Mrunal (Current) April-Week4-P2 - Economy - WTO SPS Agreement EU Ban On Indian Mango, HDFC Bank Foreign Investment FII Problem, SC Guideline On Cheque Bouncing, RBI's Public Key Infrastructure (PKI)

5/22/2014
Mrunal [Current] April-Week4-P2: Economy- WTO SPS Agreement EU Ban on Indian Mango, HDFC Bank Foreign Investment FII problem, SC guid
[Current] April-Week4-P2: Economy- WTO SPS Agreement EU Ban on

Indian Mango, HDFC Bank Foreign Investment FII problem, SC guideline
on Cheque bouncing, RBIs Public Key infrastructure (PKI)
1. Prologue
2. E1: [WTO SPS Agreement] EU Ban on Indian Mangoes
1. Mango Ban: Timeline / Sequence of Events
2. Indias stand on EU Mango Ban
3. Anti-Arguments
4. Preventive measures against Fruit Fly
5. Sample question for Mains
3. E2: [Banking] HDFC Bank vs FIPB: Foreign investment Problem
1. Foreign investment in banking sector
2. What is HDFCs problem?
3. RBIs interpretation
4. HDFCs own interpretation
4. E3: [Banking] Cheque Bouncing: SC guideline for faster case trial
5. E4: [Banking] RBI- Public Key Infrastructure in Online Banking
1. Timeline: Payment system in India
2. What is Digital signature / E-Signature?
3. What is Public Key Infrastructure (PKI)?
Prologue
Lord Curzon was to upload notification on 17th May but hasnt done so,
therefore Delhis rumor market became active with variety of conspiracy
theories.
But irrespective of what changes UPSC makes in the notification / syllabus
youll have to prepare history, geography, science, economy, polity and IR
anyways. So stop the timepass and focus on the core areas of general studies.
Just ~three months left before prelims.
Same way, Staff selection (SSC) aspirants you should be practicing maths,
reasoning, English and GA instead of wasting time speculating the exam dates
and whether Modi will reduce the vacancies or not.
Mary Kom doesnt stop practicing just but there are three vacancies- Gold, Silver and
Bronze; Nor she waits until the match date and venue are announced.
Anyways coming to the topic at hand: Current affairs April Week4 (23rd to 30th)
1. Polity, History, Culture, Environment: Coming soon
2. Economy: youre here.
3. International Relations (IR)/ Diplomacy: Done.
http://mrunal.org/2014/05/current-april-week4-p2-economy-wto-sps-agreement-eu-ban-indian-mango-hdfc-bank-foreign-investment-fii-problem-sc-guideli
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General studies paper 2:

What is SPS agreement? Is EU justified in banning Indian Alphonso under SPS
agreement? (200 words)
Interview:
1. Can we say EU Ban on Indian mangoes is an example of non-tariff barrier in
WTO? What is the permanent solution to Mango fruitfly problem?
2. Whats the present limit for foreign investment in Indian banks?
3. Why is FIPB delaying the permission to HDFC for additional foreign
investment?
4. Why does Cheque bouncing case fall under Negotiable instrument act?
5. Can you name any other Negotiable instruments apart from Cheques?
6. Are you aware of the new guidelines of Supreme Court, for quick disposal for
cheque bouncing cases?
7. What is digital signature? What is public key infrastructure (PKI)? Why does
RBI panel recommend they should be compulsory for all banks?
E1: [WTO SPS Agreement] EU Ban on Indian Mangoes

All over the world, Governments impose barriers to protect domestic industries and
prevent entry of foreign players. These trade barriers are of two types:
Tariff
If US President Obama imposes 56% custom duty on Indian Cars.
Barrier
If Obama tries to restrict entry of Indian cars without imposing heavy taxes
on Indian cars, for example
NonTariff
Barrier
1. Subsidies: Giving free electricity to Detroit car manufacturers. OR

If American residents buy American made cars, Obama administration
will pay 50% of your vehicle insurance premium, and so on.
2. Public Procurement: Making rule that only American companies
can fillup tender for new sarkaari cars.
3. Other obstacles like not giving custom clearance quickly. Putting
quota on each exporter country and so on.
World Trade organization (WTO) aims to reduce such tariff and non-tariff
barriers to international trade.
Countries sign WTO agreements, if any country violates, WTO can impose
penalty.
As such WTO has ~five dozen agreements but main three are
1.Goods
2.Services
3.Intellectual
property
GATT: General Agreement on Tariffs and trade

