Comprehensive News Analysis - 05 March 2016

Table of Contents:

A. GS1 Related:
B. GS2 Related:

1. No Indian visas for U.S. religious freedom commission

2. U.S. ‘Pivot to Asia’ responsible for tensions in S. China Sea, says Beijing

C. GS3 Related:

1. India needs i-ways and highways: PM

2. High alert sounded after tunnel found on India-Pakistan border

3. No scope for India- U.S. joint patrols at this time: Parrikar

4. Zika virus kills cells that form key brain tissue: report

5. Government announces third round of Gold Bond Scheme

6. Tax concessions to help start-ups mobilise capital around the corner

D. GS4 Related:
E. Important Editorials: A Quick Glance

1. A better deal for bus commuters

2. The fidgety pursuit of a pensioned society

Others:

Business Line:

3. ‘Laying the ground’

4. ‘The Rs. 4 lakh crore bomb’

5. ‘An indecent proposal’

F. Concepts-in-News: Related Concepts to Revise/Learn
G. Practice Questions
H. Archive

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Useful News Articles

A. GS1 Related

— Nothing here today, folks! —

B. GS2 Related

1. No Indian visas for U.S. religious freedom commission

Topic: International Relations

Category: Bilateral agreements involving India and/or affecting India’s interests

Location: The Hindu, Page 17

Key Points:

  • India has not issued visas for a delegation of the U.S. Commission on International Religious Freedom (USCIRF) that was planning to travel to India.
  • For the past several years, India has turned down the request for visas for such annual visits by the USCIRF.
  • “The goal of the Commission’s trip was to discuss and assess religious freedom conditions in that nation,” the USIRF said in a release.
  • Responding to the USCIRF, the Indian embassy in Washington said in a statement: “There is no change in the policy of the Government of India with respect to such visits. India is a vibrant pluralistic society founded on strong democratic principles. The Indian Constitution guarantees fundamental rights to all its citizens including the right to freedom of religion. We do not see the locus standi of a foreign entity like USCIRF to pass its judgment and comment on the state of Indian citizens’ constitutionally protected rights.”
  • The embassy said India looked “forward to continuing working with the United States government for sharing of experience and best practice on all issues of mutual interest under the established bilateral mechanisms like the India-United States Global Issues Forum.

 

2. U.S. ‘Pivot to Asia’ responsible for tensions in S. China Sea, says Beijing

Topic: International Relations

Category: Effect of policies and politics of developed countries on India’s interests

Location: The Hindu, Page 18

Key Points:

  • China has slammed the ‘Pivot to Asia’ doctrine of the United States, blaming it for the growing tensions the South China Sea.
  • China claims sovereignty over most of South China Sea, a position that is contested by several countries including Vietnam, Philippines and Taiwan.
  • It has recently accelerated conversion of some of the disputed reefs into artificial islands, and positioned surface-to-air missiles at Woody Island in the Paracel island chain.

 

C. GS3 Related

1. India needs i-ways and highways: PM

Topic: Indian Economy

Category: Infrastructure: Roads, Energy, etc.

Location: The Hindu, Page 16

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Key Points:

  • Prime Minister Narendra Modi said here on Friday that the government was putting in all efforts to build infrastructure, especially rural roads, in a comprehensive manner.
  • “Veins give strength to our body. Similarly, infrastructure will give speed and strength to the development of India. There will be progress if we focus on building road and railway networks, optical fibre network, water, grid and electricity connectivity, along with electricity supply. Our government is working in that direction,” Mr. Modi said while launching the Rs. 50,000 crore Setu Bharatam project.
  • The project aims to make all national highways free from railway level-crossings by 2019 to ensure road safety. Under the project, 208 rail overbridges and underbridges will be built at a cost of Rs. 20,800 crore, Union Road Transport and Highways Minister Nitin Gadkari said. Also, 1,500 decade-old bridges will be reconstructed and revamped, spending Rs. 30,000 crore.
  • “Normally, the governments have an incremental approach. Our effort is to take a quantum jump,” the Prime Minister said.
  • The country, he said, needs both highways and i-ways (information ways), referring to digital connect.

