Comprehensive News Analysis – 15 June 2016

Table of Contents:

A. GS1 Related:

1. A ‘mahakumbh’ in Kashmir after 75 years

B. GS2 Related:

1. If India signs RCEP, it will not be the ‘pharmacy of the world’: MSF

2. Pakistan to buy used F-16 jets from Jordan

C.GS3 Related:

1. Udhampur attacker is from Srinagar: Police

2. Wholesale inflation rises to 0.79 per cent in May

3. Baghdadi killed in U.S. air strike, say reports

4. Underwater robots in Bay of Bengal to better predict monsoon

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

The Hindu

1. The twin towers of terrorism

2. The censor is snipped

The Indian Express

1. Food inflation up again

Others

1. PIB

a) Ministry of Railways Signs JV Agreement with Government of Odisha

b) Government Approves Series of Measures for Conservation and Preservation of Lakes in Bengaluru

2. The Financial Express:

a) Must Read: INFRATWEETS: The hot new power source

b) ‘Unimaginable’ helicopter money turns into hot topic

c) RBI forced to try new tack over stressed banks

3. The Business Line:

a) Awaiting turbulence

b) Meeting Paris climate goals is no easy task

4. The Economic Times:

a) Why centre’s plan to use unclaimed PF money to fund government schemes is unacceptable

5. Quick Bits

a) Navy’s woman power reaches Mauritius shores

b) MNRE plans to launch integrated bio energy mission

c) Less than 8% Indian engineers fit for core roles

F. Concepts-in-News: Related Concepts to Revise/Learn:
G. Fun with Practice Questions 🙂
H. Archives

.

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

Useful News Articles

A. GS1 Related
  1. A ‘mahakumbh’ in Kashmir after 75 years

Topic: Cultural Events

Category: Culture

Location: The Hindu

Key points:

  • In a sign of changing times, migrant and local Kashmiri Pandits on Tuesday organised a ‘mahakumbh’ — after 75 years — in north Kashmir’s Ganderbal district where three rivers meet
  • Scores of Pandits performed puja and took a dip in the river at Shadipora, the confluence of Vitasta (Jhelum), Krishen Ganga and Sindh (Indus) rivers
  • Devotees say that such an event took place in 1941 during Maharaja Hari Singh’s reign

 

B. GS2 Related

 

  1. If India signs RCEP, it will not be the ‘pharmacy of the world’: MSF

Topic: RCEP

Category: International Groupings

Location: The Hindu

Key points:

  • Humanitarian aid organization, Médecins Sans Frontières’(MSF) Access Campaign along with other civil society organisations are pushing for the removal of harmful intellectual property provisionsin the Regional Comprehensive Economic Partnership agreement (RCEP)  that could potentially increase drug costs by creating new monopolies and delaying the entry of affordable generics in the market
  • Two of the most worrying proposals in the trade deal is the demand for ‘Data Exclusivity’ and ‘Patent Term Extensions’- both intellectual property obligations that Least Developing Countries (LDCs) were completely exempted from until 2033 according to the WTO TRIPS agreement
  • For India, agreeing to data exclusivity will mean amending the Drugs & Cosmetic Act (FDA law) so that the Indian Drug Regulatory Authority (DRA) is prohibited from registering a more affordable version of a medicine as long as the exclusivity lasts over the clinical trial data

Note:Data Exclusivity is a form of legal monopoly protection for a drug, over and above the patent protections. “This is given expressly to compensate for the investment made during clinical trials

Patent terms extensions are given to compensate the company for delays in processing the patent applications. “A company gets a 20 year patent monopoly on a drug from the date that the application was filed. Sometimes processing these applications takes time and the companies get only 13 years instead of 20. A patent term extension will give another 5 year monopoly to the innovator company, again delay the entry of generic drugs in the market

 

2. Pakistan to buy used F-16 jets from Jordan

Topic:Pakistan

Category: India’s Neighbourhood

Key points:

  • Pakistan is considering buying used F-16 fighter jets from Jordanafter a plan to buy eight of the aircraft from the U.S. fell through because of the refusal of the U.S. Congress to finance the deal
  • Pakistan has bought Jordanian F-16s before, procuring 13 of them in 2014

 

C. GS3 Related
  1. Udhampur attacker is from Srinagar: Police

Topic: Terrorism

Category: Security

Key points

  • The identity of the person, who fired upon a joint patrol of the police and the CRPF from a passenger bus in Udhampur’sKud area(J&K), has been established as Tanveer Sultan, a resident of Srinagar
  • He was associated with the Lashkar-e-Taiba till 2004. Thereafter he was arrested and later released

 