GATS: General Agreement on Trade in Services
TRIPS: Trade-Related Aspects of Intellectual Property
Rights
By the way, what if China starts manufacturing cheap cars with poor breaks, bad
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steering and carcinogenic paint. Can Obama ban such dangerous foreign products?
Does WTO permit that?
Yes, WTO made two special agreements for safety:
Non-food products Technical Barriers to Trade Agreement (TBT)
Food Products
Sanitary and Phytosanitary Measures Agreement (SPS)
Since our topic is EUs Mango ban, lets focus on SPS agreement.
Under SPS provisions, WTOs Member states can impose trade barrier on foreign
goods, to protect their own human, plant, animal lives from harmful food additives,
pests and microbes.
Mango Ban: Timeline / Sequence of Events

March 2014: EU Plant healthcare Committee found fruit flies in ~200 Indian
shipments.
April 2014: EU Trade Commissioner temporarily banned Alphonso mangoes,
eggplants, taro plant, bitter gourd and snake gourd.
This temporary ban extends from 1st May 2014 upto 31st December 2015.
UK traders and opposition parties have opposed this ban. Because England=
large south Asian diaspora customers that enjoys Indian mangoes. Business
more than 10 million euros.
Although Pakistani mango farmers are delighted. They hope to cash this
opportunity by exporting their inferior Mango varieties to EU. (In past, even
Paki mangoes were banned because their ban has been lifted.)
Indias stand on EU Mango Ban

India has threatened to drag EU to WTO. Because
From 1st April 2014, Indian Government made it compulsory that only APEDA
certified food processing / packing houses can export fruits/vegetables from
India.
Only after thorough inspection, testing and labelling by trained personnel at such
houses, the mango (or any other fruit/veggies) can be exported.
So there is no danger of fruit flies any more. (from 1st April onwards)
We had also informed EUs SPS Committee about our new strict export rule, in
advance.
But still EU officials acted in haste. Yes theyve found 200 shipments with
fruitflies. But those boxes were exported way back in 2013. Weve reformed
and strengthened our quality measures since then.
So, there was no imminent danger anymore. It wasnt going to cause some
deadly virus outbreak.
Yes SPS agreement says countries can impose ban on product that can harm
humans, plants or animals. BUT at the same time SPS also gives leniency to
developing countries (like India)- gives them more time frame for adopting
quality measures when there is no imminent danger.
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Thus, EU has blatantly violated WTOs SPS agreement and India is justified in
complainng to WTO.
Anti-Arguments
Some experts / apologists say India shouldnt drag EU to WTO because
1. Itll have negative consequences in the ongoing talks for India-EU Free trade
agreement that is pending since 2007.
2. India-EU relations will turn sour.
3. Indias Mango export to EU is barely 5% of Indias total mango export to world.
Hardly any money or business is lost.
4. This is good news for Indian customers because more mangoes in local market
= cheaper price.
But these jholachhap columnists dont understand its not about money but brandimage and negative Publicity. Itll reduce demand of Indian food products among
health conscious customers in USA, Canada even Middle East. Then our agriculture &
fish export business will be severely hurt, affecting the livelihood of crores of Indian
farmers and fishermen.
Preventive measures against Fruit Fly

Agricultural & Processed Food Products Export Development Authority (APEDA) is
a statutory body under Commerce Ministry. It has prescribed following measures for
mango exports:
1. Sex traps: On the mango trees, hang plastic bowls with chemicals like Methyle
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5/22/2014
Euginol/Cuelure. Male Fruitflies mistake it for pheromones of female fly.

