# Comprehensive News Analysis - 05 July 2016

##### E. Important Editorials : A Quick Glance

The Hindu

The Indian Express

Others

1. PIB

##### H. Archives

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### Useful News Articles

##### A. GS1 Related

Nothing here today folks!

##### B. GS2 Related

1. Vacancies in high courts touch 470 as govt.-judiciary logjam continues

Topic: Judiciary

Category: Polity

Key points:

• Amid the continuing tussle between the government and the judiciary over the contentious clause in the Memorandum of Procedure (MoP) on appointment of judges, the number of vacancies of High Court judges has grown to 470 out of the sanctioned strength of 1079.In other words over 45 per cent of the positions of High Court judges are vacant
• At the root of the problem is the clause in the MoP (which outlines the modus operandi to be followed in appointment of judges) that gives the government the right to reject names suggested by the Supreme Court Collegium system
• The clause on the right to reject a recommendation on grounds of national security gives primacy to the government on appointment of judges unlike the current practice where government is bound to accept a recommendation by the Collegium — comprising four senior-most judges of the Supreme Court and the CJI — if a recommendation is sent again

2. Telecom operators to shell out Rs. 1 lakh cr. for spectrum : Crisil

Topic: Telecom Sector

Category: Governance

Key points:

• India’s telecom operators are likely to fork out about Rs.1 trillion (Rs.1 lakh crore) to buy spectrum at the upcoming auctions, according to Crisil(The rating agency added that of this, nearly 75 per cent would be spent by private telecom operators)
• In the current fiscal, the outgo towards spectrum acquisition will be Rs.37,000 crore, which is lower than the budgetary estimates of around Rs.56,000 crore, as per Crisil’s estimates. However, it will still be a significant outgo as the telecom industry is reeling under Rs. 4 lakh crore of debt as of March 2016
• The rating agency said that the bidding in the 700 MHz band will be extremely selective, as players will prefer the less expensive 1800 MHz. “About half of the spectrum put on the block in 1800 MHz and 2100 MHz, and most of it in 800 MHz and 900 MHz, would be lapped up, while bidding interest in 2300 MHz and 2500 MHz is expected to be limited,” it added (It is the highest quantum of airwaves sold at one go)

##### C. GS3 Related

Topic: West Asia

Category: Terrorism/International Affairs

Key points:

• Suicide bombers struck three cities across Saudi Arabia on Monday, in an apparently coordinated campaign of attacks
• The explosions targeting U.S. diplomats, Shia worshippers and a security headquarters at a mosque in the holy city of Medina follow days of mass killings claimed by the Islamic State group, in Turkey, Bangladesh and Iraq. The attacks all seem to have been timed to coincide with the approach of Eid al-Fitr, the holiday that celebrates the end of the fast

2. Banned groups behind Dhaka attacks

Topic: Terrorism

Category: Security

Key points:

• Following primary investigations into Friday’s attack on an upmarket neighbourhood in Dhaka, law enforcement officials said on Monday that members of banned militant outfits JamaatulMujahideen Bangladesh (JMB) and Ansarullah Bangla Teamcarried out the attack jointly following an in-depth reconnaissance.The attackers were highly educated young men from well-off families
• While the Bangladesh government has continued to deny the IS has a foothold in the country, the group claimed the attack and its associated news agency, Amaq, posted pictures of the five gunmen posing with weapons. Similarly in Pakistan, the government denies that the IS has a formal presence

Topic: Pollution Control

Category: Environment

Key points:

• Big and high-end diesel cars have better emission norms and pollute less than the commoner’s small cars, the Centre told the Supreme Court on Monday, challenging the court’s blanket ban on fresh registration of diesel luxury cars and SUVs with over 2000 CC engine capacity in the national capital
• Besides, the government warned the highest judiciary that if the seven-month ban, based on a December 16, 2015 order, continued, global car makers would opt to leave India for greener pastures, rendering lakhs of youths without jobs and FDI in a shambles
• The government also challenged the Supreme Court’s authority to impose a cess when taxation came within the domain of the government. This was in response to an idea mooted by the court to make high-end diesel car buyers pay a hefty one-time anti-pollution cess or environmental compensatory charge for opting for a polluting fuel
• Instead, the Centre put its weight behind the car makers’ proposal to deposit with the government 1 per cent of the showroom price of every 2000 CC diesel vehicle bought in Delhi.The money, which would go into the cause of reducing pollution, would be taken from the buyer
• The SC was also informed that the government was ready with a scheme by which persons with cars made before 2005 could sell their vehicles at designated government scrap yards and it is to be implemented by 2017
• But the Supreme Court-appointed Environment Pollution Control Authority (EPCA) advised the court against the car makers’ proposal to pay one per cent of the car’s showroom price towards combating pollution. It said the aim of the Supreme Court was to prevent ‘dieselisation’ and not allow car makers to pay money to allow them to continue to pollute.It said the environment was a “public trust” and subject to inter-generational equity

4. Ozone layer over Antarctic shows signs of healing

Topic: Ozone Layer

Category: Environment

Key points:

• Atmospheric scientists have seen signs of the mending of the ozone hole above the Antarctic. An article published online in Scienceon 30 June said that this healing is a direct result of the curb on the release of chlorofluorocarbons following from the Montreal protocol of 1987
• The Montreal protocol to ban the use of CFCs was implemented more than 37 years ago. Many people expected the ozone hole to heal quickly. This has not happened because of the long residence time of CFCs in the atmosphere and the role of natural processes such as El Nino and volcanic eruptions
• There are three stages in the ozone recovery process, as the researchers write in the Science paper: (a) reduced rate of decline (b) levelling off of the depletion and last (c) ozone increase linked to reduction of the levels of CFCs. And the scientists had observed the third stage of recovery

