The European Securities and Markets Authority (ESMA), the European Union (EU’s) financial markets regulator has derecognised six Indian central counterparties (CCPs) from April 30, 2023.

What is a central counterparty?

Ø  It is a financial institution that perform two main functions as the intermediary in a market transaction

Ø  Clearing and settlement for trades in foreign exchange, securities, options, and derivative contracts.

Ø  Guarantee the terms of trade.

Ø  CCP is a system provider, who by way of novation (act of replacing an obligation with another) —

Ø  Interposes between system participants in the transactions admitted for settlement,

Ø  Thereby becoming the buyer to every seller and the seller to every buyer, for the purpose of effecting settlement of their transactions.

Ø  CCPs are highly regulated institutions that specialise in managing counterparty credit risk.

Ø  In India, a CCP is authorised by the Reserve Bank of India (RBI) to operate under the Payment and Settlement Systems Act, 2007. 

What is the issue?

The six CCPs de-recognised are —

Ø  The Clearing Corporation of India (CCIL),

Ø  Indian Clearing Corporation Ltd (ICCL),

Ø  NSE Clearing Ltd (NSCCL),

Ø  Multi Commodity Exchange Clearing (MCXCCL),

Ø  India International Clearing Corporation (IFSC) Ltd (IICC) and

Ø  NSE IFSC Clearing Corporation Ltd (NICCL).

Why are they de-recognized ?

Ø  As per the European Market Infrastructure Regulations (EMIR), a CCP in a third country (TCCCPs) can provide clearing services to European banks only if it is recognised by ESMA.

Ø  The decision to de-recognise Indian CCPs came due to ‘no cooperation arrangements’ between ESMA and Indian regulators - the RBI, the SEBI and the International Financial Services Centres Authority (IFSCA).

Regulations of CCPs —

Ø  According to the Financial Stability Report 2022 (RBI), after the global financial crisis of 2007-09, the legislations governing CCPs were enacted in some advanced jurisdictions to give them an extra-territorial reach.

Ø  Such regulations created a parallel maze of laws with overlapping requirements or restrictions and showed a lack of trust in the capabilities and quality of oversight exercised by other regulators.

Argument of Indian regulators —

Ø  Since these domestic CCPs operate in India and not in the EU, these entities cannot be subjected to the ESMA regulations.

Ø  These CCPs have robust risk management and there is no need for a foreign regulator to inspect them.

 What will be the impact of the move?

On the TC-CCPs — With the withdrawal of recognition, these TC-CCPs will no longer be able to provide services to clearing members and trading venues established in the EU.

On the lenders (European banks) — They will have to set aside additional capital to trade in the domestic market.

On the clearing members — They will also be impacted by way of higher capital requirements, enhanced credit risk, etc.

On the Indian economy — Of the total foreign portfolio investors (FPI) registered in India, close to 20% are from Europe. However, the SEBI has said that the derecognition is unlikely to have any impact.

The Comptroller & Auditor General of India (CAG) will chair SAI20, the Engagement Group for Supreme Audit Institutions (SAl) of G20 countries in Goa.

Priority areas for the SAI20 -

Ø  Two priority areas have been selected for deliberations; Blue Economy and Responsible Artificial Intelligence (AI).

Ø  As Chair of SAI20, India's CAG aims to help create a framework for G20 nations to ensure inter-generational equity and mitigate climate change while developing ocean resources.

Ø  For SAI20, the CAG is to prepare technology-driven tools to assess authorised development in coastal stretches and track marine water quality.

Primary functions of SAIs -

Ø  SAI20 member countries are being engaged in a collaborative exercise to evolve globally relevant audit toolkits along with a compendium of case studies and challenges in the broader framework of auditing coastal spaces, which include —

Ø  Legal and institutional frameworks,

Ø  Compliance to coastal regulation,

Ø  Biodiversity conservation,

Ø  Capacity building and compliance to SDGs.

Important key roles of SAI20 -

Ø  The engagement of SAIs in advising executives is crucial in balancing key developmental concerns while ensuring sustainable development.

Ø  SAI20’s role in promoting inter-generational equity and addressing climate change concerns highlights their importance in ensuring that the benefits of economic growth are shared fairly across generations. 

