Comprehensive News Analysis - 19 July 2016

A. GS1 Related

Nothing here today folks!

B. GS2 Related

Topic: Nepal

Category: India’s Neighbourhood

Key points:

• Days before Nepal’s Parliament elects a new government, a prominent leader and confidant of chief contender, Pushpa Kamal Dahal ‘Prachanda’, was in Delhi to canvass for support
• Prachanda and leader of the Nepali Congress Sher Bahadur Deuba are two contenders for the top post in Nepal who are likely to lead the next government if Mr. Oli’s government falls on July 21

Topic: Turkey

Category: International Affairs

Key points:

• Turkey’s Interior Ministry has fired nearly 9,000 police officers, bureaucrats and others and detained thousands of suspected plotters following a foiled coup against the government
• The failed coup and the subsequent crackdown followed moves by President Erdogan to reshape both the military and the judiciary. He had indicated a shake-up of the military was imminent and had also taken steps to increase his influence over the judiciary
• The government alleged the coup conspirators were loyal to moderate U.S.-based cleric FethullahGulen, whom Mr. Erdogan has often accused of trying to overthrow the government.Mr. Gulen, who lives in Saylorsburg, Pennsylvania

Topic: Federal Relations

Category: Polity

Key points:

• Hinting at a prolonged agitation in curfew-bound Kashmir Valley, separatists Syed Ali Geelani, Mirwaiz Umar Farooq and Yasin Malik on Monday described the government’s statement in Parliament as “propaganda” and called a fresh three-day shutdown
• In a joint statement, the Hurriyat factions and the JKLF said they “reject and ridicule” the Centre’s stand that the separatists were responsible for the present crisis
• Calling Jammu and Kashmir an “unfinished agenda of Partition,” National Conference leader Mustafa Kamaal said: “The problem persists because of the dilly-dallying by India and the unilateral violations of the U.N. resolutions by Pakistan. India should honour the legal and constitutional framework set out by the Instrument of Accession.” He called for “soft borders, hassle-free trade and travel between the two parts of Kashmir.”

Topic: Bangladesh

Category: India’s Neighbourhood

Key points:

• A Bangladesh war crimes tribunal found eight al-Badr militia commanders guilty of committing crimes against humanity during the 1971 liberation war
• The court sentenced three of them to death while the other five have been ordered prison until death. All the convicts were the student activists of the Jamaat-e-Islami

C. GS3 Related

Topic: Insurgency

Category: Security

Key points:

• At least eight CRPF commandos belonging to its elite Commando Battalion for Resolute Action (COBRA) battalion were on Monday killed in a Naxal IED blast in the forests of Bihar’s Aurangabad district
• Officials said the jawans of the COBRA unit were ambushed in an IED blast after which an encounter broke out between the two, resulting in the killing of three naxals

Topic: Financial Inclusion

Category: Economy

Key points:

• A Unified Payment Interfacedeveloped by NPCI to address the last mile problem in the banking industry will become operational this month, Reserve Bank of India Governor said on Monday
• Money could be transferred, using the mobile app, to another account. The parties to the transaction need not divulge bank details other than the aliases given by their banks. UPI would help save a villager the trouble of having to visit the bank to withdraw money and allow shopkeepers, not having a point of sale device, to receive payment

D. GS4 Related

E. Important Editorials: A Quick Glance

The Hindu

Topic: Nepal

Category: India’s Neighbourhood

Key points:

• Abrupt political realignments are not uncommon in Nepal. After the United Communist Party of Nepal (Maoist-Centre) led by Pushpa Kamal Dahal ‘Prachanda’ withdrew support to K.P. Oli’s Communist Party of Nepal (Unified Marxist-Leninist)-led government last week, another such rearrangement appears to be on the cards. A no-confidence motion is due to be taken up in Parliament on July 21, and the numbers are stacked against Mr. Oli
• The opposition Nepali Congress led by Sher Bahadur Deuba and the UCPN(M-C) have worked out an alternative arrangement to share power. Mr. Prachanda will lead the government for nine months, and Mr. Deuba will then take over for the next nine months until the scheduled parliamentary elections
• If, as expected, the UCPN(M-C)-NC coalition manages to form the government with the support of smaller Madhesi parties and other groups, this would mark the 24th government in the 26 years since the first Jan Andolan led to the end of absolute monarchy and the beginning of parliamentary democracy in Nepal
• The creation of a new republic in 2008 has not changed things — there have been eight prime ministers in eight years. Mr. Oli’s government had barely managed to get a grip on the reconstruction effort after the devastation of the 2015 earthquake and the instability in the federal arrangement after the turmoil in the Terai with Madhesi groups protesting against the new Constitution
• The promulgation of a Constitution took place in a peculiar set of circumstances. Following the second Constituent Assembly elections, the “status quoists” — political leaders across parties who were not part of the second Jan Andolan in support of a federal republic — led the process of promulgation. Mr. Oli, one such politician, had never showed any enthusiasm for a truly federal Nepal and chose to ignore the demands of Madhesi, Tharu and Janajati groups that sought greater decentralisation of power
• A marriage of convenience made it possible for Mr. Oli to remain in power with the support of a group in Parliament comprising Maoists and former royalists
• Hushed in this power game were the issues the Maoists originally stood for: recognition of the less privileged sections through a federal restructuring of the state, and redistribution. With little movement on these issues in the past year, a fresh start can be possible if Mr. Prachanda and Mr. Deuba commit to fulfilling some of the federal demands and to redouble post-quake reconstruction efforts. Given the Nepali political class’s track record, there is bound to be cynicism. It is up to the two to prove the cynics wrong

Topic: GST

Category: Taxation

Key points:

• It is difficult not to view the Goods and Services Tax (GST) Bill as a game-changing reform for the country; and, when it happens, it would be a historic achievement. Why is GST important? What can be said about its design? How does it compare with similar tax reform in other countries? Consider each question in turn.

Benefits in the offing

• Three major benefits will flow from the GST. First, the GST will increase the resources available for poverty alleviation and development. This will happen indirectly as the tax base becomes more buoyant and as the overall resources of the Central and State governments increase. But it will also happen directly because the resources of the poorest States — for example, Uttar Pradesh, Bihar, and Madhya Pradesh — who happen to be large consumers will increase substantially
• Second, the GST will facilitate ‘Make in India’ by making one India. The current tax structure unmakes India, by fragmenting Indian markets along State lines. These distortions are caused by three features of the current system: the Central Sales Tax (CST) on inter-State sales of goods; numerous intra-State taxes; and the extensive nature of countervailing duty exemptions that favours imports over domestic production. In one fell swoop, the GST would rectify all these distortions: the CST would be eliminated; most of the other taxes would be subsumed into the GST; and because the GST would be applied on imports, the negative protection favouring imports and disfavouring domestic manufacturing would be eliminated
• Third, the GST would improve — even substantially — tax governance in two ways. The first relates to the self-policing incentive inherent to a valued-added tax. To claim input tax credit, each dealer has an incentive to request documentation from the dealer behind him in the value-added/tax chain. Provided the chain is not broken through wide-ranging exemptions, especially on intermediate goods, this self-policing feature can work very powerfully in the GST. The second relates to the dual monitoring structure of the GST — one by the States and one by the Centre. Critics and taxpayers have viewed the dual structure with some anxiety, fearing two sources of interface with the tax department and hence two potential sources of harassment. But dual monitoring should also be viewed as creating desirable tax competition and cooperation between State and Central authorities. Even if one set of tax authorities overlooks and/or fails to detect evasion, there is the possibility that the other overseeing authority may not
• Of course, these benefits will only flow through a well-designed GST. The GST should aim at tax rates that protect revenue, simplify administration, encourage compliance, avoid adding to inflationary pressures, and keep India in the range of countries with reasonable levels of indirect taxes

