Comprehensive News Analysis - 18 June 2016

A. GS1 Related

1. Thoughts on yoga

Topic: Indian Traditions and Health

Category: Culture

Location: The Hindu

Key points:

Yoga is all about breathing with awareness, therefore as long as you are breathing, you are fit for yoga

Practice of yoga teaches you the importance of practice. Difficult poses can be achieved through practice; it is the simplest of poses that are difficult to perfect. Just the way it is in life: always so difficult to be simple

Note: Take a look at yoga as one of the six schools of Indian philosophy

B. GS2 Related

1. In a first, diplomats vow to fight for LGBT rights

Topic: LGBT Issues

Category: Governance

Key points:

• In an unusual event in the capital, diplomats of 27 countries issued a statement on Lesbian, Gay, Bisexual, Transgender and Intersex (LGBTI) rights, as the American centre held a programme attended by several embassies as part of their month-long commemoration of LGBTI “Pride Month”, marking specially for the victims of the Orlando nightclub massacre in the U.S
• India continues to keep its British-era law Section 377 of the Indian Penal Code that criminalises LGBTI acts
• There were two different Supreme Court rulings in 2009 in which one granted transgenders “all rights under the law” on the one hand whilethe other overturned the High Court judgment that had dismissed Section 377 on the other

Category: International Relations

Key points:

• The next round of US-Japan-India trilateral dialogue will start in Tokyo from tomorrow
• The first India-US-Japan trilateral meeting was held in December 2011 at the level of joint secretary. Since then officials of the three countries have been meeting twice a year
• From the US perspective, the dialogue is seen as part of what is described as a policy “pivot” toward Asia and for India it is part of its ‘Act East Policy’

Category: International Relations

Key points:

• Thailand PM Chan-o-chan, who is on a two-day visit to India agreed that while India and Thailand had already been negotiating an FTA, the talks should be made all encompassing by taking the trading relations beyond just goods to include services and investments
• There is synergy between Thai strengths in infrastructure, particularly tourism infrastructure, and India’s priorities in this field. Information Technology, pharmaceuticals, auto-components, and machinery are some other areas of promising collaboration
• Early conclusion of a balanced Comprehensive Economic and Partnership Agreement is a shared priority.Both countries recognised the importance of bilateral trade and noted that the bilateral economic relations are deep rooted in the existing framework including ASEAN India Trade in Goods Agreement and Early Harvest Scheme(Both sides had concluded an early harvest scheme in 2004 covering 84 tariff lines, post which negotiations for an FTA started. So far as many as 29 rounds of talks for FTA have taken place)
• Two-way trade between India and Thailand stands at $8 billion. While export to Thailand from India is $2.63 billion, Thai imports reached $5.3 billion in 2015-16
• In an effort to boost two-way investments, India and Thailand also decided to renegotiate a new Bilateral Investment Treaty (BIT)
• Apart from economic ties, both sides also agreed to take their Defence ties to the next level as both countries are considered maritime neighbours
• the Defence ties will be shaped by – sharing of expertise and experiences, greater staff exchanges and more exercises, cooperation on counter-piracy on seas, deeper engagement in naval patrolling and building linkages in the field of defence R&D and production

C. GS3 Related

1. Centre mulls interest subsidies to boost exports

Topic: Exports

Category: Economy

Key points

• Merchandise exports have been shrinking for 18 consecutive months since December 2014 but the contraction in May 2016 at (-) 0.79 per cent was at the slowest pace since then
• The Commerce Ministry said the government was studying sector-wise contraction in exports in a bid toextend help through interest subsidy and other incentives

Category: International Relations

Key points

• India and South Korea will jointly review their Free Trade Agreement (FTA) to boost trade and investment ties
• The FTA, officially called the Comprehensive Economic Partnership Agreement (CEPA), had come into effect in 2010
• The FTA review will involve, among other things, fresh negotiations on elimination/reduction of duties on various products
• Indian steel makers want steel products to be excluded from the scope of FTA as a surge in cheaper steel imports was hurting them

