Comprehensive News Analysis - 06 August 2016

A. GS1 Related

Nothing here today folks!

B. GS2 Related

Category: Indian Polity

Topic: Centre-State Relations

Key Points:

• There has been a growing clamor for Special Category Status in Andhra Pradesh and it has witnessed State-wide protests and heated debates in Parliament.
• Constitution has no provision for categorization of any State in India as a Special Category Status (SCS) State.
• Some regions in the country have been historically disadvantaged in contrast to others and byrecognizing that, the Central plan assistance to SCS States has been granted in the past by the erstwhile Planning Commission body, National Development Council (NDC). This status had been granted by the NDC based on a number of features of the States which included:
• hilly and difficult terrain,
• low population density or the presence of sizeable tribal population,
• strategic location along international borders,
• economic and infrastructural backwardness and
• non-viable nature of State finances.

• Block grants were given to the SCS States based on the Gadgil-Mukherjee formula, which effectively allowed for nearly 30 per cent of the Total Central Assistance to be transferred to SCS States as late as 2009-10.

• Following the constitution of the NITI Aayog (after the dissolution of the Planning Commission) and the recommendations of the Fourteenth Finance Commission (FFC), Central plan assistance to SCS States has been subsumed in an increased devolution of the divisible pool to all States (from 32% in the 13th FC recommendations to 42%) and do not any longer appear in plan expenditure.
• The FFC also recommended variables such as “forest cover” to be included in devolution criteria and which could benefit north-eastern States that were previously given SCS assistance.
• Apart from Andhra Pradesh which is in the news lately, Bihar and Odisha had recently demanded SCS status but they have not been granted the same as they did not meet the criteria.
• Following the bifurcation of A.P., Andhra lost a large volume of its revenue due to Hyderabad remaining the capital of Telangana.
• Then Prime Minister Manmohan Singh had said that SCS would be “extended to the successor State of Andhra Pradesh … for a period of five years.” This oral submission by the then PM has been the basis for A.P.’s claim to the status.

Category: International Relations

Topic: China

Key Points:

• As part of a return-to-the-grassroots programme marshalled by President Xi Jinping, the Communist Party of China (CPC) is downsizing and reorienting the leadership of its auxiliary reserve force — the Communist Youth League (CYL).
• Analysts say that the CPC’s directive is a follow up on Mr. Xi’s consolidation of power, and his attempts to deepen CPC’s legitimacy.
• “President Xi has already won the power struggle through his anti-corruption campaign in all organs of the state including the military. Now, he is attempting to expand the CPC’s legitimacy especially among the youth.

3. Pak. must act against all terror groups, says U.S.

Category: International Relations

Topic: India-Pakistan-US, Counter-Terrorism 

Key points:

• In a strong message, the U.S. has asked Pakistan to act against terror groups targeting its neighbours and not just the ones that pose a threat to it, virtually endorsing the stand taken by India at the SAARC ministerial meet.
• The US has exhorted that it must also close all safe havens for terror groups and that Pakistan was going after terror groups “selectively”.
• It has advocated closer cooperation between India and Pakistan in order to deal with the terror threat in both the countries.
• Pentagon has decided to withhold $300 million military aid to Pakistan after Defence Secretary Ashton Carter declined to give a certification to the Congress that Islamabad is taking sufficient action against Haqqani network.

C. GS3 Related

Category: Indian Economy

Topic: Infrastructure

Key Points:

• The Indian Railways plans to introduce Maglev trains that can run at a top speed of 500 km an hour, in a bid to lure passengers from airlines.
• Railways last week floated an expression of interest (EoI) for calling of a global tender to develop trains and tracks that operate on the principle of magnetic levitation (Maglev)
• As the trains are propelled by magnetic forces, friction is eliminated, making transportation free of noise and vibration.

