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There is a Tide in the Affairs of Men…and Nations too

Three decades ago, the mobile revolution helped India overcome its communication challenges. Today, mobile phones have become a commodity in India. At least feature phones have, even if smartphones haven’t. But if you are old enough to remember India during the mid-1990s, you will know that India’s fixed line telephone density was very low at that time. Getting new telephone connections was tough, and involved waiting periods that often extended to several months. Due to ageing cables, making telephone calls was a challenge, and even when calls were connected, the quality was poor.  

Mobile communication technologies unleashed a powerful revolution that changed all this. Even far-off locations where laying fixed-line cables was a challenge got access to mobile towers and signals. So huge has been the transformative power of mobile technologies that an entire generation of regulatory reforms, business models and lifestyle paradigms all depend on the ubiquitous mobile phone.

Why is this relevant now?

Today, the world is on the threshold of a new breed of technologies such as AI/ML, Robotics, IIoT, Blockchain, Cloud, Analytics, Drones, Autonomous Vehicles, the Metaverse etc. Collectively and individually, these technologies have the potential to transform the world as we know it to a much greater degree. Indeed, the next decade may witness the greatest changes driven by technology in the recorded history of humankind.

The reason why it is important to be cognizant of this and take timely action. There are no established leaders in these areas because the sectors, their impact and tech are still evolving. India as a country has the technical and commercial savvy to harness these new technologies and drive innovations. What is needed is the educational and industrial framework to ensure that students get to acquire and sharpen their expertise in these new areas and start applying them to solving real-world problems. The National Education Policy is one step in this direction, but implementing it in the right way is key. Not just the curriculum, but the whole system of education must change. Internships must become more focused and integrated with the learning process, and not just a certificate-driven activity as it largely has been (and is).

It’s not just the central government that needs to act with alacrity and vision; state governments also need to formulate the right policies and rules to ensure that the country as a whole is able to take advantage of the massive disruption that is occurring all around us. Some states have woken up to this need and are putting in place plans to encourage entrepreneurs and attract investments into key sectors. The initial agreement to set up a chip-making facility in Karnataka is one example- but it’s early days yet, and many more hurdles need to be overcome.

The startup ecosystem, too, needs to readjust its approach to backing ventures in these new areas. Yes, the risk will be higher and the failure rate may be higher, but these ventures must be seen as proving grounds for technologies and ideas. Our private sector must also be ready to make the necessary investments to embrace these new technologies and lead innovation and adoption. Our large IT services industry must accelerate the shift to provide offerings built around these new areas. A lot is already happening, but the pace must pick up. India’s public sector, long regarded as a white elephant, can also play a key role by absorbing these technologies and innovatively deploying them in sectors of national importance, such as energy, agriculture, disaster recovery, infrastructure development, defence etc.

Achieving all this requires macroeconomic stability: inflation under control, relatively stable exchange rates and an adequate money supply. For a number of reasons that are outside the control of our government or individual companies, these conditions may not be met immediately. But as responsible citizens, business leaders, regulators, teachers and parents, each one of us has a role to play. Of course, the executive, the legislature and the judiciary also have their own roles to play.

To quote Brutus from Shakespeare’s play “Julius Caesar”,

“There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures”.

This is very much the situation that much of the world finds itself in at this time. If we in India can rise to the occasion, our continued ascendancy as a power is assured. But there is many a slip between the cup and the lip, and if we squander time and energy on needless and irrelevant issues, it is just as certain that we will not realise our potential. Let us make the right choice.

Image Credits: Photo by Pete Linforth from Pixabay 

Today, the world is on the threshold of a new breed of technologies such as AI/ML, Robotics, IIoT, Blockchain, Cloud, Analytics, Drones and Autonomous Vehicles, the Metaverse etc. Collectively and individually, these technologies have the potential to transform the world as we know it to a much greater degree. Indeed, the next decade may witness the greatest changes driven by technologies in the recorded history of humankind. The reason why it is important to be cognizant of this and take timely action. There are no established leaders in these areas because the sectors, their impact and tech are still evolving.

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CERT-IN's Cyber Security Breach Reporting: An Update

The Indian Computer Emergency Response Team (CERT-In) was constituted in 2004 under section 70B of the Information Technology Act, 2000. It is the national nodal agency that responds to cyber security threats within the country and is under the Ministry of Electronics and Information Technology, Government of India. Recently, CERT-In released a direction [1] relating to information security practices, procedures, prevention, response and reporting of cyber security threats.

Key Features of the Cyber Security Breach Reporting Directions 

 

Mandatory Reporting

The direction mandates all service providers, government organisations, data centres, intermediaries and body corporates to mandatorily report within 6 hours of noticing or being brought to notice of any cyber incident. Rule 12(1)(a) of the Information Technology (The Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013 provides for a list of cyber security incidents that needed to be reported mandatorily by these entities mentioned above. The rules had previously listed 10 different types of cyber security incidents which need to be mandatorily reported. Apart from these 10 types, the new direction has also categorised data breaches, data leaks, attacks on IoT, and payment systems, fake mobile apps, unauthorised access to social media accounts and attacks or suspicious activities affecting software/servers/systems/apps relating to big data, blockchain, virtual assets, 3Dand 4D printing, drones as cyber security incidents which should be mandatorily reported. 

 

 

Point of Contact

All service providers, intermediaries, data centres, body corporates and Government organisations shall appoint a point of contact within their organisation, who shall ensure effective coordination with the CERT-In. The name and other details of the point of contact shall be sent to CERT-In and the entity should also ensure that it is updated every now and then when there is a change.

 

 

Log Retention and Data Localisation Requirement

The direction mandates all entities mentioned in the direction to mandatorily maintain and secure logs of their ICT systems for a period of 180 days. All such logs should be stored within the jurisdiction of the country and the same should be handed over to the CERT-In in the event of a cyber security incident or any order or direction from CERT-In.

 

 

Registration of Information

The direction has mandated data centres, Virtual Private Server (VPS) providers, Cloud Service providers and Virtual Private Network Service (VPN Service) providers to register certain information with CERT-In. All these entities are required to maintain such information for a period of 5 years or longer duration as mandated by law, even after the cancellation or expiration of the registration. The following information is required to be registered with CERT-In:

  • Validated names of subscribers/customers hiring the services.
  • Period of hire, including dates.
  • IPs allotted to/being used by the members.
  • Email address and IP address and time stamp used at the time of registration/on-boarding.
  • The purpose of hiring services.
  • Validated address and contact numbers.
  • Ownership pattern of the subscribers/customers hiring services.

 

KYC Requirement

This decade has witnessed the rise of cryptocurrencies across the globe and most countries, including India, still lack a dedicated framework to regulate this space. These new directions from CERT-In intend to regulate and streamline some aspects of this exponentially expanding sector. The directions mandate that virtual asset service providers, virtual asset exchange providers and custodian wallet providers to obtain KYC information from their customers. Further, these entities are also obligated to record all their financial transactions for a period of 5 years. Entities are also directed to maintain information about the IP addresses along with timestamps and time zones, transaction ID, the public keys, addresses or accounts involved, the nature and date of the transaction, and the amount transferred. 

 

 

Integration into ICT System

The direction calls on data centres, body corporates and government organisations to connect to the Network Time Protocol (NTP) Server of the National Informatics Centre (NIC) or the National Physical Laboratory (NPL) for synchronisation into the ICT system. Moreover, where ICT infrastructure of the entities are scattered in multiple locations, the entities are free to use accurate and standard time sources other than NPL and NIC.

 

Non-compliance

In the event that the above-mentioned entities fail to adhere or comply with these directions issued by CERT-In, they shall be punishable with imprisonment for a term which may extend to one year or with a fine which may extend to one lakh rupees or with both under subsection (7) of section 70B of the IT Act, 2000.