Category: Economy

Key points

• Feeling fettered by a regional pact which prohibits Namibia from selling uranium to India, President of Namibia regretted the world order that allowed a handful of powerful countries to dictate terms on nuclear technology
• Namibia, the world’s fourth largest uranium producer, signed an agreement with India in 2009 for uranium supply. However, as a member of the African Nuclear Weapon-Free Zone Treaty (ANWFZT or Pelindaba Treaty), it is barred from trading in uranium with India, which is not a member of the Non-Proliferation Treaty (NPT)
• The Namibian President lauded what he termed India’s commitment to the peaceful use of nuclear energy. “We will look into legal ways for our uranium to be used by India,” he said

D. GS4 Related

E. Important Editorials: A Quick Glance

The Hindu

1. Nervous takeoff

Topic: Civil aviation

Category: Governance

Key points

• The civil aviation policy, unveiled after much ado, ticks all the right boxes. The intent to fast-track the sector and harvest its multiplier effects on the economy, spurring investments, tourism and employment, is clear
• Making flying affordable and bringing more cities on the air transport map — either by reviving defunct airports or building no-frills as well as full-fledged commercial terminals — would boost domestic traffic, but the target to more than triple passenger numbers by 2022 is too ambitious
• A critical reform is the de-politicisation of identifying destinations. Indeed, resources ought to be deployed based on economics rather than as populist gestures to the hinterland voter
• The regional connectivity scheme will be purely demand-driven, on the basis of commitments from airlines and State governments
• Aiming for a Rs.2,500 air ticket for hour-long flights by securing concessions from States and airports and subsidising airlines is a populist gesture. Implementing a subsidy-based network comes with its perils — oil prices tend to swing, and the wisdom of a dole for flyers on new routes to be financed by a levy on flyers on high-traffic routes is questionable. A complex regime would make airlines hesitate before investing in smaller aircraft for such routes
• Liberalising the right to fly abroad by scrapping the five-year domestic flight operations requirement doesn’t create real room for manoeuvre for investors. Quick offers of international routes may not mean much for new airlines; it is not financially feasible to scale up to a fleet of 20 aircraft just to get the right to deploy the next one on an overseas route
• Similarly, while an open sky policy with SAARC countries is a positive, it has a misleading ring when applied to countries beyond a 5,000-km radius. India already has unused flying rights to EU countries and an open-sky policy with the U.S. and the U.K
• The success of the regional connectivity plan will hinge on concessions from States in the form of free land, lower utility rates and tax cuts on aircraft fuel. The Centre has offered to grant special economic zone status for any aeronautical manufacturing activity. But such sops are not as tempting as they used to be
• While the policy promises to bring down airport user charges and make flying cheaper, future tariffs at airports will be calculated on a hybrid till basis that allows operators to use just 30 per cent of non-aeronautical revenues to subsidise costs. This would not only push up airport costs, but also run counter to the single till approach followed by the independent airport economic regulator
• The trajectory of the policy seems right, but several unseen variables remain. These could well throw Indian aviation off the flight path that the government has sought to determine

Note:In the single-till model, both aeronautical and non-aeronautical charges are taken into account to calculate the airport charges. In the double-till model, aeronautical airport charges are calculated on the basis of revenues from aeronautical factors and non-aeronautical airport charges on the basis of collections from non-aeronautical factors

In the Hybrid model, the airport charges are calculated by taking all the aeronautical and 30 per cent of the non-aeronautical revenue into account. Charges at the Delhi and Mumbai airports are calculated on the basis of hybrid model

Category: S & T

Key points:

• A little more than three months after detecting gravitational waves from the merger of two massive black holes, the Laser Interferometer Gravitational-Wave Observatory (LIGO) detectors recorded on December 26, 2015, gravitational waves from the merger of two smaller black holes nearly 1.4 billion years ago
• This has confirmed that the merger of binary black holes recorded on September 14, 2015 was not a chance discovery, and opened a new category of objects to be observed in the universe. While the September event was from the merger of black holes 36 and 29 times the mass of the Sun, the December event was from the merger of smaller black holes that had 14 and eight times its mass
• As a result of their lighter masses, the signal from the last 27 orbits of the black holes before they merged lasted more than one second in LIGO’s frequency band. Unlike the September event, when three times the mass of the Sun was radiated as gravitational waves, such waves from the December event came from one mass of the Sun. Hence, the signals from the December event were a lot weaker compared with the first one (which was like a short-duration burst), and distributed over a longer stretch of time, thus getting buried in noise. Yet, scientists were able to tease out the signal thanks to the seminal work of Indian scientists in adapting a special technique for gravitational wave data analysis and theoretical modelling of the expected signals
• The two observations were made by two LIGO detectors located in the U.S. — Livingston in Louisiana and Hanford in Washington — during a four-month run from September 2015
• The next observation run beginning September 2016 will have an improved sensitivity of 25 to 75 per cent. As a result, the volume of the universe that can be studied will increase by 1.5 to two times, and the detectors will be in operation for a longer duration of six months. Hence, three times the number of events will be witnessed
• The Virgo detector, a third interferometer located near Pisa, Italy, which has a design that is close to LIGO but is not quite identical, is expected to become operational during the latter half of LIGO’s upcoming observation run. Simultaneous operation of the three detectors and the 26 millisecond difference in the arrival time of incoming gravitational wave signals between LIGO and VIRGO will improve the ability to locate the source of each new event
• The precision of source location will further improve when the arrival time difference increases to 39 milliseconds as LIGO-India, the fourth detector, begins operations by January 2023. It’s a promising time ahead for science

3. On this highway, proceed with caution

Topic: India and US

Category: International Relations

Key Points:

• Analysing the main components of the Prime Minister’s visit viz. his bilateral meeting with U.S. President Barack Obama, his address to the U.S. Congress, his meeting with the U.S.-India Business Council and also the contents of the Joint Statement, it is undeniable that a great deal of ground was covered.
• The length of the Joint Statement notwithstanding, the many specific takeaways are not many. Important among these are: (i) creation of a $20 million U.S.-India Clean Energy Finance initiative and a $40 million U.S.-India Catalytic Solar Finance Program, with equal financial contribution from the two countries and (ii) an announcement that the U.S. recognises India as a “major defense partner”
• In both cases, the benefits are not as unalloyed as they may seem. The former could impede India’s efforts to obtain funds from non-U.S. approved sources, while the major defence partner label is unlikely to lead to a firm commitment by the U.S. to part with the entire range of “dual-use technologies”, as export of sensitive U.S. technologies is solely dictated by U.S. law
• The coincidence of India being admitted into the 34-member Missile Technology Control Regime during the Prime Minister’s visit to Washington adds little to India’s hopes of securing the entire range of “dual-use technologies”
• Announcement of the start of preparatory work in India for six Westinghouse nuclear reactors does mark a significant thaw in civil nuclear matters after the deep freeze of many years. When completed, this should substantially raise the share of nuclear energy in India’s energy mix
• However, while the Joint Statement avers that this had become possible on account of India ratifying the Convention on Supplementary Compensation for Nuclear Damage, it left unsaid whether it also takes into account the specific obligations imposed under India’s Nuclear Liability law
• A degree of opacity and vagueness surrounds the language employed with regard to some key issues, lending it to differing interpretations. One relates to India’s commitment to ratify the Paris Climate Change Agreement by this year end, which, according to a U.S. spokesman, indicated a more ambitious approach on India’s part when compared to its previous timeline. If indeed India has committed itself to work towards “shared objectives” within the 2016 timeframe, then the Prime Minister has obviously ceded ground, and this was possibly intended to enable Mr. Obama to achieve his legacy of global climate change
• Similarly, uncertainty exists regarding the signing of the bilateral Logistics Exchange Memorandum of Agreement (LEMOA). The wording is vague, viz. that it would now be inked after “finalization of its text”. This could either mean it stands deferred or that it is a done deal
• The absence of specific mention of the South China Sea (SCS) in the Joint Statement, though the SCS had found specific mention in the 2014 and 2015 summit statements, could have been passed off as a concession to Chinese concerns
• Yet, enigmatic references to a purported “road map” — which is not to be disseminated — and which U.S. officials claim contains specific actions relating to advancing the “joint strategic vision” of India and the U.S. in the Asia-Pacific and the Indian Ocean, are highly intriguing
• Steps outlined during the Prime Minister’s current visit do suggest that India plans to jettison its long-held belief in “strategic autonomy”, in favour of a “close partnership” with the U.S.
• All this of course involves hard choices. Care has to be taken to see that the price paid is not too high. Just ahead of Mr. Modi’s visit to Washington, the Obama administration had pronounced that the U.S. is “committed” to help India build its defense capabilities until it can be the “net provider of security in Asia”, regardless of whether or not there is a formal U.S.-India alliance
• Senator John McCain, Chairman of the U.S. Senate Armed Services Committee, in a recent op-ed piece, observed that “India must begin acting like a close partner and ally”. In sum, the U.S. expects India to act as a kind of bridgehead for an “anti-China alliance” in Asia
• The paradox is that all this is taking place when evidence shows that many countries are moving closer to China. Even the U.S. is seen taking several conciliatory postures notwithstanding its periodic declamations against Chinese “expansionism”. At the recent Shangri-La Dialogue in Singapore, U.S. Defence Secretary went out of his way to acknowledge that Washington and Beijing have a shared view on many global issues apart from a commonality of interests. He even talked about the many available areas of cooperation with China. The U.S.-China Strategic and Economic Dialogue, for instance, is today an important plank for bettering Sino-U.S. ties
• Vietnam, a country which India has developed close relations with, is currently making overtures to China. At this year’s Shangri-La Dialogue, considerable bonhomie was noticeable between the Chinese and Vietnamese delegations. Russia has more recently gone much closer to China. This was again in evidence during this year’s Shangri-La Dialogue. Russian Foreign Minister said that the Russian-Chinese partnership had grown into a strategic relationship in terms of ensuring global and regional security and stability
• Given this backdrop, India needs to carefully weigh the advantages and disadvantages of having too close a relationship with the U.S. Despite the current warmth in India-U.S. relations, the U.S.’s and India’s objectives still remain far apart. U.S. dependence on Pakistan is unlikely to shift substantially due to continuing U.S. interest in Afghanistan and Central Asia
• While New Delhi would like Washington to consult it more actively on Afghanistan, there is little evidence that this was on the agenda during the recent Obama-Modi meeting. India and the U.S. also remain far apart on global trade. The U.S. is neither favourably inclined to accommodate India in the Trans-Pacific Partnership negotiations nor has pressed strongly for India’s membership of Asia-Pacific Economic Cooperation
• Arms sales and security dominate the U.S. agenda. India’s objectives are very different. It is not in India’s interest to be involved in any kind of showdown in the South China Sea, which involves an established superpower and a presumptive one, or to align with the U.S. to prevent China from dominating Asia. It is far from certain that this is the key issue in global geopolitics today