Hence they come and get trapped. Benefit: Mangoes dont get contaminated with
pesticides/chemicals. Otherwise EU-walla will again reject on pesticide/cancer
angle.
2. Hot bath: dipping mangoes in 52 Degree hot water with Sodium Hypo Chloride
(= bleach, acts as sanitizer) for 2-3 minutes. This kills any larvae of fruitfly
within mango pulp.
3. Sort these mangoes into three grades. Each mango should be placed in
polystyrene netted sleeves to prevent bruising and subsequent microbial growth.
From 1st April 2014 onwards, fruits and vegetables can be exported from India ONLY
if theyre packed in an APEDA certified packing house.
More about shortcoming / obstacles ot Indian food processing / exports, HACCP
compliance etc are covered in Mrunal.org/Economy under [Food processing] Section.
Sample question for Mains

Q. What is SPS agreement? Is EU justified in banning Indian Alphonso under
SPS agreement? (200 words)
Meaning
Sanitary and Phytosanitary Measures (SPS) is an agreement under WTO to permit
member states
to protect their plant, animal and human lives
from harmful food additives, microbes and pests,
By putting reasonable trade restrictions on foreign goods.
Safeguards under SPS
1. Member states have to harmonize their national food safety standards with
WHO-FAOs codex standards.
2. Member can choose higher quality standards than CODEX, only on scientific
grounds.
3. Aggrieved countries can also approach WTOs dispute settlement mechanism.
4. Developing countries can request SPS Committee to grant additional time for
for compliance.
EU Ban:
In April 2014, EU Trade commissioner imposed a temporary ban on Indian Alphonso
and 4 vegetables upto December 2015, citing fruit fly contamination in previous
shipments.
Ban is unjustified because:
1. The said fruitfly contaminated shipments were sent in 2013.
2. As per new rule by Government of India, from 1st April 2014, only APEDA
certified food packing houses can export fruits & vegetables from India.
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5/22/2014
3. We had notified EUs SPS Committee about this reform, in advance.

4. There was no imminent danger of spread of deadly disease or pest attack
anymore.
5. India, as a developing country deserves longer time frame to comply with
international food standards.
Yet, EUs trade commissioner has acted in haste and arbitrary manner to impose this
ban. It goes against the letter and spirit of SPS agreement.
~230 words
E2: [Banking] HDFC Bank vs FIPB: Foreign investment

Problem
Timeline: HDFCs rise
Hasmukhbhai Parekh opens Housing Development Finance Corporation
Limited (HDFC ltd.) as a non-banking financial company (NBFC) to provide
1977
home loans. At present ~75% of HDFC ltd.s shares are owned by foreign
institutional investors (FII).
1993 HDFC get license to open Bank (for more on new bank licenses, click me)
1994 HDFC Bank starts operation.
Foreign investment in banking sector

Upto
49%
via automatic route

meaning, dont need permission from Foreign Investment
Promotion Board (FIPB)
Upto
74%
with government approval

meaning, after permission from FIPB
What is HDFCs problem?
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5/22/2014
HDFC ltd. (Parekh-walli non-banking financial company) = they own ~22%

shares of HDFC Bank.
But 75% shares of this HDFC ltd (NBFC) itself owned by FIIs.
RBI says since majority of HDFC ltd. Shared owned by foreigners => HDFC
ltd (Parekh-walli NBFC) itself is a foreign company.
So, when HDFC ltd (NBFC) owns 22% in HDFC Bank = that also counts as
Foreign investment.
RBIs interpretation
Shareholding In HDFC Bank
I. HDFC ltd (NBFC)
Foreign holding II. Other FIIs
22%
52%
Total Foreign investment (I + II) 74%

Desi holding
Indian investors
26%
HDFC Banks total shares
100%
Rajan: Since Foreign holding in HDFC Bank is already 74%, we cannot allow any
foreigner/NRI/PIO to purchase any more shares of HDFC bank. Otherwise itll cross
the 74% limit.
HDFCs own interpretation

Shareholding In HDFC Bank
Foreign holding FIIs
52%
HDFC ltd. (NBFC) 22%
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5/22/2014
Desi holding
Desi investors
HDFC Banks total shares
26%
100%
HDFC Bank says:

In 2009, government made new rule about downstream investment i.e. if one
desi company owned by foreigners, and it invests in another desi company = that
counts as foreign investment.
It is true that HDFC ltd (NBFC) is owned by foreign investors (75%)
It is true that HDFC ltd (NBFC) owns 22% shares in HDFC Bank.
HDFC
But HDFC (NBFC) bought HDFC Banks shares BEFORE 2009. (i.e.
way back in 1993-94 when RBI Gave license to open HDFC bank)
Hence RBI/FIPB cannot apply that Downstream foreign investment
rule in retrospective manner to things happened before 2009!
This is like if tomorrow Government makes a new law to give death
penalty for all liquor mafias- that doesnt mean a bootlegger caught in
2005 will also get hanged!
Rajan
Youre right, Laws / rules cannot be applied retrospectively. But

thats only for criminal matters.
This is a civil /commercial matter.
HDFC
No point in arguing with you. Let FIPB decide!

