Daily Prelims Notes 20 May 2024

Daily Prelims Notes

20 May 2024

1. Three-day synchronised elephant census in southern states from May 23

Sub: Environment

Sec: Species in news

Context:

• An elephant census in the border areas of Karnataka, Tamil Nadu, Kerala, Telangana, and Andhra Pradesh will be held from May 23 to 25.
• While the elephant census is usually held for an entire forest patch once every five years, this time it will be held only in the border areas of the southern states.

Details of this census:

• Objective: Understand elephant population, and conflict areas, and develop better policies for coordination and future planning.
• Geographical Focus: Border areas of Karnataka, Tamil Nadu, Kerala, Telangana, and Andhra Pradesh.
• Census Methodology: Block count method, Transect method, Waterhole count.

• Tracking: Radio-collared elephants (wild ones only) will be tracked and assessed.
• Included Regions:
  • Kolar, Bannerghatta National Park, Cauvery Wildlife Sanctuary, MM (Malai Mahadeshwara) Hills (bordering Tamil Nadu), Bandipur Tiger Reserve (bordering Tamil Nadu and Kerala), Nagarahole Tiger Reserve (bordering Kerala), All three divisions of Kodagu.
• Excluded Regions:
  • Other forest divisions in Karnataka not bordering neighboring states.

Background and Significance

• The census follows the first interstate coordination committee meeting in March 2024 at Bandipur Tiger Reserve, Karnataka.
• The meeting was prompted by an incident where a radio-collared tuskless male elephant (makhana) killed a man in Wayanad, Kerala.
• Outcome: Creation of the Interstate Coordination Committee Charter 2024 to enhance collaboration on human-animal conflict mitigation.
• Signatories: Chief wildlife wardens and heads of forest departments from Karnataka, Kerala, and Tamil Nadu.

Previous Census Data

• Earlier Karnataka led the southern states’ elephant estimation in 2022-23.
• Findings: Karnataka had 6,395 elephants, an increase of 346 since 2017, as reported in “Asian Elephant (Elephas maximus) Population Size and Structure Estimates for Karnataka-Interim Report, August 2023.”

Status of Elephants in India:

• India has the largest and the most stable population of Asian elephants.
• India is home to more than 60% of all wild Asian elephants.
• The number of 29,964 elephants were registered in the most recent elephant census, which was conducted in 2017.
  • 31 elephant reserves exist in India. Dandeli Elephant Reserve of Karnataka, Singphan Elephant Reserve of Nagaland, and Lemru Elephant Reserve of Chattishgarh have been established in the past three years by respective states.
  • As a result, there is now around 76,508 sq km of elephant reserves spread throughout 14 states in India.
  • As per the Elephant Census conducted in 2017, Karnataka has the highest number of elephants (6,049), followed by Assam (5,719) and Kerala (3,054), respectively.

About Asian Elephants:

• Three subspecies of Asian elephants are found which are the Indian, Sumatran, and Sri Lankan.
• The largest terrestrial mammal on the Asian continent is the Asian elephant. They live in grasslands and forests ranging from dry to wet in 13 range countries across South and Southeast Asia.
• Elephant herd sizes in Asia are far smaller than those of African savannah elephants.
• The largest and oldest female elephant herd member is in charge (known as the matriarch) of the herd.
• Elephants’ gestation (pregnancy) period, which can last up to 680 days (22 months), is the longest known gestational period among any mammals.
• Females between the ages of 14 and 45 may give birth to calves every four years on average, increasing to five years by age 52 and six years by age 60.
• Elephants have always been closely associated with humans throughout Asia, where they have evolved into significant cultural symbols.
• Protection Status of Asian Elephants
  • IUCN Red List: Endangered.
  • Wildlife (Protection) Act, 1972: Schedule I.
  • CITES: Appendix I

Source: IE

2. With food scarce, lion-tailed macaques come down forest canopies, enter the urban jungle

Sub: Environment

Sec: Species in news

Context:

• Lion-tailed macaques were seen in urban areas of Valparai town in Coimbatore district, Tamil Nadu searching for food waste.
• Their natural habitat, Puthuthottam, is about four kilometres away.
• The Valparai plateau, with its tea and coffee estates and forest patches within the Anamalai Tiger Reserve, hosts one of the 40 populations of lion-tailed macaques in the Western Ghats.