Category: Environment

Key Points:

• Since 2015, the Union Environment Ministry has acceded to requests from Uttarakhand, Himachal Pradesh, and Bihar to declare wild boar, rhesus macaque, and nilgai as vermin within specified territories of these States, and outside forests and protected areas
• This reprieve means that those who kill these animals here will, for a year after these notifications come into effect, not be subject to the jail terms and fines that hunting these animals typically invite. Wildlife laws also consider hunted wildlife as ‘government property’ and impose restrictions on how these carcasses must be disposed. Once slotted as vermin, these animals, in the words of a wildlife conservationist, are “open season” and could become easy game for hunters as well as traders in meat
• Wildlife laws divide species into ‘schedules’ ranked from I to V. Schedule I members are the best protected, in theory, with severe punishments meted out to those who hunt them. Wild boars, nilgai and rhesus monkeys are Schedule II and III members — also protected, but can be hunted under specific conditions. Crows and fruit bat fall in Schedule 5, the vermin category
• Moreover, there are laws in the Wildlife Act that empower every State’s Chief Wildlife Warden to authorise hunters to cull animals in a region where they are a proven nuisance. “To deal with a group of animals or, say, a man-eater, the existing laws suffice,” says senior Union Environment Ministry official involved with the exercise. “But the problem has gone beyond groups.”
• the environment ministry, in September 2015, noted that State authorities in Uttarakhand hadn’t provided a scientific basis — such as surveys of the animal population, damage caused by wild boar, money paid out as compensation, and the mechanism by which carcasses would be disposed — through which the animal could be declared ‘vermin’
• The Environment Ministry nevertheless declared the animal as vermin on February 3. Only in the case of Himachal Pradesh is there a rough estimate of the rhesus population. For Bihar and Maharashtra there are only regions outlined where wild boars have reportedly caused damage