Blue Economy -

Ø  Blue, or ocean economy, whose global annual value is estimated as $2.5 trillion, encompasses an array of coastal activities, including fishing and tourism.

Ø  In 2018, the United Nations Environment Programme (UNEP) had for the first time laid out the Sustainable Blue Economy Finance Principles.

Ø  Investors can use this framework to fund ocean-based industries.

Ø  Financiers can use it as a reference point to see how marine investment can impact livelihood and poverty eradication. 

Why the measurement of Blue economy is challenging?

Ø  The measurement of the blue economy is challenging due to conflicting definitions and issues while classifying different sectors and sub-sectors.

Ø  Existing international economic classifications are unable to properly differentiate between land-based and ocean-based activities.

Ø  The System of National Accounts (NAS) does not provide a clear understanding of the blue economy.

Ø  Given these difficulties, a new accounting framework is needed that can objectively identify production, trade, and services related to the various segments of the blue economy. 

Indian Blue Economy -

Ø  India has marked the blue economy as one of the 10 core sectors for national growth.

Ø  A National Blue Economy Policy that aims to harness maritime resources while preserving the country’s rich marine biodiversity has been prepared by the Ministry of Earth Sciences.

Ø  Challenges to Indian Blue Economy -

Ø  Hazards of cyclones and sea-level rise are likely to be higher in the coastal regions due to climate change.

Ø  GIS maps from the European Space Agency indicate that 15 per cent of India’s coastal areas have witnessed changes between 1992 and 2018 due to agriculture.

Ø  Depleting forest cover and urbanisation.

Ø  Population living along the country’s coastal areas is expected to rise from 64 million in 2000 to 216 million by 2060.

Suggestions by CAG for Executive -

Ø  Disaster-resilient infrastructure along coasts that can withstand the impacts of hurricanes, typhoons, and tsunamis.

Ø  The executives should be adequately equipped with infrastructure, especially ICT hubs in place for early warning systems.

CAG's Audit Report -

Ø  Last year, the CAG tabled its Conservation of Coastal Ecosystem report in Parliament, which contained its observations on —

Ø  How the Coastal Regulation Zone (CRZ) notification for 2011 and 2019 have been implemented between 2015 and 2019.

Ø  Efficiency of development drivers such as project clearances, construction activity, institutional capacity to curb land and forest violations, community livelihood support mechanisms,

Ø  Mitigation management plans to conserve biodiversity such as mangroves and near-shore coral reefs that protect us from weather vulnerabilities like storms and coastal floods.

Ø  The audit resulted in focused recommendations to help improve the CRZ ecosystem.

Conclusion -

The toolkits being prepared by SAI20 under the leadership of the CAG of India will be presented at the SAI20 Engagement Group meet. This will provide a unique opportunity for constructive dialogue and agreement to improve auditing of performance in specific areas of ocean-based activities. It will help in the assessment of how clearly the policy goals are planned and implemented.

Members of the European Parliament reached a preliminary deal on a new draft of the European Union’s ambitious Artificial Intelligence Act.

Members of the European Parliament reached a preliminary deal this week on a new draft of the European Union’s ambitious Artificial Intelligence Act.

Ø  The AI Act was drafted in 2021 with the aim of bringing transparency, trust, and accountability to AI.

Ø  It also aims to create a framework to mitigate risks to the safety, health, fundamental rights, and democratic values of the EU.

Ø  Following a risk-based approach, it regulates the prohibition of certain AI systems, and sets out several obligations for the development, placing on the market and use of AI systems.

Ø  The Act envisages establishing an EU-wide database of high-risk AI systems and setting parameters so that future technologies can be included if they meet the high-risk criteria.

Ø  The legislation seeks to strike a balance between promoting the uptake of AI while mitigating or preventing harms associated with certain uses of the technology.

Ø  The EU’s AI Act mainly addresses providers of AI systems. 

What is ‘artificial intelligence’?

Ø  Artificial intelligence (AI) is the ability of a computer or a robot controlled by a computer to do tasks that are usually done by humans because they require human intelligence and discernment.

Ø  The term is frequently applied to the project of developing systems endowed with the intellectual processes characteristic of humans, such as the ability to reason, discover meaning, generalise, or learn from experience.

Ø  AI algorithms are trained using large datasets so that they can identify patterns, make predictions and recommend actions, much like a human would, just faster and better. 