The fewest flaws at inception

• The GST should be comprehensive in its coverage, that exemptions from the GST be limited to a few commodities that catered to clear social benefits, and that most commodities be taxed at the standard rate. There is no free lunch here. There is no escaping the fact that the more the exemptions/exclusions, the higher will be the standard rate which could affect poorer consumers
• Some have levelled the charge that the design of the GST is flawed. But the “flawed GST” charge fails to appreciate how reforms actually occur. In no country is the GST — even today after many years of implementation — perfect, and was therefore quite flawed at inception. In complex systems, change is introduced, learning from implementation takes place, leading to further and better change. That is what happened with the implementation of the value-added tax by the States and that is what will happen with the GST. It is far better to start and allow the process of endogenous change to unfold over time than to wait for the best time and the best design before it is introduced
• That said, we must also be realistic about the time frame for assessing the GST. The GST is fiendishly, mind-bogglingly complex to administer. Such complexity and lags in GST implementation require that any evaluation of the GST — and any consequential decisions — should not be undertaken over short horizons (say months) but over longer periods, say one-two years
• In understanding GST systems around the world, we have been struck by how ambitious and how under-flawed the Indian GST is. GST-type taxes in large federal systems are either overly centralised, depriving the sub-federal levels of fiscal autonomy (Australia, Germany, and Austria); or where there is a dual structure, they are either administered independently — creating too many differences in tax bases and rates that weaken compliance and make inter-State transactions difficult to tax (Brazil, Russia and Argentina) — or administered with a modicum of coordination which minimises these disadvantages (Canada and India today) but does not do away with them
• The Indian GST will be a leap forward in creating a much cleaner dual VAT which would minimise the disadvantages of completely independent and completely centralised systems. A common base and common rates (across goods and services) and very similar rates (across States and between Centre and States) will facilitate administration and improve compliance while also rendering manageable the collection of taxes on inter-State sales. At the same time, the exceptions — in the form of permissible additional excise taxes on special goods (petroleum and tobacco for the Centre, petroleum and alcohol for the States) — will provide the requisite fiscal autonomy to the States. Indeed, even if they are brought within the scope of the GST, the States will retain autonomy in being able to levy top-up taxes on these goods
• To have achieved this, in a large and complex federal system of multiparty democracy, with a Centre, 29 States and 2 Union Territories of widely divergent interests via a constitutional amendment requiring broad political consensus, affecting potentially 7.5 million tax entities, and marshalling the latest technology to use and improve tax implementation capability, is perhaps breathtakingly unprecedented in modern global tax history
• The time is ripe to collectively seize this historic opportunity; not just because the GST will decisively alter the Indian economy for the better but also because the GST symbolises Indian politics and democracy at its cooperative, consensual best

Topic: Health

Category: Governance

Key points:

• Tuberculosis (TB) patients in India who seek care in the private sector face a delay of as long as two months before they are diagnosed correctly — if at all — according to systematic reviews of Indian studies. This is alarming, as TB patients begin their pathway to care in the private sector before they get treated in the public sector.
• One study of 175 practitioners of Indian medicine published in the Transactions of the Royal Society of Tropical Medicine and Hygienein March 2016 involved 400 interviews and 208 hours of observation, and 2,000 observed patient interactions in 10 clinics in Mumbai. One of the highlights of this study was that none of the 175 practitioners exclusively practised their system of training. While allopathic medicines, including antibiotics, were prescribed for acute conditions, the physicians generally prescribed their system of medicine for chronic conditions
• Though all the physicians reported seeing at least one patient with typical TB symptoms for more than two weeks in the preceding year, the patient had to visit a doctor several times before he or she was suspected of having TB. The patients were treated with broad-spectrum antibiotics and other symptomatic drugs during the first few visits. Different antibiotics were prescribed during each visit. This process of experimentation using antibiotics usually lasted 10-14 days
• Though fever is common and not very specific to TB, and more than two weeks of cough is one of the main symptoms of TB, no physician ever asked for lab investigation on the first visit. Instead the focus was in managing symptoms using non-specific therapies
• Though an X-ray should be used as a screening tool and sputum smear or GeneXpert as confirmatory tests, only 31 practitioners asked for sputum smear and only after conducting blood tests and a chest X-ray
• The good news is that 164 of the 175 AYUSH practitioners preferred to refer the TB patients to the public sector or to a chest physician and not treat the patients themselves
• Not treating TB patients could be due to a number of factors including uncertainty about treatment protocol, fear of MDR-TB, stronger messaging by RNTCP, fear of being exposed to TB themselves, and a desire to protect other patients in the waiting room from TB exposure
• The second study was published in April 2016 in the International Journal of Tuberculosis and Lung Disease. It found private doctors using fever as a diagnostic criterion for TB due to “ubiquity of cough and paucity of sputum production by patients”. This study of 110 private doctors (MBBS and AYUSH) in Mumbai and Patna involving 143 interviews and 150 clinical observations in seven clinics found doctors from all systems of medicine treating patients symptomatically based on patient history and clinical observation without asking for diagnostic tests
• Patients were asked for a chest X-ray and other lab tests when some doctors suspected TB, but “often after months of fever”
• This empirical approach not only leads to delay in diagnosis and increase in the spread of TB but also exposes the patients to a broad-spectrum of needless antibiotics. Using drugs, particularly quinolones and amoxicillin-clavulanate, as diagnostic tools adds to the delay in diagnosing TB as they tend to temporarily mask symptoms such as cough, fever, or sputum production. As the patients are poor and need immediate relief, the only way to reduce experimentation with antibiotics is to work to reduce the cost of TB diagnostic tests
• The study reveals that the uptake of sputum smear testing is low in the private sector because it only confirms what the X-ray already suggests. Moreover, an X-ray presents a broader set of information about what is happening in the patients’ lungs
• The study found three reasons why doctors choose the ‘treat with antibiotics and wait’ approach while dealing with TB patients. First, there is a compulsion to provide rapid symptom relief; there is a risk of losing patients, especially when diagnostic tests are asked for during the first visit; there is the factor of financial capability of patients; and there is an easy availability of antibiotics. Second, there is a lack of clear and unique TB symptoms besides TB’s slow onset and progression. Finally, doctors perceive that many TB patients come without a cough or do not produce sputum
• These studies suggest the urgent need for the Indian TB programme to engage with private providers (allopathic and AYUSH) and change their traditional, empirical approach to dealing with TB. Ordering a chest X-ray early, a greater use of sputum TB tests (especially GeneXpert), and greater linkages and referrals to the public sector would be key issues for behaviour change management