1. Shadow Education

Topic: Role of Tuitions and Coaching

Category: Education Policy

Key Points:

• There’s little scholarly research on the subject even when, according to the National Sample Survey Organisation, around 7.1 crore Indian children attend some form of private coaching and 10 to 11 per cent of a family’s budget is consumed by such tuitions. The private coaching industry is bigger than $ 40 billion. This is about the state GDP of Odisha
• Kota is the poster-child of this huge yet shadow education system. The $ 45-million dollar coaching industry in the city has led to the suicide of 57 young people in the last five years — seven students just this year
• Research suggests coaching in a Kota centre could well begin when the child is 13 years old. She would never attend a regular school with playgrounds or read poems in a class. She will only undertake IIT/medical college preparation classes. The creativity is killed before it blooms. The two-year cost (including tuition and living expenses) for parents could be around Rs 6 lakh — India’s average per capita annual income is about Rs 86,000. Acceptance rates as low as 0.005 per cent (for IITs) leaves the unsuccessful students dejected and guilt-ridden — an enormous psychological and emotional cost
• Is there a benefit which justifies this cost? Does coaching add value to human capital, or is it merely a signalling device? If it adds value then the governments must encourage them. But if it’s the latter, alternative means of signalling must be evolved given the horrendous social cost
• There is some evidence — Pratham conducted a two-year randomised control trial — that private tutoring in school (grade 3 or 4) did benefit students in mastering basic skills. But there is no systematic evidence which shows that coaching for entrance examinations to colleges leads to any significant increase in productivity. In India, due to a high number of applicants, entrance examinations brutally cast aside many
• If the coaching classes indeed contributed to human capital, then we should observe once-coached IIT graduates excelling in their career significantly more than their

un-coached counterparts (controlling for other things). There is no evidence to show this

• Although there is no evidence to show the contrary either, it is not difficult to imagine the need of coaching merely as signalling
• A World Bank publication (Dang and Rogers, 2008) theoretically explains that coaching institutions are not likely to add value to human capital. In fact, an increase in signalling efforts comes at the cost of human capital — in Kota, formal education for the IIT/medical college aspirant is offered in dummy schools which lack well-rounded education. Entrance tests measure merely signalling value and therefore, coaching is not likely to increase students’ human capital any more than self-practice does.
• What must be the policy response? Countries have varying responses to private coaching: Ban (in Korea, Myanmar, Cambodia), regulate (in Hong Kong, Korea, Vietnam, Ukraine), ignore (in Nigeria, Sri Lanka, UK, Canada) or encourage (in Singapore, South Africa, Tanzania). Banning has been unsuccessful either due to weak implementation (Myanmar, Cambodia) or because of powerful interest groups (Korea). Banning doesn’t make sense in India too. Regulation could be useful. But India has weak enforcement infrastructure and a highly inelastic demand for coaching
• Therefore, alternative signalling mechanisms must be explored. Many elite universities around the world often select students on the basis of their overall intelligence and performance in schools
• For many, exams act as a process to eliminate non-serious applicants, but don’t determine their selection. Selection happens through a rigorous process of considering several factors — grades, recommendations, interviews, motivation, extra-curricular activities
• This means students must attend regular schools engaging with history, poetry, mathematics, debating and football. In such alternative systems, there is little that coaching institutions can do to terminate creativity of societies. If anything, they will turn themselves into good schools — and we do need more good schools