Experts’ concern with Artificial Intelligence -

Ø  Recently, a group of more than 1,000 AI experts, including Elon Musk, have written an open letter calling for a six-month pause in developing systems more powerful than OpenAI’s newly launched GPT-4.

Ø  This AI moratorium has been requested because powerful AI systems should be developed only once we are confident that their effects will be positive and their risks will be manageable.

Ø  An example of why there is a need for AI moratorium – As many as 300 million full-time jobs around the world could be automated in some way by the latest AI, according to Goldman Sachs economists. 

Should AI be regulated before it is too late?

Ø  Artificial Intelligence is already suffering from three key issues – privacy, bias and discrimination.

Ø  Currently, governments do not have any policy tools to halt work in AI development.

Ø  If left unchecked, it can start infringing on – and ultimately take control of – people’s lives.

Ø  Businesses across industries are increasingly deploying AI to analyse preferences and personalize user experiences, boost productivity, and fight fraud.

Ø  For example, ChatGPT Plus, has already been integrated by Snapchat, Unreal Engine and Shopify in their applications.

Ø  This growing use of AI has already transformed the way the global economy works and how businesses interact with their consumers.

Ø  However, in some cases it is also beginning to infringe on people’s privacy.

Ø  Hence, AI should be regulated so that the entities using the technology act responsible and are held accountable.

Benefits of regulating AI outweigh potential losses -

Ø  It is true that regulating AI may adversely impact business interests. It may slow down technological growth and suppress competition.

Ø  However, taking a cue from General Data Protection Regulation (GDPR), the governments can create a more AI-focused regulations and have a positive long-term impact. GDPR is the European Union’s law which ensures the protection of individuals with regard to the processing of personal data and on the free movement of such data.

Ø  Governments must engage in meaningful dialogues with other countries on a common international regulation of AI.

Where does the Global AI Governance currently stand?

The rapidly evolving pace of AI development has led to diverging global views on how to regulate these technologies.

The U.S. does not currently have comprehensive AI regulation and has taken a fairly hands-off approach.

On the other end of the spectrum, China over the last year came out with some of the world’s first nationally binding regulations targeting specific types of algorithms and AI.

It enacted a law to regulate recommendation algorithms with a focus on how they disseminate information.

In case of India, the Union Minister for Electronics and Information Technology said that the government is not considering any law to regulate the growth of AI in India.

The recent strike by Zomato-owned Blinkit delivery agents has once again brought to the forefront issues plaguing the gig economy in the country. 

Who is a ‘gig worker’?

Ø  Gig workers are those who work outside the traditional employer-employee relationship.

Ø  There are two groups of gig workers – platform workers and non-platform workers.

Ø  Gig workers who use online platforms are called platform workers, while those who work outside of these platforms are non-platform workers.

Ø  Gig workers have characteristics of both employees and independent contractors and do not fit into any rigid categorization.

Ø  As a result, gig workers have limited recognition under current employment laws and fall outside the ambit of statutory benefits.

Proposed Law:

Ø  The Code on Social Security, 2020, brought gig workers within the ambit of labor laws for the first time.

Ø  The Code defines a gig worker as a person who performs work outside of a traditional employer-employee relationship and earns from such activities.

Ø  The Code recognizes both platform workers and non-platform workers as gig workers.

Ø  Central and State governments must frame suitable social security schemes for gig workers on matters relating to health and maternity benefits, provident funds, and accident benefits.

Ø  The Code mandates the compulsory registration of all gig workers and platform workers to avail of the benefits under these schemes. 

Concerns related to gig workers and the proposed labour codes in India:

Limited benefits and protections:

Ø  Gig workers are excluded from the benefits and protections offered by the other proposed labour codes, such as minimum wage and occupational safety.

Ø  They are also not allowed to create legally recognised unions. 

Lack of effective remedy:

Ø  Gig workers are excluded from accessing the specialised redressal mechanism under the Industrial Disputes Act, 1947.

Ø  This denies them an effective remedy for grievances against their employers. 

No right to collective bargaining:

Ø  Gig workers do not have the right to collective bargaining, which is a fundamental principle of modern labour law crucial to safeguard the rights of workers.

Poor working conditions:

Ø  A 2022 report by Fairwork India highlighted the deplorable working conditions of digital platform workers in India.