Topic: Monetary Policy

Category: Economy

Key points:

• India has unsurprisingly brushed-off any post-Brexit impact. Some of this is because emerging markets, themselves, have come under little stress so far. But a lot of this is because, in a matter of three years, India has gone from being the poster child of emerging market vulnerability to becoming the safe haven in that universe. Inflation has halved, the central government fiscal deficit has narrowed by a third, the current account deficit (CAD) has gone from 5 per cent of the GDP in 2013 to 1 per cent of GDP in 2016, and foreign exchange reserves are at a record high
• There are several proximate causes for the turnaround: Lower oil prices have helped across the board, the government’s bold FDI reforms have improved the quantum and quality of capital, and weak investment has narrowed the CAD. All are true at some level. But the bedrock of macroeconomic stability has been provided by sound fiscal and monetary policies post the taper tantrum(slow withdrawal of Quantitative Easing), evidenced by the fact that the macros began to improve well before oil prices fell.
• The question is how institutionalised are these policy frameworks. Can they survive regime changes? Reforms are also about ensuring that they are institutionalised such that future governments find it hard to reverse them for politically expedient reasons. Viewed from this lens, there has been dramatic progress on the new monetary policy framework. Just 30 months ago, monetary policy was still being run via a multiple indicatorapproach, creating uncertainty about the focus of policy. Inflation? Growth? Financial stability? Exchange rate? What combination thereof? Within inflation, was it CPI or WPI? Headline or core? Little wonder it was hard to anchor expectations
• But things moved rapidly from January 2014. The RBI implemented the Urjit Patel Committee Report — which recommended a decisive pivot to headline CPI targeting and a glide path to 8 per cent, 6 per cent and then 4 per cent with a band of +/- 2 per cent in the steady state
• The new government was quickly on board with the FM arguing for a “modern monetary policy framework” in his maiden budget speech in July 2014. By February 2015, the ministry of finance and the RBI had entered into a monetary policy agreement which gave an unambiguous primacy to price stability, and spoke about targeting inflation at 4 per cent with a 2 per cent band on either side for “all subsequent years”
• These may have been small changes in language. But they represented a huge leap in thinking. A public commitment to numerical targets was important to anchor expectations, create significant reputational risk to the RBI for missing targets, and create much-needed incentive-compatibility between fiscal and monetary policy
• All that was left was to formally incorporate this into the RBI Act, which the government did in the Finance Bill of 2016. The language in the Act on the objective of monetary policy is identical to the framework agreement giving primacy to price stability. The inflation target is clearly specified in terms of “Consumer Price Index Combined” — which refers to headline CPI — allaying concerns that the operational target could be changed to core CPI or WPI. Doing so would entail amending the RBI Act. Finally, the Act lays out the formation, structure and processes of a six-member monetary policy committee (MPC) in impressive detail. This allows for a variety of views, and continuity in decision-making across governors
• Perhaps the only quibble is that the broad inflation target range (2-6 per cent) is not in the RBI Act. Instead, the Act mandates that the central government, in consultation with the RBI, determine the inflation target every five years and notify it accordingly. A notification has not been issued thus far and, when it comes, it will supersede the target in the monetary policy agreement. In theory, the government can change the inflation target from what it had agreed to last year. In practice, this is very unlikely
• Authorities will recognise that the essence of inflation targeting is about consistent application to anchor inflation expectations. It’s hard to anchor expectations if we have a moving target. So we would be very surprised if the government having just signed on to a target would reverse that
• This raises the larger question of whether at least the upper (6 per cent) and lower bounds (2 per cent) of the target range should have been hard-coded into the RBI Act? True, very few countries hard-code the numerical target into the Act, but that’s also because they have much tighter bands that constrain policy
• In India’s case, the range is so wide that it would not necessarily constrain responding to shocks. In response, the RBI could always operate at a different point in the band, commensurate with the shock. Monetary policy would have enough room to manoeuvre
• But hard-coding the upper end (6 per cent) into the RBI Act would have given more confidence to economic agents that inflation would not stay above 6 per cent on a sustained basis, like it did during 2008-14. In the “rules versus discretion” debate, emerging markets are replete with examples of unbounded discretion leading to time-inconsistency problems. Hard-coding the boundaries into the Act would have created bounded-discretion
• In the “rules versus discretion” debate, emerging markets are replete with examples of unbounded discretion leading to time-inconsistency problems. Hard-coding the boundaries into the Act would have created bounded-discretion
• The sovereign could, of course, change the Act at any time. But it would require legislative change with greater reputational consequences. The bar for reversing course would be higher versus the current scenario where the default is the government-of-the-day must pick a target every five years, leading to concerns that targets could be opportunistically tinkered with, down the line
• One could, of course, ask why any sovereign would want to target inflation higher than 6 per cent given the adverse political economy of high inflation? In India’s case, though, the current calendar of choosing the inflation target every five years will not run co-terminus with the political cycle, assuming five-year terms for all future governments. Instead the choice of target will fall in the middle of each future government’s tenure, raising concerns about time-inconsistency
• In just two years, India has seen a remarkable transformation and institutionalisation of its monetary policy framework, for which the government and the RBI deserve credit. The sooner the government notifies the inflation target (with the hope that the goalpost is not changed) the faster the speculation will end, and we can appreciate just how much has been accomplished