About lion-tailed Macaque (Macaca silenus):

• Also known as the wanderoo.
• They are arboreal primates native to the Western Ghats.
• They are rainforest dwellers, often being found in the upper canopy of tropical moist evergreen forests or monsoon forests.
• Important for seed dispersal.
• Gestation lasts approximately six months.
• Around 2,500 mature individuals are spread across the Western Ghats between the Kalakkad Hills in the south and Sirsi-Honnavara in the north.
• Threat:  Habitat fragmentation due to large amounts of timber harvesting and exotic plantations.
• Protection measures:
  • IUCN Red List: Endangered
  • Wildlife (Protection) Act, 1972– Schedule I

Bonnet macaques (Macaca radiata):

• The bonnet macaque, also known as zati, is a species of macaque endemic to southern India.
• Its distribution is limited by the Indian Ocean on three sides and the Godavari and Tapti Rivers, along with its related competitor the rhesus macaque in the north.
• Land use changes in the last few decades have resulted in changes in its distribution boundaries with the rhesus macaque, raising concern for its status in the wild.
• They are diurnal, arboreal, and terrestrial.
• They feed on fruits, nuts, seeds, flowers, invertebrates, and cereals.
• In southern India, this macaque exists as commensal to humans, feeding on food given by humans and raiding crops and houses.

Source: TH

3. WHO updates Bacterial Priority Pathogens List to combat antimicrobial resistance

Sub: Science and tech

Sec: Health

Context:

• The World Health Organization (WHO) today released its updated Bacterial Priority Pathogens List (BPPL) 2024, featuring 15 families of antibiotic-resistant bacteria grouped into critical, high and medium categories for prioritization.

More on news:

• Since the first Bacterial Priority Pathogens List was released in 2017, the threat of antimicrobial resistance has intensified, eroding the efficacy of numerous antibiotics and putting many of the gains of modern medicine at risk.

What is Bacterial Priority Pathogens List (BPPL)?

• The list categorizes  pathogens into critical, high, and medium priority groups to inform research and development (R&D) and public health interventions.
• The 2024 WHO Bacterial Priority Pathogens List (WHO BPPL) is an important tool in the global fight against antimicrobial resistance.
• The 2024 WHO BPPL updates and refines the prioritization of antibiotic-resistant bacterial pathogens to address the evolving challenges of antibiotic resistance.

About the recent Bacterial Priority Pathogens List (BPPL) 2024:

• The 2024 WHO BPPL covers 24 pathogens, spanning 15 families of antibiotic-resistant bacterial pathogens. 
• The list features 15 families of antibiotic-resistant bacteria grouped into critical, high and medium categories for prioritization.
• The list includes gram-negative bacteria resistant to last resort antibiotics, and Mycobacterium tuberculosis resistant to the antibiotic Rifampicin. 
• Other high-burden resistant pathogens such as Salmonella, Shigella, Neisseria gonorrhoeae, Pseudomonas aeruginosa, and Staphylococcus aureus are included in the list.
• Other high priority pathogens such as antibiotic-resistant Neisseria gonorrhoeae and Enterococcus faecium, present unique public health challenges.
• Medium priority pathogens include Group A and B Streptococci (both new to the 2024 list), Streptococcus pneumoniae, and Haemophilus influenzae, which present a high disease burden.

Classification:

The WHO BPPL 2024 includes the following bacteria:

Critical priority:

• Acinetobacter baumannii, carbapenem-resistant;
• Enterobacterales, third-generation cephalosporin-resistant; and
• Enterobacterales, carbapenem-resistant;
• Mycobacterium tuberculosis, rifampicin-resistant (included after an independent analysis with parallel tailored criteria, and subsequent application of an adapted multi-criteria decision analysis matrix).

