# Comprehensive News Analysis - 07 July 2016

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

The Hindu

The Indian Express

Others

1. PIB

##### H. Archives

.

+++++++++++++++++++++++++++++++++++++++++++++++

### Useful News Articles

##### A. GS1 Related

Nothing here today folks!

##### B. GS2 Related

1. My visit aimed at enhancing ties with Africa: Modi

Topic: India and Africa

Category: International Relations

Key points:

• The prime minister will begin his five-day tour with Mozambique and then travel to South Africa, Tanzania and Kenya. Focus of the visit will be on deepening cooperation in areas of hydrocarbons, maritime security, trade and investment, agriculture and food

2. PM’s Africa trip: Concessional loans, hosting AfDB meet on agenda

• India will extend concessional loans to African nations during Prime Minister Narendra Modi’s visit to the region starting July 7, official sources said. The PM’s delegation will also hold talks to host the African Development Bank’s annual meeting in Gujarat next year, the sources added
• India’s premier export finance institution Exim Bank will extend Lines of Credit (LoC — or concessional loans) worth $240 million to Kenya and Tanzania, sources said • These LoCs are part of India’s plan to disburse$10 billion to Africa within the next three years. The objective is also to enhance India’s cooperation with Africa in food security as well as to boost exports from India’s Small & Medium Enterprises (SME) to Africa especially to promote rural development

3. Excalibur rifle awaits certification trials

Topic: Defence

Category: Governance

Key points:

• An indigenously produced new generation rifle, Excalibur, is awaiting user trails and final certification, even as the Army seems to be moving away to a bigger calibre rifle than what has been produced by the Ordnance Factory Board (OFB)
• The Excalibur is a fully automatic rifle which fires 5.56mm ammunition and is an upgraded version of the current INSAS (Indian National Small Arms System) which was inducted in the mid-nineties but had a troubled history all along
• The Army has been attempting to procure a new standard issue rifle for a decade. Excalibur is unlikely to be adopted as the standard issue in the current form but stated that its user trails and the process for a new rifle would continue simultaneously

3. An intervention that went badly wrong: Chilcot

Topic: Iraq war

Category: International Affairs

Key points:

• The long-awaited report of the Iraq Inquiry headed by Sir John Chilcot has presented a damning indictment of the role of the then Prime Minister Tony Blair in leading the United Kingdom in alliance with the United States into a war in 2003 before “peaceful options for disarmament” had been exhausted
• Other important conclusions were also drawn
• The first is that the judgments of the severity of the threat posed by Iraq’s weapons of mass destruction were “presented [to the British Parliament] with a certainty that was not justified.” Second, the outcome of the invasion was underestimated by Mr. Blair, “despite explicit warnings.” Third, planning for an Iraq after Saddam was “wholly inadequate,” and finally, the government “failed to realize its stated objectives.”
• In the report without a United Nations mandate for invasion, the U.K.’s decision to go to war amounted to “undermining the authority of the Security Council” the report states
• While military action in Iraq “might have been necessary at some point,” the Report notes, in March 2003, when the U.S.-U.K. led coalition entered Iraq, “there was no imminent threat from Saddam Hussein.”

4. 231 clean Ganga projects to take off today

Topic: Pollution control

Category: Environment

Key points:

• Union Water Resources Minister said 231 projects would be simultaneously inaugurated at various locations in Uttarakhand, Uttar Pradesh, Bihar, Jharkhand, West Bengal, Haryana and Delhi on Thursday. This would be the first sign of the Rs. 20,000-crore National Clean Ganga Mission to clean up the Ganga by 2020 sputtering to life.

• The projects — several of them technology demonstration initiatives sourced from abroad including France and Australia, and India too — deal with commissioning and improving sewage treatment plants, re-developing ghats and crematoriums, development of sewage infrastructure and treatment, afforestation, tree plantation (medicinal plants), pilot drain project, trash skimmers and conservation of biodiversity.
• 400 villages along the river Ganga would be developed as Ganga Gram in phase-I with some IITs roped in for their development. Eight biodiversity centres would be developed along the Ganga for restoration of identified priority species
• Officials said the projects were just a portion of the nearly 1,000 projects of various kinds that would be undertaken across various stretches of the river.

##### C. GS3 Related

Topic: Agriculture

Category: Economy

Key points:

• The government will soon unveil the mega Rs 20,000 crore irrigation fund through the special purpose vehicle (SPV) route — Water Resources Development Authority(WRDA) — as part of a major initiative to boost the agriculture sector
• NABARD will be tapping the capital market for funding the scheme. Of the initial Rs 20,000 crore corpus, some will come as budgetary allocation from Ministry of Water Resources, Rs 6,300 crore will be bonds raised by Nabard to be repaid by the Government of India and close to Rs 12,000 crore will be bonds raised by Nabard on its own
• This money will be raised in the first year itself as 23 projects will be taken up. The repayment period is 15 years unlike Rural Infrastructure Fund (RIDF) which is available to us for seven years
• WRDA would be borrowing from Nabard because the government can’t borrow. This will be around 60 per cent and the States will borrow the balance 40 per cent. There will be agreements with Central government, SPV, states and Nabard

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

The Hindu

Topic: Freedom of speech

Category: Polity

Keypoints:

• Award-winning Tamil writer PerumalMurugan had announced his death in a literary sense because of being hounded by some in his hometown of Tiruchengode in Tamil Nadu for writing a novel that they deemed prurient and defamatory, four years after its publication
• PerumalMurugan was forced to agree to a written “unconditional apology” at a ‘peace committee’ meeting organised by local officials at Namakkal in the face of orchestrated protests to demand a ban on his novel Mathorubhagan (One Part Woman) and his prosecution. In a welcome verdict that reinforces the point that jurisprudence in the country is still speech-protective and is unwilling to accept any role for “faceless” mobs in silencing an author, the Madras High Court has rejected the demand for banning the book or prosecuting him, and declared that it will not allow self-appointed super-censors in society to decide what people read or see. It has upheld the freedom of writers to write and advised those professing to be hurt by a book to just avoid reading it
• The 160-page judgment by a Division Bench headed by Chief Justice Sanjay KishanKaul builds on a series of progressive rulings. It has applied the contemporary community standards test in concluding that there is nothing obscene in the novel. It has affirmed that the novel’s focus is on recording the travails of a childless couple subjected to community ridicule rather than what the book’s opponents allege: that it is an attempt to vilify the deity in a Tiruchengode temple or the women who lived in the town by linking them to a social practice of having sex with strangers on one particular night as part of an age-old temple festival
• The Bench has instead reminded the authorities of their duty to secure freedom of expression and not pander to mob demands in the name of preserving law and order. The court draws on the argument that eroticism is not unknown in Indian artistic tradition and rebuts suggestions of vulgarity by pointing to the merit of using the earthy language spoken by the people
• If there is one thing in the judgment that sits uneasily in this well-articulated defence of free expression, it is that the state should have an “experts’ body” to resolve such “conflicts”. Even if the objective is to counter unreasonable protests, the notion of having a committee to advise the government in dealing with a conflict between protection of free speech and maintaining law and order may itself represent a grave compromise.

2.Feeling the pulses pinch

Topic: Nutrition and health

Category: Governance

Key points:

• Since the onset of the Green Revolution in the late 1960s, India has been treading on a path towards self-sufficiency in food. The achievements have remained highly skewed towards wheat and rice on account of technological as well as policy support towards these two crops
• The per capita production of cereals has steadily increased in each decade from 145 kg during the 1970s to 158 kg during the 2000s. Meanwhile, domestic absorption of cereals has grown at a lower rate, leading to an increase in export of cereals. Between 2000-01 and 2013-14, India has been exporting 8.94 million tonnes of cereals per year on average while per capita domestic intake has fallen despite increase in supply of grains at highly subsidised rate. The trends clearly indicate that the increase in per capita cereal production in the country is not leading to an increase in the domestic intake. This, in turn, is not bringing about any improvement in nutrition intake
• The primary reason for lower domestic intake vis-à-vis production is the declining preference of consumers for a cereal diet. According to National Sample Survey Organisation consumer surveys, between 1993-94 and 2011-12, the per capita annual household consumption of cereals has declined significantly from 155 kg to 129 kg, about 17 per cent in 18 years. In contrast to cereals, the production of pulses, which are as important a staple food as cereals, has not kept pace even with population growth. Per capita production of pulses in India has declined from 18.5 kg during 1965-1970 to about 15 kg during 2011-2014. It touched the lowest level of 10.5 kg in year 2002-03. Even with imports, India has not able to meet the domestic demand for pulses. The per capita net availability of pulses in the country, after factoring in for imports and exports, has declined from 18.15 kg during 1965-70 to 15.4 kg during 2011-14
• The changes in availability and intake of cereals and pulses have serious implications for nutrition in the country. The decline in cereal intake despite abundant availability has caused a decline in per capita dietary energy intake. Although the per capita consumption of other food items like fruits, vegetables, edible oil, sugar, eggs, meat and milk witnessed moderate-to-high increase in the same period, it did not help in setting off the decline in dietary energy intake and protein intake caused due to decline in cereal consumption. As a result, dietary energy intake declined from 2,153 kcal per person per day in 1993-94 to 2,099 kcal per day in 2011-12 for rural India, and from 2,071 kcal per day to 2,058 kcal per day in urban India. No wonder the level of undernutrition (deficiency of energy intake and protein intake) as well as the proportion of undernourished population, based on the dietary norm recommended by Indian Council of Medical Research and National Institute of Nutrition, have remained high and are worsening
• We need to look for alternatives which suit consumers’ preference. Empirical evidence shows that dietary diversification towards livestock products, particularly meat products, in India has been slow and this can be attributed to cultural factors
• Some studies indicate that income elasticity of demand for pulses is close to one and that for cereals is close to zero and even negative in some cases. With the increase in per capita income, a consumer prefers to have a higher quantity of pulses. Pulses are part of the staple diet and are highly preferred by Indians. They are also a relatively less costly source of energy and protein as compared to livestock products. Moreover, over the past few decades, the intake of pulses did not decline because of choice but because of shortage in supply. So there are strong reasons to believe that Indians would raise their consumption of pulses if they are available at reasonable prices. Pulses are therefore the best candidate for reducing hunger and improving nutrition of the Indian populace
• If India is able to restore the pulse intake level to the years preceding the Green Revolution (from 41.9 grams per capita per day presently to 69 grams per capita per day as of 1961), it will raise per capita energy intake by about 100 kcal and per capita protein intake by 4.63 grams. This increase will raise the nutrition levels close to what is considered the normative requirement of energy (2,200 kcal per day) and protein (60 grams per day) for the Indian population
• The real problem, however, is how to increase the availability of pulses in the country. At present, we are meeting about one-fifth of the domestic demand through imports but such imports are getting difficult to arrange. Even after tapping markets of 46 countries, we are able to arrange only around five million tonne of pulses. Unlike edible oil, pulses are not easily available for import from other countries, especially with the preference for pulse intake rising in most of the developed countries. India, being the largest producer as well as consumer of pulses, thus needs to tap the domestic potential of raising the production
• The productivity of pulses in the country is very low because of several reasons. High-yielding varieties of pulses haven’t been developed in the absence of any technological breakthrough. Pulses are grown mainly in marginal and poor environments under rainfed conditions. Low productivity is also associated with the sharp year-on-year fluctuations due to high vulnerability to environmental stresses as well as insects and pests. There is an urgent need to upgrade varieties, practices and policy support for pulses. Both public and private sector research should be encouraged and supported for breakthroughs in pulse technology at the earliest
• India has reached a stage where cereals will continue to be important to sustain the present level of nutrition. However, the reduction in hunger and the improvement in nutrition require more of pulses. Going forward, the future production targets should involve much higher growth in pulses than in cereals

