Reasonable Classification Test

Reasonable Classification Test

Why in News?

The Anwar Ali Sarkar Case of 1952 is a landmark Supreme Court judgment that laid the foundation for the reasonable classification test under Article 14 of the Indian Constitution. This test has since become a standard for evaluating the constitutionality of laws.

What is the Reasonable Classification Test?

• About: This legal principle under Article 14 ensures fairness by allowing the grouping of individuals or entities based on clear distinctions that are logically linked to the law's objectives. It prevents arbitrary discrimination while recognizing that not all cases are identical.
• Essential Features:
  • Classification must be based on a clear and reasonable distinction.
  • The distinction must be logically related to the purpose of the law.
  • The classification should serve social or policy needs without violating rights.
  • Large groups cannot be arbitrarily selected for different treatment (no class legislation). It must involve justified, not random, differences in treatment.
• Significance:
  • Support Specific Regulations: The test allows tailored laws for different societal conditions, ensuring that equal treatment does not result in unfair outcomes.
  • Guidance for Lawmakers: It assists lawmakers and judges in interpreting statutes, preventing irrational decisions.
  • Legitimacy Testing: It assesses the legitimacy of laws, ensuring rationality and reducing legal challenges.
  • Standard for Judicial Review: The test offers a framework for courts to review and invalidate arbitrary or irrational administrative actions, ensuring legislative accountability.
• Limitations:
  • Risk of Unjustified Differentiation: If applied improperly, it can lead to unjust differentiation and potential violations of fundamental rights.
  • Subjectivity: Classification factors (e.g., age, gender, physical strength) can be subjective, leading to inconsistent judicial interpretations.

What is the Anwar Ali Sarkar Case, 1952?

• Background: In 1950, Anwar Ali Sarkar was convicted under the West Bengal Special Courts Act, 1950 by the Alipore Sessions Court, which sentenced him to life transportation.
• SC Judgment (1952): The Supreme Court struck down the law that allowed arbitrary referral of cases to special courts, ruling that the classification lacked a logical connection to a legitimate objective. This ruling established the reasonable classification test under Article 14, allowing exceptions to equality under specific conditions.

Article 14 (Equality Before the Law)

• About: Article 14 guarantees that no person, whether a citizen or foreigner, can be denied equality before the law or the equal protection of the laws in India.
  • Equality Before the Law: Ensures no special privileges, with the same laws applying to all individuals.
  • Equal Protection of the Laws: Guarantees equal treatment in similar circumstances.
• Reasonable Classification: Article 14 forbids class legislation but allows reasonable classification based on intelligible differentia (distinguishable differences).

Judicial Stand on the Doctrine of Reasonable Classification

• Saurabh Chaudri Case, 2004: The Supreme Court established two key principles:
  • Intelligible differentia: The classification must be based on clear and distinct reasons for distinguishing a group.
  • Rational nexus: The classification must have a logical connection to the objective of the law.
• Shri Ram Krishna Dalmia Case, 1958: A law can be constitutional even if it applies to a specific individual due to unique circumstances, treating them as a class. The presumption is that laws are constitutional, and challengers must prove they violate constitutional standards.

Conclusion:
The Anwar Ali Sarkar Case, 1952 laid the foundation for the reasonable classification test under Article 14, ensuring fairness and equality. This doctrine allows for laws that treat different groups distinctly but requires a logical justification, preventing arbitrary discrimination while promoting social justice.

Drishti Mains Question:
Explain the doctrine of reasonable classification with judicial interpretations.

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UPSC Civil Services Examination, Previous Year Question (PYQ)

Mains:
Q. Analyze the distinguishing features of the notion of Right to Equality in the Constitutions of the USA and India. (2021)

Q. Starting from inventing the ‘basic structure’ doctrine, the judiciary has played a highly proactive role in ensuring that India develops into a thriving democracy. In light of the statement, evaluate the role played by judicial activism in achieving the ideals of democracy. (2014)

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Need for Balanced Cryptocurrency Regulation

Need for Balanced Cryptocurrency Regulation

Why in News?

While the US has embraced crypto assets, firmly embedding them in the global financial system, countries such as Vietnam are pushing for clear regulations, and the EU is setting global standards with the MiCA framework. Meanwhile, India is still awaiting a discussion paper on the issue.

What is Cryptocurrency?

• A cryptocurrency is a type of digital or virtual currency secured by cryptography. Unlike traditional currencies, it operates on a decentralized network, independent of any central government or financial institution.
• Transactions involving cryptocurrencies are recorded on a public digital ledger called the blockchain, which is maintained by a global network of computers. Each new transaction is verified and added to the blockchain by these computers.
• This decentralized nature and the use of cryptography make it difficult to manipulate the currency or its transactions.
• Some of the popular cryptocurrencies include Bitcoin, Ethereum, and Litecoin.

Difference Between Cryptocurrency, e-Money, and Physical Currency

Category	Cryptocurrency	e-Money	Physical Currency (Rs)
Accessibility	Requires internet connection	Requires access to e-devices and agent networks	Physical access to cash, ATMs, and banks
Value	Determined by supply, demand, and trust in the system	Equal to the amount of fiat currency exchanged	Backed by government, influenced by policy
Customer ID	Anonymous	Requires identification	Not required for transactions, but for bank accounts
Production/Issuer	"Mined" mathematically by a community of developers	Issued digitally against equal value of fiat currency	Issued by the central bank (RBI)
Regulator	Mostly unregulated	Central Bank/Board	Central Bank (RBI)

Global Regulations

• Global: Most cryptocurrencies operate outside national government regulations, offering an alternative to state-backed currencies.
  • Switzerland has embraced cryptocurrency with a clear regulatory framework that ensures investor protection while fostering blockchain innovation.
  • In September 2021, El Salvador became the first country to adopt Bitcoin as legal tender.
• India: Cryptocurrency in India remains unregulated, although it is not explicitly banned.