High priority:

• Salmonella Typhi, fluoroquinolone-resistant
• Shigella spp., fluoroquinolone-resistant
• Enterococcus faecium, vancomycin-resistant
• Pseudomonas aeruginosa, carbapenem-resistant
• Non-typhoidal Salmonella, fluoroquinolone-resistant
• Neisseria gonorrhoeae, third-generation cephalosporin- and/or fluoroquinolone-resistant
• Staphylococcus aureus, methicillin-resistant

Medium priority: 

• Group A streptococci, macrolide-resistant
• Streptococcus pneumoniae, macrolide-resistant
• Haemophilus influenzae, ampicillin-resistant
• Group B streptococci, penicillin-resistant

Changes between the 2017 and 2024 lists:

• The BPPL 2024 saw the removal of five pathogen-antibiotic combinations that were included in BPPL 2017, and the addition of four new combinations.
• Third-generation cephalosporin-resistant Enterobacterales are listed as a standalone item within the critical priority category and emphasizes their burden and need for targeted interventions.
• Carbapenem-resistant Pseudomonas aeruginosa (CRPA) infection moving from critical to high priority in BPPL 2024.

What is Antimicrobial Resistance?

• Antimicrobial Resistance (AMR) is an ability of a microbe to resist the effects of medication previously used to treat them. It is also known as antibiotic resistance.
• Antimicrobial Resistance (AMR) occurs when bacteria, viruses, fungi and parasites no longer respond to medicines, making people sicker and increasing the risk of disease spread, illness and deaths.
• The WHO defines antimicrobial resistance as a microorganism’s resistance to an antimicrobial drug that was once able to treat an infection by that microorganism.
• The resistance to antimicrobials is a natural biological phenomenon.

4. Balancing two forms of SNCA protein could help manage Parkinson’s, study finds

Sub: Science and tech

Sec: Health

Context:

• Many Parkinson’s disease researchers are focused on reducing the prevalence of SNCA proteins in neurons as a therapeutic measure.

What is Parkinson’s disease?

• Parkinson’s disease is a chronic, degenerative neurological disorder that affects the central nervous system.
• It damages nerve cells in the brain, dropping the levels of dopamine. 
• Dopamine is a chemical that sends behavioral signals from the brain to the body.
• The disease causes a variety of “motor” symptoms (symptoms related to movement of the muscles), including rigidity, delayed movement, poor balance, and tremors.
• Medication can help control the symptoms of the disease but it can’t be cured.
• It affects the age group from 6 to 60 years. Worldwide, about 10 million people have been affected by this disease.
• Parkinson’s is treated symptomatically by increasing the levels of dopamine or, more drastically, by grafting new neurons in place of dead ones.
• An SNCA-based solution is more desirable because it offers a more sustainable resolution.

What are SCNA proteins?

• Synuclein alpha (SNCA) is a mysterious protein. 
• Alpha-synuclein (aSyn) is a protein that, in humans, is encoded by the SNCA gene. 
• Alpha-synuclein is a neuronal protein that regulates synaptic vesicle trafficking and subsequent neurotransmitter release.
• SNCA is abundant in neurons, especially in dopaminergic neurons.
• It is found near the nuclei of these cells and at the junctions between two neurons.
• It is  capable of misfolding as well as forming filamentous structures.
• So unlike most other proteins, which take up predictable three-dimensional structures, SNCA can fold in multiple ways.
• Misfolded proteins don’t function correctly.
• It promotes Neuronal Dysfunction and Death by Disrupting the Binding of Ankyrin to beta-Spectrin.
• Twenty-seven years ago, researchers first associated SNCA with Parkinson’s disease.
• Diseases associated with SNCA include Parkinson Disease 1, Autosomal Dominant and Dementia, Lewy Body.