2. Wholesale inflation rises to 0.79 per cent in May

Topic: Prices

Category: Economy

Key points

  • Rising for the second straight month, wholesale price-based inflation jumped to 0.79 per cent in May with vegetable prices witnessing a double-digit growth
  • Food inflation rose to 7.88 per cent in May as against 4.23 per cent in April
  • Inflation in vegetables came in at 12.94 per cent, a sharp rise from 2.21 per cent, a month earlier. Pulses inflation remained stubborn at 35.56 per cent.Manufactured products inflation too inched up to 0.91 per cent from 0.71 per cent in April
  • The hardening of inflation could further dent the chances of an interest rate cut by Reserve Bank in its policy review in the months ahead

Food inflation

 

3. Baghdadi killed in U.S. air strike, say reports

Topic: IS

Category: Terrorism

Key points

  • The Islamic State (IS)’s leader Abu Bakr al-Baghdadi has been killed in an air raid in Syria by the U.S.-led coalition, reports said on Monday
  • Baghdadi died in an air strike on IS’s stronghold of Raqqa in northern Syria, Iranian state media and pro-government Turkish daily YenisSafak said, citing IS-affiliated Arabic news agency al-Amaq

 

4. Underwater robots in Bay of Bengal to better predict monsoonTopic: Weather Forecasting

Category: S&T

Location: The Financial Express

Key points

  • The Bay of Bengal Boundary Layer Experiment (BoBBLE) led by two UK varsities, University of East Anglia (UEA) and University of Reading in collaboration with the National Oceanography Centre (NOC) in Southampton would help predict monsoon with more accuracy
  • Collaborators in India include the Centre for Atmospheric and Oceanic Sciences (CAOS), the Indian National Centre for Climate Information Services (INCOIS), the National Centre for Medium Range Weather Forecasting (NCMRWF) and the National Institute of Ocean Technology (NIOT).
  • The Indian Research Vessel Sindhu Sadhana carrying scientists will sail from Chennai on June 24. They will release seven underwater gliders to measure ocean properties such as temperature, salinity and current
  • Meanwhile, collaborators from a partner project led by the University of Reading with collaborators across the UK and India will use a state-of-the-art aircraft to take atmospheric measurements at the same time
  • It is hoped that the combined results of this large-scale scientific campaign will help forecast the arrival of the Indian monsoon more accurately than ever before

 

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

 

The Hindu

  1. The twin towers of terrorism

Topic: Terrorism

Category: Security

Key points

 