 

Conclusion

These new directions issued by CERT-In have acknowledged the concerns of end-users, who were kept in the dark regarding their data and the process undertaken by a corporate body in the event of a data breach or leak. The directions have also touched upon the latest technological developments like cloud services, virtual assets, and online payments, which are yet to be completely regulated by the government. When compared with the CERT rules 2013, the new directions have an expanded scope and applicability as well as a significantly increased compliance bracket for entities.

The European Union enacted the EU Directive on Security of Networks and Information Systems (called the NIS Directive), which supervises the cyber security of European markets. Unlike the present directive, the scope and applicability of the NIS directive are much larger. Certain critical sectors such as energy, transport, water, health, digital infrastructure, finance, and digital service providers such as online marketplaces, cloud and online search engines are all required to comply with these directives.

CERT-In has provided the entities with a 60-day window to comply with the directions. The increased compliance requirements and the added cost that comes along with such compliance will make smaller entities anxious. Hence, the effectiveness of these directions can only be judged with the passage of time. Significant concern can also be placed on the fact that these new directions will merely add to the compliance burden rather than improve the cyber security environment of the country.

References:

[1] https://www.cert-in.org.in/Directions70B.jsp

Image Credits: Image by Pete Linforth from Pixabay

These new directions issued by CERT-In have acknowledged the concerns of end-users, who were kept in the dark regarding their data and the process undertaken by a body corporate in the event of a data breach or leak. The directions have also touched upon the latest technological developments like cloud services, virtual assets, and online payments, which are yet to be completely regulated by the government. When compared to the CERT rules 2013, the new directions have an expanded scope and applicability and a significantly increased compliance bracket for entities.

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New Labour Codes : How to Prepare for the Challenges Ahead?

A couple of years ago, India’s Parliament approved four new Labour Codes that cover important areas such as Wages, Social Security, Industrial Relations and Occupational Safety and Health. Labour reforms have been a long-pending agenda item for successive governments. The creation of these codes was aimed at modernizing, rationalizing and strengthening India’s arguably archaic labour-related laws. The new codes are also intended to attract investments into various sectors and make it easier to do business in India.

Although the Central Government notified these four new Labour Codes in September 2020, even now, a majority of states have not notified rules; less than half the states have even come up with draft rules. There has been some talk in recent days that the government may decide to implement the new codes effective 1 July. While this has not been officially confirmed, the inevitability of the implementation of the new codes makes it important for state governments to quickly come up with their draft rules and allow time for consultation so that loopholes and lacunae can be plugged before they come into effect. There will naturally be protests against the new laws because any change causes pain by forcing people outside their zones of comfort.

Once the new labour codes come into effect, two key changes will occur that will directly impact employees and organizations:

Working hours: It is expected that working hours may increase from the current 9 hours a day to 12 hours a day. The flip side, however, is that employees will need to work only four days a week, instead of the current five.

Take-home salary: The new wage code stipulates that an employee’s “basic salary” must be at least 50% of the total salary. This will cause changes to allowances and other perquisites that are widely used for tax planning purposes. A higher Basic Salary also means that deductions towards retirement benefits such as provident fund and gratuity will increase. In turn, this will reduce the net take-home salary for employees. However, this also means that employees will accumulate a much larger corpus of money when they retire, in effect, trading off current consumption with future security.

Adapting to this change will require companies to revisit policies, employment terms and contracts and even operating procedures. It may require fresh investments in amenities for workers and other employees at factories, construction sites, stores etc. New compliance requirements will arise, which means that business leaders, HR teams and those responsible for compliance must gear up to ensure that the organisation remains compliant with the new set of rules. This task becomes more difficult because the new codes have amalgamated a number of laws. For example, four laws have been amalgamated into the Wage Code, three into the Industrial Relations Code, nine into the Social Security Code and thirteen laws into the Occupational Safety, Health and Working Conditions Code, 2020.

Organizations must also keep in mind that these new codes will need to be implemented in tandem with hybrid ways of working. Even when employees were required to work for only 9 hours a day, there have been many instances of individuals (across industries and companies) working for 14 hours a day in a “work from home” model. Care must be taken to ensure that work-life balance is not further damaged by the extended working hours that the new codes provide for.

Business organizations with offices and production facilities in multiple locations spread across a number of states will need to be extra careful to ensure compliance with every state’s laws. Enterprises considering M&A will need to evaluate the costs of compliance with the new labour codes as part of their due diligence and strategic/financial assessment during valuation. Expert advice will be needed to minimize the pain that will inevitably accompany the transition. But given the intent of the new labour codes, it is fair to say that if they are backed by pragmatic rules, they will surely play a key role in accelerating the country’s economic growth in the years ahead.

Image Credits: Photo by Pop & Zebra on Unsplash

Adapting to this change will require companies to revisit policies, employment terms and contracts and even operating procedures. It may require fresh investments in amenities for workers and other employees at factories, construction sites, stores etc. 

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Are Reservations Adequate to Foster Diversity & Inclusion?

                                                   Non-inclusion and lack of diversity are a painful reality that needs to be urgently addressed. 

It is beyond dispute that in different parts of the world – India included – discrimination continues to exist, although constitutional provisions and a number of other laws explicitly prohibit such actions. Several factors such as race, caste, gender, economic status, religion, complexion and other aspects of physical appearance, mental abilities, sexual identity, education, linguistic skills, etc., are used to make distinctions between people that lead to various decisions. Sometimes, the inferences made are limited to an individual’s mind, but often they influence decisions that impact someone else’s life. 

In India, this challenge is visible right from the primary school level and continues till the individual’s retirement and perhaps death. Educational institutions have been directed to ensure affirmative actions to reduce the inequalities in access to and the right to education. This takes the form of reservations of seats based on specific criteria. The government as well as public and private sector organisations have reservations based on various considerations. Certain constituencies too have been identified as “reserved”, which means candidates must come from a specified caste/tribe, etc.

There is no doubt that families, organisations and countries can progress on all fronts only if there is broad societal representation. Countries that are able to achieve this will develop faster- not just in terms of economic indicators, but also in equally critical areas such as health, education, justice, environment, women’s safety, child welfare, etc. But are reservations sufficient to achieve this lofty objective?

Reservations do not Account for “Intersectionalities”

 

I believe that our experience so far in India does not support the notion that reservations are adequate or even the best option. They may be necessary, but are far from being an effective solution in practise because of the reality of “intersectionality”. An individual may not qualify for a reservation based on caste, but what if s/he comes from an Economically Weaker Section of society? Which criterion gets primacy between caste and gender? Unless a priority is determined, it is likely that caste-based reservations will benefit men more than women (from the same caste).

Even in the corporate context, reservations largely manifest during the intake of talent at the entry-level. At more senior levels, the talent pool is largely skewed towards males, who benefit from privilege in various forms (including not being impacted to the same extent by parenting responsibilities). In turn, this reduces the likelihood that women will be able to break the glass ceiling. There are shining exceptions of women who have overcome all odds, but that is more due to their individual abilities, hard work and possibly the good fortune of having excellent mentors and visionary leaders than to an environment that consciously recognises and empowers merit, irrespective of other criteria.

Fostering Diversity and Inclusion Needs More Than Just Reservations

 

A multi-pronged approach is needed to address the issue of diversity and inclusion. The central government (and state governments as necessary) needs to formulate national or state policies across sectors in order to consciously recognise and address the realities of the multiple intersectionalities that prevail in our society. While some of these elements may be conscious individual choices, most of them are “historical” or the result of factors outside an individual’s control. This means reservations must account for various elements that can co-exist and not treat them as discrete. This is easier said than done and may require experiments to figure out what works best. But, in order to reap the benefits of our demographic dividends, we must act now!

However, formulating policies is not enough, as is evident from so many other facets of our society. The key lies in ensuring that the policies are complied with not just in letter, but also in spirit. Multiple stakeholders need to be consulted, so that different views are factored in. Indeed, this is where diversity and inclusion must begin.