 

2. High alert sounded after tunnel found on India-Pakistan border

Topic: Internal Security

Category: Role of external state and non-state actors in creating challenges to internal security

Location: The Hindu, Page 17

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Key Points:

  • A high alert has been sounded along the 198-km International Border (IB) in the Kathua and Akhnoor areas of Jammu after security agencies spotted a tunnel from Pakistan.
  • Sources said it was “professionally dug with men and machines.” The BSF has raised the issue with the Pakistan Rangers.
  • “The matter was raised at a flag meeting with the Pakistan Rangers. Initially, the Rangers tried to make it out to be a disputed area,” said a senior BSF officer.

 

3. No scope for India- U.S. joint patrols at this time: Parrikar

Topic: Internal Security

Category: Maritime Security, Coastal Security

Location: The Hindu, Page 17

Key Points:

  • Defence Minister, Manohar Parrikar mentioned, “As of now India has not taken part in joint patrols but we do participate in joint exercises. So the issue of joint patrols at this time does not arise.”
  • This statement by the Defence Minister follows a statement issued by a top U.S. Admiral only a few days ago who expressed keenness in co-ordinated patrols between India and U.S.

 

4. Zika virus kills cells that form key brain tissue: report

Topic: Science and Technology

Category: Health, Bio-technology

Location: The Hindu, Page 18

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Key Points:

  • In what may be the first lab evidence of the potency of the Zika virus, researchers in the United States have found that it severely damages a type of neural stem cell that gives rise to the brain’s cerebral cortex.
  • The findings are significant given that the World Health Organisation (WHO) is set to decide, within the next few months, whether the Zika virus — historically known to be relatively benign — is indeed wholly responsible for the outbreak of microcephaly, or deformed skulls, in newborns in Brazil and other parts of South America.

 

5. Government announces third round of Gold Bond Scheme

Topic: Indian Economy

Category: Indian Economy and issues relating to planning, mobilization of resources

Location: The Hindu, Page 19

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Key Points:

  • The government announced that the application window for the third tranche of the Sovereign Gold Bond (SGB) scheme will be March 8-14 and the bonds issued on March 29.
  • The first tranche of the scheme, unveiled in November 2015, attracted 62,169 applications for 915.9 kg of gold worth Rs. 246.2 crore. This subdued performance prompted the government to tweak the scheme’s rules to make it easier to buy the bonds.
  • The second tranche, which opened in January 2016, met with greater success, attracting 3.16 lakh applications for 2,790 kg of gold worth Rs.726 crore.

Strike

    • Iewellers across the country are on strike against Finance Minister Arun Jaitley’s Budget proposal to impose 1 per cent excise duty on jewellery.
    • The government on Friday clarified that the excise duty would be applicable only on jewellers having a turnover exceeding Rs.12 crore a year.
    • The government’s plan behind the SGB scheme is to encourage those who use gold as a store of value to instead invest in the gold bonds as opposed to the physical yellow metal itself.
    • The idea, among others, is to reduce India’s substantial gold imports, which were at $2.9 billion in January 2016, up 85 per cent over the same month of the previous year.
    • The bonds, issued by the Reserve Bank of India on behalf of the government, have a tenor of eight years with an exit option from the fifth year onwards.

 

6. Tax concessions to help start-ups mobilise capital around the corner

Topic: Indian Economy

Category: Changes in industrial policy and their effects on industrial growth.