  • Five years after bin Laden’s death, the Islamic State (IS) has, in many ways, overshadowed al-Qaeda as the world’s most serious terrorist threat. Western security officials now view IS as the greater danger to their domestic security, especially because of its mastery of social media and its ability to recruit thousands of disenchanted young Muslims into its ranks
  • Since 2013, IS and al-Qaeda have been competing for funding, recruits and prestige — and they often argue over tactics. IS leaders prefer the wholesale slaughter of civilians, as epitomised by recent attacks in Paris, Baghdad, Beirut and elsewhere
  • By late 2014, the IS seized large chunks of territory in Syria and Iraq. The group then proclaimed a caliphate in the territory under its control, and named its leader, Abu Bakr al-Baghdadi, as caliph and “leader of Muslims everywhere”
  • The IS established a regional base that has allowed it to govern territory, train thousands of fighters and generate income from illicit trade in oil and other resources — all on a scale larger than anything al-Qaeda has achieved. The IS has also established a larger recruitment effort and more sophisticated social media presence than al-Qaeda’s
  • With its self-declared caliphate, the IS has gained control of more resources and generated more income than the al-Qaeda. The IS generates money by selling oil and wheat, imposing taxes on residents of the territory it controls, and through extortion
  • In 2014, it raked in about $2 billion, according to the U.S. Treasury Department. That included $500 million in oil sales in the black market, and up to $1 billion in cash stolen from banks while the group made its initial march across Syria and Iraq. By contrast, the al-Qaeda has historically relied on donations from wealthy individuals, especially in the Gulf states
  • Overall, IS has displaced al-Qaeda as the dominant force in international jihadism. But even in its weakened state, the al-Qaeda still poses a danger to the West, West Asia and the wider Muslim world. In recent years, it has become more active in Yemen and has established a strong affiliate in Syria, the Jabhat al-Nusra, which is a dominant force among the jihadists fighting the regime of Syrian President Bashar al-Assad
  • It’s essential not to underestimate al-Qaeda’s ability to evolve and adapt to a new landscape — as it has done before. When the U.S. invaded Afghanistan in October 2001 to drive out the ruling Taliban movement that sheltered bin Laden and his supporters, the al-Qaeda was temporarily thrown off balance. It quickly regrouped, dispersing its surviving members, distributing its ideological tracts and terrorist techniques to a wider audience on the Internet, and encouraging new recruits to act autonomously under its banner
  • Even while in hiding, bin Laden and his top lieutenant, Ayman al-Zawahiri, freely addressed their supporters through dozens of videos, audiotapes and Internet statements. They helped inspire hundreds of young men to carry out suicide or conventional bombings in Iraq, Saudi Arabia, Egypt, Jordan, Morocco, Spain, Turkey and Britain
  • Bin Laden and Zawahiri were believed to be hiding in mountainous areas along the Afghanistan-Pakistan border, under the protection of ethnic Pashtun tribes. They knew the area well, having fought there in the 1980s during the Central Intelligence Agency-sponsored jihad against the Soviet occupation of Afghanistan. But bin Laden was found and killed in a Pakistani city about an hour’s drive north of Islamabad, the capital. After his death, Pakistan’s leaders did not address questions over how bin Laden managed to elude them for so long, and how the al-Qaeda was able to rebuild its infrastructure in the tribal region of northwest Pakistan
  • Before the 9/11 attacks, bin Laden had relied on recruits trained at Afghan camps, and many had personally pledged allegiance to him. But while in hiding, he became more of a symbol and a source of ideology than a planner of specific attacks. One of bin Laden’s former bodyguards in Afghanistan once described the group’s operations to an Arabic newspaper this way: “Every element of al-Qaeda is self-activated. Whoever finds a chance to attack simply goes ahead. The decision is theirs alone.”
  • IS and al-Qaeda differ in other important ways: the latter wants to overthrow what it views as the corrupt and “apostate” regimes of West Asia — the “near enemy”. But in order to do so, al-Qaeda’s leaders focussed on the “far enemy:” the U.S. and the West
  • That focus was partly motivated by U.S. actions abroad. For decades, Washington has supported repressive regimes in countries such as Egypt and Saudi Arabia, which spawned al-Qaeda’s top leaders. Both bin Laden, a Saudi, and his successor, Zawahiri, an Egyptian, at first turned against the dictators at home. Then — realising that the U.S. was helping to prop up these regimes — they targeted the “far enemy”. We will never know whether these men would have attacked America if it hadn’t supported the governments they were trying to destroy. But it did not help
  • In targeting the U.S., the al-Qaeda believes it will eventually force Washington to withdraw its support for the autocratic Arab regimes and abandon West Asia entirely
  • But the IS does not subscribe to al-Qaeda’s vision and instead it mainly focusses on the “near enemy” — meaning the so-called apostate regimes in Syria, Iraq and other parts of the Arab world. So far, IS has been more successful in its strategy, which relies on capturing and holding territory
  • It was Zawahiri who convinced bin Laden to shift his attention to the “far enemy”, helping inspire the 9/11 attacks. Zawahiri fled Egypt in the early 1980s, after serving three years in prison for belonging to an outlawed militant group. He spent time in Sudan, Afghanistan and Pakistan, where he first met bin Laden in 1987. At the time, bin Laden, a multimillionaire Saudi dissident, helped train and finance a cadre of “Afghan Arabs”, Islamist volunteers from across West Asia who fought against the Soviet occupation of Afghanistan. Those fighters later formed the foundation of bin Laden’s network
  • In the late 1980s, Zawahiri established an office in Peshawar, a Pakistani city near the Afghan border that served as training ground and supply conduit for the Afghan resistance. It was in Peshawar that Zawahiri began to cement his relationship with bin Laden — and to reshape the Saudi’s thinking about militant Islam. Zawahiri helped turn bin Laden from a financial backer of the Afghan resistance into a strong believer in the ideology of jihad, fighting against the perceived enemies of Islam
  • As the al-Qaeda’s influence waned, the IS has tried to fill the vacuum by expanding into new territory. In November 2014, Baghdadi announced that the IS was creating new “provinces” of its self-declared caliphate in five new countries: Saudi Arabia, Yemen, Libya, Algeria and Egypt. While IS sympathisers had pledged allegiance to Baghdadi in other states, the IS leader singled out only those countries where the movement has a strong base of support and could mount sustained attacks
  • But Baghdadi also called on his supporters to carry out “lone wolf” attacks wherever possible. “Oh soldiers of the Islamic State, erupt volcanoes of jihad everywhere,” he declared. “Light the earth with fire against all dictators.” And for more than a year, IS militants have been heeding the self-proclaimed caliph’s call

 

2.The censor is snippedTopic:Media

Category: Governance

Key points:

  • The Bombay High Court has handed out a lesson to the Central Board of Film Certification. While ordering that Udta Punjab be granted a certificate in the ‘Adult’ category and allowed to be screened with one cut and a disclaimer, the court has served a reminder that certification, and not censorship, is the real job of the CBFC. And that the power to order changes and cuts must be exercised only in line with provisions of the Constitution and Supreme Court orders. Its mandate is not to interfere with the film-maker’s creative process and freedom of expression
  • More importantly, the CBFC has been advised not to look at cinema like a ‘grandmother’ and instead move with the times and understand the impulses of present-day creators who may have a candid and direct manner of storytelling. It has reminded the Board that a film should be seen as one whole and its scenes and dialogues are not to be taken out of context
  • The CBFC had no business in the first place to appoint itself the guardian of the honour of Punjab and take umbrage at the portrayal of the prevailing reality of widespread drug addiction in the State. Suggesting that references to Punjab and other places be deleted amounted to ordering that a film about a besetting vice in a particular geographical area be converted into a vague tale in a make-believe world
  • The reasonable restrictions under Article 19(2) have been routinely invoked to choke free speech and expression. These restrictions were never meant to include such things as whether people, in power or otherwise, found something in poor taste, offensive or against the grain of social or political opinion. We live in a country where hurt sentiment is used to seek curbs on all manner of creative expression — in books, music, art and film
  • The CBFC is guilty, at the very least, of succumbing to the view that hurt sentiments (whether real or manufactured) are a basis for ordering extensive and story-altering cuts in a film
  • The ShyamBenegal Committee, which recently submitted its report on norms relating to film certification, recommended that the CBFC should be nothing more than a certification body. It has suggested that films be classified on the basis of their suitability to different age groups
  • After Udta Punjab, reforming the CBFC’s functioning has acquired a new urgencymedical expenditure.

 

The Indian Express

 

  1. Food inflation up again

Topic: Prices

Category: Economy

Key Points:

  • Consumer food price inflation, at 7.55 per cent year-on-year in May, has hit a 21-month-high. And what’s striking is how steep has been the climb – from an average of 2.7 per cent during July-September (when the monsoon rains had failed) to 5.2 per cent in March (when the drought was at its peak) and 7.5 per cent-plus now (when a good monsoon is supposedly round the corner)
  • The Reserve Bank of India had made it clear that the stance of monetary policy remains accommodative
  • But with food inflation rising again, the possibility of further rate cuts – since January 2015, the RBI’s key short-term lending or repo rate has been reduced from 8 per cent to 6.5 per cent – is effectively ruled out. On the contrary, there will be pressure to raise rates, as the overall CPI inflation of 5.76 per cent for May is well above the central bank’s target of 5 per cent by January 2017 and 4 per cent from the following fiscal. The fact that food items have a 45.86 per cent weight in the CPI – and there is little that monetary policy tools can do to control food prices – makes the RBI’s job all the more difficult
  • It raises the question: Why are food prices rising now, especially when the drought is apparently behind us and the met department has forecast an “above normal” monsoon
  • The most obvious explanation for the current spike in food inflation is that the effects of drought are felt most during the summer months. This is the period when the rabi crop – not a very good one this time – has already been marketed and we are still some time away from the next crop’s arrival from October. This, in a sense, is the proverbial darkest hour just before the dawn. With a good monsoon, our worries over food prices will mostly be washed away
  • Even the latest May CPI data shows retail inflation in pulses at 31.57 per cent. But one can expect farmers to significantly expand area under arhar/tur, urad and moong in this kharif season, mainly in response to high market prices
  • But there are some crops – especially sugar, wheat and potatoes – where we may not see prices really cooling even with a good monsoon
  • India’s sugar production fell from 28.5 million tonnes (mt) in 2014-15 to 25.2 mt in 2015-16. The impact of last year’s drought and the low cane plantings in Maharashtra and Karnataka will, however, be seen more in the 2016-17 sugar season from October, with output expected to dip further to 22-23 mt. Imports can be a way out
  • Wheat and potatoes, on the other hand, are primarily rabi crops sown in October and harvested from March. Although the Centre has claimed wheat production for 2015-16 to be over 94 mt, flour millers and traders peg this at least 8-10 mt lower
  • Wheat imports now attract 25 per cent customs duty. This duty is technically applicable until June 30, when the marketing season gets over. It is not clear whether the Centre would allow the import duty to revert to nil after that
  • As far as potatoes go, the Centre’s own estimates point to a drop in production to 45.6 mt in 2015-16, from the previous year’s 48 mt. Low prices as well as unfavourable weather conditions led to farmers in states like Uttar Pradesh, West Bengal and Punjab planting less area in the recent rabi season. The effects of it are being felt now, with the tuber now retailing at twice the levels at this time last year
  • The next few weeks, when the course of the monsoon would become clear, will decide where food inflation and interest rates are headed. And needless to add, the implications of it extend way beyond just these two variables

 

Others:

 

1. PIB

 

a) Ministry of Railways Signs JV Agreement with Government of Odisha Ministry of Railways signed a Joint Venture Agreement with Govt. of Odisha.This is a very important step for formation of Joint Venture Company for development of Railway Infrastructure in the State.

The company shall identify projects to be developed and find avenues for financing of the same. Ministry of Railways and Govt. of Odisha shall be essentially funding part of such identified projects. Project specific SPVs shall be formed after financial closure of the project.