Private and public-sector organisations are key stakeholders in an attempt to raise diversity and inclusion in India. These organisations must consciously train their people at all levels to value diversity of thought, opinion and lived experiences. This means changing how meetings are conducted (e.g., by giving everyone the opportunity to speak and not pushing the leader’s views and opinions down everyone’s throats). It means coaching leaders to encourage diverse talent pools to make decisions around promotions, key projects etc. It means walking the talk and rejigging the organization’s rewards systems to recognise and reward diversity that translates to business value. 

“Diversity” should not be limited to gender; it must cover as many elements as possible, including, for example, generational differences. This will become an increasingly important area. It means ensuring that offices are built/modified to provide access to people with disabilities and appropriate amenities. Business/HR leaders must rethink their visions to consciously bring out elements of diversity and inclusion. Genuine efforts must be made to eliminate gender pay gaps, even if it means a hit to the P&L account. All this is not something that can be easily legislated, although some indicators can perhaps be brought under the ESG umbrella.

The problem is complex, and so it does not lend itself to simplistic, formula-based solutions. All stakeholders must have alignment in their thinking so that there is concerted action in various spheres. This alone will enable the world to ensure that diversity and inclusion moves from the ivory towers to the realm of daily life.

Image Credits: Photo by Andrew Moca on Unsplash

A multi-pronged approach is needed to address the issue of diversity and inclusion. The central government (and state governments as necessary) need to formulate national/state policies across sectors in order to consciously recognise and address the realities of the multiple intersectionalities that prevail in our society. While some of these elements may be conscious individual choices, most of them are “historical” or the result of factors outside an individual’s control. This means reservations must account for various elements that can co-exist and not treat them as discrete.

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Squaring the Snags of Online Hearings

The Indian Trademarks Registry (“TM Registry”) had always extended the facility of virtual hearings much before the onset of the pandemic. However, not many IP attorneys and Trademark Agents preferred to utilise this resource due to issues surrounding the system and the process.

Recently, the Delhi High Court, in the case of Pawandeep Singh v. The Registrar of Trademarks & Anr., W.P.(C)-IPD 7/2022 & CM 30/2022, pointed out numerous inefficiencies in the virtual hearing system of the Trademarks Registry and instructed the concerned authorities to streamline and optimise the current system.

The petitioner in this matter had filed a writ petition against the orders passed by the Registrar of Trademarks in respect of Application No. 3981639 for the mark “SWISS”. The grouse of the petitioner was that the order was passed without affording a hearing to the petitioner, which violated the principles of natural justice.

The agent who had logged in for the hearing was kept in the virtual waiting room at the time of the hearing and was not admitted. Hence, the petitioners were not allowed to put forth their oral arguments. However, it was officially recorded that submissions were heard. The petitioner informed the Hearing Officer via email regarding the situation, but no response was received. The petitioner was further surprised when he received the refusal order.

The ‘Hon’ble Court, based on the submissions made by both the parties, recorded the following observations:

  1. The cause list for hearings at the Registry is published monthly.
  2. The TM Registry’s virtual platform allows only three people to be present in the hearing at any given time, and the remaining attendees are kept in the waiting room.
  3. An order that the Hearing Officer passes has two parts, the templated portion and the non-templated portion where the Hearing Officer types out the order. The templated piece is not editable and states that the matter was set down for hearing and, eventually, the hearing took place on a particular date.

In this matter, the Hearing Officer did admit that the petitioner in the present case was not heard, and the templated portion of the impugned order is contrary to the fact. The illegality is compounded when the order captures that the hearing took place, whereas the counsel was kept waiting in the waiting room but was not admitted.

The Court remarked and directed that the Controller General of Patents, Designs & Trademarks must devise a proper mechanism for holding show cause hearings by including the following features:

  1. Publication of cause list notices daily.
  2. Utilising a platform with an open link.
  3. Matters should be called serial number-wise for certainty and convenience of the applicants.
  4. Removal of templates from the order statements which may vary on a case-to-case basis.
  5. Some extra space is made available for Senior Examiners to put their brief reasons for allowing or refusing the application.

The Court held that a proposal on behalf of the Controller General of Patents, Designs & Trademarks in respect of holding show cause hearings on the points outlined above should be placed on record within two weeks. It may also consult the IP fraternity and stakeholders if required.

The matter has also brought to the forefront the inefficiencies of the online hearings, which stakeholders have long since been bringing to the attention of the Registry. With online hearings gaining prominence, the suggestions of the Court are the right steps towards a more efficient and transparent system that will stand the test of time.

Image Credits: Photo by Sora Shimazaki from Pexels

With online hearings gaining prominence, the suggestions of the Court are the right steps towards a more efficient and transparent system that will stand the test of time.

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The Metaverse and its Numerous Concerns

There is a lot of buzz being generated around the “Metaverse,” which can be defined as a virtual reality-based shared digital world in which users (through their “avatars”) can enjoy three-dimensional, multi-sensory experiences. This rapidly-evolving, technology-driven paradigm is a huge shift away from the present, where digital interactions are based on text, audio and two-dimensional images/videos. The excitement around the Metaverse is due to the immense possibilities that exist around how it can be used for social interactions, commerce, media & entertainment, education, manufacturing, healthcare, defense etc. Not surprisingly, many companies, even in India, are investing in Metaverse capabilities.

While the potential for metaverse cannot be denied, it is just as important to recognize and acknowledge that there are several grey areas around this paradigm. If timely actions to prevent the misuse of the metaverse are not taken by the global community, we run the serious risk of opening a new Pandora’s Box. And once the proverbial genie is released from the bottle, it is virtually impossible (pun intended) to put it back inside.

The Potential Dangers of the Metaverse

 
What are the biggest fears surrounding the Metaverse? Concerns have been expressed from different quarters around issues relating to the privacy, safety and well-being of people who are active in the metaverse. In the current scenario, people use social platforms to connect with each other. If someone with whom I do not wish to engage seeks to connect with me in a basic digital world, I can easily deny the friend request. Even after having granted them permission initially, I can choose to block such persons. During the time they have permission to engage with me, the worst that can happen is that they send unwanted texts, audio messages or images and videos.

This is bad enough, but in the metaverse, the kind and nature of obscene or harmful content will change drastically; consequently, so will the impact of such material and experiences on vulnerable segments of society. 

For example, in the metaverse, it is quite possible for complete strangers to enter someone else’s personal space – without the latter being aware of who the former is. Given the multi-sensory capabilities of the metaverse, which includes haptic technology (the sense of touch), the experience and impact can be far worse. Arguably, the metaverse (as it exists currently) lends itself more easily to bullying, sexual abuse or intimidation. Indeed, there have been recent media reports that some VR-based games that are accessible to young children contain inappropriate content. 

AI-driven deep fakes can further muddy the waters by creating and distributing patently false content that is almost impossible to detect as fake. There is enough fake information circulating on Whatsapp as it is, think of the danger of content that purportedly shows politicians or others saying things designed to inflame emotions.

NFTs will be key to the evolution and growth of the metaverse, providing owners of physical assets such as paintings and IPR such as rights to music, movies etc. new avenues to monetize them at scale. Cryptocurrencies and tokens are likely to form the principal currency in the metaverse, powering commerce and payments. As of now, cryptocurrencies are anonymous and independent of mainstream banking and financial systems. 

In the absence of regulations that are uniformly enforced globally, such parallel payment systems can be easily misused for illegal and immoral activities and transactions, including child sexual abuse. It is likely that fraud and crimes will increasingly crisscross between the current digital world and the metaverse (and perhaps the physical world), making them harder to detect and bring the perpetrators to book.