3. Islamists and their refracted anger

Category: India’s Neighbourhood

Key points:

• The attack on Dhaka’s Holey Artisan Bakery targeting mainly foreigners, comes in the wake of violence by a section of Bangladeshi Islamists who have adopted extremist methods to target civil society members, religious minorities (Hindus, Christians, Buddhists, Bahais), Ahmadiyas, atheist bloggers and progressive political activists
• Out of the 47, eight persons were allegedly killed by the pro-al-Qaeda group, Ansar al-Islam (previously known as Ansarullah Bangla Team), led by the dismissed Bangladesh Army officer, Major Zia-ulHaq. Ansar recruits are usually poor madrasa students. Its areas of operation are generally in northern Bangladesh and it has so far targeted freethinkers, bloggers and gay rights activists
• In contrast, the pro-Islamic State (IS) group, which has taken the responsibility for 28 killings in the last 18 months, is led by a Bangladeshi-Canadian, Tamim Chowdhury alias Shaykh Abu Ibrahim al-Hanif. This group recruits relatively affluent and urban, upper-middle-class professionals. This group primarily targets religious minorities, foreigners and university teachers. It operates mainly in Dhaka and its surrounding suburbs like Savar, Tongi, Gazipur and Mirpur
• If terrorism makes symbolic statements then it is important to note that the July 1 terror attack has occurred in a context where the Bangladeshi government has on record denied the existence of the IS in the country. Moreover, this attack seems to be a violent response to the recent government crackdown on Islamist extremists. It also comes in the wake of a public fatwa, signed by more than 1,00,000 Bangladeshi ulema, condemning terrorism as “un-Islamic” and “forbidden”. They were also clear to state that the suicide squad members of terrorist organisations “will certainly go to hell” and even attending the janaza (religious prayers before the last rites) of terrorists is haram (forbidden)

• The Islamists specifically target foreigners in Bangladesh to get maximum media coverage from the international press. For them, the Eurocentric model of secular nationalism and neoliberalism implemented by the Bangladeshi elite signifies an ultimate acceptance of the proposition that the way forward to progress and development is the Western path. Islamists argue that ‘progress’ and ‘development’ can be made without borrowing ideas from outside the Islamic tradition, and without taking refuge in any ‘man-made’ laws, ideologies and systems
• Like many Islamist groups, the anti-Western critique of Bangladeshi Islamists is more of a culturalist and politico-ideological one as they never deny the acceptance of Western science and technology for the material benefits of the Muslim population. Therefore, it is ironic that some Islamists use arms and modern technology not for benefiting the people but to kill those who according to them follow and prescribe jahiliya (the ignorant path of non-Islam). While Islamists accept modernisation, they certainly negate the cultural and political baggage of Western modernity like secularism, nationalism and liberalism. Thus, Islamists definitely differentiate between ‘modernisation’ and ‘westernisation’. According to them, the former entails technological, scientific and socio-economic development while the latter signifies un-Islamic systems that are based on secularism and sexual freedom
• Today, Islamist violence is crossing transcontinental borders in a context when the Islamists are encountering an everyday challenge from modern and postmodern lifestyles in an increasingly globalised and digitised world. Such a scale of violence was not possible during the times of medieval freethinkers and the great legacy of Mutazilite philosophy when the Islamic world was an advanced first world. As the Muslim world first lost power to the European colonialists and then to the American and Soviet invasions, the Islamist response became a refracted and de-channelised form of anger towards the ‘Western powers’ and its allies. It is expressed at a time when there is also a crisis of a credible progressive force in the Muslim world that would foreground the livelihood issues of income, education, jobs, health and social security
• In Bangladesh, the democratic demands of the people linked to deprivation, discrimination and corruption have been ignored. The country, instead, has been locked up in polarised debates on nationalism and does not seem to have moved beyond the war crimes of 1971. In fact, much of the recent Islamist militancy in Bangladesh is in response to the trials of 1971 war criminals by the International Crimes Tribunal. At the same time, the lack of a credible political Opposition in Bangladesh along with the vindictive attitude of the government towards the existing Opposition has resulted in a crisis. It has also created conditions under which a section of the Bangladeshi youth, while getting frustrated with the status quo, is attracted towards violent political ideologies like Islamist extremism
• Terrorism does not believe in democratically mobilising the people and has often taken refuge in armed violence and sensationalism in order to draw media attention. Terrorism is also an act of envy where the terrorists disapprove of the liberties enjoyed by the victims (the terrorised). Terrorism has no concrete demands; it represents a politics of revenge and hatred with no clear objective to uplift the socio-economic conditions and livelihood prospects of the people. Dhaka’s tryst with terror is no exception to this general logic of terrorism. The only way to fight terror is to not be terrorised but to politically isolate the terrorists while mounting an ideological battle against terrorism.

