15th General Review of Quotas (GRQ), the most recent attempt to revise the size and composition of the system, was to be completed by October 2017, but the deadline has now been extended to 2019.
  • Also at stake is the potency of the IMF in keeping up with the changed fundamental needs of developing economies. The developing world is looking beyond the short-term crisis management tools that the IMF, as the sole international lender of last resort, has traditionally offered them for decades now.

Way ahead

  • India is seeking $2 billion from the New Development Bank, set up by the BRICS countries in 2015 with a more equitable power structure, to fund infrastructure projects. Hence, already countries are bypassing the IMF route to finance and IMF should understand such a trend immediately.
  • The Asian Infrastructure Investment Bank, launched in 2014, could be an even bigger threat to the IMF’s influence given its larger membership, lending capacity and international reach. In this environment of competition, the IMF will have to do more than just superficially tinker with its asymmetric power structure and outdated quota system. Else, it could be slowly but steadily pushed into irrelevance.

Question: What challenges does IMF faces in present context of multilateral institutions such as AIIB and NDB ?

 

2.Data exclusivity in Pharma (The Hindu)

 Synoptic line: It throws light on the issue of data exclusivity and how it may hamper the supply of affordable medicines.(GS paper III)

Overview

  • Data exclusivity is a matter of heated controversy now-a-days all over the world and a source of tussle between developing and developed countries on the one hand and Multinational drug companies and Domestic pharmaceutical companies on the other.
  • Therefore, a look is needed in the domains of data exclusivity vis-à-vis patent protection as it may have huge implications in the near future.

Patent regime

  • A Patent is an exclusive right granted to a person who invented a new article or an improvement of an existing article or a new process of making an article. It consists of an exclusive right to manufacture the new article invented or manufacture an article according to the invented process for a limited period.
  • The object of granting a patent is to encourage and develop a new technology and industry. An inventor may disclose the new invention only if he is rewarded, otherwise he may work it secretly. Thus the theory upon which the patent system is based upon is that the opportunity of acquiring exclusive rights in an invention stimulates technical progress.

Data exclusivity

  • Data Exclusivity refers to a practice whereby, for a fixed period of time, drug regulatory authorities do not allow the test data of the innovator company to be used to register a equivalent generic version of that medicine.
  • To simplify it, top multi-national pharmaceutical giants spend time, money and huge investment (Research and Development) to assess the efficacy, quality and safety of the new product. This process is known as clinical trial and it involves enormous amount of expenditure, time and money. For example, clinical trial process to test the efficacy, quality and safety of a new anti-cancer drug may take 6-7 years or in some cases even 15 years.
  • Such data are very crucial and it contains all details of clinical trials and it is this data that originator companies seeks to protect so that generic companies cannot use such data because such data are result of long term effort and investment put into clinical trials and hence it will be extremely unfair to allow a third party (generic drug makers) to make a commercial exploitation of such data.
  • In order to protect such data originator companies are demanding data exclusivity law so that such data submitted to regulatory authorities are not exploited by generic drug makers to test the quality, efficacy and safety of bioequivalent generic version of that medicine.
  • The originator companies which are giant multi-national pharmaceutical companies want such data to be protected for a certain period of time so that during that period, generic companies are precluded from using such data to test the quality, efficacy and safety of the generic version of that medicine.
  • Moreover, developed countries, on behalf of their pharmaceutical lobbies, seek data exclusivity in developing countries arguing that this is necessary to recognise and incentivise the efforts put in to bring a new drug to the market along with recovering the research and development costs incurred arguments similar to those used to justify the grant of patents.
  • However, such exclusivity would prevent market entry of generic versions of the drug, which could be detrimental to the larger public interest.
  • Unlike in the West, India does not offer data exclusivity and allows bioequivalent generics to be registered based on, among other things, trial data available in the public domain.

Concerns with regard to India

  • There is new cause for worry. Apart from increasing the scope of existing IP rights, there is a move to create new IP-like rights.
  • A case in point is data exclusivity over clinical trial data submitted by drug companies to the regulatory authorities for market approval, the grant of which could severely undermine access to medicines.
  • Pharmaceutical companies have been pushing for data exclusivity to prolong already existing monopoly and delay competition from generics even after the expiry of the 20-year patent term or to gain exclusivity on non-patented drugs.
  • In India, such a system may negate the impact of Section 3(d) of the Patents Act, which disallows ever greening patents. With data exclusivity, a company could nevertheless gain exclusive rights over such drugs even though they are not patented.
  • As seen in countries where data exclusivity is granted, generic companies do not undertake such clinical trials and their versions of the drug accordingly stay off the market as long as the period of data exclusivity lasts.