About the study:

• SNCA is present as aggregates in cells in two ways:
  • one that interferes with the structural integrity of cells’ nuclei and
  • another that allows the cell to degrade misfolded proteins.
• The researchers found that the former are related to diseased states while the latter is important for healthy cells.
• The study highlights the importance of striking a balance between these two SNCA populations to manage Parkinson’s disease.
• Cultivation of neurons: The researchers cultivated neurons outside a living body, providing them with nutrients in a laboratory setup.
• Artificially created structure: In these neurons, they artificially created structures resembling Lewy bodies by adding some amount of misfolded SNCA, called seeds.
• Two SCNA populations: Over time, two SNCA populations in the cells are witnessed.
  • One was around the nuclei, shaped like filaments tens of micrometers long, much like Lewy bodies.
  • The other population was also around the nuclei but as much smaller clumps called aggresomes.
• Such aggresomes are formed when cells localize misfolded proteins into a small bunch (like collecting the trash in a corner) for further processing.
• When the researchers repeatedly seeded neurons with misfolded SNCA, the Lewy-body-like structures formed faster and became big enough to affect other parts of the cell.

About nucleus of the cell:

• A nucleus is the control center of the cell.
• It contains the cell’s genetic material, and is the seat of upkeep of this genetic material and its utilization to make proteins.
• The accumulation of misfolded SNCA would render the nucleus dysfunctional and eventually kill it.
• Lewy-body-like structures can pass from one cell to another, so the effect could cascade to neighboring cells as well.

Various therapeutic impacts:

• A smaller population of SNCA means fewer misfolded SNCA.
• This can be achieved by stopping the SNCA gene from expressing itself or by destroying the SNCA protein inside cells, once the cells make them.
• Another workable solution has been to use a gene-silencing tool, like CRISPR-Cas9, at a precise location.

Terms in news:

Lewy Bodies:

• Lewy bodies are clumps of abnormal protein particles that, for reasons that are not fully understood, accumulate in the brain.
• These deposits cause a form of dementia called Lewy body dementia, or LBD — which is what the late actor and comedian Robin Williams suffered from.

CRISPR:

• CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats.
• CRISPR-Cas9 is the most prominent technology that enables editing parts of the genome by removing, adding or altering sections of the DNA sequence.
• The CRISPR-Cas9 system consists of two key molecules that introduce a change mutation into the DNA.
• Cas9- An enzyme that acts as a pair of ‘molecular scissors’ that can cut the two strands of DNA at a specific location in the genome.
• Guide RNA (gRNA)- The gRNA is designed to find and bind to a specific sequence in the DNA.

5. Why is the European Union probing Facebook and Instagram?

Sub: Science and tech

Sec: Awareness in IT

Context:

• The European Union has opened a fresh investigation into Meta’s Facebook and Instagram over suspicions that they are failing to protect children on their platform.

More on news:

• The 27-nation bloc has said it is concerned that Facebook and Instagram’s recommendation engine could exploit the weaknesses and inexperience of children and stimulate addictive behavior.
• The commission will look into Meta’s use of age verification tools to prevent children under the age of 13 from accessing Facebook and Instagram. 
• It will find out whether the company is complying with the bloc’s Digital Service Act (DSA) and enforcing a high level of privacy, safety and security for minors.

What is the investigation’s trajectory?

• The EU regulator will now carry out an in-depth investigation as a matter of priority and gather evidence by sending additional requests for information, conducting interviews and inspections.
• The commission can also accept commitments made by Meta to remedy the issues raised during the investigation.

What has Meta done to protect children on its platforms?

• Meta announced it was testing an AI-driven “nudity protection” tool that would find and blur images containing nudity that were sent to minors on the app’s messaging system.
• The company said it would roll out measures to protect users under 18 years of age by tightening content restrictions and boosting parental supervision tools.

Other investigations against Meta in the EU?