At present 52% of my banks share owned by foreigners (as per my
logic).
Now I want FIPBs permission to raise foreign holding to 67.55%.
FIPB must give this permission because Im within the 74% limit.
FIPB
Ive asked law ministrys opinion. But given the model code of conduct (and
usual policy paralysis) theyve not given their opinion yet. Hence file
pending.
E3: [Banking] Cheque Bouncing: SC guideline for faster

case trial
Negotiable instrument are the alternative equivalent of fiat money. (Rupee,
Dollar Yen, Yuan etc.)
Indian laws recognize three type of Negotiable instruments:
1. Cheques
2. Promissory Notes (*Mind the term, its not participatory notes)
3. Bill of exchange
Government enacted Negotiable instrument Act, to safeguard the parties in this
game e.g Buyer-seller, payee-drawer and banks.
But legal loopholes in this act = taarikh pe taarikh = 40 lakh cheque bouncing
cases stuck in the courts right now.
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5/22/2014
To fix this problem, Supreme Court issued new guidelines (April 2014):
1. Once magistrate receives complaint, he shall issue summons to accused person
on the same day.
2. Summon should be issued via both post + email.
3. Once the accused person appears in court, Magistrate should give him option
pay the amount + reasonable interest and case will be disposed immediately on
the same day.
4. If he doesnt comply, then start proceedings with day to day trial.
5. Finish cross-examination of witnesses within three months.
6. Victims and witnesses dont need to appear in court every time. They can send
reply via affidavit.
E4: [Banking] RBI- Public Key Infrastructure in Online

Banking
Jan 2014: Rajan forms an expert group under Anil Kumar Sharma for Public Key
infrastructure in Banking Payment system.
April 2014: gave report hence in news.
Timeline: Payment system in India
1986
Magnetic Ink Character Recognition (MICR) technology introduced,

to prevent cheque frauds.
MICR code is written at bottom of cheque with special ink that
contains magnetisable particles
Based on Damle Committee recommendations.
Electronic Clearing Service (ECS) introduced. This provides automatic
credit and debit for certain services. example
1994
Automatic money transfer from companys bank account => salary /

pension in employees bank account, dividend in shareholders bank
account.
Income tax refunds
Automatic payment of monthly phone bills, electricity bills and
insurance premium from your bank account at prefixed date.
Real Time Gross Settlement (RTGS) System for online money transfer
above Rs.2 lakhs.
National Electronic Funds Transfer (NEFT) System. by the way NEFT vs
2005
RTGS already explained click me
2008 National Electronic Clearing Service (NECS) to look after ECS system.
2008,
Mobile banking system
Oct.
Pre-paid Payment Systems permitted (like Airtel money). Already explained
2009
click me
2004
Cheque Truncation System (CTS) introduced. Physical movement of

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2010
Cheque, no longer required. Already explained click me

CTS uses the PKI authentication.
Government also amended Negotiable Instrument Act, to give legal
validity to CTS system.
2013 White label ATMs. Already explained click me
What is Digital signature / E-Signature?

can be used to authenticate the identity of message sender
cannot be imitated by someone else;
Theyre legally recognized under IT Act 2000
IT Act also provides Non-repudiation of digitally signed message. Meaning
sender cannot deny at a later time that he has not signed it.
What is Public Key Infrastructure (PKI)?
It is a combination of
1. Technology = hardware + software
2. Stakeholders = certificate authority, verifying authority, buyer, seller, bank,
client etc.
3. Legal components = agreements between above stakeholders
4. Processes, practices, policies
http://mrunal.org/2014/05/current-april-week4-p2-economy-wto-sps-agreement-eu-ban-indian-mango-hdfc-bank-foreign-investment-fii-problem-sc-guidel
10/12
5/22/2014
PKI binds the identity of the private key with the corresponding public key.
PKI makes it difficult for hackers to commit frauds.
Uses PKI
Doesnt use PKI
Real-Time Gross Settlement (RTGS)