Why data exclusivity should not be granted?

  1. It is an absolute protection granted without any institutional check such as opposition and revocation as available in other forms of IP and ends up as an irrevocable exclusivity to the originator.
  2. The U.S. Supreme Court has excluded patent protection to biological correlations, terming it as an extension of natural laws. Hence, it is not advisable to bring data exclusivity in biological correlations.
  3. Offering IP-like exclusivity solely on the basis of money spent in regulatory testing will set a bad precedent for other industries that may now claim an IP when there is none.

Way ahead

  • Since the matter is very controversial and each side has their own valid points, it must be remembered that the issue relates to the accessibility and affordability of the life saving drugs to millions of people in third world countries and any rigid or adamant attitude from any side will adversely affect all especially the common people. Each side should try to find a middle-path formula so that interest of all can be reconciled with the larger interest of the common people in developing and third world nations.
  • The best possible solution to the matter in hand is that the Compensatory Liability Model (CLM) should be adopted. Generic manufacturers must compensate the originator of data for the use of the data. After all such test data are products of long and intensive research, which involves considerable amount of expenditure, and commercial exploitation of such data without the consent of innovator companies is nothing less than “unfair commercial use” under Article 39.3 of TRIPS Agreement.
  • The compensatory model seems to be appropriate in the circumstances, as this would make generic companies share the fair cost of bringing a new drug in the market and the innovator company will be able to earn a fair return on its investment.

Question: If pharmaceutical giants are provided with data exclusivity then generic and cheap drug manufacturing will suffer and if not provided then R&D may decline. What should be done in this regard?

 

3.Cities at crossroads: Starving the municipality (The Indian Express)

 Synoptic line: It throws light on issue that how Property tax, the most important source of revenue for local bodies, is a pawn in state-level politics.(GS paper II)

Overview

  • Most of the politicians in India are usually indulge in political gimmicks or jugglery to secure vote bank. The politicians are willing to get power at any cost by any means. This includes deceiving people, luring people with some favours like giving beneficial schemes, dividing the states, eradicating the opposition etc.
  • Politicians across party lines play politics with the finances of our cities, especially since the current sources of revenue of municipalities in India are grossly inadequate for discharging their constitutional mandate of delivering public services. Recently it was stated by some government that if it voted to power, it would waive house tax for all residential properties whether big or small, rich or poor, thus the largest source of revenue for the urban local bodies, tends to get caught in the wheels of the election cycle.

Revenue for municipal corporations and municipalities

  • By, 74th Constitutional Amendment, it was mandate that state governments transfer to urban local bodies the responsibility for functions such as urban planning including town planning, regulation of land-use and construction of buildings, roads and bridges, provision of water, sanitation, public health, urban amenities such as public parks, gardens and playgrounds, slum improvement and upgradation, etc.
  • Devolution to urban local bodies is supposed to be based on the recommendations of state finance commissions (SFCs) set up by the state governments. SFCs are supposed to spell out the principles for sharing/devolving a part of the revenue of the state governments to municipal bodies, but they have not been able to challenge the state-level political resistance to devolve funds to the urban local bodies.
  • But the ground reality is that the urban local governments have remained hamstrung by the lack of funds and the situation is going from bad to worse.
  • In India, property tax is the single most important source of revenue for municipal corporations and municipalities. It accounts for 30 per cent of “own” municipal revenues in India.
  • While property tax is levied and collected by the urban local bodies, the state government has the power to design the property tax regime including the tax rates, exemptions and rebates, the tax base, and the basis for the valuation of properties as well as their revaluation every few years to account for rising prices.
  • This means that the political parties vying for power in the state can be tempted to promise a waiver or reduction in the property tax or grant of exemptions in order to win support during election time, thereby creating huge vulnerabilities for municipal finances subsequently.

Property tax in India

  • Property Tax or House Tax in India is a tax charged by the municipal authorities for the upkeep of basic civic services and amenities in the city like roads, sewer system, parks, and other infrastructure facilities like lighting etc., as well as for maintenance of the existing infrastructure. Property tax differs across states, cities and even within zones of the same city.
  • Property tax should not be confused with Income tax payable on income from house property under Income tax act, 1961 and amendments thereto. These are two different form of taxation. Property tax is levied by the local body like Panchayats/Municipalities/Municipal corporations, while the Income tax is levied by the Central government. The methods of computation of amount of tax payable in both cases are very different.
  • It is not surprising that property tax is grossly exploited in India, even though it remains the largest source of revenue for urban local bodies.
  • Many state governments have tried abolition of property tax, also given major exemptions, in property tax.