1. PIB

Category: Local Self Government

Key Points

• Though some state governments have argued that they haven’t really benefitted much from the Fourteenth Finance Commission, there can be little doubt devolution of taxes from the central government has gone up dramatically, from 27.1% of gross tax collections in FY15 to 34.7% in FY16; net resources, though, haven’t gone up due to a decline in other transfers like Plan grants, and rose from 7% of gross tax collections in FY15 to 55.6% in FY16 and a planned 55.9% in FY17
• As a result, however, the proportion of untied funds available to states has gone up
• According to a study by Accountability Initiative, Centre for Policy Research, untied funds rose for 10 states, remained unchanged for two while seven received marginally more in tied funds in FY16 over FY15. Bihar’s untied funds, as a proportion of the total, remained constant at 74% in FY15 and FY16, Karnataka saw untied funds rising from 64% to 70% while Maharashtra saw untied funds falling from 67% to 58%
• While central devolution to state governments may not have risen by as much as some would like, the problem is a lot more severe when it comes to the money being devolved by state governments to the next tier of government, the panchayats
• Several states like Karnataka, Kerala and Uttar Pradesh, have delineated certain devolution of budgetary resources to panchayats in their panchayati raj laws
• In Karnataka’s case, a third of the total FY15 budget was to have devolved while, according to Accountability Initiative, only around half of this was actually passed on. Of the state’s FY15 budget of Rs 150,379 crore, only 17.5% was given to panchayati raj institutions while around 11% was used by the state government itself
• Of the non-plan allocation, around 78% was tied to salaries; this was around 23% in the case of plan allocations. Since the staffers are hired by the state, this means panchayats have even less control over a large proportion of their budgets
• In other words, the panchayati raj institutions essentially become mere pass-through agencies for various central and state government agencies even though they were voted in with a mandate to get certain things done
• The study across 30 gram panchayats in Mulbagal block of Kolar district in Karnataka showed that the bulk of the expenditure in a panchayat was made by entities other than the gram panchayats
• While states have been fighting a long battle with the centre to get more untied funds, not giving panchayats any flexibility in using their funds sounds more than a little hypocritical

Category: Governance

Key Points

• Given Microsoft’s experience with massive open online courses (MOOCs)—the software giant runs free online courses for IT development in partnership with edX—it is just as well that the government chose it as the technical partner for its SWAYAM (Study Webs of Active-Learning for Young Aspiring Minds) platform that will launch 2,000 MOOCs for over 3 crore students
• The company has signed aRs 38-crore deal to develop the app and run it for three years before handing it over to the All India Council of Technical Education. While courses on SWAYAM will be made available by partner institutions identified by the national MOOCs coordinator, bringing in a Microsoft shows that the government is dedicated to adapt to digital-age education-delivery
• MOOCs will not only ensure that students in remote locations avail of quality classroom-based education from a distant institute, but also will come to the aid of those who are looking to up-skill themselves. With a policy in place to put MOOCs on a par with education-delivery in physical classrooms, the government is putting education within the reach of anyone with an internet connection