Ø  There is a need for statutory affirmation of the rights of gig workers. 

Delay in implementation:

Ø  The proposed labour codes have received the assent of the President, but are still awaiting implementation three years on.

Ø  The Centre has cited the delay in framing of rules by the States as the reason for the delay. 

Advantages of gig economy:

Ø  Cater to immediate demand: Gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.

Ø  Cheaper and more efficient: Most times, employers cannot afford to hire full-time employees. In a gig economy, large numbers of people work part-time or in temporary positions. The result is cheaper, more efficient services, such as Uber or Airbnb, for those willing to use them. 

Wider choice to employers: Technology and connectivity through the internet don’t require the freelancer to come into the office for work. Hence, employers have a wider range of applicants to choose from as they don’t have to hire someone based on their proximity.

Offers specific expertise: Professional services firms are hiring gig workers to add deep domain expertise to client-impact teams. Majority of professional services contact workers have years of domain-specific knowledge, like consultants. 

The wider choice to employees: People often find they need to move around or take multiple positions to afford the lifestyle they want. These days, people also tend to change careers many times throughout their lives; the gig economy is a reflection of this rising trend. 

Youth economic productivity: India has a high share of young population which is only expected to grow. According to economists at IMF, youth inactivity in India is at 30%, the highest amongst developing countries.

Gig economy offers the perfect platform for engagement of youth in productive employment activities.

It is also estimated that the gig economy offers a relatively high gender-parity in the workforce, as compared to traditional employment. 

Challenges related to Gig Economy:

Erosion of traditional economic relationships: Gig economy can have downsides due to the erosion of traditional economic relationships between workers, businesses, and clients. This can eliminate the benefits that flow from building long-term trust, customary practice, and familiarity with clients and employers.

It could also discourage investment in relationship-specific assets that would otherwise be profitable to pursue since no party has an incentive to invest significantly in a relationship that only lasts until the next gig comes along. 

Crowding out traditional workers: Workers who prefer a traditional career path, stability and security that come with it are being crowded out in some industries.

The gig economy makes it harder for full-time employees to develop fully in their careers since temporary employees are often cheaper to hire and offer more flexibility in their availability. 

Disrupted work-life balance for gig workers: Flexibility in a gig economy often means that workers have to make themselves available at any time the gig comes up, regardless of their other needs, and they must always be on the hunt for the next gig.

Hence, for some workers, the flexibility of working gigs can disrupt the work-life balance, sleep patterns, and activities of daily life. 

No employment-related rights: Unlike traditional employment, workers in the gig economy are usually ineligible for any social benefits such as insurance, medical benefits, employees’ provident fund, bonus or gratuity.

Measures to address the issues related to gig workers: 

Evaluating scale of Gig economy: As of now there exists no authoritative estimate on the total number of gig workers in India, though the centralised nature of the platforms, and the larger platform labour market should make the collating of this data relatively straightforward for the Labour Ministry.

Making regulations related to Gig economy: A more viable strategy then would involve conditional government partnerships with platforms under some of its flagship schemes. Here, the successful pilot of Swiggy’s Street Food Vendors programme under the PM SVANidhi, or PM Street Vendor’s Atma Nirbhar Nidhi scheme, may prove to be an illustrative example.

The recent strike by Zomato-owned Blinkit delivery agents has once again brought to the forefront issues plaguing the gig economy in the country. 

Who is a ‘gig worker’?

Ø  Gig workers are those who work outside the traditional employer-employee relationship.

Ø  There are two groups of gig workers – platform workers and non-platform workers.

Ø  Gig workers who use online platforms are called platform workers, while those who work outside of these platforms are non-platform workers.

Ø  Gig workers have characteristics of both employees and independent contractors and do not fit into any rigid categorization.

Ø  As a result, gig workers have limited recognition under current employment laws and fall outside the ambit of statutory benefits.

Proposed Law:

Ø  The Code on Social Security, 2020, brought gig workers within the ambit of labor laws for the first time.

Ø  The Code defines a gig worker as a person who performs work outside of a traditional employer-employee relationship and earns from such activities.

Ø  The Code recognizes both platform workers and non-platform workers as gig workers.

Ø  Central and State governments must frame suitable social security schemes for gig workers on matters relating to health and maternity benefits, provident funds, and accident benefits.