Addressing the Issues Surrounding Metaverse 

 

A multipronged approach is key to addressing the potential dangers of the metaverse. It is vital to frame appropriate legislation and arm various regulatory agencies with the power to catch and punish violators is vital. The basic premise around legislation has to be this: if something is illegal or against the law or generally accepted social mores in the “real”, physical world, it must be treated the same way in any parallel “virtual reality” based universe.

However, legislation alone cannot secure the metaverse. It will be essential to hold creators of content and platforms that enable distribution and access responsible for violations. The metaverse infrastructure needs to be designed with more intent to put in place appropriate safety mechanisms right at the beginning. As a global society, we must learn from our experiences with the downsides of social media platforms (false information, cyber-bullying, digital fraud etc.) and take preemptive actions that can prevent problems before they become common. This is significant because changing processes after people have grown accustomed to them is never easy; also, some damage may have already occurred. It may also be necessary to think of ways to incentivize good behaviour in the metaverse.

The metaverse is expected to surge ahead quickly on its evolutionary path. Its trajectory cannot be predicted in advance, therefore, what is needed is constant vigilance and for global action to be taken in a concerted manner. The UN system is supposed to be the primary keeper of international order. A number of events over the past couple of decades have painfully driven home the point that the UN architecture needs an urgent and major overhaul. As part of this exercise, it may be useful to establish a new global body tasked with the responsibility of overseeing and governing the metaverse. Regional political/economic blocs must be encouraged to ensure that their members comply with rules and regulations related to the metaverse.

The metaverse is expected to surge ahead quickly on its evolutionary path. Its trajectory cannot be predicted in advance; therefore, what is needed is constant vigilance and for global action to be taken in a concerted manner.

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Why Businesses Should Focus on ESG?

The world has changed in many fundamental ways especially in the last 25 years. I am not referring to technology-led transformation or geopolitical shifts, this piece is about Environmental, Social and Governance criteria – collectively referred to as “ESG”.

Environmental Criteria

 

Environmental costs, which were for long viewed by economists as “externalities”, are now an important consideration in decision-making by governments and business leaders. Given the devastating effects of widespread environmental degradation and climate change, countries around the world are taking concrete actions to limit further damage; many are setting “net zero” emission targets for individual sectors over the next couple of decades. As a result, new legislations are being enacted that require businesses to act in certain ways and desist from other kinds of actions. Arguably, this is the biggest facet of change globally.

Social Criteria

 

The second area of change is that various forms of social injustice are no longer being tolerated. While there were always rules against such inequities, there is now a greater cost imposed on organizations that violate these rules- not just by governments and regulators, but also by consumers, who choose to shift loyalties towards brands that exhibit greater sensitivity to social causes. By definition, social injustice covers a broad range of issues that includes exploitation of children, women or certain races (e.g., the Uighurs); not providing employees good working conditions (physical environment, denying employees time for bio-breaks and rest, harassment at the workplace etc.); discrimination against people with disabilities, gender, age or marital status; even selling goods that are not safe or bad for health arguably fall under this category.

Governance Criteria

 

The thrust on “governance” is the third major driver of change. It is not as if rules and regulations did not previously exist to prevent breakdowns in governance. Yet, there are a number of examples from around the world that showcase bad governance: from companies in South Korea, Japan, the USA and Europe to the ongoing matters at the NSE and BharatPe in India.

 

Why ESG Adoption is Crucial?

 

In recent years, various members of business ecosystems worldwide, including enterprises, investors, regulators and the general public have become far more aware of the importance of compliance with “ESG” norms and standards. They are much less willing to tolerate breaches in an organization’s “ESG” conduct.

At one level, companies that do not do well on “ESG” parameters are more likely to face explicit financial penalties (e.g., carbon taxes). But just as important are the hidden costs that will increasingly need to be borne by ESG laggards. Perhaps the most important is the reduced access to capital because both banks and PE/VC firms are incorporating ESG criteria into their funding/ portfolio strategies.

On the demand side, many consumers (especially from the younger generations) are more conscious of brands that fare better in terms of their commitment to ESG and this, in turn, shapes their purchase decisions. Brands can quickly lose market share if they do not raise their ESG game.

As shown in the chart below, data over the past decade reveals that companies that have successfully implemented ESG strategies have consistently performed better than other global companies that have not paid as much attention to ESG.

 

Source: Stoxx.com quoted in https://sphera.com/spark/the-importance-of-esg-strategy/

This out-performance can be attributed to a combination of factors, including faster top-line growth, sustained cost reductions, higher employee productivity and reduced employee attrition and of course, fewer instances of fines/penalties for non-compliance. Investment decisions and technology choices that are guided by ESG considerations will drive a more efficient allocation of capital; in turn, this will boost ROCE (Return on Capital Employed).

While it is convenient to look at the three strands of ESG separately, in reality, they are closely intertwined. The sooner business leaders acknowledge that ESG is not a fad or a feel-good factor, but in fact, makes sound business sense, the better it is for the world as a whole.

 

Start Your ESG Journey Right Away

 
Someone quipped that the best time to plant more trees was years ago, but the second-best time is now! It’s not too late for you to begin your ESG transformation. But make sure you do it as a well-structured program, and not merely a hotch-potch of initiatives that have no clear owners, goals or measures and therefore cannot be sustained.

 

To report ESG performance, you can take the help of commonly used frameworks such as the following:

  • UN Sustainable Development Goals (SDGs)
  • Global Reporting Initiative (GRI)
  • Sustainability Accounting Standards Board (SASB)
  • Climate Disclosure Standards Board (CDSB)
  • Task Force on Climate-related Financial Disclosures (TCFD)

Image Credits: Photo by Photo Boards on Unsplash

While it is convenient to look at the three strands of ESG separately, in reality, they are closely intertwined. The sooner business leaders acknowledge that ESG is not a fad or a feel-good factor, but in fact, makes sound business sense, the better it is for the world as a whole.

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Revised Guidelines and Standards for Charging Infrastructure for Electric Vehicles: An Analysis

To promote e-mobility in India, the Ministry of Power, on 14th January 2022, introduced the revised consolidated Guidelines & Standards for Charging Infrastructure for Electric Vehicles (hereinafter, the Guidelines).[1] The Guidelines play a pertinent role in facilitating the e-mobility transition in India by increasing the affordability, accessibility, and reliability of the charging infrastructure. These guidelines are comprehensive as they deal with issues ranging from public charging stations to the tariff for the supply of electricity.[2] This article aims to study the provisions under the recent Guidelines, analyse the same, and delve into the suggestions for their effective implementation.

Exploring the Contours of the Electric Vehicle Infrastructure Guidelines

 

The Guidelines allow individuals to charge the Electric Vehicles (hereinafter, “EV”) at their residences and places of work with the help of their existing electricity connections.[3]  A private entity is free to set up a public charging station till the time it complies with the standards and protocols laid down by the Ministry of Power, Bureau of Energy Efficiency and Central Electricity Authority (CEA) from time to time.

The government, through the new Guidelines, aims to establish a grid of 3x3km for the EVs.[4] On the highways, a charging station would be available within every twenty-five kilometres. These charging stations would be present on both sides of the highways. To facilitate this goal, the government may resort to the installation of public charging stations at the existing outlets of the oil marketing companies.[5] It is interesting to note that the Guidelines also target heavy-duty EVs such as trucks and buses. A separate list of compliances, such as the requirement of at least two chargers of a minimum 100 kW (with 200-1000 V) each, has been specified for the long-distance and heavy-duty EVs.[6]

Under the Guidelines, the public charging stations can apply for electricity connection and the distribution licensee would provide the same as per the timelines provided under the Electricity (Rights of the Consumers) Rules, 2020.[7]  The public charging stations set up in metro cities would be able to have connectivity within the seven days of applying.[8] The deadline extends to 15 days in the case of other municipal areas and 30 days in rural areas. The Guidelines also present the option of procuring power from any power generating company through open access.