Background:

  • In view of the growing demands for railway lines in various states and huge requirement of funds to execute them, Minister for Railways announced in his budget speech regarding setting up of Joint Ventures with states for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects
  • 17 State Governments consented for formation of Joint Venture Companies in collaboration with the Ministry of Railways for development of rail infrastructure in their respective States

 

b) Government Approves Series of Measures for Conservation and Preservation of Lakes in BengaluruThe Government has approved a series of measures for the abatement of pollution and for the conservation and preservation of lakes in Bengaluru.It has been decided to initiate 24×7 online monitoring of all Sewage Treatment Plants (STPs). Lakes will be restored in a bio-diverse manner in Public-Private Partnership mode

Some of the other actions that have been agreed upon include:

• All residential group housing projects/apartments with >20 units and total build-up area of 2000 sq.mtr. to install STPs.

• Re-use of treated sewage for various purposes and dual piping system to be prescribed in apartments/commercial establishments for re-use of treated sewage.

• Regular monitoring of STPs to be carried out by State Pollution Control Board.

• Retrofitting of existing STPs to meet the revised effluent norms.

• Proper management of plastic waste to ensure that it is not dumped in the lakes.

• Madivala lake to be developed as a biodiversity park on the lines of Yamuna Biodiversity Park under the guidance of Karnataka Knowledge Commission.

• Lake Wardens to be appointed for involvement of public in lake conservation.

• CSR funds to be tapped for conserving and developing lakes

 

2. The Financial Express:

 

 

b) ‘Unimaginable’ helicopter money turns into hot topicTopic: Monetary Policy

Category: Economy

Key Points

  • Around the world, the most conventional way of conducting monetary policy is by targeting the short-term nominal interest rates. The assumption is that monetary policy changes real short-term rates to influence economic decisions through their effect on other asset prices
  • However, people can always hold currency instead of depositing it in banks.This implies that nominal interest rates(The interest ratebefore taking inflation into account) cannot go below zero which limits the effectiveness of conventional monetary policy. This is precisely what happened in the early 2000s in Japan and then, after the 2008 crisis, in the US, UK and the EU
  • This led the Federal Reserve, the Bank of Japan, the Bank of England and the European Central Bank to resort to unconventional monetary policies such as Quantitative Easing (QE) to stimulate economic growth. QE refers to the purchase of long-term assets by the central bank from the commercial banks and other financial institutions. QE, thus, lowers the yield of these assets and simultaneously increases the monetary base. This incentivises banks to make more loans rather than invest in long-term assets. QE, thus, attempts to spur economic growth by encouraging the banks to lend more and the increased money supply is expected to lead to higher investment
  • After successive rounds of QE by the Fed, ECB, BoJ and the Bank of England, their respective economies have been unable to achieve their respective inflation targets. The global economy still continues to be plagued by inadequate demand and the rising risk of deflation
  • The International Monetary Fund (IMF) has slashed this year’s global growth expectations from 3.4% to 3.2%. So, why did QE fail to boost GDP? Remember that success of QE crucially depends on whether banks use the additional reserves to lend or not. However, the money created through QE was used to buy long-term bonds from the financial market
  • In a desperate attempt to boost demand, the world is contemplating the implementation of yet another unconventional policy—’helicopter drops’, i.e., the financing of private consumption by printing money
  • The idea of ‘helicopter money’ was first mooted by Milton Friedman in 1969 in his famous paper, The Optimum Quantity of Money, where he talked about newly-printed money dropped from helicopters to kick start the economy. Of course, he used it as a metaphor to bring home the point that the government could always create inflation by printing enough money and distributing it. As people spent this money on buying goods and services, nominal GDP would rise
  • In more realistic terms, helicopter money is an expansionary fiscal policy; say an increase in public spending or a tax cut, which is not financed by the issue of interest-bearing debt, but by an increase in the monetary base(printing currency)
  • Helicopter money is nothing but money financed fiscal program (MFFP), one that is financed by a permanent increase in money stock without increasing the debt burden of the government
  • Adair Turner, in his IMF paper, discussed a number of ways in which money could be created to finance the expansionary fiscal policy
  • The central bank directly credits the government current account and records as an asset a non-interest bearing non-redeemable “due from government” receivable. The government issues interest-bearing debt which the central bank purchases and which is then converted to a non-interest-bearing non-redeemable “due from government” asset. The government issues interest-bearing debt, which the central bank purchases, holds and perpetually rolls, returning to the government as profit the interest income it receives from the government
  • Thus, in the case of MFFP, the increase in monetary base is permanent whereas QE leads to only a temporary increase in monetary base as the bonds bought by the central bank will at some point of time be sold back to commercial banks and private sector
  • Possible channels through which MFFP could influence the economy: (a) the direct effects of the public works spending on GDP, jobs, and income, (b) the increase in household income from tax rebate, which should induce greater consumer spending, (c) lower real interest rate as a consequence of temporary increase in expected inflation, the result of the increase in the money supply This, in turn, should incentivise capital investment
  • The effectiveness of “helicopter money” depends on how much consumers decide to spend versus save.
  • The RBI governor highlighted the fact that if people decide to save the newly-created money rather than spend, then most of it would end up in bank accounts, and its creation wouldn’t have had much impact on the broader economy
  • Others assert that it is susceptible to the political risk of overuse. If monetary finance is not prohibited, governments might use it repeatedly to bolster their electoral prospects. Some also fear that such a policy may threaten the independence of the central bank
  • Is it possible to ‘construct rules and responsibilities to mitigate the political risk of excessive use’?
  • There is a proposal to give independent central banks the authority to approve a maximum quantity of monetary finance if they believe doing so is necessary to achieve their clearly-defined inflation target. This will not only retain the independence of the bank, but also limit the ability of the fiscal authority to spend frivolously. At the same time, the fiscal authority can determine their course of action
  • Helicopter money, which was considered unimaginable till recently, has currently become hot topic of debate in academic and central bank circles. It is a concept that has never been tried out in real life by any major central bank. But with growing concern that QE has failed to revitalise economy, we shall not be surprised if the discussions about helicopter money move to the next level