The Indian Express

1) Our demographic dividend could become a nightmare if we don’t focus on labour reforms: Shankar Acharya

Topic: Labour Reforms

Category: Governance

Key points:

• Shankar Acharya former Chief Economic Adviser says that over the last 25 years, while much ground has been covered, successive governments have not been able to carry out labour reforms, something that has hindered employment growth(Excerpts from interview)
• In the early 1980s there was an enormous deficit on the foreign trade front. Imports were nearly double that of exports — export earnings were only 55% of imports. The trade gap was a serious one. Over time exports grew, responding to the currency adjustment.By the late 80s, more and more short-term borrowings were resorted to. What the government did was to nudge public sector entities such as Indian Oil Corporation to borrow abroad to plug this gap on the trade front. There was a lot of pressure on the Balance of Payments (BoP) front because of the weak macro-economic factors. Until the early ’80s,we had managed the fiscal situation conservatively. But we began indulging in fiscal profligacy(spending over means) to keep growth going and which led to problems in the late ’80s and early ’90s. By 1990, our fiscal deficit — Central government and states put together — had crossed 8%. The interesting thing then was that we didn’t measure fiscal deficit until then; we used to focus only on cash deficit. The trade deficit of the ’80s, fiscal imbalance and later, the Kuwait War tipped us into the BoP crisis
• How did the government and policy-makers respond to the crisis?
• The response was extraordinarily good. Industrial licensing was abolished and import controls on capital and intermediate goods were eliminated. Over two years, the exchange rate moved from a fixed peg to a market-determined rate. By April 1993, it was a market-determined rate. Secondly, there was the phased reduction of customs duty from a peak of 200% and to 50%.We opened up to foreign direct investment and towards the end of 1992, to foreign institutional investors. Banking reforms were launched and major capital market reforms were unveiled. SEBI became a statutory regulator. The National Stock Exchange grew during the period and the National Securities Depository Limited was created. There was abolition of import licences and industrial licencing. The other important thing which was launched was tax reforms
• The tax system was very complex and very discretionary. Much of it was cleaned up during the 1990s. After the Rao government, during the United Front government, the insurance sector was opened up. During the tenure of the Vajpayee government, there was also the integration of service tax with excise, the shift to revenue sharing in the telecom sector, and sectoral reforms, including the national highways. We had no National Highway Authority of India until then. The fiscal responsibility law was passed towards the end of that period
• What is still closed after 25 years and what, according to you, is yet to be opened up?
• We have to recognise that a lot of things also didn’t happen. It is not that we didn’t know about labour market distortions. As early as the 1990s, there was a draft Cabinet note on amending the Industrial Disputes Act and labour reforms. But there was no political backing and we have paid a heavy price for that in terms of low employment growth and manufacturing growth compared to many other countries. Another area where we could have done more is the banking sector — lower the holding of the government in public sector banks to below 51%. There was no political appetite to do that although there was a draft Bill during the NDA government’s time to lower the government’s stake to 33%. Another area we have to look at isthe problems faced by PSU banks, especially related to governance, and state electricity boards Though there was reform as reflected in the Odisha model of unbundling, there was no political appetite to change to an economic pricing model, especially for farmers, and their dues had to be written off. Another area which got worse is land markets. It has become more complicated, especially after the 2013 Land Acquisition Act
• Over the next 25 years, what should be on the reforms agenda?
• In the short term, my priority would be the Goods and Services Tax. Though there are bound to be glitches, over time, it can be a great reform. The other area which we should be focusing on in the short term is the implementation of the bankruptcy law. We need to follow up on the bad loans in banks and take up the ownership issue of state-run banks. We need to find a quick resolution to all these. Another area I worry about is our declining exports. The world economy may be in trouble but other countries are increasing their export We need to look at the exchange rate policy, infrastructure and logistics. We also need to expand our tax base over the next few years. The fiscal deficit of both the Central government and states also need to come down At 6.5%, it is way too high considering that in 2007-8 it was around 4% of the GDP. And of course, we have to improve the quality of government spending and its composition — use Jan-Dhan, Aadhaar and mobile for better targeting and more productive use of government money. We should also be focusing on agriculture reforms
• If you were in a similar role, what would you do now?
• I would focus on the banking sector, especially the weak PSU banks. We need to confront this issue on an experimental basis with the privatisation of some banks. On exports, a big bottleneck is our exchange rate as it is over-valued if we look the Real Effective Exchange Rate or REER. I would have addressed that. The other area I would have focused on is labour market barriers. Otherwise, our much-touted demographic dividend could become a nightmare of unemployment and under-employment. I would also have liked to work on expanding the tax base, considering India’s low tax to GDP ratio. I would also like to make the new monetary policy framework work — my bias would be towards a conservative monetary policy. In the long run, I would focus on areas where we have done poorly — like the power sector and urban infrastructure. It is critical to reform urban institutions to reap the benefits of urbanisation. On education, while we have high rates of enrollment, learning outcomes are frighteningly poor. Public health systems could also be a major challenge if we don’t iron them out. Infrastructure and institutional reforms are a must
• In the the new monetary policy framework, would you settle for the Consumer Price Index (CPI) as a benchmark?
• A compromise would be to focus on core CPI, excluding food and fuel. We can’t go back to Wholesale Price Index as it has a lot of limitations

Others:
1. PIB

a) Shri Rajnath Singh to inaugurate the BRICS Heads of Drug Control Agencies Working Group Meeting tomorrow

Union Home Minister Shri Rajnath Singh will inaugurate the second anti-drug Working Group meeting of Heads of Drug Control Agencies of BRICS countries here tomorrow. The meeting is being organized by the Narcotics Control Bureau (NCB).

b) Government today constituted a Committee headed by Dr. Shankar Acharya (former Chief Economic Adviser) to examine the desirability and feasibility of having ‘a new financial year’; The Committee to submit its Report by 31st December, 2016.