To provide for advanced remote or online booking of charging slots, it is necessary for the public charging station to have a tie-up with at least a single network service provider. This would allow the EV owners to have the requisite information pertaining to various aspects such as a number of the installed and available chargers, location, and applicable service charges. While acknowledging that few public charging stations would be set up for internal use of an entity, the Guidelines additionally mention that no network service provider tie-ups are needed in that instance.

One of the key features of these Guidelines is that they provide for the single part tariff for the electric supply to the public charging stations, which would not extend the average cost of the supply until March 31st, 2025.[9] A separate meeting arrangement would be provided for the public charging stations, as opposed to the domestic charging, so as to ensure that the consumption is recorded and billed in line with the applicable tariffs. To further reduce the cost, the government has provided electricity at concessional rates along with the subsidies to set up the Public Charging Stations. Moreover, the state governments would be fixing the ceiling of service charges, which are to be levied on these charging stations.[10]  The Guidelines, inter alia, provide that the DISCOMs may leverage on the funding from the Revamped Distribution Sector Scheme for the augmentation of the general upstream network, which is necessitated due to the upcoming charging infrastructure. It specifies that the “cost of such works carried out by DISCOMs with the financial assistance from the Government of India under the revamped scheme should not be charged from the consumers for the Public Charging Stations for EVs.”[11]

The recent guidelines play an instrumental role in ensuring the process of charging is made affordable for EV users. The public charging stations would be set up on a revenue-sharing basis at the fixed rate of Rs 1/kWh.[12] More and more public charging systems would be set up by using the land available with the government and private entities.

It is pertinent to note that a phased manner would be followed with respect to the rolling out process. Phase I, which ranges from the first to third year, would target all the megacities having a population of over four million. In this phase, all the existing expressways and important highways linked with the above megacities would also be included. Thereafter, under the second phase (which would range from the third to the fifth year) would cover certain big cities, state capitals, and headquarters of the Union territories.[13]

Moreover, these Guidelines are made technology agnostic because they provide for prevailing international charging standards available in the market as well as new Indian charging standards.

The Bureau of Energy Efficiency would be the central nodal agency for the rollout of the EV public charging infrastructure.[14] Moreover, every state government can have its own nodal agency for the purposes of setting up the requisite infrastructure.

 

Requisites of Electric Vehicle Charging Stations

 

The Guidelines can be perceived as a massive step forward to promote the adoption of EVs in India by increasing accessibility and affordability. They should be lauded for introducing a reliable economically viable and coordinated system to regulate the charging of such vehicles. They further tend to address the long-existing lacunae, which persisted with respect to the applicable tariffs.

In India, one of the reasons as to why the adoption of EVs has been quite staggered is because, according to the data with the Ministry of Road Transport and Highways (“MORTH”), for 9,47,876 registered cars, only 1028 public charging stations are there.[15] This was observed by the Bureau of Energy Efficiency. Therefore, from the above figure, it could be clearly observed that the country does not have the necessary infrastructure to cater to the growing demand for EVs. These guidelines have identified the existing problem and provided appropriate solutions for the same. As discussed above, apart from the installation of an adequate number of public charging stations, the individual consumers will also have the option of charging the EVs at their homes or places of work. The Guidelines state that under private charging, the batteries of the privately owned cars are charged through the domestic charging points and the billing is done via the home or domestic metering.  On the other hand, for charging outside the home premises, the power needs to be billed and payment needs to be collected. Moreover, the power drawn from these chargers is regulated from time to time.

The provision of private charging, in addition to public charging, would overall result in consumer welfare as now the private users do not have to rely completely on the government for the charging process. They can bridge the implementation gap by setting up their own charging stations. Further, the government has also been taking the right steps to bring down the price of electric vehicles by providing subsidies. At present, the price of the majority of Electric two-wheelers and three-wheelers are almost equivalent to their petrol counterparts.[16]

India has set the target of meeting 30% EV sales penetration for private cars, 70% for commercial vehicles, 80% for two and three-wheelers, and 40% for buses by 2030.[17] However, earlier this goal seemed unachievable due to the high costs associated with EVs and lack of the required infrastructure for public charging stations. The new Guidelines strive to make certain that the country is back on the track to meet the above-mentioned objective. This has been possible due to the subsidies that have been provided by the government. It is predicted that the sale of the total electric vehicles in India would reach approximately 10 lakh units. This number is equal to the units sold collectively in the last fifteen years.[18] Apart from this, the government has introduced a portal called e-Amrit to make India a more conducive place for the manufacture and adoption of EVs.[19]

Furthermore, the Guidelines aim to strike a balance between accessibility and safety. By allowing private entities to set up charging stations, the government has not only made the charging of EVs more feasible for individuals but has also reduced its burden of being the sole provider of the charging stations.  Annexure 3 lay down a list of requirements to ensure that the safety protocols have been followed[20]

Instrumental Role Played by EV Charging Infrastructure

 

The Guidelines would play an instrumental role in transforming and shaping the future of the use of EVs in India. They have efficiently recognized the existing issues and have formulated promising ways for addressing the same. Not only would they help in promoting energy security, but would also help in the reduction of emissions that are harmful to the environment which is a major concern at the global level. This would enable the country to take a step forward in the direction of its concern to save the environment and sustainable development.

However, the success of these Guidelines entirely depends on their effective implementation. Therefore, both central and state governments shall play a crucial role in its success in introducing a user-friendly EV policy. It is suggested that the Central Government or the Central Nodal Agency should keep a check on the performance of all the States with regards to the Guidelines. It should ensure that the development is taking place in a continuous and coordinated manner. Moreover, since the private individuals and entities for public use are free to set up their own charging stations, measures should be taken to ensure that the safety standards are strictly being met.

References:

[1] https://powermin.gov.in/sites/default/files/webform/notices/Final_Consolidated_EVCI_Guidelines_January_2022_with_ANNEXURES.pdf

[2] https://www.business-standard.com/article/economy-policy/power-ministry-revises-norms-for-pro-actively-setting-up-ev-charing-infra-122011500778_1.html

[3] https://auto.economictimes.indiatimes.com/news/industry/guidelines-and-standards-for-ev-public-charging-stations-released-owners-can-charge-at-home-or-office-too/88941883

[4] https://economictimes.indiatimes.com/industry/renewables/what-budget-2022-can-do-to-power-up-ev-charging-scene/articleshow/89069935.cms

[5] https://mercomindia.com/ministry-of-power-guidelines-ev-charging-infrastructure/#:~:text=As%20per%20the%20new%20guidelines%2C%20public%20charging%20stations%20will%20be,30%20days%20in%20rural%20areas.

[6] https://powermin.gov.in/sites/default/files/webform/notices/Final_Consolidated_EVCI_Guidelines_January_2022_with_ANNEXURES.pdf.

[7] https://powermin.gov.in/sites/default/files/uploads/Consumers_Rules_2020.pdf

[8] https://www.news18.com/news/auto/government-allows-ev-owners-to-charge-cars-using-existing-electricity-connections-4666697.html

[9] https://www.thehindu.com/news/national/revised-guidelines-for-charging-infrastructure-for-electric-vehicles-issued/article38275645.ece

[10] https://indiaesa.info/resources/ev-101/3924-public-ev-charging-infrastructure-in-india.

[11] https://powermin.gov.in/sites/default/files/webform/notices/Final_Consolidated_EVCI_Guidelines_January_2022_with_ANNEXURES.pdf

[12] https://www.freepressjournal.in/india/owners-of-evs-can-now-charge-them-at-their-residenceoffices-using-their-existing-electricity-connections

[13] https://economictimes.indiatimes.com/industry/renewables/govt-land-to-ev-public-charging-stations-through-bidding/articleshow/88917938.cms?from=mdr

[14] https://beeindia.gov.in/content/e-mobility

[15] https://www.hindustantimes.com/india-news/govt-allows-use-of-existing-power-connections-to-charge-evs-101642392095051.html

[16] https://www.hindustantimes.com/india-news/govt-allows-use-of-existing-power-connections-to-charge-evs-101642392095051.html.