 

c) RBI forced to try new tack over stressed banksTopic: Banking

Category: Economy

Key points:

  • RBI has been trying for some time now to help banks deal with assets that are stressed and also to identify potential stress in the system. The 5/25 scheme which allows lenders to recast loans in a manner that eases the pressure on the borrower should yield results provided banks don’t misuse the provision
  • The Strategic Debt Restructuring (SDR) scheme, which enables lenders to convert a portion of the debt into equity and bring in a new set of promoters to run the company, however, has been a non-starter
  • While banks have initiated the process for a dozen companies, a weak economic environment has seen no takers for these assets, many of which are steel companies. Roping in a new management is not easy even in the best of times; so, it is no surprise that lenders haven’t been able to sell these assets
  • The central bank’s latest restructuring scheme for sustainable structuring of stressed assets—S4—makes it easier for banks by allowing them to restructure the debt without necessarily bringing in a new promoter
  • The objective is to let lenders convert the ‘unsustainable debt’ or what is essentially assessed to be the non-servicable loans into equity as long as this is less than 50% of the total debt. A smaller debt would make it easier for promoters to pay back their dues, although no moratorium or lowering of interest rates is permitted
  • Meanwhile, banks can enjoy the upside if there is a recovery—the debt can be converted into either equity, redeemable cumulative optionally convertible preference shares or even optionally convertible debentures
  • The provisioning requirements—20% of the total exposure or 40% of the amount of loans converted—aren’t too stiff either though there will be a hit since the portion converted will need to be marked to market. The central bank is clearly trying to make it easier for banks to try and recover at least some part of their dues—by not insisting on a new promoter being brought in
  • At the same time, it wants borrowers to share the pain; if the existing promoters stay on, even as minority owners, they are expected to dilute their stake at least in the same proportion as that of the unsustainable debt to the total debt. Moreover, they will need to furnish a personal guarantee for at least the amount of sustainable debt
  • While the guidelines are fine, if banks have a very small shareholding, promoters will not cooperate with them. Simply because they have board representatives and voting rights doesn’t mean they will have a grip on how the company is being run
  • If the promoters have a minority stake, they may mismanage affairs to an extent where no other businessman wants to touch the company and the equity becomes worthless. Therefore, banks need to be cautious before they start converting the loans into equity
  • There are those who will argue that the flipside to a status quo is to watch the exposure turn into a non-performing asset, so it is better that lenders hold some equity which they may be able to sell at some point. It is a difficult decision because the environment is a tough one and borrowers cling to their companies but put off paying their dues for as long as they can
  • Moreover, waiving off dues—when it is not clear whether the equity will bring returns—is not fair to other good borrowers. On balance, banks need to take some calculated bets

 

3. The Business Line: 

 

a) Awaiting turbulenceTopic: Aviation

Category: Governance

Key points:

  • The proposed new civil aviation policy is in the last stages of consultation before it goes to Cabinet. After the heated debates over the 5/20 rule (whether the policy of domestic airlines having 20 aircraft and having flown in Indian skies for five years to be eligible to fly abroad should be scrapped, changed or retained), comes the news that the Ministry of Civil Aviation is considering auctioning of seats to international airlines
  • This means if Indian carriers are not able to fill the seats allocated to them as per a bilateral agreement with Country A, whereas the carriers from Country A have managed to fill all the seats allocated to them. In such a situation, the Indian Government will auction seats to international carriers for routes between India and Country A
  • All international airlines will be free to take part in the auction and the highest bidder will be allowed to fly between India and Country A. This airline should have an air services agreement with Country A
  • If all this sounds confusing, how this is going to be implemented is even more so. In theory, following the auction route makes some amount of sense as this will get the Indian Government money from the auctions. But it is difficult to comprehend how this will work
  • Let’s take the example of India and Country A. Say Country A has airlines flying on all the seats that they are allotted as per the bilateral. But Country A feels that it can increase the number of seats that it flies to India as there is a demand for more seats
  • So Country A approaches the Ministry of Civil Aviation through the Ministry of External Affairs and seeks additional seats. Fine, says the Ministry of Civil Aviation; we will give you the additional seats but through an auction which will be open to airlines from around the globe