Category: Indian Economy

Topic: Export Promotion

Key Points:

• The Centre is working along with all states for the last two years on as many as 10 parameters including starting a business, construction permits, getting electricity and conducting trade across borders.
• Based on these parameters, the World Bank ranks nations on ease of doing business.
• Currently India is ranked 130 out of 189 nations and the government is hopeful that India will improve its position in this year’s World Bank ease of doing business rankings.
• The government has pro-actively emphasized on improving the ease of doing business active and is in pursuit of the new Bankruptcy Code.
• The Bankruptcy Code is still on the works as the infrastructure to implement it is in the process of being established.

Category: Indian Economy

Topic: GST

Key Points:

• World Bank Chief Economist and former Chief Economic Advisor to the Ministry of Finance has said that the Goods and Services Tax (GST) is a “hugely beneficial reform” which will cut both transaction costs and double taxation and its long-term benefits far outweigh the likely short-term impact such as a price rise.
• All indirect taxes currently levied will be subsumed under GST, including excise duties and service tax. It will be levied on consumption rather than production.
• Basu said adding that India was now a front runner in World Bank’s chart of major emerging economies. Propelled by three growth-drivers – well-conducted fiscal and monetary policies and the good fortune of declining oil prices – India’s growth surpassed China’s in 2015.
• He was of the opinion that India needed to improve its ease of doing business and also ensure private sector participation in higher education.

Category: Indian Economy

Topic: Inflation

Key Points:

• The 4 per cent inflation goal that the government and the Reserve Bank of India (RBI) had earlier agreed to target has been formally reaffirmed by the Centre.
• As part of the formal notification of the statutory and institutionalised framework for a Monetary Policy Committee (MPC), an upper limit of 6 per cent and lower limit of 2 per centhas been set by the government as the bounds that monetary authorities need to aim at while taking policy actions.
• This target will be effective till March 31, 2021.
• The key advantage of a range around a target is that it allows the MPC to recognise the short run trade-offs between inflation and growth but enables it to pursue the inflation target in long run over the course of business cycle.
• The government also notified what would constitute a failure of monetary policy, and the actions to be taken following such a failure.
• It is a good idea to have a band in a country where food is such a large part of the inflation basket and is so volatile. It gives enough flexibility to the central bank.
• The RBI had in June kept benchmark interest rates unchanged citing among other factors influencing its policy stance, “a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items.
• The government has specified that if retail inflation remains outside the 2-6 per cent range for three consecutive quarters, then this would constitute a failure to achieve the inflation target. Where RBI fails to meet the inflation target, in terms of the provisions of RBI Act, it shall set out a report to the Central Government stating the reasons for failure to achieve the inflation target; remedial actions proposed to be taken by RBI; and an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.
• The RBI has to coordinate with the fiscal authorities. Inflation is an outcome of global factors, fiscal factors, and monetary factors. These are not something the RBI can fully determine on its own. Hence, the RBI must work in tandem with the government.

Category: Indian Economy

Topic: Energy, Air Pollution

Key Points:

• The new National Energy Policy, likely to be finalized over the next ten weeks, is also considering the air quality in the country that has triggered judicial interventions such as the ban on diesel vehicles of certain engine capacities in the capital.
• The NDA government had promised in the President’s address to Parliament, in June 2014, to replace the integrated energy policy introduced by the UPA government with a new National Energy Policy.
• The government has taken a hard look at air quality concerns in the policy, not just because of one fuel or another – as it is not one sector’s responsibility alone, transport, power generation and the use of solid fuels for cooking, among other things, contribute to the air pollution.
• The energy policy will outline an overarching strategy to address air quality concerns over the long-run. It addresses issues such as energy efficiency, the new alternatives created by technology and will include a Vision 2040 with a possible roadmap to cleaner air.
• The policy also examines whether India should pay more attention to global emission norms or focus on our own problem which has to do with the high particulate matter.
• The existing integrated energy policy needed a fresh look as the cost dynamics have changed dramatically for energy sources like gas and renewable energy. Solar energy has become more affordable and gas prices have also come down significantly since 2006, so both these sources for power will now get their due pride of place in the new policy
• The NITI Aayog is also setting up a dedicated energy data agency with the help of its U.S. counterpart, the Energy Information Administration (EIA). The external affairs ministry has approved the signing of a pact between the U.S. agency and the NITI Aayog.
• Presently, different ministries such as petroleum, coal and power have their own databases, but there’s no holistic energy data source in the country. Separately, a new geospatial map is being created to help investors identify sites in the country with high solar radiation levels, as well as power transmission lines and sub-stations and demand centres with their estimated energy requirements.