Examples

  • Rajasthan abolished property tax in 2007; however, the tax was brought back within six months in a new incarnation as “urban development tax” to recoup the loss of revenue resulting from the property tax abolition.
  • In Punjab, house tax on self occupied residential houses, which form the bulk of the properties covered under the tax, was abolished in the late 1990s by then government. In 2006, it attracted by the desire to access JNNURM funds to build infrastructure in, but it was not able to implement the agreement. Property tax was finally introduced in 2013, although property tax rates were cut by almost half and many categories were exempted during the campaign for the general elections in 2014.
  • Haryana and Himachal Pradesh have also each had a bash at blowing the budgets of their municipalities by giving major exemptions in their property tax regimes.

Way forward

  • A major recent setback for financial devolution to urban local bodies has been the way in which they were completely ignored in the Goods and Services Tax (GST) negotiations. With all the talk of cooperative federalism, there is little inclination on the part of state governments to devolve even a small part of revenue from the GST to the third tier.
  • If Indian cities are to deliver a better quality of life and improved investment climate, they need to have business models which are financially and environmentally sustainable.
  • There is need to set up a property tax board in each state, which could set out better and more transparent methods of assessment, valuation and collection of the tax, using GIS and other IT tools.
  • There is also need to add a municipal finance list in the Constitution which should specify taxes that are exclusively in the domain of the local government.
  • Above all, there is need to heed the sage advice of the Fourteenth Finance Commission: “The state government should not provide exemptions to any entity from the tax and non-tax levies that are in the jurisdiction of local bodies. In cases where the grant of such an exemption becomes necessary, the local bodies should be compensated for the loss.” State governments will then not be able to play politics with municipal finances.

Question: What reforms can be initiated in the municipalities to ensure their fiscal health and to turn them as drivers of urban growth? 

 

4.Conflict between tribal rights and tiger rights (The Hindu)

 Synoptic line: It throws light on the issue of NTCA’s decision to debar tribals from enjoying any right in the tiger habitats.GS paper II)

Overview

  • The National Tiger Conservation Authority issued a notice to states, asking officials to suspend granting of rights to tribals and other forest dwellers under the Forest Rights Act in all critical tiger habitats.

The rights Issue

  • The Forest Rights Act (FRA) of 2006 gives indigenous people and forest dwellers the right to harvest and use forest resources to maintain their traditional livelihoods.
  • More than a fifth of India’s 1.2 billion population was expected to benefit from the law covering vast areas of forest land.
  • Scarcity of land has also brought the competing needs of wildlife and humans into conflict across the country as land is increasingly sought for industrial projects.
  • Land reserved for wildlife including tigers, elephants and rhinoceros is also inhabited by tribal villagers and hundreds have been evicted in violent clashes recently.
  • However, this direction is not only bad in law, but is also symptomatic of defective conservation practices that India has clung to since colonial times.

How an overreach by NTCA?

  • The rights of tribal have to be safeguarded and this protection have been provided to them by FRA act 2006.
  • Even, Guidance document for preparation of tiger conservation plan’ and the ‘Protocol/guidelines for voluntary village relocation in notified core/critical tiger habitats of tiger reserves’ issued by the Environment Ministry acknowledge that although there is a need to keep forest reserves as inviolate for the purposes of tiger conservation, this ought to be done without affecting the rights of traditional forest dwellers.
  • Moreover, The NTCA and the relevant expert committee constituted to ensure tiger conservation under the Wildlife Protection Act, 1972 (WPA) have a mandate to ensure conservation along with human coexistence.
  • Neither the FRA nor the WPA has ever made a case for circumscribing the rights of tribals in the name of environmental protection.

Way forward

  • There are significant evidences that tribals have helped in increasing the tiger population. There are live examples of the tribal communities such as, Soligas in the BRT Tiger reserve in Karnataka and the Baigas in the Kanha National Park in M.P. Hence, rather seeing them as an obstruction, the tribals should be involved in the conservation of wildlife.
  • Moreover, It is necessary for civil society and peoples’ collectives to forge an alliance to prevent dissociating indigenous communities from the environmental conservation narrative.
  • The FRA act and NTCA’s mandate should also be revised and scrutinised in order to strike out a synergy between the development of both.

Question: In the light of ongoing tussle between rights of tigers vis-à-vis rights of tribals, what should be the most optimum solution?

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