[17] https://www.hindustantimes.com/india-news/budget-2022-special-mobility-zones-for-evs-soon-101643699503104.html#:~:text=her%20budget%20speech.-,India%20has%20set%20a%20target%20of%2030%25%20EV%20sales%20penetration,and%20three%2Dwheelers%20by%202030.

[18] https://www.news18.com/news/auto/electric-vehicles-sales-in-india-expected-to-touch-10-lakh-units-in-2022-smev-4630505.html.

[19] https://www.india.gov.in/spotlight/e-amrit-accelerated-e-mobility-revolution-indias-transportation#:~:text=e%2DAMRIT%20is%20a%20one,%2C%20charging%20stations%2C%20business%20requirements.

[20] https://powermin.gov.in/sites/default/files/webform/notices/Final_Consolidated_EVCI_Guidelines_January_2022_with_ANNEXURES.pdf.

Image Credits: Image by Photo by Michael Marais on Unsplash

The success of these Guidelines entirely depends on their effective implementation. Therefore, both central and state governments shall play a crucial role in its success in introducing a user-friendly EV policy. It is suggested that the Central Government or the Central Nodal Agency should keep a check on the performance of all the States with regards to the Guidelines. It should ensure that the development is taking place in a continuous and coordinated manner.

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Budget 2022: Light at the End of the Tunnel or Dark Clouds for MSMEs?

The Union Budget 2022-23 highlighted that the Micro Small and Medium Enterprises (MSME) sector is a vital pillar of the country’s economy. It contributes to approximately 45 per cent of India’s total manufacturing output, 40 per cent of exports, and almost 30 per cent of the national GDP. The COVID-19 pandemic proved to be a major blow to the sector, especially to the small enterprises as they were abruptly forced to get on the tech wagon.[1] The unforeseen and instant digitization resulted in mounting costs at a time when they could barely sustain themselves. In light of this, the sector put their faith in the Union Budget for the FY 2022-23 for support, recovery and development.

Expectations of the MSME Sector from the Budget 

 

Previously, the government had introduced the Emergency Credit Line Guarantee Scheme (ECGLS) to provide support to the micro, small and medium enterprises amidst the pandemic. This led to an increase in the expectations of the MSME sector from the 2022 Budget. They anticipated that the government would provide benefits such as simplifying taxation procedures, credit lending, and investment incentives.

 

Changes in the Credit Framework

 

Under the aforementioned ECGLS scheme, MSMEs enjoyed a reduction in the interest rates on the loans and an enhancement in the loan procurement process.[2] This was well-received as it helped the MSMEs to recover from the clutches of the pandemic. 

It is pertinent to note that occasionally the  MSMEs have to extend their credit lines and bear the brunt of delayed payments.[3] This adversely impacts the growth of their business. Due to this, they need measures to facilitate their business decisions by improving the credit lending framework.

Due to the pandemic, a number of MSMEs were unable to utilize the benefits provided by the government. This was primarily because, either the enterprises weren’t registered as MSMEs or they did not have a secured bank account.

The cash flow was also largely impacted by COVID-19. To minimize the challenges put forth by this issue, provisions for banks to lend more to MSMEs were required. This in turn would have ensured a steady supply with the NBFs and would have further enabled them to lend credit to MSMEs.

Further, it was expected that the Special Credit Linked Capital Subsidy Scheme, which was announced in 2021, would extend to enterprises with a turnover of fewer than 5 crores. The institutional credit provided under the scheme would have allowed the smaller enterprises to procure equipment for their technological development.  Ergo, certain key changes were expected in the credit framework. 

It had also been suggested that retail loans to MSMEs should be treated differently from corporate loans.[4] This suggestion came in light of the Reserve Bank of India’s notification in November, where it clarified its asset classification norms. Under this notification, the RBI asked the lenders to classify the borrower accounts as a Special Mention Account (SMA) and a Non-performing Asset (NPA) as per the day-end process.[5]

The budget was also expected to come to grips with the problem of willful defaulters and rising NPAs in the given sector by introducing appropriate policies.

 

Reduction of Taxes

 

The government was expected to provide a considerable reduction in duties and taxes. This would have encouraged the MSMEs to invest more in capital goods and in turn produce more. To further tap the manufacturing capabilities of the MSME sector, it was suggested that the Long Term Capital Gains Tax on Private Equity should be reduced. Additionally, more subsidies should have been introduced on the imports of Capital Goods.[6] The MSMEs also hoped for GST rationalization and some relaxation in the compliance burden. This would have helped in increasing the ease of doing business.[7]

 

Incentives for Investment

 

For the inducement of investment in the sector, the MSMEs pinned their hopes on the government to provide incentives such as tax benefits for the angel investors and contrive a policy to ensure that the sector is adequately funded.[8]

 

Steps Towards Digitization

 

Furthermore, it was suggested that the government should have aimed to bring the digital revolution in the backward areas as well.  For this, the government should have promoted digital payments through certain incentives. Further, it was expected that the government would provide technological solutions to enable the MSMEs to increase their production and compete better.

 

Other Incentives

 

To address the environmental concerns, steps to promote low carbon manufacturing among the MSMEs were awaited. The 2022 Budget was expected to provide support in this regard. This would have provided the Indian economy to tackle environmental concerns as well as enable the  MSMEs to explore innovative solutions.[9]

 

Budget 2022: A Beacon of Hope for the MSME Sector? 

 

In the 2022 Budget, critical factors concerning MSMEs were targeted. These include raw material, credit access, and input costs. Further, infrastructure and skill development support, digital services support, ease of doing business was assured and facilitation of ease of doing business was announced.

 

Input Costs

 

A reduction in the import tariffs on inputs was announced along with an increase in the tariffs on the import of end products. This would protect the MSMEs and make them more competitive. While there was a reduction in tariffs including customs duty and exemptions on input like steel scrap, a 7% duty on finished goods was announced. Further, the import tariffs for industries like textiles, leather products, and handicrafts were also reduced. Lastly, the steel scrap customs duty exemption, which was given last year has been extended for another year, providing relief to MSME steel producers.[10] Moreover, certain anti-dumping and countervailing duty on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel were revoked in larger public interest considering prevailing high prices of metals. On the other hand, customs duty on umbrellas was raised to 20 per cent and exemption to parts of umbrellas was withdrawn. 

Removal of exemption on items which are or can be manufactured in India and providing concessional duties on the raw material that goes into the manufacturing of intermediate products will go many a step forward in achieving our objective of ‘Make in India’ and ‘Atmanirbhar Bharat. 

 

Access to Credit

 

The MSME sector would now be facilitated with an additional credit of Rs 2,00,000 crore under the credit guarantee scheme. The Emergency Credit Line Scheme has been extended till March 2023 and an increase in the guarantee cover has been announced, from Rs 50,000 crore to Rs 5,00,000 crore with an exclusive cover earmarked for hospitality.[11] Moreover, an announcement of the use of the post office infrastructure for 1.5 lakh additional physical banking facilities was made. Additionally, it was announced that 75 remote rural districts would now have digital banking units set up by commercial banks.[12] Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be revamped with funds infusion. This will stimulate additional credit of INR 2 lakh crore for MSEs and boost employment opportunities.

 

Infrastructure

 

Investments in multi-modal logistics parks and cargo terminals under the Gati Shakti scheme would facilitate domestic as well as global market connectivity. Thus, bringing down the cost of logistics for the sector and boosting export competitiveness. 

 

Start-ups

 

An announcement pertaining to the rationalization of capital gains surcharge was made, boosting the growth of startups. Individuals and FPOs would now be strengthened through the NABARD initiative.[13]

 

Skill Development

 

The national skill qualification framework will be oriented as per the varied industry needs. Hence, a positive initiative to bridge the gap of skilled human resources within the sector. 