• The regulator opened an investigation, accusing Meta of having failed to tackle deceptive advertising and disinformation in the run-up to the European Parliament elections.
• The antitrust regulator’s move against Meta stemmed from the platform being used as a potential source of disinformation by Russia, China and Iran to influence voters in the EU.

What is the EU Digital Service Act (DSA)?

• The DSA is a set of common rules on intermediaries’ obligations and accountability across the single market, and ensures higher protection to all EU users, irrespective of their country.
• The DSA regulates online intermediaries and platforms such as marketplaces, social networks, content-sharing platforms, app stores, and online travel and accommodation platforms. 
• Its main goal is to prevent illegal and harmful activities online and the spread of disinformation. 
• It ensures user safety, protects fundamental rights, and creates a fair and open online platform environment.
• The DSA requires online platforms to take measures to prevent and remove illegal or harmful content, such as hate speech, terrorism, child abuse – or those that promote illegal goods.
• DSA also requires that platforms give users the means to report this type of content

6. Renew the Generalised System of Preferences (GSP)

Sub: Economy

Sec: External Sector

• Importance:
  • GSP: An approach adopted by nearly all developed countries over the last half-century to offer incentives for economic reform in developing countries through lower tariffs.
  • Customization: Each developed country customizes its GSP program to meet specific economic reform criteria while avoiding harm to domestic production.
  • Historical Significance: The oldest and most extensive approach to “aid for trade” within the modern multilateral trading system, embodied in the World Trade Organization (WTO).
• Renewing GSP in the U.S.:
• Legislative Renewal: Unique to the U.S., the authorizing legislation for GSP periodically expires and requires renewal by Congress.
  • Current Status: The U.S. GSP program expired in 2020 and remains unrenewed despite bipartisan support.
  • Challenges: Renewing legislation in a polarized environment is difficult, making bipartisan cooperation essential.
• Benefits of GSP:
  • Market Access: Provides stable market access for developing countries, crucial for small businesses and women-owned enterprises.
  • Alternatives to Chinese Imports: Offers a competitive edge to suppliers in trusted developing country markets.
  • Promotes Reforms: Encourages labor and environmental sustainability reforms, and protection of intellectual property rights.
  • Economic Impact: Reduces tariff bills for American companies, benefiting small- and medium-sized enterprises.
• Support for GSP Renewal:
• Diverse Coalitions: Bipartisan support from various U.S. sectors. For example, a group of Florida House members highlighted GSP’s importance in diversifying sourcing away from China and reducing tariff costs for Florida consumers and manufacturers.
  • Strategic Supply Chains: In an era of friendshoring and nearshoring, GSP is an effective tool for new supply chain objectives.
• U.S.-India Trade Relationship:
  • Potential for Growth: GSP renewal could facilitate wide-ranging U.S.-India trade negotiations, potentially increasing bilateral trade significantly.
  • Past Negotiations: Before the GSP expiration in 2020, there were near-final negotiations between the U.S. and India covering diverse trade areas.
  • Current Trade Dialogues: Existing dialogues lack the leverage needed for ambitious trade agreements, highlighting the need for GSP.
• Strategic Importance:
  • GSP and U.S.-India Relations: Renewing GSP could bolster the U.S.-India strategic partnership by providing a framework for negotiating trade benefits and addressing key issues like labor rights, environmental laws, and regulatory practices.
  • Trade Agreement Potential: Short of negotiating Free Trade Agreements (FTAs), GSP is the most effective trade tool for enhancing U.S.-India trade relations.
• Conclusion:
  • Renewal Advocacy: Renewing GSP is crucial for establishing stable market access for developing countries, supporting U.S. businesses, and strengthening strategic partnerships.
  • Strategic Statement: GSP renewal would signal mutual commitment to deepening trade and economic ties between the U.S. and India, supporting broader strategic objectives in the Indo-Pacific region.

In summary, renewing the GSP program is essential for enhancing economic cooperation, supporting small and medium enterprises, promoting reforms, and strengthening strategic trade relationships, particularly between the U.S. and India.