Location: The Hindu, Page 19

Key Points:

  • To help start-ups mobilise capital at affordable rates during the initial stages, the Department of Industrial Policy and Promotion (DIPP) will soon take up with the Finance Ministry a proposal to grant Capital Gains Tax (CGT) exemption for those investing their capital gains in regulated/notified Venture Capital (VC) and angel funds.
  • The budget had proposed CGT exemption for persons investing their capital gains only in regulated / notified Fund-of-Funds (FOF).
  • FOFs, as per the DIPP’s Start-up Action Plan, are professionally managed funds that will not invest directly in start-ups, but contribute to the capital of VCs registered with capital markets regulator SEBI.
  • These VCs, in turn, provide the needed early stage funding for start-ups. CGT is the tax-on-profit made by a person through sale of a capital asset (such as an investment or real-estate).
  • According to sources, the Finance Ministry did not want VCs and angel funds to also be notified (as funds in which persons can reinvest their capital gains to avail CGT exemption), saying this could lead to misuse through ‘Related Party Transactions’ (RPT).
  • RPTs are transactions such as sale / lease of property between the company and its related parties, including directors, key managerial personnel or their relatives.

 

D. GS4 Related

— Nothing here today, folks! —

E. Important Editorials: A Quick Glance

1. A better deal for bus commuters

Topic: Indian Economy

Category: Infrastructure: Roads

Location: The Hindu, Page 14

Key Points:

  • In 2014-15, India added nearly 20 million vehicles, mainly two-wheelers, but also two million cars, vans and so on to the existing 172 million registered motor vehicles.
  • Several million more have been added since, as public transport remains inadequate. Personal transport has now reached saturation limit in the cities, resulting in gridlock, rising air pollution, lost productivity and ill-health.
  • The Union Budget for 2016-17has made a timely intervention at such an inflection point, with the move to expand the public transport system.
  • The Motor Vehicles Act is to be amended to open up the passenger segment, and more entrepreneurs will be able to operate bus services.
  • It will be up to the States, though, to accept the new liberalised regulatory system. Any measure to modernise India’s public transport and help the commuter should be welcomed.
  • Finance Minister Arun Jaitley is on target when he talks of greater investment, employment and multiplier effects for the economy stemming from such a move.
  • The law enabling State road transport undertakings dates back to 1950, and many States have failed to progressively augment their operations after opting for full or partial nationalisation, especially in the cities.
  • Private operators, on the other hand, have rapidly increased their share of the total number of buses. The Budget proposal to open up the sector has the potential to reverse the effects of the neglect and obsolescence.

 

Is Regulation the answer?

  • Regulation is often seen as the obstacle that has affected the growth of bus transport.
  • Yet, a scheme of the kind that the Budget proposes cannot run without a sound regulatory framework, if the goal is to remove erstwhile monopolies and introduce greater competition even in those States where private provision in urban and inter-city services already exists.
  • Optimally, a system should lay down standards, identify areas of operation, fix prices and enable participation by entrepreneurs. As the National Transport Development Policy Committee 2013 said in its report, there is a need for a strategy panelat the national and State levels.
  • This is necessary to take a comprehensive view of rail, road, waterway and non-motorised modes. On the question of encouraging private sector participation in bus services, the experience of London is worth studying: routes are tendered as per schedules, fares are fixed by the city government, and buses are run by franchisee operators who are paid according to mileage.
  • What stands out in this model is the use of intelligent transport systems — of the kind the new taxi companies in India use — to determine whether the contractor is adhering to schedules, and to analyse demand-supply patterns. For passengers, they provide efficient real-time service information.
  • India’s bus transport system lacks the wherewithal to make such studies using massive amounts of data as it is technologically outdated. Buses are also unpopular because they are not ergonomically designed as per the national bus code. A renaissance in bus services is possible, but not without modern design standards and service-level benchmarking that are ensured through strict enforcement.

 

2. The fidgety pursuit of a pensioned society

Topic: Indian Economy

Category: Government Budgeting, Inclusive growth and issues arising from it.

Location: The Hindu, Page 15

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Key Points:

Mr. Jaitley asserted the newly elected NDA government’s commitment to the social security and welfare of employees serving in the organised sector.