Category: Economy

Key Points

• There was scepticism when the concept of payments and small banks was floated in 2014 as the objective assigned to these banks was already a part of the roadmap for all commercial banks, especially the public sector banks
• The argument was that if the commercial banks had not been successful despite the various models that they had pursued, it meant either they were not serious or that this area was not viable
• RBI had set the guidelines for setting up of these differentiated banks and had asked the public for feedback. On paper, it looked like a good idea. The cost of funds would not exceed 4% if they were savings deposits; in case they went as demand deposits, the cost would be nil; 75% of the money had to be invested in government securities with a maturity of less than one year with no MTM issues(Mark to market (MTM) is a measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution’s or company’s current financial situation); the balance above the CRR could be put in bank deposits, etc. Assuming a return of around 7%, a net spread of 3% looked compelling(difference between lending and deposit rate)
• The trick was to cut down on operating costs; and move to the technology mode where there was wide use of mobile phones; a profitable model could be maintained. The Postal Bank fits the bill very well as it is also working on similar lines at present, where deposits collected are lodged in government paper
• The biggest threat came from the Jan-DhanYojana, which went about frantically opening bank accounts for the unbanked population. Around 220 million accounts have been opened, with 75% having non-zero balance and deposits totalling to almost Rs 40,000 crore. Banks have been instructed to open no-frill deposit accounts with card facility. This has been followed up by using these accounts to transfer funds for either MGNREGA wages or direct benefits payments. Intuitively, these dormant accounts have become active as there is money coming in at regular intervals
• But the challenge is to make banking a habit as the deposit-holders have to keep using this facility—to qualify for an overdraft at a later stage. But success here has been limited and, more important, the average balance per account is just about Rs 2,500. The upper limit was fixed by the RBI at Rs 1 lakh per account
• A new payments bank would have to keep in mind that while some would migrate to this mode as it could resemble an e-wallet, the so-called lesser banked population do not have the money that they can keep in a bank. This would impact the very premise of inclusive banking. When the household has limited income that is largely spent, there is little left for savings. Often, these savings are held as cash-at-home. For this to be converted into a bank account, there is a requirement for spreading awareness among the low-income households
• The small bank concept is also novel, but it would be interesting to see how the players plan their models. Here, deposits can be garnered for all durations, but the CRR and SLR norms would apply from the beginning. This will account for around 25% of the funds received. Further, 75% of the adjusted net bank credit has to flow to the priority sector which includes small and micro enterprises and farmers. Hence, the lending would be directed exclusively at the ‘priority sector.’ It is not clear whether small banks will have access to the repo window of RBI
• Such a model would be a challenge considering loans in the priority sector are more vulnerable to becoming non-performing assets. The farm sector is always under pressure from the vagaries of monsoon. The slowdown in industry over the last three years has affected the SME segment more—not only are they are borrowing at a high cost, but are also impacted by build-up of high level of inventories which are financed by high-cost capital and a larger entry under receivables due to the arrears of their clients
• Commercial banks have never quite said that they find this lending onerous, but given the volatile delinquencies and the fact that they seldom exceed the 40% target (they normally fall short and prefer investing the residue in the RIDF-Rural Infrastructure Development Fund) it appears that such lending is more statutory in nature. Under these circumstances, running a business plan would be an edgy affair
• Differentiated banking does make a lot of sense, provided the paths of various categories of banks do not cross. In the pre-reform days, there were specialised financial institutions which helped capital formation and commercial banks provided working capital. As one ventured into the interiors, there were regional rural banks, land development banks and the cooperative banks which catered to the rural requirements. The move towards universal banking removed this distinction between development banking and commercial banking. Even today, there is serious talk on bank mergers, especially among PSBs
• Under these circumstances, having new ‘payments’ or ‘small’ banks would involve competing with well-established commercial banks for addressing the potential requirements of a community which doesn’t have enough money left after expenses to maintain deposits of significant amounts but is keen to have access to credit, given that it is out of the formal system. It may be pointed out here that the parallel banking system comprising RRBs and cooperative banks are fragile with several entities being merged due to non-viability
• However, as these factors are known, these new differentiated banks should be better able to plan their business models to jump over these hurdles. This would be a learning process for the financial sector as it will also reflect the delta that can be added to the system

Category: Economy

Key points:

• Japan recently indicated that it may intervene in the forex market, given the sharp strengthening of its yen. Just this display of intent helped them to momentarily contain the yen’s appreciation
• Ironically, sometime back, Prime Minister Shinzo Abe had said that countries should avoid competitive devaluation, as the yen was hitting a high against the US dollar. The yen has strengthened by 13 per cent since the beginning of the year
• As global growth remains weak, countries are indulging in competitive devaluation. This means countries are trying to gain export competitiveness by causing their exchange rates to weaken. However, this may or may not be justified by the country’s economic fundamentals. Brazil’s finance minister termed this phenomenon the “currency war” in 2010
• Competitive devaluation may not necessarily be done through intervention in the forex market. It can also be done by cutting policy interest rates, or quantitative easing. Or even talking down a currency by signalling preference or intent
• From mid 2014 to end 2015, the US dollar strengthened by about 15 per cent on Fed rate hike expectations, andweakened most emerging market currencies
• China devalued the yuan in August 2015 and January 2016 by almost 5 per cent. The devaluation further weakened other emerging market currencies. This was a classic case of currency war on display
• Competitive devaluation in itself may appear to be a zero sum game for the global economy, with some countries gaining at the expense of others. But in reality, a long-drawn currency war can have severe repercussions on the growth and stability of countries, which in turn can jeopardise global growth
• Currency war can cause extreme volatility in financial markets. For instance, the yuan devaluation propelled outflows of around $670 billion from China in 2015, which caused jitters in other markets. Taking cognisance of the consequences, global leaders decided at the G20 meeting in Shanghai in February 2016 to refrain from currency war
• The war has continued in the last couple of months, even as the players have changed sides. The sharp strengthening of dollar in 2015 was pinching the US economy through a contraction in exports. The Fed signalled the postponement of the policy rate hike which halted the dollar rally in 2016
• While this provided a reprieve to the US economy, it came at the expense of the EU and Japan. Both, the euro and the yen have strengthened strongly in 2016. This, in spite of poor growth recorded by both the economies and negative policy interest rates being followed by their central banks
• Strengthening the yen and the euro is hitting the respective countries not only by hampering exports but making matters worse in the fight against deflation. A stronger currency implies cheaper imports, and imported deflation
• The rupee is very much a part of the global currency play and its movement is being influenced more and more by external factors such as US dollar movement, the Fed’s stance and the course taken by the yuan
• As far as competitive devaluation is concerned, there will not be much benefit for the Indian economy if the Reserve Bank of India tries to weaken the currency. Studies have shown that Indian exports are less price-elastic and more income-elastic
• This implies that exports gain less from price fall through depreciation of the rupee, but more from increase in global income. The RBI has always maintained that its intervention in the forex market is not to achieve a specific level for the rupee but to avoid extreme volatility in the market
• Can we, then, see some peace in the ongoing war? There is a lot of uncertainty on the timing of the US Fed rate hike. However, having learnt its lesson, the Fed would ensure that the interest rate hike is gradual and the global markets are well prepared. This should result in the dollar appreciation being muted this year. This should lead to muted weakening of emerging market currencies which, in turn, implies less pressure on the People’s Bank of China (PBoC) to resort to sharp devaluation of the yuan
• In fact, of late, PBoC has been very gradually weakening the yuan to avoid sharp devaluation. This may also help the euro region and Japan, where growth is languishing, to give up on someof their currency gains. Hence, we may see time off from the currency war. However, we must not forget that as long as global growth is languishing, there will always be temptations to indulge in currency manipulation