(CFCs are released by products such as hairsprays, old refrigerators etc)

5. Two genetic variants up the diabetes risk in Indians

Topic: Health

Category: S&T

Key points:

• Of the several genetic variants for Type 2 diabetes that have been identified through genome wide association studies (GWAS),researchers found two — variants of TCF7L2 and SLC30A8 gene — of the nine selected variants were responsible for 29.6 per cent population attributable risk of Type 2 diabetes. The study confirmed the independent association between the two variants and type 2 diabetes
• While these two variants — of TCF7L2 and SLC30A8 gene — have together been found to be responsible for nearly 49 per cent of population attributable risk in Caucasians, it is only 29.6 per cent in the case of the Indian population( approximately 26 per cent of risk comes from genetics. So individuals with higher number of risk alleles and higher BMI have a greater risk of developing diabetes)
• Hence, identification of individuals at high risk of developing diabetes is of great importance not only for deciphering disease etiology but also from the point of health care management to halt the rise in diabetes.

6.A plant that makes cameo appearance when rain subsides

Topic: Biodiversity

Category: Environment

Key points:

• Plant taxonomists have found a new species of mycoheterotrophic plant in the Idukki forests of Kerala
• The species has been named as Thismiasahyadrica and is the first report from the mainland of India, according to scientists.
• A mycoheterotrophic plant is the one that depends on mycorrhizal fungus, with which it establishes a symbiotic relationship, for carbon and nutrient supply. The plants resort to parasitism as they lack chlorophyll and cannot produce food on its own through photosynthesis
• It was during a floristic exploration in the Idukki district of Kerala, which falls under the Anamalaiphyto-geographical region of Western Ghats, that the scientists stumbled upon the species.According to the researchers, the newly described species is a non-photosynthetic ephemeral, which emerges briefly to flower and fruit after a period of heavy showers during the monsoon, especially in the months of June and July
• Observations on the microhabitat and distribution pattern indicated that the new taxon is restricted to undisturbed and morphologically highly unique, humus-rich soil substratum under the dense shade of evergreen forests with associations of macro and micro biota.The plant has qualified to be included in the Critically Endangered category of the IUCN Red List Categories and Criteria of endangered flora and fauna

##### E. Important Editorials: A Quick Glance

The Hindu

Topic: Terrorism

Category: Security

Keypoints:

• The blast in Baghdad, which killed more than 200 people, is the latest, and the deadliest, in a string of attacks carried out by terrorists around the world during Ramzan. The Islamic State has boastfully claimed responsibility for the attack that occurred in front of a Shia mosque in one of the busiest commercial areas in the heart of the Iraqi capital
• The carnage comes weeks after Iraqi troops, under American air cover and assisted by Iran-trained Shia militias, defeated the IS in Fallujah, one of the first cities it had captured in Iraq in early 2014. The loss of Fallujah is a big blow to the so-called Caliphate, whose territory has been shrinking over the past year in a series of military setbacks. In fact, Iraqi troops are now preparing for the final battle in Mosul, Iraq’s second largest city from where Abu Bakr al-Baghdadi declared the Caliphate two years ago
• But these military setbacks haven’t done anything to blunt the ability of the IS to stage major terror attacks, as the latest violence shows. Secondly, by targeting Shias, the IS is trying to deepen Iraq’s sectarian wounds. In an online statement claiming the Baghdad bombing, the group clearly stated that it targeted a Shia gathering
• In 2006, the leader of al-Qaeda in Iraq, Abu Musab al-Zarqawi, had led a series of attacks on Shias that triggered a civil war between the two dominant communities. This sectarian tension helped the IS capture Mosul in 2014
• The attack, moreover, highlights the worsening security situation in Baghdad. Despite repeated protests and international warnings, the Iraqi government is simply not able to provide basic security to its citizens. If in other global cities terror is an irregular threat, Iraqis live dangerously in its shadow every day
• The problems Iraq faces today are partly structural. It never completely recovered from the American-led invasion of 2003 which destroyed the state and threw society into anarchy. One reason the IS machinery became so strong in Iraq is that many battle-ready Saddam-era generals, who had lost their jobs after the Americans disbanded the Iraqi military, joined its ranks
• But the Iraqi leadership also must bear responsibility for the current mess. If former Prime Minister Nouri al-Maliki was viewed with suspicion by Sunnis for his sectarianism, the incumbent, Haider al-Abadi, is seen to be too incompetent to be a wartime Prime Minister. He has not been able to implement even the promised reforms, and this has virtually stalled governance, helping jihadists exploit the security gaps in the big cities
• Iraq needs a stable, inclusive administration that takes care of the basic needs of its people while at the same time fighting terror. It is a tall order, but Iraq today doesn’t have the luxury of time or choice

2. Look who’s stalking

Topic: Law and order

Category: Governance

Key points:

• The death of a young woman in Chennai(hacked to death by a stalker), must underline a point too easily missed in our casual day-to-day encounters: that crimes against women are a continuum
• It is unfortunate that it should take extreme violence for society and the law and order machinery to understand that cracking down on everyday harassment is essential. Had she reported her stalker to an authority, would it have made her safer? We cannot definitively answer that in hindsight. What is without doubt is that stalking is far too commonly considered a mildly annoying practice, a playful way of courting even
• Women, and even young girls, are anyway not conditioned to approach figures of authority — at home, in schools and colleges, at the workplace, in the local police station — to report harassment that falls short of violence, and sometimes not even that
• A young woman fell to a death that was preventable. We must make people see stalking as the corrosive, potentially violent act it is. After the Delhi gang rape of December 2012, Parliament passed the Criminal Law (Amendment) Act, 2013
• Provisions of that law sought to sharpen identification of crimes against women, to make it easier for them to approach the authorities to register complaints, and to secure their dignity in this process of getting justice
• Stalking was one of the crimes the Act dealt with. It can lead to a fine and imprisonment of up to three years for the first offence; and for any subsequent conviction to imprisonment of up to five years. It is an offence to follow a woman and contact, or attempt to contact, her, to foster personal interaction repeatedly despite a clear indication of disinterest by her; or monitor her use of the Internet, email or any other form of electronic communication
• But for a woman to be sufficiently empowered to say no, there needs to be stronger awareness

3. Terror hits and the IS’s long run

Topic: Terrorism

Category: Security

Key points:

• Since the beginning of Ramzan this year, the holy month in the Islamic calendar, extremists have carried out four massive attacks in three continents, killing at least 310 people
• All three attacks were directly or indirectly linked to the Islamic State (IS) terror group. While in Orlando, U.S., the gunman who shot dead nearly 50 people in a gay pub had called up the authorities and pledged his allegiance to the IS, in Istanbul, the Turkish government blamed the group for the airport bombing that killed 41 people. After last week’s attack on an upmarket café in Dhaka where seven jihadists killed 22 people, the IS’s Amaq news agency published photographs of bodies lying in a pool of blood in the café, giving credit to the group for the assault. The IS has also claimed responsibility for the July 3 bombing in Baghdad that killed more than 200 people
• But each of these attacks has its own nuances. The U.S. government says Orlando was not an IS-directed assault but an inspired one. In Turkey, the outfit did not claim responsibility, something unusual when compared to the boastful claims it makes after terror strikes elsewhere. In Bangladesh, the government has rejected the IS’s claims, blaming local militant networks instead. Baghdad could be the only incident in this set where there’s a consensus on the identity of the perpetrator
• But these nuances also reflect the new face of terrorism. The IS is expanding its reach through its ideology even as it’s facing organisational setbacks at its core. All attackers in these four cities may not have got directions from Abu Bakr al-Baghdadi or his core team. There need not be an organisational link between the IS in Iraq and Syria and the terror cells in Dhaka or Jhenaidah. What connects these men is the deadly world view the IS is propagating. For the IS, everyone who doesn’t subscribe to its vision is an enemy and it divides these enemies into different sects — crusaders (largely Christians), apostates (mostly non-Sunni Muslims) and sinners (it could be anyone from gays to rebels)
• In the three years of its existence, the IS has adopted several tactical approaches to stay relevant as a global jihadist force. Its early focus was on the establishment of a Caliphate. The weak sectarian government of Prime Minister Nouri al-Maliki in Iraq and the bloody chaotic civil war in Syria let the group capture territories in both countries and declare the Caliphate. In the first year of the Caliphate, the IS kept expanding its territorial reach. Its enemy camp was divided and lacked a comprehensive anti-terror strategy. Syria was descending from chaos into anarchy. The regional black market was flush with weapons as Syrian President Bashar al-Assad’s enemies were arming rebel groups. The IS was the biggest beneficiary of this period, and at its peak in 2014, the group controlled territories as big as Great Britain. This approach was different from the al-Qaeda-type terror organisations which were mainly hit-and-run groups. The IS blended both asymmetric terrorism and modern warfare tactics to capture and hold on to territories
• But one problem of this strategy is that the enemies could easily target such groups by attacking the areas they control. The IS started facing the heat when its multiple enemies such as Russia, the U.S., Iran and the Kurds launched separate attacks from all sides of the Caliphate
• The decline started in Kobane, the Syrian border town which the IS laid siege to briefly. But the Kurdish fighters repelled the group after weeks-long battle, dealing the first major battlefield blow to the group in January 2015. It’s not a coincidence that the IS started attacking faraway locations using suicide bombers at the same time. Till Kobane, the IS’s focus was largely on Iraq and Syria. But Kobane shattered the myth of invincibility, prompting the group to change tack
• In March that year, IS gunmen killed 22 people in Tunisia’s Bardo national museum. With more territorial losses, the group went in for more suicide attacks. In November they struck Paris, killing 130 people. These attacks were largely planned at the core and executed elsewhere — or the al-Qaeda style of suicide attacks. Be it the Tunisian shooting, the Paris or Brussels attacks or the Beirut bombing, the jihadists were trained in Syria and sent out to carry out the “missions”
• But even this tactic has its limitations. Terror modules could attract the attention of intelligence agencies in countries with functional institutions. There’s a higher chance for them to be busted than attacks being carried out. On the other side, the IS’s core territory kept shrinking. It lost Palmyra in Syria, and Ramadi and Fallujah in Iraq. The group is facing enormous pressure from all sides of the Caliphate — the Iraqis are set to march towards Mosul, while Kurdish forces backed by U.S. aircraft are breathing down on Raqqa
• The IS wanted to strike anywhere outside Iraq and Syria (which is relatively easy for the group) to continue to stay in the business of jihadism
• The Orlando and Dhaka attacks show that this tactic is paying off. Even in Turkey, where the IS was reluctant to strike in the initial years because the dual game the country was playing in Syria was benefitting the jihadists, the group is changing its approach. It will hit Turkey, but won’t claim responsibility
• This is a far more dangerous phase. Al-Qaeda usually operates from its hideouts through its networks or autonomous cells. The IS has territory (the Caliphate); it has networks and affiliates (from Afghanistan to Nigeria); autonomous cells (possibly the Istanbul attack was carried out by such a cell and that’s why the IS leadership doesn’t claim the assault); and lone wolves and local groups that have subscribed to its world view (Orlando and Dhaka)
• Irrespective of the setbacks it suffered at its core, the IS has transformed its ideology, which at the advent of the group was seen as an isolated, barbaric world view propagated by a few wicked human beings, into that of a globalised force. This means that even if the IS is defeated in Mosul and Raqqa, the threat it poses to the modern world is not going to subside anytime soon