To prove this, it extended a minimum pension of Rs.1,000 for all members of the employees’ pension scheme run by the Employees’ Provident Fund Organisation (EPFO). It also raised the wage ceiling for mandatory Employees’ Pension Scheme (EPS) membership from Rs.6,500 per month to Rs.15,000 per month.

An EPF account is mandatory for all employees earning up to Rs.15,000 per month in firms employing over 20 workers.

As per the law, 24 per cent of an employee’s salary (12 per cent as employee’s share and 12 per cent as employer’s share) is contributed to EPFO as a social security net for old age — a little over a third of that (8.33 per cent) is diverted to the EPS, with the government chipping in with a 1.16 per cent subsidy.

Jan-Dhan to Jan Suraksha: 2015-16

The schemes which were unveiled were:

  • A Pradhan Mantri Suraksha Bima Yojana (accidental death cover of Rs.2 lakh at Rs.12 premium a year),
  • An Atal Pension Yojana that would give a fixed pension (with a limited co-contribution up to Rs.1,000 from the government),
  • Pradhan Mantri Jeevan Jyoti Bima Yojana (natural and accidental death risk cover of Rs.2 lakh at Rs.330 premium a year)
  • and a scheme for providing physical aids and assisted living devices for senior citizens living below the poverty line.

Rules for Senior Citizen Welfare Fund have been finalised, the Budget 2016-17 documents say. However, the idea of forfeiting unclaimed savings of people has not passed legal muster as it would violate the fiduciary trust vested by investors in the trustees of these funds.

Mr. Jaitley also remarked that both EPF and Employees’ State Insurance Corporation (ESIC, that provides medical care to organised sector workers) have “hostages, rather than clients” and workers with low incomes suffer on account of high statutory deductions to such schemes.

He promised to provide employees the option to leave the EPF and opt for the New Pension Scheme (NPS) launched by the Pension Fund Regulatory and Development Authority (PFRDA).

He also said that employees below a certain level of monthly income could decide if they wanted to stop their own contributions (12 per cent of salary) to the EPF. He offered a similar option for workers to opt for a health insurance product instead of ESI.

Towards a pensioned society

  • If EPF savings are to be taxed, the same rules should apply for PPF and government employees’ PF for true parity in tax treatment that leads to seamless choices.
  • A lot has been and will be said in the coming days on this till the Prime Minister takes a final call on the fate of the EPF tax.
  • The Economic Survey for 2015-16 talked about creating good jobs for the country’s youth, by rationalising the statutory deductions from salaries (like EPF) that hit take-home salaries and force people to opt for non-formal employment even in the organised sector.
  • The Finance Minister’s previous Budget already said a start would be made on this by making employee PF contributions optional. Implementing that would have spurred domestic demand.

 

Others:

Business Line:

3. ‘Laying the ground’

Topic: Indian Economy
Category: Government Budgeting, Inclusive growth and issues arising from it.

Key Points:

  • A Budget with a purported focus on agriculture could not have come at a better time. There has been a sharp dip in agriculture output from a trend rate of growth of 4 per cent per annum in the period 2004-05 to 2011-12 to about 1.5 per cent in the next four years, which includes a decline in 2014-15 and a projected 1.1 per cent growth this fiscal.
  • In this context, the Budget’s package for agriculture seeks to address endemic concerns — such as yield, imperfect price discovery, delayed payments to farmers, insurance cover and sustainable water use — with an eye for detail.
  • The Rs. 36,000-crore proposals for the sector include the creation of a long-term irrigation fund, an e-market for livestock for better price discovery, an online procurement system to ensure transparency in operations and hopefully, expeditious payment to farmers and a programme for prudent management of groundwater. Crop insurance, which has been allocated Rs. 5,500 crore, forms a crucial part of this policy mix. Perhaps realising the adverse impact of stagnant rural incomes on the rest of the economy, the Budget has set aside an additional Rs. 5,000 crore for MGNREGA (or Rs.38,500 crore). If this outlay is used to revive water bodies, as promised, it can work as a drought-proofing measure for the future.
  • However, there is a perception that the Finance Minister has not matched intent with allocations.
  • This is because, of the Rs. 36,000-crore outlay for agriculture and farmers’ welfare, Rs. 15,000 crore is a transfer item from the finance ministry.
  • Apart from crop insurance, which is a new allocation, none of the earmarked sums are significantly higher.Even in the case of the ambitious insurance programme, the initial outlay is paltry.

