Daily Current Affairs for UPSC IAS | 30th August 2021

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1.  China to require foreign vessels to report in ‘territorial waters’

UPSC Syllabus: Mains: GS Paper II: India’s international relations
Sub Theme: Indo-China | UPSC
Context: Chinese authorities have said that they will require a range of vessels “to report their
information” when passing through what China sees as its “territorial waters” in the South
China Sea.
Issue
• China claims most of the South China Sea as its territorial waters based on the conception of Nine Dash line.
• The “nine dash line” is deemed by most countries as being inconsistent with the United
Nations Convention on the Law of the Sea (UNCLOS), which only gives states the right to
establish a territorial sea up to 12 nautical miles.
• The requirements of the latest notice will also be seen as being inconsistent with UNCLOS,
which states that ships of all countries “enjoy the right of innocent passage through the
territorial sea”.
• US$ 5 trillion global trade passes through its sea lanes and over 55% of India’s trade passes
through South China Sea and Malacca Straits.
• Territorial sea, as defined by the 1982 United Nations Convention on the Law of the Sea, is a belt of coastal waters extending at most 12 nautical miles (22 km; 14 mi) from the baseline of a coastal state.
• The territorial sea is regarded as the sovereign territory of the state, although foreign ships (military and civilian) are allowed innocent passage through it, or transit passage for straits; this sovereignty also extends to the airspace over and seabed below.

Innocent passage
Innocent passage is a concept in the law of the sea that allows for a vessel to pass through the archipelagic and territorial waters of another state, subject to certain restrictions.
The United Nations Convention on the Law of the Sea Article 19 defines innocent passage as
• Passage is innocent so long as it is not prejudicial to the peace, good order or security of the coastal State. Such passage shall take place in conformity with this Convention and with other rules of international law.

Geopolitics of South China Sea
Importance
• Indo-Pacific in general and South China Sea in particular has recently emerged as the geopolitical centre of gravity.
• With nearly 1/3rd of world trade transiting, rich oil and natural gas resources and about 10% of world’s fishery South China Sea has been a region of contestation among the coastal states surrounding it.

Major Players
• China has claimed 90% of the area with its conception of 9-dash line.
• US has increased in military presence in the region under the concept of ‘Freedom of Navigation Operations’ in order to enforce rule-based navigation of high seas in accordance with the UNCLOS.
• This is in line with the principle of ‘Freedom of Navigation’ under the UNCLOS which provides for free movement of vessels in the High Seas.
• Japan has increased in presence as a result of disputed Senkaku/Diaoyu Island.
• Philippines, Vietnam have emerged as regional players asserting their rights in Spartly and Paracel Islands respectively.
• Other players include Malaysia, Indonesia and Brunie.

Power-game in South China Sea
• With Indo-Pacific emerging as the centre of gravity of geopolitics, USA has its presence in the region both in terms of economics and military presence.
• China has recently in the past decade has challenged the hegemony of US in the region by asserting its dominance through the nine-dash line claiming South China Sea to be its territorial waters.
• In that direction China has increased its military presence resulting in a tiff with the littoral states in the region like Vietnam, Philippines, Malaysia etc.
Relevance for India
• India and other South East Asian countries has always treated South China Sea as a global common.
• Besides it has acted as an important sea lane of communication historically where India had its trading presence from Kedah in Malaysia to Quanzhou in China.
• Besides given that we aim at increasing partnership with ASEAN countries security of South China Sea is of paramount importance to us

2.  NITI bats for tax breaks to achieve monetisation goal

UPSC Syllabus: Mains – GS III: Indian economy
Theme: Indian taxation system | UPSC

The Government has recently launched the National Monetisation pipeline (NMP) to raise around Rs 6 lakh crores during the next 4 years -2022-25. This would help us meet our investment needs for the National Infrastructure pipeline. One of the critical factors for ensuring the success of NMP is to attract more investors- both domestic as well as institutional. In this regard, the NITI Aayog has given certain recommendations to improve the investor base for the National Monetization pipeline.

Working Mechanism of REIT/InVITs

As part of National Monetization Pipeline, the Government would first identify already created assets such as National Highways, Railway lines, Power transmission lines, pipelines etc. These brownfield assets would then be leased to the private sector for a certain duration of time. The money raised through the leasing of these assets would then be used for
the creation of new assets.

A mutual fund company pools in money from the retail investors and invests that money in the financial market in the form of shares, bonds, debentures etc. The profit earned from such investments is in turn distributed among the investors.
An Infrastructure investment trust (InvIT)/ Real Estate Investment Trust (REIT) is similar to Mutual fund. However, it invests the pooled money of the investors in the infrastructure projects such as roads, ports, airports etc. (InVIT) or real Estate projects (REITs).
The money earned from such investments is in turn distributed among the investors in the form of dividend. Both REITs and InVITs are regulated by SEBI and accordingly, SEBI has notified detailed guidelines to regulate their working.

NITI Aayog’s Recommendations- Enhancing the Investor base

Streamlining Investment Guidelines: Presently, the SEBI has laid down certain restrictions on the Insurance, Pension fund and mutual fund companies with respect to how much money can be invested in REITs and InVITs. For example, the insurance fund companies cannot invest more than 3% of the money raised by REITs/InVITs. Such lower limits would make

it difficult for the REITs/InVITs from tapping long term finances from the institutional investors. Hence, there is a need to enhance the investment limit to mobilise more money from the institutional investors.
Tax benefits: To encourage the participation of the retail investors, the Government should consider providing income tax benefits for the investment in REITs/InVITs. REITs/InVITs under IBC: The REITs/InVITs can issue bonds to raise money from the market. However, as of now, the REITs/InVITs do not come under the Insolvency and Bankruptcy code. Hence, in case of default by the REIT/InVIT, the lenders cannot take recourse under IBC. Such a restriction may discourage investments in REIT/InVITs. Hence, in order to encourage investment, there is a need to bring REITs/InVITs under the IBC.

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