 

Digital Services for the MSME Sector

 

The Union Budget 2022 declares that Udyam, e-Shram, National Career Service (NCS) and Aatamanirbhar Skilled Employee Employer Mapping (ASEEM) portals will be interlinked, and their spectrum will be broadened. They will now serve as portals with live, organic databases, delivering G2C, B2C, and B2B services. These services will relate to credit facilitation, skilling, and recruitment to formalise the economy and improve entrepreneurial opportunities.

 

Efficiency and Competitiveness

 

For MSMEs to become more efficient, the Racing & Accelerating MSME Performance (RAMP) program with the outlay of Rs 6000 crore over 5 years will be rolled out, It aims to help the MSME sector to inculcate factors such as resilience, competitiveness and efficiency.

 

Surety Bonds in Public Procurements 

 

To reduce indirect costs for suppliers and work contractors, the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurements.

 

Concessional Corporate Tax 

 

Extension of the concessional corporate tax rate of 15 per cent by one more year — till March 2024 for newly incorporated manufacturing companies has also been rolled out. 

 

PLI for Solar PV Module 

 

Budget 2022 allocated an additional Rs 19,500 crore to boost the manufacturing of solar PV modules under the production linked incentive scheme. This is to facilitate domestic manufacturing for the ambitious goal of 280 GW of installed solar energy capacity by 2030, an additional allocation of Rs 19,500 crore for Production Linked Incentive for manufacturing of high-efficiency modules, with priority to fully integrated manufacturing units from polysilicon to solar PV modules, will be made.[14]

From the above discussion, it can be seen that the 2022 Budget did oblige with the expectations of the MSME Sector. There was an increase in the budgetary allocation for the given sector. The 2022 Budget successfully addressed certain key issues such as the lacuna in the credit framework, deficiency of infrastructure, etc.

However, at the same time, it neglected a number of key issues. It ignored the needs of the unregistered MSMEs, which almost comprise 90% of the sector.[15]Further, there was a reduction in the funds allocated to key schemes. There was no allocation under the 2022 Budget for the  Credit Linked Capital Subsidy and Technology Scheme. Further, a cut of 75.56%  has been made in the Technology Upgradation and Quality Certification.[16]

The Budget failed to go beyond the schemes while exploring ways to increase the infusion of capital in the sector. In spite of the existing schemes, many enterprises are still struggling to sustain themselves. Therefore, an additional boost should have been provided by the government. 

The government also failed to tackle increased unemployment in the sector. No measures were taken to extend the benefits of the Insolvency and Bankruptcy Code to proprietorship firms. This was a serious drawback as the government failed to take the interest of more than ninety per cent of MSMEs into account amidst the pandemic.[17]

 

Some Hits Some Misses

 

The pandemic severely disrupted the MSME sector and in effect, the economic output of the country. The 2022 Budget did bring a ray of hope for the sector through schemes and incentives that shall foster a favourable ecosystem for new ventures and businesses. However, it paid little or no attention to the crucial issues that persisted. Failure to infuse funds into the market,  absolute abandonment of unregistered MSMEs and schemes aimed at supporting new enterprises while failing to extend plans to revive the existing units are some of the issues that demand a more insightful plan. Even though financial assistance extended during the pandemic did resolve the immediate sustenance issues, mounting loans and additional dues are some issues that need immediate redressal. Thus, it can be seen that India still needs a holistic approach to foster the growth of MSMEs, particularly the ones reeling under the debt of the pandemic.

References:

[1] https://economictimes.indiatimes.com/small-biz/sme-sector/why-technology-is-the-only-path-to-sustainedgrowth-for-msmes/articleshow/80281133.cms

[2] https://www.eclgs.com/

[3] https://economictimes.indiatimes.com/small-biz/sme-sector/what-can-msmes-expect-from-budget-2022/articleshow/89238615.cms

[4] https://www.financialexpress.com/industry/sme/msme-eodb-msme-budget-2022-expectations-three-key-areas-experts-say-fm-nirmala-sitharaman-must-address/2417204/

[5] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/117MCIRACP41D584957C3A43BCACEBC391B91A3FA0.PDF

[6]  http://www.businessworld.in/article/Expectations-Of-The-MSME-Sector/28-01-2021-370928/

[7] https://zeenews.india.com/economy/budget-2022-expectations-msmes-hope-for-gst-tds-reductions-relaxation-in-compliances-2429221.html

[8] https://economictimes.indiatimes.com/small-biz/sme-sector/what-can-msmes-expect-from-budget-2022/articleshow/89238615.cms

[9] https://indianexpress.com/article/business/budget/union-budget-2022-expectations-live-updates-what-market-experts-companies-industry-bodies-india-inc-economists-expect-7738854/

[10] https://economictimes.indiatimes.com/small-biz/sme-sector/govt-reduces-customs-duty-on-certain-steel-items-to-provide-relief-to-msmes/articleshow/80630835.cms?from=mdr

[11] https://economictimes.indiatimes.com/small-biz/sme-sector/budget-2022-23-eclgs-extended-to-march-2023-total-cover-up-to-rs-5l-crore/articleshow/89266189.cms?from=mdr

[12]  https://www.indiabudget.gov.in/doc/Budget_at_Glance/budget_at_a_glance.pdf 

[13] https://www.indiabudget.gov.in/doc/Budget_at_Glance/budget_at_a_glance.pdf

[14] https://knnindia.co.in/news/newsdetails/msme/msme-minister-launches-integrated-services-of-udyam-registration-portal

[15] https://www.financialexpress.com/budget/msme-eodb-budget-2022-focuses-on-ease-of-doing-business-for-msmes-but-fails-to-address-90-of-the-unorganised-sector/2423280/

[16] https://economictimes.indiatimes.com/small-biz/sme-sector/budget-2022-23-budgetary-allocation-rises-for-msmes-but-some-key-schemes-see-a-cut/articleshow/89276388.cms

[17] https://www.financialexpress.com/budget/msme-eodb-budget-2022-focuses-on-ease-of-doing-business-for-msmes-but-fails-to-address-90-of-the-unorganised-sector/2423280/

Image Credits: Image by

Image by eko pramono from Pixabay 

The 2022 Budget did bring a ray of hope for the sector through schemes and incentives that shall foster a favourable ecosystem for new ventures and businesses. However, it paid little or no attention to the crucial issues that persisted. Failure to infuse funds into the market,  absolute abandonment of unregistered MSMEs and schemes aimed at supporting new enterprises while failing to extend plans to revive the existing units are some of the issues that demand a more insightful plan.

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Critical Challenges in the Logistics Sector and a Way Forward

The Indian logistics sector has been on a path of steady and robust growth for the past few years, owing to the rising retail and manufacturing ecosystem in the country. According to the notification[1] of the Ministry of Finance, logistics infrastructure includes “Multimodal Logistics Park comprising Inland Container Depot (ICD) with minimum investment of Rs 50 crore and minimum area of 10 acre“. The importance of the logistics industry is not only paramount to maintain the economic ecosystem of the country, but also balance the national and international trade.

Introduction to the Logistics Sector

In practicality, the industry has broadened to include transportation and warehousing, protective packaging, material handling, order processing, marketing, customer service, distribution, value-added services, payment collection, packaging, documentation, customer brokerage facilities, kitting, repair management and reconfiguration and also reverse logistics. Ergo, all activities in the logistics supply chain.

Illustration I: Basic Logistics Supply Chain Process


 

The Importance of the Logistics Sector and the Role of Logistics Lawyers

 

As per the data published by Indian Investment Grid[2], an initiative of the Ministry of Commerce and Industry, the Indian logistics sector was valued at USD 160 billion in 2019, and by the end of 2022, it is expected to be valued at USD 215 Billion.. As per the World Bank’s Logistics Performance Index, India’s rank has escalated from 54 in 2014 to 44 in 2018. .