The Government of India today constituted a Committee to examine the desirability and feasibility of having ‘a new financial year’. The Committee headed by Dr. Shankar Acharya (former Chief Economic Adviser) has Shri K.M. Chandrasekhar (former Cabinet Secretary), Shri P.V. Rajaraman (former Finance Secretary, Tamil Nadu) and Dr. Rajiv Kumar (Senior Fellow, Centre for Policy Research) as other Members. The Committee will examine the merits and demerits of various dates for the commencement of the financial year including the existing date (April to March), taking into account the various relevant factors

c)Renewal of The India-Bhutan Agreement on Trade, Commerce and Transit

The existing Agreement on Trade, Commerce and Transit between India and Bhutan was signed on 29th July 2006 for a period of ten years. Discussions were held between both countries at New Delhi on 05-06 July 2016, to finalise the text of the draft new Agreement on Trade, Commerce and Transit. The visiting Bhutanese delegation was led by Secretary, Ministry of Economic Affairs, Royal Government of Bhutan.

After deliberations, it was agreed that the new Agreement may be signed at the earliest, after obtaining the internal approvals by both the sides.

2.The Financial Express:

a) How Bankruptcy law will curb bank NPAs

Topic: Banking

Category: Economy

Key points:

• For the Indian banking sector—which had been seeking an effective bankruptcy law against a backdrop of the poor performance of the reforms undertaken in this regard so far—the new Insolvency and Bankruptcy Code should appear a panacea for NPAs
• Ever since the spurt in lending following the financial crisis of 2008, Indian banks have witnessed a rise in NPAs—by March this year, these were already at Rs6 trillion
• Of this, 90% are on the books of the public sector banks, which have to mandatorily lend to priority sectors such as infrastructure and power which are chronically affected by stalled projects and untimely execution. Besides, over the past three years, loans worth Rs1.14 trillion have been written-off by 29 PSU banks and Rs7.3 trillion have been appropriated to just 10 leading companies, with threat of up to 25% of this going bad. NPAs are the reason that banks have not been able to transfer the benefit of rate-cuts to the end-consumer (due to increased provisioning requirements) and have thus hindered monetary policy transmission
• Some of the woes faced by banks can be attributed to their lending policies during the 2007-08 boom. Banks, then, had recklessly lent out to large corporate borrowers without carrying out ‘due diligence’—though it is true that even prudent lending can entail defaults, since every possible scenario cannot be controlled or accounted for. Yet, this can be minimised by careful evaluation of borrower credentials and meticulous assessment of project prospects. Also important is post-lending monitoring of the way credit is being put to use for early warning signals of loans turning into NPAs
• To its credit, the government, aided by the central bank, has set banks on the path to cleanse their balance-sheets by March 2017, a welcome move—and also the reason behind the sudden spike in disquiet regarding NPAs. Moreover, RBI’s decision to consider all restructured loans as NPAs has also impeded corporate debt restructuring (CDR) mechanism conveniently resorted to by banks to camouflage bad loans. As for the Strategic Debt Restructuring Scheme, it shall take some time to permeate as banks, at present, do not have the expertise to find buyers for their debt-turned-equity assets, failing which the loans automatically slip into the NPA category
• Thus, all hopes are pinned on the new bankruptcy law, which would allow any creditor, in the event of a default, to trigger an insolvency resolution process that should typically be completed within 180 days. A significant provision of the code is the so-called waterfall provision which entails that government dues will be paid last—that is, after proceeds have been made to secured creditors, workmen’s dues, employees (other than workmen) and unsecured creditors—and that too only for two years. This shows the government’s sobriety in striking the issue at its gut
• However, it will be quite a while before the law manages to tackle the entire backlog of cases at the debt recovery tribunals because the quantum of such cases have risen by 12 times over the last three years with approximately 70,000 liquidation cases pending. This existing stock is clearly a major challenge for banks and the new code would have to address functional issues in expediting the recovery process
• Till date, India had no single law dealing with insolvency. In fact, the law which is currently in play for insolvency cases is the Provincial Insolvency Act from 1920! Besides, we have the Sick Industrial Companies Act and the Sarfaesi Act, which mean cases being moved by different agencies (High Court, Company Law Board, etc.) leading to delays and corruption. This code would definitely bring an end to such long-drawn litigation. However, one important aspect to consider before initiating the insolvency procedure is the intent of the borrower as the real recovery value to be derived after liquidation would depend upon the existence and credibility of the principal assets
• With the passing of the law, a number of questions regarding the technical and macro-regulatory issues have started to crop up. While many of these may get clarified by the relevant authorities, certain critical issues related to the ecosystem, laws, bylaws, certification process, funding, liquidation processes, role of other professionals (lawyers, investigators, M&A experts etc.) will become clear with time. While it is too early for an attempt to assess the final implications of the law, yet there is no refuting that it can go a long way in solving India’s NPA issues
• What should follow is a complete comprehension and appreciation of the nuances of the law and keeping an eye out for its enactment
• It must also be accepted that the new law alone can’t help fight the NPA woes. There is a strong need to bulwark the bank ecosystems against possible defaults. This can be accomplished by building a solid foundation through comprehensive due-diligence at the time of lending, regular audits, forensic checks and periodic monitoring of books of accounts. Banks should redefine their analytics framework to monitor red flags effectively and on time. Thus, the need of the hour is for banks to forge a governance framework, with a cautious lending approach and a sound fraud mitigation mechanism as well as effective implementation of the new legal framework

b) How to double farmers’ income: Moving beyond income generation

Topic: Agriculture

Category: Economy

Key points:

• The government has plans to double farmers’ income by 2022. Several measures were announced in Budget FY17 and by the ministry of agriculture and farmers’ welfare. This has also evoked interest among a variety of stakeholders—farming community, scientists, economists, political commentators, besides the general public
• During the run up to the Green Revolution and thereafter, the emphasis was always on production and productivity. Enhancing farmers’ income was not in focus per se. Our policies were usually farm-centric and not farmer-centric. This is one of the reasons why there is farmers’ distress despite the fact our country has achieved commendable position in food production
• India is either first or second in the world in terms of overall production of many agricultural commodities, but we still need to make efforts for achieving the coveted position in productivity in these commodities. The finance minister, in his Budget speech, emphasised that “we need to think beyond food security and give back to our farmers a sense of income security.” He mentioned the government’s resolve to reorient its interventions in the farm and non-farm sectors to double the income of farmers by 2022
• Historically, there is little evidence that this idea was attempted or even articulated, but in the recent past several states have clearly demonstrated that this is achievable. It is also true that no government has ever enunciated this idea in the public forum. For achieving this objective, we will have to devise micro-level action plans to augment farmers’ income from all sources and not just from crop cultivation. We must also take into cognisance that rural demand drives our economy and exports are declining in recent years. A natural question is, how do we go about?
• Farmers’ income can be improved if/when productivity goes up, if/when the cost of production comes down, if/when we ensure agricultural commodities produced get a remunerative price through a transparent price discovery mechanism. It can also happen due to improved income from allied activities to agriculture and non-farm sector or even wage employment during the agricultural off season. The strategy must integrate them all. Given the time horizon of six years, doubling of farmers’ income must be attempted by creating a framework where all related agencies come together and work in harmony
• Considering that substantial yield gaps exist in major crops and across all regions, we have to leverage technology, adopt precision farming and ensure that farmers get correct and timely crop advisory and market information. To simplify, every variety of a crop has a genetic yield potential which can be achieved if a proper agronomic package is adopted. There are several ideas being tried to put agricultural extension on digital medium, but a well-coordinated approach harmonising the efforts of traditional institutions is the need of the hour. Likewise, irrigation efficiency too has to be addressed. The Prime Minister has pithily worded this as “more crop per drop.” The challenge of climate change is real and there is a crying need to develop a climate-resilient agriculture
• The approach to saving on costs involves developing localised solutions as no universal solution works. A cost accountants perspective of what can be saved must be adopted in all the segments of farming. This too involves a huge amount of information dissemination using digital technology for extensive outreach
• Land laws require changes to formalise land leasing practice, in the absence of which term investments are not made by the tillers to enhance production and productivity. Focus of funding by banks should be on term investments as there is a correlation between long-term investments and capital formation
• Infrastructure creation in connectivity, irrigation, marketing, storage, communication, small farm equipment, etc, is also important for reducing cost of production and improving efficiency
• Information technology can contribute enormously in this endeavour by ushering in efficiency of agricultural markets, better price discovery and, above all, transparency. Banks have to finance these measures too
• Suitable skill building and enterprise development in the farm and off-farm sector warrants attention
• It is an opportune time to move beyond income generation from farms and focus on reducing post-harvest losses, explore opportunities in allied sector, food processing both at local and regional levels, and off farm income complementarities. Recent literature is gradually building up and highlighting the importance of inter-sectoral complementarities and convergence opportunities
• Doubling farmers’ income needs funds at institutional level as well as at enterprise level, for which a robust institutional credit flow mechanism is a must. We have to create a healthy credit environment by enhancing access to credit through technology in an equitable manner. Our resource-scarce farming community such as small and marginal farmers, tenant farmers, share croppers, etc, and farmers in east, centre and northeast regions deserve special attention

a) Reaping the savings

Topic: Subsidy

Category: Governance

Key points:

• The fertiliser ministry announced that the selling prices of key non-urea fertilisers will be ‘slashed’ by between ₹50 and ₹125 a bag, unleashing savings of ₹4,500 crore. No doubt, savings in the cost of this critical agri input would be welcome to farmers who have been severely buffeted by two consecutive years of deficient monsoons. But then, the non-urea fertiliser industry has been officially decontrolled and ostensibly free to fix selling prices on its own for six years now
• Following the announcement, public sector fertiliser makers — RCF and NFL — have agreed to slash product prices. But private sector producers, who account for over 90 per cent of the market, have indicated their reluctance to follow suit. Whether farmers really get to enjoy those promised savings now depends on how the Centre resolves this quandary
• In fact, by indicating the selling price for private manufacturers, leaning on public sector units to slash prices and announcing periodic meetings with the industry to review prices, the Centre is signalling its intent to go back on the decision taken six years ago to decontrol non-urea fertilisers. This is not desirable. It was a five-fold expansion in the fertiliser subsidy bill which prompted the then government to usher in the nutrient-based subsidy (NBS) scheme for all non-urea fertilisers in April 2010. Under this scheme, in return for ensuring that di-ammonium phosphate (DAP) and complex fertilisers were priced substantially below cost, manufacturers were promised a flat per tonne subsidy based on the import parity prices of N, P, K and sulphur — the key nutrients. They were also given the freedom to fix farmgate fertiliser prices based on their own costs. Fortunately for the Centre, the prices of NPK nutrients, after peaking in 2010, declined by between 11 and 35 per cent post-NBS. This has allowed the Government to effect drastic cuts in its subsidy payouts, thus shrinking the subsidy bill on non-urea fertilisers from over ₹65,555 crore in FY09 to ₹19,000 crore this year
• But with the exchequer mopping up much of the gains, neither farmers nor the industry have benefited much from the fall in costs. The lack of parity between urea and phosphatic fertilisers has also prompted farmers to switch to urea, skewing the NPK application ratio to 8:3:1 (the ideal is 4:2:1)
• While there is an urgent need to fix this ratio, attempting it through price controls on phosphatic fertilisers can backfire if it triggers production cutbacks or higher import reliance
• A more durable solution lies in implementing urea price decontrol while global prices are still low. This will cut the Centre’s subsidy bill while encouraging more balanced fertiliser use. Pricing freedom can be balanced by opening up imports
• The Centre should also push ahead with a Direct Benefit Transfer regime for all fertilisers, so that cash subsidies can be delivered directly into the hands of small and marginal farmers instead of being routed through industry

b) The failure of our export enclaves

Topic: Export

Category: Economy

Key points:

• In 1980, the Export Oriented Unit (EoU) Scheme was launched in India to boost exports and increase production. Although a number of provisions and exemptions, including both fiscal and non-fiscal benefits, have been extended to the Scheme, the performance of EoUs has been far from satisfactory, particularly in the past few years
• Therefore, it is time for a relook at the EoU Scheme if India is serious about achieving its target of $900 billion exports by 2020 as envisaged in the Foreign Trade Policy (FTP) of 2015–20. This issue is pertinent in the context of India’s declining exports and rising trade deficit • Owing to their flexibility and unique position, the EoU scheme flourished from 1980s up to the mid-2000s. This contributed to a process of structural change in domestic industry by way of technologies, skills, economic linkages and disaggregation of units • CAG performance audit of EOUs (2015) that was submitted and tabled in Parliament shows that the performance of EoUs is not encouraging. The growth of EoUs under the scheme has witnessed a downward trend over the past few years. Though the proportion of non-functional EoUs has slowed marginally, it still constitutes around 20 per cent of the total registered EoUs. The major reason, apart from SEZ Act, is the government’s inability to utilise properly the uniqueness of the 100-per-cent-EoU Scheme • The declining growth of exports is the result of withdrawal of the tax benefits under the Income Tax Act, 1961 from 1 April 2011; as a result, EoUs opted out of this scheme • Unfortunately, there is no special provision in the FTP to promote the unique 100-per-cent-EoU Scheme. Similar export benefits were available to SEZs, along with allowance for domestic sales, but without any ceiling • The success of any scheme depends on proper regulation, auditing, and monitoring. However, and as observed by the CAG, the Ministry of Commerce and Industry (MOC&I) has not structured an internal audit mechanism to check and facilitate the functioning of EoUs • As per the scheme, EoUs can sell goods up to 50 per cent of the free-on-board (FoB) value of exports conditioned to positive net foreign exchange (NFE); the corresponding percentage for units manufacturing and exporting more than one product is 90 per cent, if the total Domestic Tariff Area (DTA) sales do not exceed the overall limit. But clearance of products into DTA often exceeds these prescribed limits • Steps to improve performance • On the basis of the audit, the CAG gave the following recommendations to make EoUs more effective in boosting exports such as (1) initiate policies to stop the downward trend of EoU growth and performance with timelines by utilising the uniqueness of EoUs (2) implement an internal audit system and ensure that EoUs submit (Annual Performance Reports) APRs timely containing relevant data related to exports, duty forgone, DTA sales, etc. (3) fixing liability for any non-compliance and modify the provisions for EoU to achieve objectives. • The EoU scheme has not been successful due to various reasons such as complexities that arise due to its size, lack of entrepreneurial talent, lack of promotion of the scheme, and its limited share in manufacturing • Similarly, in an earlier performance audit report, 2014, the CAG found out that the performance of SEZs to promote exports has been far from satisfactory. There too, CAG recommended the implementation of appropriate mechanisms for monitoring and controlling these zones, in order to prevent irregularities and promote exports and trade. In fact, the CAG report sampled 152 SEZs, and found that they were under-performing on exports (ranging from 46.16 per cent to 93.81 per cent of their targeted exports) • Exports promotion schemes such as EoUs and SEZs need to achieve their main objective of improving merchandise exports if India is to achieve$900 billion exports by 2020. EoUs have been performing poorly over the past five years. Apart from the inability of the FTP to make the best of the 100-per cent-EoU scheme, systemic issues, like timely submission of APRs, relevant data on DTA sales, duty forgone, and irregular internal audit system, have added to the problems
• The first step is to clear the ambiguities and inconsistencies in role and procedure between policies and departments. To make the EOU Scheme succeed, the government could revise the scheme to suit the changing global environment and introduce new provisions to ensure proper functioning and monitoring, but without affecting its competitiveness with other related schemes and acts

c) Concept of 100% Export Oriented Unit (EOU) Scheme

Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith.

100% EOUs fall into 3 categories

1. EOUs established anywhere in India and exporting 100% products except certain fixed percentage of sales in the Domestic Tariff Area (DTA) as may be permissible under the Policy.
2. Units in Free Trade Zones in Special Economic Zones (SEZs) and exporting 100% of their products.
3. EOUs set up in Software Technology Parks (STPs) and Electronic Hardware Technology Parks (EHTPs) of India for development of Software & Electronic Hardware.

4. The Economic Times:

a) Government needs to draw up an effective plan to address poor air quality

Topic: Pollution Control

Category: Environment

Key points:

• As the Supreme Court considers whether it should lift the ban on fresh registration of diesel-powered vehicles in the National Capital Region, the government needs to draw up an effective plan that will address the poor air quality. The executive has to act and not wait for the judiciary to tell it what it has to do in its legitimate domain of decision-making
• For one, it has brought forward the introduction of BSVI standards for fuel to 2020. This will drastically cut down disel vehicle emissions to petrol levels for all pollutants: slash 55% of the particulate matter and 47% of nitrous oxide emissions.
• The government now needs to draw up a viable and effective plan to improve air quality in the interim period. Its proposal to buy back old cars is financially unviable
• The government must go beyond vehicular pollution. The aim is to improve air quality, not simply stem one pollution source
• Therefore, the government needs to proactively work on a comprehensive policy package that includes phasing in a policy of obsolescence for vehicles, congestion fees, expansion and integration of public transport, minimising sources of soil, road and construction dust and prevention of burning of municipal waste and biomass except in controlled conditions
• It should draw on interventions elsewhere such as in London, where a pollution charge on vehicles that violate norms. The Supreme Court stepped in when the executive had failed to act, for example, to make better quality fuel available across the land.
• Even today, fuel outside the big towns meets only BSIII norms, seven times as high for particulate matter as for BSIV. The executive must be proactive. Further, the state must acquire the administrative capacity to check vehicular pollution rather than go by a doubtful certificate