Why Does India Need a Policy for Cryptocurrency?

• Preventing Talent Exodus: A blanket ban on cryptocurrencies could drive blockchain experts and capital to crypto-friendly countries, as was seen after the RBI's 2018 ban, stalling innovation within India.
• Integrating into the Global Financial Ecosystem: By adopting cryptocurrency regulations, India can position itself as a global financial hub, attracting investment and nurturing the growth of crypto startups through initiatives like 'crypto export zones.'
• Leveraging New Technology and Services: The increasing demand for blockchain technology presents an opportunity for India to build expertise, thus fostering technological advancements.
• Encouraging Financial Innovation: The flexible nature of blockchain allows for innovative business models and applications that could revolutionize various industries, necessitating a balanced regulatory approach.
• Enhancing Investor Protections: Implementing strong regulations will help protect investors, curb fraudulent schemes, and regulate crypto assets as commodities, which will also increase tax revenues.
• Preventing Misuse: Stricter oversight is needed to prevent the use of cryptocurrencies in illicit activities such as money laundering, ransomware attacks, and investment scams.

Challenges Posed by Cryptocurrency

• Market Volatility: The speculative nature of cryptocurrencies leads to significant price fluctuations, posing risks of large financial losses for investors.
• Risk of Misuse: Cryptocurrencies' ease of cross-border transfer without accountability increases the risk of money laundering and terror financing.
• Scalability Issues: The growing size of blockchain data limits its capacity for large-scale transactions, which could be problematic during national emergencies.
• Economic Imbalance: The rise of the cryptocurrency market can disrupt India's traditional money flow, diverging significantly from the cash creation process in the economy.
• Lack of Regulatory Oversight: The absence of a dedicated forum or grievance redressal mechanism for crypto assets leaves consumers vulnerable to risks related to transactions and misinformation.

Way Forward

• Regulatory Clarity: India needs a comprehensive crypto regulation bill that differentiates between different types of crypto assets based on their use cases.
• Investor Protection: Mechanisms for dispute resolution, fraud prevention, and risk disclosures should be established to protect retail investors from bad actors.
• Stablecoin and CBDC Integration: India’s Digital Rupee (CBDC) initiative could coexist with cryptocurrencies, with clear regulations and interoperability guidelines. A stage-based approach can allow for phased integration based on risk assessments, regulatory readiness, and technological advancements.
• Taxation Reform: The current high tax regime in the crypto sector is pushing businesses abroad. A more balanced tax structure could foster innovation while ensuring government revenue.
• Public-Private Collaboration: Engaging with industry leaders, blockchain startups, and international regulatory bodies will help India create policies that promote innovation while managing risks effectively.

Drishti Mains Question:
Discuss the current regulatory framework for cryptocurrencies in India. Evaluate the challenges and suggest measures to ensure a balanced approach that fosters innovation while protecting investors.

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UPSC Civil Services Examination, Previous Year Question (PYQ)

Prelims:
Q. With reference to “Blockchain Technology”, consider the following statements: (2020)

1. It is a public ledger that everyone can inspect, but no single user controls it.
2. The structure and design of blockchain are such that all data in it is related only to cryptocurrency.
3. Applications that depend on the basic features of blockchain can be developed without anyone’s permission.
   Which of the statements given above is/are correct?
   (a) 1 only
   (b) 1 and 2 only
   (c) 2 only
   (d) 1 and 3 only
   Ans: (d)

Q. Consider the following pairs: (2018)
Terms sometimes seen in news | Context/Topic

1. Belle II experiment — Artificial Intelligence
2. Blockchain technology — Digital/Cryptocurrency
3. CRISPR – Cas9 — Particle Physics

Which of the pairs given above is/are correctly matched?
(a) 1 and 3 only
(b) 2 only
(c) 2 and 3 only
(d) 1, 2, and 3

Ans: (b)

Mains:
Q. Discuss how emerging technologies and globalization contribute to money laundering. Elaborate measures to tackle the problem of money laundering at both national and international levels. (2020)

Q. What is Cryptocurrency? How does it affect global society? Has it been affecting Indian society as well? (2019)

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Budgetary Dependence of CPSEs

Budgetary Dependence of CPSEs

Why in News?

Concerns have emerged as Central Public Sector Enterprises (CPSEs) are shifting their capital expenditure (capex) strategies, increasingly relying on budgetary support rather than self-financing or private investment. This shift raises questions about the long-term financial sustainability and autonomy of CPSEs.

Concerns Regarding CPSEs

• Overreliance on Budgetary Support: CPSEs are increasingly depending on budgetary allocations (equity and loans from the government) instead of utilizing their Internal and Extra Budgetary Resources (IEBR).

  • Budgetary support for CPSEs has risen by over 150% in the last five years, from Rs 2.1 lakh crore in FY20 to Rs 5.48 lakh crore in FY25 (Revised Estimate).
  • Meanwhile, IEBR, which CPSEs use for financing their capex, has decreased significantly from Rs 6.42 lakh crore in FY20 to Rs 3.63 lakh crore in FY23, with a forecast of Rs 3.82 lakh crore in FY25.
  • The decline in IEBR limits CPSEs' financial flexibility and increases their dependence on government funding.

• Reduced Private Sector Participation: The shift toward budgetary support has deterred private investment.

  • For example, the National Highways Authority of India (NHAI), which was expected to raise 38% of its funding from private capital, saw its IEBR fall to zero in FY23-FY24 due to rising debt (Rs 3.48 lakh crore in 2022) and policy instability, discouraging private investors.
  • High debt limits the ability of CPSEs to raise capital independently, weakening their financial stability.