Further, in 2021 India’s logistics sector was valued at $160 billion that employed over 22 million people directly. It is expected to grow at a CAGR of 10 per cent to $215 billion by 2022.[3] Consequently, the logistics industry provides an overall positive scope and opportunity to the Indian economy as well as India’s infrastructure sector.

Since the logistics industry is vast, the role of logistics lawyers and infrastructure lawyers too is dynamic in nature. It ranges from carrying out due diligence, feasibility studies, regulatory approvals, drafting important project and transaction documents, contract management, risk management, regulatory-commercial-financial advice to dispute resolution and handling and advising in litigation.

 

Challenges in the Logistics Sector

 

One of the foremost challenges that the logistics sector faces today arise due to poor infrastructure. Physical infrastructure impacts transportation which facilitates logistics. The country faces challenges in port and roadways infrastructure which directly impacts the transportation of goods. Fuel costs and policy changes directly impact the logistics sector, since the higher the costs of fuel, the higher are the transportation and freight costs which would directly impact the logistic companies and businesses to stay afloat. The economic and socio-political changes in policy would also result in inflation of prices, and in turn, affect costs and disrupt the supply chain. Although the logistics industry has shifted to a more technological friendly environment over the past few years, the industry still faces challenges in safeguarding the documentation, which would be paramount in substantiating claims at the time of arbitrations and litigations. Lack of accurate data at the time of documentation along with several manual processes further aggravate this problem.

The ongoing pandemic has led to several policy changes such as perpetual and partial lockdowns which have directly affected the workers and the labourers of the nation, resulting in delay and/or stoppage of work. This is one of the causes of time overruns and an important cause of disruption in the supply chain. Furthermore, other challenges in the logistic sector involve several compliances that need to be followed in a timely manner, along with maintaining import and export licensing. Other legal issues involve insurance policies, bank guarantees and traversing through taxation compliances and implications.

Some of the challenges faced by the logistics sector are displayed below:

Illustration II: Challenges in the Logistics Infrastructure Industry in India

A vast majority of India’s trade is facilitated by the shipping industry. Furthermore, it is also known that the Government intends to encourage public-private partnerships in the shipping sector and help the local shipping industry with financing ship acquisitions [4]. Therefore, the shipping logistics sector has a promising outlook in the Indian economic ecosystem in the coming future

Commercial disputes in shipping logistics are adjudicated under civil courts with pecuniary jurisdiction and high courts with admiralty jurisdiction. Furthermore, there are established special commercial courts under the Commercial Courts Act, 2015 which deal with subject matters of commercial logistics disputes ranging from admiralty and maritime disputes,  issues related to the sale of goods, and those related to import-export, carriage of goods etc. However, prior to approaching the courts, mediation is mandated. Procedurally, along with the pre-institution mediation and settlement, the Commercial Courts Act, 2015 brings along a firm and time-bound approach into the maritime and logistics legal procedures. In the case of M/s SCG Contracts India Pvt. Ltd v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors[5], the importance of the timely process was asserted wherein the Supreme Court held that interim applications for rejection of statement of claims or plaint will not pause the 120-day deadline process. Certain challenges in litigations and disputes also relate to jurisdiction, cause of action and limitation barred suits.

The Indian Carriage of Goods by Sea Act, 1925 applies to outward cargo i.e., ships carrying cargo from India to foreign ports. The Multimodal Transportation of Goods Act, 1993 applies to multimodal transportation of cargo from one place in India to a place outside India using more than two means of transport. For cargo claims, the Indian Bills of Lading Act, 1856 is applicable. The Specific Relief Act, of 1963 deals with the specific performance of contracts from an equitable remedy standpoint. Other contractual obligations, disputes and damages arising out of breach of contract would be dealt with by the Indian Contract Act, 1872.

As per a report released by RedCore, the Indian Road Logistics market is said to reach about 330 billion by the year 2025[6]. The Ministry of Road Transport and Highways (“MORTH”) and the National Highways Authority of India (“NHAI”) are entrusted with the task of formulating and administering policies on road transport and freight. Whereas, the Carriage by Road Act, 2007 provides for the regulation of common carriers of goods by road. The Carriage by Road Rules, 2011, stipulates conditions for the grant of registration which applicants must comply with. Some of the challenges that the road transport sector faces are lack of road infrastructure, poor network connectivity and unorganized players with high levels of competition.

 

Case Study: The Ever Given, the Cargo Ship Stuck in the Suez

 

It is known that in the year 2020, more than 50 ships per day on average passed through the 190-km-long waterway of the Suez Canal, which accounted for around 12% of international trade. One of the ships during the time was ‘The Ever Given’. It is estimated that about 90 % of the world’s trade is transported by sea. Ever Given was stuck in the Suez Canal for a period of 6 days. It is estimated that more than $9 billion worth of goods pass through the 190 km waterway each day, amounting to around $400 million per hour. Therefore 6 days of the Ever Given being stuck in the Suez Canal caused cascading havoc to global trade and the logistics supply chain. 

Another instance of how the Ever Given stuck in the Suez affected the global logistics supply chain is the hindrance of trade between Asian and European nations in the following year. It is a known fact that waterways are one of the important mediums for transportation and trade between Asia and Europe. Cotton is regularly supplied from India to Europe by the Suez Canal, similar to the movement of petroleum along the Suez from the Middle East. This directly impacted the supply chain as it resulted in problems with warehousing.

 

A Way Forward for the Logistics Sector

 

As it is noted by the above case study, not having sufficient means of warehousing results in a higher possibility of facing challenges resulting in the disruption of the logistics supply chain. Force Majeure events such as the pandemic have unveiled the need for more warehouses to combat this situation. Furthermore, the GST regime of the Indian Government in recent years has brought about a positive impact to the logistics industry by enabling quicker transportation due to the uniform rate of taxes in all states of India and unhindered transit of goods by the abolition of entry levies. The need of the hour is to develop adequate warehousing infrastructure in the fringe areas of major metropolitan trade hubs of the country and in high commerce corridors. To combat other legal challenges, it is suggested that there should be an organized inventory of all logistics and supply chain documentation for the purpose of claim substantiation which will be necessary at the time of arbitrations and bilateral disputes. Furthermore, moving forward to a technology-driven documentation approach would highly impact the logistic sector by avoiding transit delays and untimely deliveries caused due to improper documentation.

References:

 

[1] Ministry of Finance, Department of Economic Affairs, Notification.No.13/1/2017-INF dated 26th April 2021

[2] Invest in logistics sector in India, National Infrastructure Pipeline, India Investment Grid, https://indiainvestmentgrid.gov.in/sectors/logistics (last visited Nov 25, 2021

[3] https://www.thehindubusinessline.com/opinion/impact-of-logistics-industry-on-economic-growth-amidst-a-pandemic/article36139749.ece

[4]  [4] https://www.thehindubusinessline.com/economy/logistics/budget-gives-a-leg-up-to-ship-leasing-from-international-financial-services-centre/article64962397.ece

[5] M/s SCG Contracts India Pvt. Ltd v. K.S. Chamankar Infrastructure Pvt. Ltd. & Ors. C.A. No. 1638 of 2019

[6] https://www.pgurus.com/indias-road-logistics-market-to-see-a-surge-expected-to-reach-330-bn-by-2025/

 

Image Credits: Image by fancycrave1 from Pixabay 

The need of the hour is to develop adequate warehousing infrastructure in the fringe areas of major metropolitan trade hubs of the country and in high commerce corridors. To combat other legal challenges, it is suggested that there should be an organized inventory of all logistics and supply chain documentation for the purpose of claim substantiation which will be necessary at the time of arbitrations and bilateral disputes. 

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