4. Free Basics, now through the backdoor

Topic: Internet

Category: Governance

Key points:

• Over the last one year, Indians have engaged in a passionate debate on the concept of Net neutrality, whereby all content should be treated equally on the Internet. The Indian public protested whereby Free Basics of Facebook did not see the light of day in India
• A decision was taken that Internet was first a public good before being a market one
• Now the Goliath of global Internet business looks set to trounce the David of public opinion. In agreeing to ban Free Basics the regulator agreed differential pricing to be an inappropriate practice, for consumers, including poor consumers, as also for the larger society. Indeed, the regulatory order argued that “price-based differentiation would make certain content more attractive to consumers resulting in altering a consumer’s online behaviour (and)… the knowledge and outlook of those users would be shaped only by the information made available through those select offerings”. It further offered reasons of freedom of expression and plurality of views for banning differential pricing
• But the present consultation paper is a complete turnaround, suggesting that these were never the problem. It was not at all the issue that Free Basics discriminated with regard to the content as received by any consumer. The real problem was that Free Basics had an exclusive agreement with just one telco to do so. It would accordingly be fine if Free Basics entered into a similar agreement with all telcos. The problem people had with Free Basics is now sought to be ‘solved’ by making Free Basics equally available across all telcos, and not just one network as earlier! However illogical it may seem, this is what the regulator seems to be planning to do
• The suggested models will just make Free Basics kind of services more ubiquitous, as well as a permanent feature, and not merely a promotional one, as earlier touted by its promoters
• The only significant new feature of the proposed models is that telcos will not be able to benefit from content-based price discrimination. However, they will facilitate ways whereby content providers can pick up the tab for consumers accessing their content (and not other). Other suggested models would get the telco entirely out of the picture, with consumers reimbursed directly by content providers for the access of their content.At the consumer end, all these models have exactly the same effect as telco-controlled models — of incentivising accessing some content and services over others, undercutting the key equalising feature of the Internet
• The regulator seems to be drawing an interesting line — services provided by telcos are under a public goods framework, but those rendered by the Internet companies subject only to free-market principles. It seems not to matter that the actual impact on individuals and societies of non-Net-neutral practices by either is exactly the same
• Such an attitude comes from a problematic trend that has been called “Internet exceptionalism”, whereby the Internet is considered to be some kind of uniquely regulation-free zone. The problem is, Internet activists advocating Net neutrality are often themselves guilty of it. The ‘Save the Internet’ campaign, by far the most active group in the Net neutrality struggles, declared in its first submission on the issue to the regulator last year that “no new regulatory framework in the telecom sector is required for Internet services and apps — and no such regulation should come into effect in future either”
• These Internet activists are now faced with a piquant situation when the regulator, as they themselves urged it to do earlier, is making a distinction between regulating the telcos and regulating “Internet services and apps”. This will result in people getting a non-Net-neutral Internet now through an Internet platform instead of a telco one. This group’s new submission now argues that whether Net neutrality violation is done by telcos or by an Internet platform it should be banned, apparently reversing their earlier stand
• Laws and regulations should govern for social outcomes, and not just technology or business processes. It is high time that we gave up the telecom-Internet distinction. The Telecom Regulatory Authority of India is the regulator for our communication infrastructure and systems. Many Internet services and apps fit this description as much as a telephone network does. Communication systems of the society are of such special social significance as to require committed regulation and not just be treated as ordinary market goods
• Having banned Free Basics-like content discrimination services when involving a telco, it is ludicrous to now propose to allow the same by Internet companies directly. This attempt to bring back the much-detested Free Basics through the backdoor, by making an absurd distinction between telecom and ‘Internet services’, is the right opportunity for us to get out of this wrong binary regulatory mindset. We must consider our old and new communication systems as one important social sector requiring close regulatory watch in public interest

The Indian Express

Topic: New Economic Policy

Category: Economy

Key points:

• Rangarajan became deputy governor of the RBI in 1982. During Manmohan Singh’s tenure as RBI governor in the 1980s, he was a key member of the Sukhamoy Chakravarty committee whose recommendations formed the basis on which interest rates in India were later de-regulated. As deputy governor and member, Planning Commission, during the days of crisis management and reforms, he steered forex management while helping fashion a strategy for building and managing the country’s foreign exchange reserves in the backdrop of the 1991 balance of payments crisis
• It is as RBI governor that Rangarajan pitched for phasing out of automatic monetisation of the fiscal deficit, provided the direction for market-determined exchange rates and opened up the Indian banking sector. He also provided the intellectual foundation for a monetary policy focused on inflation control which has been followed by successive RBI governors
• Later, he became governor of Andhra Pradesh and chairman of the 12th Finance Commission, following which he was appointed as Chairman of the PM’s Economic Advisory Council or PMEAC during Manmohan Singh’s tenure as prime minister. Rangarajan says that reforms must be part of a “continuing agenda” and that the country has to build on the momentum generated by earlier reforms. Edited excerpts from interview:
• What are the changes triggered by the 1990-91 crisis and how did the political establishment react?
• The 1991 crisis compelled us to create a new framework in which the fundamental principle would be that competition is key to improving efficiency. Therefore, there has been a common thread running through the measures that have been implemented since 1991, which is to improve productivity by infusing competition. When we launched economic reforms, we were in serious negotiations with the International Monetary Fund (IMF) and the World Bank. They do have a certain approach and bias towards creating a more competitive environment. In some ways, the new policy framework was in sync with their views. It would, however, be wrong to suggest that we made those changes because of their insistence.
• How did your role play out then?
• The measures initially covered areas of fiscal policy, industrial policy, trade policy and foreign exchange management and were later extended to various sectors. During that phase of reforms, the exchange rate regime underwent a big change and became more or less market-determined, subject to interventions by the RBI. The elimination of the automatic monetisation of the fiscal deficit gave to the RBI the desired autonomy with regard to monetary policy… All important steps towards strengthening the banking system — licencing of private banks and amendment to the Nationalisation Act — made it possible for the government to reduce its stake. There was a burst of activity in the first few years after the 1991 balance of payment crisis. After the crisis receded, it became difficult to introduce reforms
• How different was the response to the 1991 crisis when compared to earlier ones?
• The crisis itself was triggered by the balance of payments problem. Earlier, it was possible to find a solution (to such crises) by raising money… But in 1991, it was a recognition that such a crisis should not emerge again… What made us change was the severity of the problem. We had never been reduced to a situation where the foreign exchange available was enough to cover just three weeks of imports. We had never faced such a situation until then (1991) where we had to pledge gold
• More than two decades after opening up, what, according to you, remains closed and needs to be opened up?
• For instance, many sectors which needed reforms — such as coal, power and telecom — have had to wait. It came, but in a slow and steady manner. If we had maintained the momentum, we could have achieved much more. Clearly, for instance, the monopoly of the government in coal production had its impact. The induction of the private sector has not been possible even today. The insurance sector also should have opened up much earlier. Financial sector reforms encompass an area beyond banking and in the insurance sector, as far as the private sector was concerned, the foreign investment cap was restricted to 26% and we could raise it to 49% only recently. Right from the start, we somehow had various sectoral caps for foreign investment and these have not been done away with even now
• What would you do if you were in a similar role now?
• We need to carry forward the reforms introduced then. The changes contemplated in the new monetary policy framework is consistent with the dominant objective of the RBI — of price stability and a continuation of the earlier reform of doing away with automatic monetisation. There is a need to create a more competitive environment in the banking sector. The safety and soundness need to be enhanced.On the forex side, we need to look at how the exchange rate moves, addressing the issue of volatility and also ensuring that the rupee’s Real Effective Exchange Rate or REER doesn’t appreciate much
• What are the policy measures or reforms that need to be carried out over the next 25 years?
• We need to extract the full potential of the reforms we have already introduced. Besides, reforms must be part of a continuing agenda. The introduction of the Goods and Services Tax will help enhance efficiency. “Acquisition” is against the spirit of competition and the scope of any land acquisition Act must, therefore, be limited. At the same time, we should avoid fixing the price of their (farmers’) land. There are still segments of industry which are subject to a number of controls of the pre-1991 type. A typical example is the sugar industry with molasses subject to a type of control which results in subsidising the liquor industry. The basic principle of creating competitive markets with minimal barriers to entry should be extended to all sectors… Among the sectors that have remained untouched by reforms, the most important is agriculture. While much remains to be done to improve the productivity of agriculture through scientific research and improved dissemination of knowledge, there are areas such as marketing where reforms are badly needed. Barriers to movement of trade across the country must be brought to an end
• You mentioned areas which are still untouched by reforms. What about labour?
• Flexible labour markets always help in generating faster growth. For example, in the post 2008 crisis period, the US has done better than Europe because of the more flexible labour markets there. Nevertheless, the time for modifying labour markets is when the economy is booming, that is, when the economy will be able to easily absorb the disruptions. Labour will then realise that it stands to gain more from a fast growing economy than by legislative constraints… Thus, while some reforms of the labour market are necessary; they should wait till the economy gathers momentum and moves on to a much stronger growth path

2. Touched by Brexit

Topic: Exports

Category: Economy

Key points:

• It has now been more than a week and so far the fallout from the Brexit vote has been muted. Global financial markets were taken by surprise by the outcome, but the disruption has been less than feared. Fears of a sharp rise in global risk aversion haven’t materialised and it would appear that for now the adverse impact on near-term growth is likely to be limited to the UK and, to a lesser extent, the EU and Central European emerging markets
• There are two main reasons why this has likely happened. First, the direct trade and financial linkages between the UK and the non-EU world are small, despite London being a major financial centre, and second, the actual impact will not only take time to take effect but at present it is also unclear what these are. We only know the result of the Brexit vote. Brexit hasn’t happened yet
• The Lisbon Treaty specifies a maximum of two years for negotiations to end foe real exit
• Only when these negotiations are over, can one, with any degree of certainty, start assessing the impact of Brexit on the UK economy and its implications for other countries. In the meantime, uncertainty will rule. First, there is the economic uncertainty of not knowing what the regulatory and trading landscape will look like in two years, which will delay individuals’ and firms’ spending and hiring decisions and if they start believing that things could be worse in the medium term, spending could be permanently cut or redirected away from the UK
• Second, there is the political uncertainty. While the UK as a whole voted to leave the EU, Scotland voted to remain. Reports already suggest that Scotland could hold its own referendum on independence and separate membership to the EU. Non-mainstream political parties that are hostile to the EU will be energised by a UK vote to leave, but no other country in the EU looks likely to call a referendum on EU or Euro area membership. However, the UK’s referendum has demonstrated that the legitimacy and popularity of the EU project is not at all secure in the eyes of voters. And this will likely lead to institutional changes to better balance integration and centralisation, perhaps after the German and French elections next year
• Where does India stand in all this? The UK imports about 3.5 per cent of India’s total exports and the EU about 13.5 per cent. In terms of financial linkages, capital inflows from banks headquartered in the EU make up 20 per cent and that from the UK 13 per cent of total bank-related foreign inflows into India. As the rise in uncertainty shaves off growth in both the UK and the EU, cross-border traffic in trade and financial flows could well slow down. However, this is likely to affect only specific sectors and companies
• The larger question is whether these political changes and their possible contagion to other parts of the world restrain global trade further. Over 2003-08 (before the global financial crisis), global trade in volume terms (adjusting for all price changes, including the large swing in commodity prices) grew around 7.5 per cent per year on average. Since 2012, it has grown at just about 2 per cent. Over these two periods, GDP growth in emerging market economies dropped from an average of 7 to 4 per cent
• India’s exports surged at an annual pace of nearly 18 per cent over 2003-08 as its share in GDP doubled from around 12 to 25 per cent. In the last four years, India’s export growth has languished at less than 1.5 per cent annually. These data suggest that the export-led growth model, which all emerging market economies adopted in varying degrees in the 2000s, now lies broken and new sustainable engines of growth need to be found
• But barring China, no other emerging market economy has started to rebalance its growth drivers. In India, we are still chasing the export dream. But think about the arithmetic: With global export growth languishing at 2 per cent, India needs to keep gaining market share every year almost inexorably to sustain GDP growth anywhere close to its 2003-08 pace. If Brexit lowers global trade further, this task becomes all that more difficult. Rather than using up the limited policy and reform space pursuing this uncertain strategy, India needs to introspect and explore new engines of growth

Others:

1. PIB

a) India’s pharmaceutical exports continued its lead over China in 2015

While India’s Pharma exports grew from US $11.66 Billion to US$12.54 Billion in 2015 recording a growth of 7.55%, China increased its exports of Pharma products from US $6.59 Billion to US$6.94 Billion showing a growth of 5.3% during the same period.

b)Bilateral meeting between Commerce and Industry Minister and Sri Lankan Minister of Development Strategies and International Trade

During the meeting, the leaders noted that India-Sri Lanka Free Trade Agreement, made operational in March 2000, has been beneficial to both countries. Both leaders discussed several issues related to bilateral trade and investment.

The leaders reviewed progress of the proposed Economic and Technology Co-operation Agreement (ETCA) between India and Sri Lanka and agreed to start negotiations on an expedited track for an early conclusion of the Agreement, preferably before the end of the year. They noted that an Indian delegation is visiting Sri Lanka shortly in this regard. The leaders agreed that early harvest measures may be negotiated but these would come into effect on the date the Agreement comes into force. Sri Lanka appreciated the workshop organised by India in Colombo on 4th March 2016 to increase awareness about Indian Standards and Regulations and resolve the perception about application of Non-Tariff Measures by India against Sri Lankan exports.

Both leaders also agreed to hold a meeting of the reconstituted India-Sri Lanka CEO’s Forum at an early date

c)Environment Minister’s Opening Remarks at the Joint Press Conference at the Seventh St. Petersburg Climate Dialogue in Berlin

India has said that cooperation in finance and technology is needed to take further actions on climate agreement. In his opening remarks at the joint press conference at the Seventh St. Petersburg Dialogue in Berlin, Germany, Minister of State (Independent Charge) of Environment, Forest and Climate Changesaid that pre-2020 actions are important.

2. The Financial Express:

a) Kerosene price hiked; is it just a sparrow or a spring

Topic: Subsidy

Category: Economy

Key points:

• Given the political sensitivity around hiking kerosene prices, it is not clear if last week’s 25 paise per litre increase in prices is a one-time thing, or part of a gradual adjustment. While there was no public announcement of the hike, the PSU oil marketing companies (IOCL, BPCL and HPCL) have been told to charge 25 paise more
• The government’s long-term plan is to reduce the consumption of kerosene by providing more LPG in rural areas and also to electrify villages—with 3.5 crore extra LPG connections already provided and another 5 crore in another 3 years, that’s 8.5 crore more people who will, eventually, no longer be eligible for kerosene subsidies; add to this the number of people who will no longer require it for illumination once their villages have electricity
• With over 40% of PDS kerosene being sold in the black market to adulterate petrol and diesel, the government is also working with state governments—the petroleum minister says he has explained to them that they lose out on petrol/diesel VAT revenues of around R3,500 crore annually due to this. As a result, states are going to give the Centre a list of persons who deserve the subsidy, as a result of which he will be able to eliminate the 40% annual theft
• The problem, however, is that this will take time, while the subsidy burden will mount. From R37.3 per litre in January 2014, kerosene subsidies fell to R19.5 in January 2015 and a mere R9.2 in January 2016. Since then, however, prices have gone up quite sharply—consumption, though, has fallen from 7.2 million tonnes in FY14 to 6.8 million tonnes in FY16. Between February and July 2016, while the price of the Indian crude basket has risen 53% from $30.2 per barrel to$46.2, under-recoveries on ration shop kerosene are up 2.6 times, from R5.1 per litre to R13.1
• At some point, the government will need to start thinking about cutting LPG subsidies in a gradual manner as well. Between the prime minister’s #GiveItUp campaign and weeding out due to Aadhaar-seeding, the government got 4.4 crore people out from the LPG users list. But it has already given out 3.5 crore LPG connections in rural areas, and plans to give out another 5 crore over the next 3 years. And, as in the case of kerosene, under-recoveries are rising dramatically here as well. From Rs762.7 per LPG cylinder in January 2014, under-recoveries fell to Rs235.9 in January 2015, and further to a mere Rs46.71 in March 2016—this has risen to Rs75.1 in July, well within the comfort levels for subsidies, but nonetheless a sharp movement upwards. Since kerosene subsidy rationalisation is also ensuring there is no leakage and the poor get their full quota of kerosene, they are actually benefitting; and, in the case of LPG, a far superior fuel is being provided