 

  • What happens then is that an airline from Country B takes part in the auction, and also gets the rights to fly between India and Country A. Where does this leave Country A? It does not get the extra seats that it wanted while another country does
  • Even if it does take part in the auction and wins it has to pay for seats which would otherwise have been given to it free as per the bilateral between India and Country A. How many countries and their airlines will be open to this new arrangement needs to be seen
  • In an attempt to plug some loopholes, the additional seats will be given for a maximum period of three years. This too raises a number of issues. For starters, will an airline be willing to invest millions of dollars in ordering new aircraft or taking them on lease for a three-year window? What does it do with the aircraft after the three years are over?
  • Besides, will implementing such a proposal really lead to a level playing field for all airlines? There are only a few global airlines which have large enough fleet allowing them to juggle their aircraft around and make use of such an offer
  • Further, there are only a few international airlines which have deep enough pockets to bid in an auction and win seats. What happens to the others?
  • How will this affect Indian carriers? To begin with they may not be able to fill all the seats that bilaterals allow them. With the auctioning of seats they will also have to face competition from other international airlines on routes on which they are already flying. The argument is that competition will lead to better quality service and also lowering of ticket rates.
  • Till December 2004, India adopted a limited open sky policy to cater to peak season demand by permitting designated airlines to operate unlimited services to their respective points of call for three to six months. During the open skies from November 2004 to March 2005, foreign airlines requested for 2,387 extra flights translating into 5.85 lakh additional seats which were given to them
  • Or the Indian Government could look at building the kind of trigger mechanism which exists in the Air Services Bilateral Agreement with the UAE.
  • The bilateral has a mechanism which allows airlines from both sides to increase flights by around 5 per cent, especially during the festive season when demand for travel between India and the UAE is at its highest. After this they go back to the original number of seats.
  • Auctioning seats in the proposed manner is clearly not an option particularly when the logistics and the logic leave many unanswered questions. What also remains to be seen is how the international aviation industry will respond to such a move by the Indian government

 

b) Meeting Paris climate goals is no easy taskTopic: Climate Change

Category: Environment

Key points:

  • The Paris Agreement is perhaps the world’s biggest leap forward in the history of climate policy. For the first time, the world is united on the ambitious goal of limiting the global temperature rise ‘well below’ 2 degrees Celsius
  • The challenge before India – reducing the emissions intensity of its GDP by 33-35 per cent by 2030 – seems hard but not insurmountable. Renewable energy, energy efficiency, electric mobility and smarter infrastructure are the areas that need a policy push backed by strong political will and sound technical ability
  • Doubling of the coal cess in the last Budget, and the tax hike on petroleum fuels were good instruments, but we are yet to see mobilisation of this fund on a substantial scale to support low carbon projects
  • The prospect of achieving 40 per cent cleaner power generation by 2030 is not so encouraging with a disappointingly low nationwide power demand, growing grid instability in areas of high RE penetration and intense competition pushing the solar tariff so low (Rs 4.34-5 per unit) that the bankers are reluctant to lend to such projects
  • Nonetheless, the Government needs to work closely with the sectoral stakeholders to remove regulatory and policy barriers in RE. According to the National Electric Mobility Mission Plan, 6-7 million electric or hybrid vehicles are expected to ply on Indian roads by 2020. To enable this, charging infrastructure must be deployed or retrofitted in commercial and residential areas. The government can involve private players to set up charging stations on a PPP mode
  • EVs ramp up power demand and hence utilisation of power plants. Further, EV battery can be charged at night and the stored power can be fed back, through Vehicle-to-Grid (V2G) system, into the grid during peak periods, thus helping to stabilise the grid’s voltage and frequency, providing a spinning reserve to balance sudden demand spikes. Regulatory clarity is needed with regard to sale of electricity to EV consumers and possible sale back to the grid
  • An unfinished agenda for many State Governments is to develop the building energy efficiency code, and undertake capacity development for the public and private stakeholders. Industrial energy efficiency is on the rise
  • However, access to finance, especially for MSMEs, remains constrained, due to their limited borrowing capacity, lack of knowledge and information on newer technologies, higher transaction costs, and higher demand for collaterals by lenders
  • Credit flow can be augmented by targeted assistance to the MSMEs and capacity building of financial institutions to develop a standardised credit appraisal framework for climate-friendly projects
  • The ‘International Solar Alliance’ and the ‘Mission Innovation’, which entails bilateral exchange of technologies, may slow down if a next US President is a climate-sceptic
  • Back home, the States should develop their own revenue generation plans to support the mandatory State action plans for climate change. It is also the time to overhaul the global financial system to ensure sustainable investment flows in climate projects. A crucial role of the regulators will be to allow markets to adjust efficiently, and encourage enhanced disclosure

 

4. The Economic Times:

 

a) Why centre’s plan to use unclaimed PF money to fund government schemes is unacceptableTopic: Public finance