The Way Forward

  • Outcomes depend not just on outlays, but also on how effectively States and panchayati raj bodies — which also have begun to receive substantially higher funds under the Fourteenth Finance Commission award — implement policies.
  • An institutional framework — extension services, credit cooperatives, animal health centres and agricultural universities — needs to be in place.
  • Researchers point out that the successes of the 2004-12 period, in which horticulture, livestock and rainfed crops played a big role, were a product of a certain institutional ambience. The Centre should not lose sight of this fact.

 

4. ‘The Rs. 4 lakh crore bomb’

Topic: Indian Economy

Category: Government Budgeting, mobilization of resources

Key Points:

  • The Economic Survey stated that one of the most critical short-term challenges confronting the economy is the twin balance sheet problem — the impaired financial positions of PSBs and some corporate houses.
  • This twin balance sheet challenge acts as a major impediment to private investment and a full-fledged economic recovery. The survey, in fact, attributes the sluggish growth of the economy to the unwillingness of banks to lend credit on account of rising NPAs, and more attractive interest rates for borrowers in the bond markets.
  • In the last three financial years, a total of Rs. 1.14 lakh crore-worth of bad loans were written off by 29 PSBs, which is more than what they had written off in the last nine years.
  • One of the most important and crucial takeaway from Budget 2016 is the way the NDA is tackling the massive problems of NPAs. It is a great demonstration of how problems should be solved. The government has, in this budget, not just blandly committed to providing Rs. 25,000 crore for recapitalisation of banks, but has also taken on structural changes such as the announcement of Banks Board Bureau; expediting the implementation of the Indradhanush plan; addressing structural issues in stressed sectors such as power, coal, highways, sugar and steel; proposing to make an amendment in the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) and bringing the insolvency Bill which was a long-pending demand.
  • The revival of PSB banking system is critical to sustainably growing out economy, especially given its important role in servicing under-banked sectors of our population and, hence, the following structural banking sector reforms are required urgently. These are also consistent with the Economic Survey’s 4R solution set of recognition, recapitalisation, resolution and reform.

Change agenda

  • The government can start by speeding up the implementation of the ‘Indradhanush Plan’ that was released in August 2014. The document rightly called for a seven-pronged strategy to revive PSBs, covering a comprehensive range of issues such as appointments, Banks Board Bureaus, capitalisation, de-stressing PSBs, empowerment, framework of accountability and governance reforms. There should be a timeline by which the government must implement the recommendations of Indradhanush.
  • Second, the government needs to ensure the passage of the Bankruptcy Code Bill in this session, as has been announced by the finance minister, so that banks are given sufficient power to get their money back without being trapped in judicial processes, which many willful defaulters hide behind.
  • This would also allow sick companies a way out which currently is extremely difficult. The Economic Survey points out that the ‘Impeded exit has substantial fiscal, economic, and political costs’.
  • There is also a need to create a public asset reconstruction company (ARC) which will allow banks to focus on lending, rather than recovery of stressed assets. Consolidation of bad loans can simplify resolutions. It has been seen that consortiums currently make things complicated. A public ARC made by political will and backing and with the support of the RBI can lead to faster resolution of NPAs.
  • Fourth, the government must review and reform the legal process of enforcing securities. Despite the SARFAESI Act, the process by which banks enforce the borrower’s obligations in terms of security and guarantee is expensive, exhausting and time-consuming.
  • The issue of NPAs involves the hard-earned money of our innocent taxpayers, who are the real owners of these PSBs. The tax-payers are the ones who are left holding the bill of this mismanagement. Amongst other things, the banking regulator needs to answer them.