D. GS4 Related

E. Important Editorials: A Quick Glance

1. Retrofitting the Reserve Bank

Category: Indian Economy

Topic: RBI, Monetary Policy

Key points:

• Reserve Bank of India (RBI) is widely admired as arguably the last institution standing up to the machinations of the political class. It has certainly helped that every Indian to have headed it has represented the highest traditions of public service and personal integrity.
• However, a certain degree of morphing of the RBI has occurred of late, some of it deliberately intended and some of it perhaps in the form of collateral damage.
• The Finance Bill, 2016 has finally succeeded in making inflation targeting the sole objective of monetary policy.
• It, however, overlooks two possibilities that are surely of relevance in the context. First, whether the focus on inflation may imply a loss in certain other areas of the economy. And, second, whether inflation is fully within the its control anyway.
• First issue is whether focussing on inflation can lead to preventing a rise in employment. In economies with unemployed resources, an increase in aggregate demand may be expected to lead to a rise in output and a rise in prices if there is a shortage of some inputs into production. The increase in output may be expected to lead to an increase in employment as goods require labour for their production. Thus we have an increase in output, employment and prices. In a situation of ongoing inflation, we may even witness a rise in its rate.
• This price rise can be dealt with one of the two approaches –
• Under so-called inflation targeting the central bank raises the rate of interest. When this is passed on by the commercial banks, it reduces the demand for credit, lowers investment and output growth. There is a concomitant reduction in the demand for labour and the offending material inputs whose price rise constituted the inflation.
• The second approach is via an expansion of the supply shortfall through either imports or increased production. We would then have tackled inflation at source — that is, directly, not indirectly, by restricting aggregate demand, as under a policy of inflation targeting.
• As a defence of the latter is offered the idea that the central bank can influence inflation expectations by signalling its intent to lower inflation in the future. But why should agents buy this when they know that the bank cannot influence the food supply, which is the source of inflation? Their expectation of inflation is likely to remain high if they do not perceive in the offing a radical change in the supply position.
• By suggesting via the Finance Bill now that inflation targeting becomes the sole objective of monetary policy in India, the Government of India has not just oversimplified the problem of inflation control, it has also shut out of the reckoning an assault on India’s weak agricultural supply-side. The importance of a strong supply position in combatting inflation can be seen from the history of the U.S. and the U.K.
• the adoption of inflation targeting as the sole objective of the RBI is contestable in ways that have been indicated here. It also ignores a serious lesson from the recent global financial crisis, which is that an inflation-targeting central bank can lose control of the financial system.
• In India the Financial Stability and Development Council has taken the task of financial regulation outside the RBI. This is unwise, as the interest rate mechanism can prove to be a double-edged sword. While it may curb inflation when raised, it may at the same time threaten financial stability by tipping indebted entities into insolvency. There is no case for monetary policy and financial regulation to be under the same authority.

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

• Special Category Status
• Maglev Trains
• Inflation Control : Monetary vs Fiscal Tools
• CPI Index
• National Energy Policy

G. Fun with Practice Questions 🙂

Question 1: Consider the following statements?

Question 2: Maglev trains achieve high speeds by the principle of reducing

Question 3: Consider the following statements,

Question 4: Consider the following statements,

Question 5: Consider the following statements,

H. Archives:

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