Category: Economy

Key points:

• There is much potential for solar plants and wind farms to be complementary as the latter can function while the former is inactive. It follows that solar-wind hybrid systems can reduce variability in generation and bring about better grid integration. But the draft national wind-solar hybrid policy seems to put the cart before the horse, as it were
• The draft policy says the central regulatory commission should firm up guidelines for determining tariffs for the hybrid systems, and further that the body needs to frame guidelines for scheduling and wheeling power from the hybrids
• But in the absence of such critical norms, to expect investments to actualise suggests the triumph of hope over experience. The policy avers that the hybrid power fed into the grid will not be more than the transmission capacity/grid connectivity allowed for existing wind or solar project. But it is obvious that adequate line capacity is required for evacuation. Storage is another vital challenge
• The policy does rightly mention that solar and wind power being infirm in nature pose challenges for grid security and stability. And as we aim to scale up solar- and wind-operated power plants to utility size, we need to be seized of the issues of grid stability and power storage for renewable energy plants
• The policy does mention in the fag end that the government would support development of standards and technology for hybrid systems. But there seems much too much focus on garnering fiscal, financial and various other incentives for individual stand-alone solar and wind projects. Such a policy stance can plain mis-allocate resources and lead to high costs

Mirwaiz Umar Farooq, chairman of the moderate faction of the Hurriyat Conference and HardlineHurriyat leader Syed Ali Shah Geelani, too, backed the return of the Pandits.Mr. Geelani opposed separate colonies that are reportedly being planned for them

Among the top amendments suggested: REITs should be allowed to invest up to 20% in under- construction assets. This limit, experts said, was raised from 10%, giving REITs more flexibility to choose lucrative projects. The earning potential in under-construction projects is far higher than income-generating ones, which will translate to more returns for investors of the REIT

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

• Yoga
• India-Thailand CEPA
• Section 377 of IPC
• Civil Aviation Policy
• Gravitational Waves
• LIGO
• SWAYAM
• National Wind-Solar Hybrid Policy
• WWF
• Payment Banks and Small Banks
• Maharaja Express
• Global Tiger Forum
• The Wildlife Protection Act, 1972

G. Fun with Practice Questions 🙂

Question 1: Which of the following statements is/are correct?

Question 2: Which of the following countries is/are members of the Global Tiger Forum?

Question 3: Which of the following statements is/are correct?

Question 4: Which of the following statements is/are correct?

Question 5: Which of the following statements is/are correct?

H. Archives:

You can check out some more recent News Analysis sections to build even more context

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