2. Centre must contain fiscal deficit; here’s why

Topic: Fiscal deficit

Category: Economy

Key points:

• The financial stability report brought out by the Reserve Bank of India shows some marginal improvement in the balance-sheet position of companies, but the situation in regards to the balance-sheets of the scheduled commercial banks, particularly those of the public sector banks, is alarming. Although some of the deterioration reported in the financial stability report is due to the stricter norms adopted in the asset quality review (AQR) mandated by RBI, the picture is worrisome as it shows that public sector banks, in satisfying large borrowers, have thrown caution to the wind
• This underlines poor application of the appraisal process, politicisation and cronyism and perverse structure of incentives and accountability in public sector banks. The adverse consequences of these are not on those who lent the money to unworthy customers or the borrowers who do not consider that is their obligation to repay borrowed funds, but on those who have put their hard earned savings in these banks and to the extent these are capitalised by the consolidated fund—on the taxpayers of the country
• Of the many important contributions of RBIGovernor,two stand out as they directly impact the lives of people
• The first is the focus on consumer price index for inflation-targeting and the second is enforcing the asset quality review (AQR) to clean up the balance-sheets of banks
• The first is important because, consumer price inflation hurts the common man and particularly the poor. Targeting wholesale prices is meaningless because many of the prices are internationally given and the weights used have no relevance to the pattern of consumption. Some have argued that monetary policy is not an effective instrument to combat food inflation. True, but that misses the larger point. Other policy measures, in particular, supply management of scarcity have to supplement monetary policy. Rate increases compress aggregate demand and if food prices do not decline, non-food prices that are flexible will. Thus, the counterfactual is that, in the absence of effective monetary policy to contain aggregate demand, we end up with both food and non-food inflation. If however, monetary policy is combined with effective supply management, both food and non-food prices will be impacted
• Those who argue for lowering interest rates do not look at the available supply of savings. The only sector that has a saving-investment balance is the household sector and only its financial saving is available for borrowing. It must also be noted that the first claim on household sector’s financial saving is from the public sector borrowing requirements (PSBR) which includes the fiscal deficit of the Union and the States (close to 6.5% of GDP), borrowing through special purpose vehicles and agencies such as Railways, Nabard, National Highway Authority of India (NHAI) and public sector enterprises. These are close to 9-10% of the GDP. Against this, the financial saving of the household sector is less than 8% of GDP
• This implies that in addition to the financial savings available, public sector borrowings claim a good proportion of foreign investment inflows leaving hardly any borrowing space for the private sector. It should be noted that when the 12th Finance Commission set 6% of GDP as the fiscal deficit target, assuming that the financial saving of the household sector is 10% and external flows is 1.5%—which would cater to the demand of the public enterprises—the private sector would have been left with the a borrowing space of 4%. RBI, by not yielding to the pressure to reduce interest rates, has helped ease inflationary pressures and it is for the government to create borrowing space for the private sector by containing the fiscal deficit and work on supply management to augment supply of essential items
• The second most important contribution is in forcing scheduled commercial banks to clean up their balance-sheets. The 36 Scheduled Commercial Banks accounted for 93% of gross advances. Consequent to the AQR, the gross non-performing advances (GNPA) increased from 5.1% in September 2015 to 7.6% in March 2016 and the increase in net non-performing advances (NNPA) as a ratio of net advances was from 2.8% to 4.6% during the corresponding period. Much of this was due to the increase at public sector banks. Their NNPAs increased from 3.6% to 6.1% during the period. It is not clear how much of this is due to deterioration in the six months and how much is due to the AQR
• In fact, the macro stress-tests done by RBI shows that GNPA may rise from 7.6% in March 2016 to 8.5% in March 2017 and, if the scenarios deteriorate further, it might further increase to 9.3% by March 2017. The GNPAs of the PSBs may go up from 9.6% in March, 2016 to 10.1% by March 2017 and, under a severe stress scenario, it might even reach 11% by March 2017. This could result in the PSBs recording the lowest capital-to-risk weighted assets ratio (CRAR) of 10.3 March 2017 as against 11.6% in March 2016
• The important point to note is that it is the large borrowers that account for the bulk of the NPAs. In March 2016, large borrowers (defined as those with more than Rs5 crore in loans) accounted for 58% of the total advances of SCBs, but their share in GNPAs was 86.4%. The GNPAs actually increased from 83.4% in September 2015. In fact, the GNPA of large borrowers increased sharply from 7% in September 2015 to 10.6% in March 2016. The top 100 borrowers in terms of funded amounts accounted for 27.9% of credit of all large borrowers and 16.2% of all credit of SCBs. Their share in GNPAs of all large borrowers increased from 3.4% in September 2015 to 22.3% in March 2016
• The focus on cleaning up of the balance-sheets through a comprehensive AQR comes not a moment too soon. Banks operate on other people’s money as people put their hard-earned savings in them. When the banks lend money to crony borrowers and, as a practice, when they brush the bad loans under the carpet, it is the savings of these unsuspecting people that is insecure and as the public sector banks get government protection, the taxpayer is made to pay for their imprudence. Indeed, drastic surgery was the need of the hour and we should thank the Governor for this