Ø  The Code mandates the compulsory registration of all gig workers and platform workers to avail of the benefits under these schemes. 

Concerns related to gig workers and the proposed labour codes in India:

Limited benefits and protections:

Ø  Gig workers are excluded from the benefits and protections offered by the other proposed labour codes, such as minimum wage and occupational safety.

Ø  They are also not allowed to create legally recognised unions. 

Lack of effective remedy:

Ø  Gig workers are excluded from accessing the specialised redressal mechanism under the Industrial Disputes Act, 1947.

Ø  This denies them an effective remedy for grievances against their employers. 

No right to collective bargaining:

Ø  Gig workers do not have the right to collective bargaining, which is a fundamental principle of modern labour law crucial to safeguard the rights of workers.

Poor working conditions:

Ø  A 2022 report by Fairwork India highlighted the deplorable working conditions of digital platform workers in India.

Ø  There is a need for statutory affirmation of the rights of gig workers. 

Delay in implementation:

Ø  The proposed labour codes have received the assent of the President, but are still awaiting implementation three years on.

Ø  The Centre has cited the delay in framing of rules by the States as the reason for the delay. 

Advantages of gig economy:

Ø  Cater to immediate demand: Gig economy can benefit workers, businesses, and consumers by making work more adaptable to the needs of the moment and demand for flexible lifestyles.

Ø  Cheaper and more efficient: Most times, employers cannot afford to hire full-time employees. In a gig economy, large numbers of people work part-time or in temporary positions. The result is cheaper, more efficient services, such as Uber or Airbnb, for those willing to use them. 

Wider choice to employers: Technology and connectivity through the internet don’t require the freelancer to come into the office for work. Hence, employers have a wider range of applicants to choose from as they don’t have to hire someone based on their proximity.

Offers specific expertise: Professional services firms are hiring gig workers to add deep domain expertise to client-impact teams. Majority of professional services contact workers have years of domain-specific knowledge, like consultants. 

The wider choice to employees: People often find they need to move around or take multiple positions to afford the lifestyle they want. These days, people also tend to change careers many times throughout their lives; the gig economy is a reflection of this rising trend. 

Youth economic productivity: India has a high share of young population which is only expected to grow. According to economists at IMF, youth inactivity in India is at 30%, the highest amongst developing countries.

Gig economy offers the perfect platform for engagement of youth in productive employment activities.

It is also estimated that the gig economy offers a relatively high gender-parity in the workforce, as compared to traditional employment. 

Challenges related to Gig Economy:

Erosion of traditional economic relationships: Gig economy can have downsides due to the erosion of traditional economic relationships between workers, businesses, and clients. This can eliminate the benefits that flow from building long-term trust, customary practice, and familiarity with clients and employers.

It could also discourage investment in relationship-specific assets that would otherwise be profitable to pursue since no party has an incentive to invest significantly in a relationship that only lasts until the next gig comes along. 

Crowding out traditional workers: Workers who prefer a traditional career path, stability and security that come with it are being crowded out in some industries.

The gig economy makes it harder for full-time employees to develop fully in their careers since temporary employees are often cheaper to hire and offer more flexibility in their availability. 

Disrupted work-life balance for gig workers: Flexibility in a gig economy often means that workers have to make themselves available at any time the gig comes up, regardless of their other needs, and they must always be on the hunt for the next gig.

Hence, for some workers, the flexibility of working gigs can disrupt the work-life balance, sleep patterns, and activities of daily life. 

No employment-related rights: Unlike traditional employment, workers in the gig economy are usually ineligible for any social benefits such as insurance, medical benefits, employees’ provident fund, bonus or gratuity.

Measures to address the issues related to gig workers: 

Evaluating scale of Gig economy: As of now there exists no authoritative estimate on the total number of gig workers in India, though the centralised nature of the platforms, and the larger platform labour market should make the collating of this data relatively straightforward for the Labour Ministry.

Making regulations related to Gig economy: A more viable strategy then would involve conditional government partnerships with platforms under some of its flagship schemes. Here, the successful pilot of Swiggy’s Street Food Vendors programme under the PM SVANidhi, or PM Street Vendor’s Atma Nirbhar Nidhi scheme, may prove to be an illustrative example.