Category: Economy

Key points:

  • The government’s reported plan to use unclaimed provident fund money to fund government schemes is unacceptable. Money is left unclaimed by the poorest and most disempowered of workers, daunted by the Employees’ Provident Fund’s procedural complexity. The unclaimed funds have mounted to about Rs 43,000 crore. That’s not small change. The EPFO should trace these workers and return their dues with interest, or forswear unorganised sector workers’ retirement savings, leaving them to the National Pension System (NPS), with its portable, permanent saving accounts
  • The very idea of the Centre borrowing money from the EPFO to bridge the resource gap in some schemes is ill conceived. That is not redeemed by the nobility of the schemes financed. The borrowing will push up the fiscal deficit and lower the return for the PF — the sovereign borrows cheaper than a company. If the government pays a rate of interest higher than the yield on gilts of like maturity, it would amount to an avoidable maturity
  • Appropriation of the unclaimed money by the Centre would amount to robbing the poor. EPFO must stop the perverse practice of using unclaimed funds or inoperative accounts to top up the small returns it generates by investing workers’ savings. One way is to manage the assets better, balancing higher risk with diversification. The other is to let workers migrate to the NPS
  • The NPS manages pension contributions of civil servants who joined service January 2004 onwards and also of voluntary subscribers. The NPS offers seamless portability, the worker uses the same account and fund manager of choice even when she switches jobs. The government should quickly make the NPS the chosen vehicle to receive and invest workers’ savings and fulfil Budget promise made two years ago

 

5. Quick Bits

 

 

b) MNRE plans to launch integrated bio energy mission
The Ministry of New & Renewable Energy aims to launch an Integrated Bio Energy Mission with an estimated outlay of Rs. 10,000 crore from 2017-18 to 2021-22The Integrated Bio Energy Mission would aim to contribute to achieve greenhouse gas emissions reduction targets as agreed in the Nationally Determined Contributions at COP 21 in Paris

This would be achieved through progressive blending/subsitiution of fossil fuels such as coal, petrol, diesel, natural gas and LPG with biomass pellets, bioethanol, biodiesel, biomethane and similar green fuels for both electricial and non-electrical uses

 

c) Less than 8% Indian engineers fit for core rolesSignificant efforts need to be made to improve employability in the engineering sector as less than 8 per cent of Indian engineers are employable in core engineering roles, reveals an Aspiring Minds’ report.

The National Employability Report for the first time this year looked into the employability of specialised and new careers, which are available to engineers, other than core IT and software roles

The government’s Make in India initiative aspires to create manufacturing capacity in India and generate 100 million jobs by 2022.

Low employability of engineers, however, will impede the growth of manufacturing in India in a big way and requires immediate intervention, the employability assessment firm said

 

 

G. Fun with Practice Questions 🙂
Question 1: Which of the following statements is/are correct?
  1. The Strategic Debt Restructuring (SDR) scheme enables lenders to convert a portion of the debt into equity and bring in a new set of promoters to run the company
  2. The scheme for sustainable structuring of stressed assets, S4A allows banks to restructure the debt without necessarily bringing in a new promoter

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. Geothermal energy is generated from Earth’s internal heat generated from radioactive decay and continual heat loss from Earth’s formation
  2. Biodiesel is made by fermenting the sugar and starch components of plant by-products
  3. Bio ethanol is made through a chemical process which converts oils and fats of natural origin into fatty acid methyl esters

a) 1 only

b) 1 and 2 only

c) 2 and 3 only

d) All the Above

 

Question 3: Which of the following statements is/are correct aboutthe Bay of Bengal Boundary Layer Experiment (BoBBLE)?
  1. It involves releasing underwater gliders to measure ocean properties
  2. It will use a state-of-the-art aircraft to take atmospheric measurements at the same time
  3. The experiment is to help forecast cyclonic activity in Bay of Bengal

a) 1 only

b) 1 and 2 only

c) 2 and 3 only

d) All the Above

 

Question 4: Which ofthe followingcrops can be classified as Kharif crops?
  1. Cotton
  2. Groundnut
  3. Gram
  4. Mustard

a) 1 and 2

b) 2 and 3

c) 1,2 and 3

d) All the Above

 

Question 5: Which of the following statements is/are correct?
  1. Through The Mission Innovation launched at COP21, 20 countries committed to double their respective clean energy research and development by 2020
  2. The International Solar Alliance (ISA) launched at the CoP21 Climate Conference with invitees from all countries located fully or partly between the tropics of Cancer and Capricorn is to function from the National Institute of Solar Energy in India, Gurugram

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

 

Check Your Answers

“Proper Current Affairs preparation is the key to success in the UPSC- Civil Services Examination. We have now launched a comprehensive ‘Online Current Affairs Crash Course’.
Limited seats available. Click here to Know More.”

 

Leave a Comment

Your email address will not be published. Required fields are marked *