3. The Economic Times:

a) Smart cities need more than smart talk

Topic: Cities

Category: Governance

Key points:

• As India urbanises, it will make sense for the authorities to change the way they do town planning. This is the clear lesson from urban sprawl around the developing world, which accounts for the bulk of incremental urbanization that has put more than half the world’s population in towns already
• As India’s Smart City programme rolls on, it must go beyond making the city safe, productive energy-efficient to include being prepared for future growth as a necessary condition of smartness. And this cannot come from planning just one city
• Ideally, a number of urban clusters can be envisaged across the nation and the growth of each cluster planned taking the rest into account
• India values capital too much to adopt a policy of building towns first, expecting them to be filled up sooner or later. Demand has to precede supply. That is at the level of actual construction. But planning can and should run ahead of actual demand. This is vital, for example, to ensure that a sufficiently large part of the surface of a planned town’s future expansion is made up of roads, parks, playgrounds and other public spaces
• This will mean a detailed planning process in the periphery of a new town, such as Andhra Pradesh’s new capital Amaravati under construction right now, demarcating areas that cannot be encroached on or utilized for any purpose. Retrofitting vital infrastructure on a densely settled stretch of urban sprawl will be hugely expensive
• The challenge here is not just deploying sound planning expertise but summoning the political will to stop encroachment as well

4. Quick Bits and News from States

a) Rains leave trucks stranded, Tripura reeling under crisis

Essential commodities and fuel on trucks waiting to be transported to Tripura are stuck, literally, on National Highway 8 after incessant rains damaged many portions of the arterial road.

The lack of movement of vehicles on the Assam-Agartala National Highway has caused widespread distress across the State, with reports claiming that petrol prices have shot up to Rs. 250 per litre in some areas of the State. The revised Inland Water Transit and Trade Protocol (IWTTP) with the provision of third-country access would allow taking essential commodities to Tripura, including fuel and foodgrains, by using the waterways of Bangladesh through Ashuganj port on the river Meghna

b) Dhaka killers followed radical Indian, British preachers

Investigators probing the Dhaka terrorist attack are beginning to suspect that the militants who carried out the strike may have gone abroad to receive arms training and that they may have been influenced by the words of Mumbai-based preacher ZakirNaik and radical British cleric Anjem Choudary.Meanwhile, Pakistan has described allegations levelled by prominent members of the Bangladesh government that it was involved in the attack as “highly regrettable and irresponsible.”

c) Lashkar posters in Valley calls for ‘informers’ phone numbers

The Lashkar-e-Taiba (LeT) has put out posters asking locals in the town of Pampore in south Kashmir to provide them with the phone numbers of Army and police informers so that they can be tracked and “action” can be taken.“We have collected enough information about the Army and the STF sources. The action will be followed soon. We appeal people to share the numbers of such sources [informers] so that we can track them through our tracking system and take the action required.”

These posters have come at a time when the security forces has stepped up counter-insurgency operations in south Kashmir, inflicting heavy casualties on the Lashkar and the Hizbul Mujahideen.

d) Highest quarterly mobilisation in 9 years for Initial Public Offers

Companies raised as much as Rs.5,855 crore through initial public offers (IPO) in the first three months of the current financial year, the highest quarterly mobilisation in nine years.

According to Prime Database, a primary market tracker, the three-month period between April and June saw six main board IPOs and as many as 13 offers in the segment for small and medium enterprises (SMEs).

##### F. Concepts-in-News: Related Concepts to Revise/Learn:
• SC Collegium System
• Environment Pollution Control Authority
• Ozone Layer
• IS
• CFCs
• Type 2 Diabetes
• Western Ghats
• IUCN Red List
• Iraq War
• Net Neutrality
• NEP-1991
• PDS

##### G. Fun with Practice Questions 🙂
Question 1: Which of the following is/are Beach Sand Minerals (BSMs)?
1. Ilmenite
2. Garnet
3. Monazite
4. Zircon

a) 1 and 2 only

b) 3 and 4only

c) 1, 2 and 3

d) All the Above

Question 2: Which of the following statements is/are correct?
1. All revenues received by the Union government as well as all loans raised by issue of treasury bills and all moneys received by the Union Government in repayment of loans shall form a consolidated fund called the Consolidated Fund of India
2. The Comptroller and Auditor General of India audits these Funds and reports to the Parliament when proper accounting procedures have not been followed

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 3: Which of the following is/are correct about a photovoltaic (PV) system?
1. The photovoltaic effect put to use in a PV system refers to photons of light exciting electrons into a higher state of energy, allowing them to act as charge carriers for an electric current
2. Some of the materials presently used for photovoltaics include monocrystalline silicon, polycrystalline silicon, amorphous silicon and cadmium telluride

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 4: The zones of maritime boundaries as expressed in concentric limits surrounding coastal and feature baselines is/are:
1. Territorial sea—the zone extending 12 nm. from the baseline.
2. Contiguous zone—the area extending 24 nm. from the baseline
3. Exclusive Economic Zone—the area extending 200 nm. from the baseline except when the space between two countries is less than 400 nm

Which of the above statements is/are correct?

a) 1 only

b) 2 only

c) 3 only

d) All the Above

Question 5: Which of the following is/are islands located in the Pacific Ocean?
1. Cook islands
2. Fiji islands
3. Vanuatu
4. Aleutian islands

a) 1 and 2 only

b) 2 and 4only

c) 1,2 and 3

d) All the Above