5. Quick Bits and News from States

a) Govt. begins process to select CBI chief

The CBI Director has a fixed tenure of two years. Last week, the Department of Personnel and Training sought the names of eligible officers of the Indian Police Service from the Home Ministry.Under the Lokpal Act, a selection committee, headed by the Prime Minister and comprising the leader of the single largest Opposition party and the Chief Justice of India or a Supreme Court judge nominated by him as a member, appoints the CBI Director.Before the selection panel approves the name, the names of the candidates have to be recommended by another panel consisting of the Central Vigilance Commissioner, the Vigilance Commissioners, the Home Secretary and the Secretary, Co-ordination and Public Grievances at the Cabinet Secretariat.

Cautioning the judiciary against judicial activism, the Supreme Court on Wednesday said judges must remain within the limits of the law and not peddle individual perceptions and notions of justice.The verdict was passed on a petition by the Gujarat government challenging an August 2012 order by the Punjab and Haryana High Court that said the State’s refusal to prematurely release a TADA convict, Lal Singh, was “illegal.” The High Court also ordered the State to release him on parole for three months.

c) Rise in food prices will stem demand, says FAO official

Though the demand for most food commodities in India is set to grow by 2025, it would at a slower rate as compared to 2005-15, according to UN’s Food and Agricultural Organization (FAO).Two factors stand out in terms of a slower rate of growth: first, it is a natural corollary of a gradually slowing rate of population growth. Besides, an important factor is income: rising household income is likely to play an increasing role in product substitution for meeting caloric requirements. For instance, while consumption of most cereals will gradually slow down, the demand for vegetable oils and sugar will spike, as will for other commodities such as livestock products. Another factor is rising food prices whereby a small section of the population will find food unaffordable and thus decrease consumption. While the first two are appropriate, the last one requires policy attention given the numbers of impoverished and hungry in our country.

d) Need credible probe on the use of cluster bombs, says Samaraweera

Sri Lankan Foreign Minster on Wednesday came out in support of the idea of a “credible mechanism” to go into allegations concerning the use of cluster bombs in the final stages of the civil war.Last week, while speaking on the implementation of the October 2015 resolution on Sri Lanka, UN High Commissioner for Human Rights had called for an independent and impartial investigation in the light of recent press reports.

The minister also said that by September, a white paper would be presented on truth-seeking mechanism and later, the proposal would come up before the Cabinet. By early next year, the architecture of special accountability mechanism would be ready for discussion

e) Yeldi Softcom gets RBI licence for digital wallet

Yeldi Softcom, a payment services company, has received licence from the Reserve Bank of India to operate a semi-closed digital wallet to carry out cashless transactions. The acquisition of the licence will enable Yeldi to target a larger customer base to promote the use of digital wallets, a company statement said. A semi-closed wallet is a digital payment instrument accepted by a pre-defined set of merchants contracted specifically by the issuer (Yeldi). A semi-closed wallet does not allow users to withdraw or redeem cash.

##### F. Concepts-in-News: Related Concepts to Revise/Learn:
• African Development Bank
• Ordnance Factory Board
• Iraq war
• National Clean Ganga Mission
• NABARD
• Rural Infrastructure Fund
• CPI
• Cloud burst
• Nutrient Based Subsidy
• The EoU Scheme
• BS VI Standards
• Cluster bombs

##### G. Fun with Practice Questions 🙂
Question 1: Which of the following statements is/are correct?
1. The Ganga Action Plan or GAP was a program launched in 1985 to reduce the pollution load on the Ganga river
2. The Integrated Ganga development project titled ‘Namami Ganga’has a budget outlay of Rs. 20,000 crore for a five year period till 2020

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 2: Which of the following statements is/are correct?
1. Rural Infrastructure Development Fund (RIDF) was instituted in NABARD with the objective of giving low cost fund support to State Govts. and State Owned Corporations
2. Banks can count investments made in the Rural Infrastructure Development Fund (RIDF) maintained with NABARD as part of their indirect agriculture lending under the priority sector lending target

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 3: Which of the following statements is/are correct about cloud bursts?
1. They occur only via orographic lift or occasionally when a warm air parcel mixes with cooler air, resulting in sudden condensation
2. In the Indian subcontinent, a cloudburst usually occurs when a monsoon cloud drifts northwards, from the Bay of Bengal or Arabian Sea across the plains, then onto the Himalaya and bursts, bringing rainfall as high as 75 millimeters per hour

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Question 4: Which of the following statements is/are correct about the Nutrient Based Subsidy Scheme?
1. Under the scheme decontrolled fertilizers are provided to the farmers at subsidized rates based on the nutrients (N, P, K & S) contained in them
2. The subsidy given to the companies producing decontrolled fertilizers is fixed annually on the basis of nutrient content
3. Under the scheme, Maximum Retail Price (MRP) of fertilizers has been left open and manufacturers/marketers are allowed to fix the MRP at reasonable level

a) 1 only

b) 1 and 2 only

c) 2 and 3 only

d) All the Above

Question 5: Which of the following statements is/are correct ?
1. Under the Export Oriented Unit (EOU) Scheme, units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components etc
2. Units in Free Trade Zones in Special Economic Zones (SEZs) and exporting 100% of their products qualifies under 100% Export Oriented Unit (EOU) Scheme

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2