National Electronic Fund Transfer (NEFT)
CBLO: Collaterised Borrowing and
Lending Obligation
Forex Clearing
Government Securities Clearing
Cheque Truncation System (CTS)
Value wise most transaction done here
Less
MICR Clearing
ECS
Less
Volume wise, max. transaction
done here
RBI panel has suggested that all online transaction must have two-factor
authentication with Public Key infrastructure.
For corporate clients/RTGS etc.
For aam junta

1. Username password
AND
2. One Time password
(OTP) via SMS
1. Username password AND

2. Digital signature with Public key infrastructure
(PKI)
OR
OR
give them EMV like card with Chip and PIN.
(EMV=Europay, MasterCard and Visa)
Because it also has PKI and two factor
authentication (chip + PIN).
Panel recommended, implement this in three stages:

short term, medium And long term.
1. Username password
AND
2. Aadhar enabled
biometric
authentication
Banks already have this
feature in netbanking
account. Panel recommended
that it should
support as many
popular browsers &
many mobile devices
as possible
Digital Signature Certificate (DSCs) should be

issued for five year. (right now just three years
validity)
Reduce the application cost of DSC

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5/22/2014
Simplify the renewal process for DSC

Fine-tune the KYC process for DSC
@those aspiring to become Bank specialist Officer (IT) they should read the entire
report thoroughly. Its available on
www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=759
It contains details of various cyber-attacks, preventive measures in SBI and ICICI
netbanking and all other technical aspects of online money transactions.
Visit Mrunal.org/CURRENT for entire Archive weekly current affairs compilations
published so far.
URL to article: http://mrunal.org/2014/05/current-april-week4-p2-economy-wtosps-agreement-eu-ban-indian-mango-hdfc-bank-foreign-investment-fii-problemsc-guideline-cheque-bouncing-rbis-public-key-infrastructure-pki.html

Posted By Mrunal On 19/05/2014 @ 12:00 In the category Current Affairs Weekly
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5/22/2014

[Current] April-Week4-P2: Economy- WTO SPS Agreement EU Ban on

General studies paper 2:

E1: [WTO SPS Agreement] EU Ban on Indian Mangoes

1. Subsidies: Giving free electricity to Detroit car manufacturers. OR

GATT: General Agreement on Tariffs and trade

Mango Ban: Timeline / Sequence of Events

Indias stand on EU Mango Ban

Preventive measures against Fruit Fly

Euginol/Cuelure. Male Fruitflies mistake it for pheromones of female fly.

Sample question for Mains

3. We had notified EUs SPS Committee about this reform, in advance.

E2: [Banking] HDFC Bank vs FIPB: Foreign investment

Foreign investment in banking sector

via automatic route

with government approval

What is HDFCs problem?

HDFC ltd. (Parekh-walli non-banking financial company) = they own ~22%

Total Foreign investment (I + II) 74%

HDFCs own interpretation

HDFC Bank says:

Youre right, Laws / rules cannot be applied retrospectively. But

No point in arguing with you. Let FIPB decide!

E3: [Banking] Cheque Bouncing: SC guideline for faster

E4: [Banking] RBI- Public Key Infrastructure in Online

Magnetic Ink Character Recognition (MICR) technology introduced,

Automatic money transfer from companys bank account => salary /

Cheque Truncation System (CTS) introduced. Physical movement of

Cheque, no longer required. Already explained click me

2013 White label ATMs. Already explained click me

What is Digital signature / E-Signature?

What is Public Key Infrastructure (PKI)?

Doesnt use PKI

Real-Time Gross Settlement (RTGS)

For aam junta

1. Username password AND

Panel recommended, implement this in three stages:

Digital Signature Certificate (DSCs) should be

Reduce the application cost of DSC

Simplify the renewal process for DSC

URL to article: http://mrunal.org/2014/05/current-april-week4-p2-economy-wtosps-agreement-eu-ban-indian-mango-hdfc-bank-foreign-investment-fii-problemsc-guideline-cheque-bouncing-rbis-public-key-infrastructure-pki.html

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