7. Reconsideration of Sachetisation of F&O Trade to Safeguard Household Savings: CEA Nageswaran

Sub: Economy

Sec: Financial Market 

Chief Economic Advisor (CEA) V Anantha Nageswaran emphasized the need to reconsider sachetisation of Futures and Options (F&O) trade to protect household savings.

Key Points:

• Context of the Discussion:
  • Reference: Nageswaran highlighted historical financial crises, specifically the Asian crisis of 1997-98, where premature financial sector development had adverse effects.
• Concerns Raised:
  • Financial Literacy Requirement: Trading in F&O requires different financial literacy compared to stocks. Many current market participants lack this understanding.
  • Household Savings Risk: Unchecked retail trading in F&O poses a risk to household savings, potentially diverting them from productive investments.
• Sachetisation of F&O Trade:
  • Sachetisation involves making financial products available in smaller, more manageable packets.
  • Reconsideration: Due to the complexity of F&O trading, there’s a need to rethink this approach to prevent misuse by financially illiterate investors.
• Supporting Data:
  • Decline in Household Savings: Net financial household savings dropped to a five-year low in FY23, falling by Rs 9 lakh crore in three years.
  • Investment Shifts: Despite a tripling of mutual fund investments and doubling of household investments in shares and debentures from 2020-21 to 2022-23, concerns remain about the stability and security of these investments.
• Union Finance Minister’s View:
  • Nirmala Sitharaman’s Caution: Earlier warned about the dangers of an unchecked explosion in retail F&O trading, highlighting potential problems for household finances.
• Market Study Insights:
  • SEBI Study Findings: Nearly 89% of individual traders in the equity F&O segment incurred losses, with average losses of Rs 1.1 lakh during FY22. Active traders faced even higher average losses.
  • SEBI Chairperson’s Advice: Madhabi Puri Buch suggested a 90% chance of loss for investors in F&O, recommending long-term investments for wealth creation.
• Conclusion:
  • Financial Sector Responsibility: The financial sector must ensure the growth of capital markets aligns with harnessing Indian household savings for productive purposes, avoiding the pitfalls observed in other countries.

Futures and Options (F&O)

Futures and Options (F&O) are financial derivatives that allow investors to hedge or speculate on the future price movements of underlying assets such as stocks, commodities, or indices. Here’s a breakdown of each:

1. Futures:
   • A futures contract is an agreement to buy or sell an asset at a predetermined price at a specified time in the future.
   • Key Features:
     • Standardization: Contracts are standardized in terms of quantity, quality, and delivery time.
     • Obligation: Both the buyer and the seller are obligated to complete the transaction at the contract’s expiration.
     • Leverage: Futures trading allows for significant leverage, meaning traders can control large positions with relatively small capital.
   • Use Cases:
     • Hedging: Used by businesses and investors to hedge against price fluctuations.
     • Speculation: Traders speculate on price movements to make profits.

2. Options:
   • An options contract gives the holder the right, but not the obligation, to buy or sell an asset at a predetermined price within a specific period.
   • Types:
     • Call Options: Gives the holder the right to buy the asset.
     • Put Options: Gives the holder the right to sell the asset.
   • Key Features:
     • Premium: Buyers of options pay a premium for the right, which is the cost of the option.
     • Limited Risk: Buyers’ risk is limited to the premium paid, while sellers (writers) can face significant risk.
     • Flexibility: Provides flexibility as the holder can choose to exercise the option or let it expire.
   • Use Cases:
     • Hedging: Protect against potential losses in an investment.
     • Income Generation: Investors write options to earn premiums.
     • Speculation: Traders use options to speculate on market movements with limited risk.

8. Tighter AIF Norms Prompt Fund Managers to Consider Offshore Routes

Sub: Economy

Sec: Financial Market 

A number of sponsors and investment managers — especially those wanting to raise predominantly foreign capital — are considering taking the offshore route to invest in India instead of setting up alternative investment funds (AIFs) amid regulatory uncertainty and higher costs.