 

5. ‘An indecent proposal’

Topic: Indian Economy

Category: Government Budgeting, mobilization of resources

Key Points:

  • The Economic Survey provides a preview of economic action that can be expected from the government in next year. Therefore, it is an important policy document.
  • This time the survey stresses that despite global slowdown and various challenges, including truant monsoon, India registered 7.2 per cent growth in 2014-15 and 7.6 per cent in 2015-16, becoming the fastest growing economy of the world. In 2016-17, India is expected to grow in the range of 7 to 7.75 per cent despite considerable headwinds.
  • However, the survey mentions that India has a potential to grow around 8-10 per cent and as a pre-condition, policy stance should move away from anti-market and pro-state to pro-entrepreneurship, pro-industry and pro-competition.
  • To facilitate growth, smooth functioning of the financial sector is necessary. But in India, in recent years, stressed assets have been rising. Stressed assets, highest in public sector banks (PSBs), are mainly emerging from mining, iron and steel, infrastructure and aviation sectors — areas that involve substantial resources.
  • A related challenge is the twin-balance sheet problem — highly correlated, impaired financial position of banks with some corporates because of the rising NPAs. The survey mentions that on account of deteriorating performance of commercial banks and asset quality, banks will need to improve their capital positions to meet unforeseen losses in the future.
  • In this context, to recapitalise the banks, the survey moots a unique idea that the RBI should play a role in recapitalising PSBs by tapping on its reserves. This may not be a good solution. First, public sector banks are owned by the government and only the owner should capitalise it. If private sector banks are in difficult situation, should the government, using tax payers money, bail out banks.
  • Second, as a matter of principle, reserves and resources held within the RBI serve manifold purposes to stabilise the economy and should not be used to capitalise PSBs which are commercial entities.
  • Third, and more importantly, this proposal is similar to the one made earlier in 2003 that because foreign exchange reserves are accumulated and held within the RBI, they should be squandered away in unknown infrastructure projects.
  • Similarly, it brings to mind the sad saga of ad-hoc Treasury Bills and automatic monetisation of deficit that prevailed unabated from 1955 to 1993, and after much effort was finally closed in 1997.
  • Fourth, if the government is moving towards pro-market and pro-competition policy, then the principle of level playing field would demand that reserves of the central bank are not used to finance operations of any specific bank. Fifth, comparing the level of reserves of the RBI with those held in US Fed may not be a good benchmark to follow especially after the 2008 crisis.
  • Finally, given the illustrious track record of the RBI, reserves, independence and credibility of the institution, should not be eroded by such ad hoc policy measures. A robust balance sheet of the RBI is a first line of defence in any crisis and should not be weakened for short-term benefits.

Social goals

  • It must be remembered that these very PSBs were nationalised not too long ago, in three distinct phases, in 1955, 1969 and 1980 to pursue a social agenda.
  • Since then, PSBs have been in forefront of social activities such as priority-sector lending, channelling resources to the government through statutory liquidity ratio, extending rural banking network, and spreading financial inclusion. PSBs have been contributing to nation building through extensive deployment of resources in activities requiring large sums of money and long gestation periods with low returns.
  • The public sector undertakings, like electricity boards and transportation corporations, have also been financed mainly by the PSBs.
  • Instead, a better solution to rising NPAs in PSBs would be to recognise that their social role is starkly distinct from that pursued by private sector banks.
  • Therefore, there should be different performance measures, and benchmarks for PSBs. And more importantly, institute corrective measures in sectors and industries, mainly public sector understandings, which cause such stress on assets held by PSBs.

 

F. Concepts-in-News: Related Concepts to Revise/Learn:

i.   Public Sector Banks (PSBs)

ii.  SARFAESI Act

iii.  New Pension Scheme (NPS)

iv.  Microcephaly

v.  Setu Bharatam project

G. Fun with Practice Questions 🙂
To be Updated

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