Key Points:

• Impact of Tighter Regulations:
  • Operational Challenges: Tighter regulations are affecting the operations of AIFs, causing managers to be wary of regulatory stability.
  • Consideration of Offshore Routes: Managers based in India looking to raise significant offshore capital are contemplating moving their base outside India to mitigate adverse regulatory impacts.
  • Expert Insight: Siddharth Shah, Senior Partner at Khaitan & Co, highlighted the shift due to regulatory uncertainties.
• Investor Concerns:
  • Regulatory Note: A recent note questioning the FDI policy around AIFs has alarmed investors.
  • Foreign Direct Investment (FDI) Policy: Foreign investors have been setting up AIFs with domestic managers to invest in sectors restricted for direct foreign investment or beyond allowed FDI limits.
  • RBI Recommendation: The Reserve Bank of India recommended treating investments exceeding 50% of AIF units by persons resident outside India as indirect foreign investment.
• Regulatory Shift:
  • Previous Amendments: In 2015-16, regulations were amended to allow AIFs to take foreign capital through the automatic route, considering the manager and sponsor’s ownership and control.
  • Current Stance: The recent regulatory stance represents a reversal, potentially undermining onshore management and pooling of foreign capital.
• Expert Opinions:
  • Impact on Growth: Vivaik Sharma, Partner at Cyril Amarchand Mangaldas, stated that regulatory subjectivity, especially conflicting with FEMA rules, would hinder the growth of alternative asset management in India.
  • Increased Compliance Costs: Ipsita Agarwalla from Nishith Desai Associates mentioned that increased compliance costs for AIFs are impacting the return profile, as these costs are typically passed on to investors.
• Additional Challenges:
  • Taxation and Administration: Uncertainty regarding the taxation of carry, difficulty in managing co-investments, and the introduction of an online dispute resolution regime for global institutions are also deterring investors.
  • Offshore vs. Onshore: Offshore funds benefit from more stable regulatory regimes, but tax considerations must be addressed, especially given recent changes in treaty benefits and substance requirements.
• GIFT City as an Alternative:
  • Regulatory Stability and Tax Benefits: GIFT City offers regulatory stability, tax incentives, and proximity to India, making it an attractive alternative for fund managers.

Conclusion

The tightening of AIF norms in India is prompting fund managers to explore offshore routes to mitigate regulatory uncertainties and costs. While offshore options provide stability, they come with their own tax considerations. GIFT City emerges as a potential alternative due to its regulatory advantages and incentives. The ongoing regulatory changes and their impacts highlight the need for a balanced approach to maintain India’s competitiveness in attracting and managing foreign capital.

Alternative Investment Funds (AIFs)

Alternative Investment Funds (AIFs) are investment vehicles that pool funds from investors and invest them according to a defined investment policy for the benefit of their investors. These funds typically invest in assets beyond traditional securities like stocks, bonds, and cash.

Key Points about AIFs:

• Category I AIFs:
  • Focus: Invest in start-ups, early-stage ventures, social ventures, SMEs, infrastructure, or other sectors considered socially or economically desirable.
  • Examples: Venture Capital Funds, Social Venture Funds, SME Funds, Infrastructure Funds.
  • Incentives: Often receive incentives or concessions from the government.
• Category II AIFs:
  • Focus: Invest in a variety of asset classes including private equity funds or debt funds that do not specifically fall under Category I or III.
  • Examples: Private Equity Funds, Debt Funds.
  • Characteristics: Do not get any specific incentives or concessions from the government or other regulators.
• Category III AIFs:
  • Focus: Employ diverse or complex trading strategies and may invest in derivatives.
  • Examples: Hedge Funds.
  • Characteristics: Typically leverage their investments and are subject to stricter regulatory scrutiny.

Regulation and Structure:

• Regulatory Body: AIFs in India are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Alternative Investment Funds) Regulations, 2012.
• Investment Structure: AIFs can be established as a company, trust, or limited liability partnership (LLP) in India.