Central Pollution Control Board (CPCB) in 2005, estimated 1.46 lakh tonnes of e-waste generation in the country, which was expected to exceed 8 lakh tonnes by 2012. As per the United Nations University report, “The Global E-Waste Monitor 2014”, 17 lakh tonnes of e-waste generation was reported in the country in 2014. No comprehensive State-wise inventorization of e-waste generation in the country has been done.

As per the report published by Central Pollution Control Board (CPCB) in February 2015, 302 polluted river stretches have been identified on 275 rivers in the country based on Bio-chemical Oxygen Demand (BOD) levels, a key indicator of organic pollution.

State Governments, apart from their own budgetary allocation, are also accessing financial assistance for creation of sewerage infrastructure, including sewage treatment plants, in various cities/towns under Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme of Ministry of Urban Development and the NamamiGangeprogramme (under NGRBA) of MoWR,RD&GR.

Central Pollution Control Board (CPCB)  has  issued directions under Section 18 1(b) of the Water (Prevention and Control of Pollution) Act, 1974 in April, 2015 to the State Pollution Control Board/Pollution Control Committees regarding setting up of sewage treatment plants and utilization of sewage generated in their respective States. 

The Doing Business team of the World Bank Group is on a two week mission to India for interacting with various stakeholders and to validate data for the upcoming Doing Business Report (DBR), 2017. A Kick-off meeting, chaired by Additional Secretary (Investment), Department of Economic Affairs to interact with the Doing Business mission team of the World Bank Group was held on July 18, 2016 at New Delhi. The meeting was also attended by the representative from Department of Industrial Policy and Promotion (DIPP).

The Central Board of Direct Taxes (CBDT) entered into seven (7) Unilateral Advance Pricing Agreements (APAs) today, i.e., 18th July, 2016, with Indian taxpayers. Some of these agreements also have a “Rollback” provision in them.

The APA Scheme was introduced in the Income-tax Act in 2012 and the “Rollback” provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA scheme has attracted tremendous interest and that has resulted in more than 700 applications (both unilateral and bilateral) having been filed in just four years.

Atal Pension Yojana is being implemented through the APY Service Providers comprising of Public Sector Banks, Private Sector Banks, Regional Rural Banks, Cooperative Banks and Department of Post both in urban and rural areas across the country. The total number of subscribers registered under APY as on 30th June 2016 has crossed 30 lakh and every day nearly 5000 new subscribers are added.

Atal Pension Yojana, provides minimum guaranteed pension ranging between Rs. 1000/- to Rs. 5000/- per month for the subscriber from the age of 60 years. The Same amount of pension is paid to the spouse in case of subscriber’s demise.

Government has approved a project to launch the ‘SWAYAM Prabha’-a project for operationalising 32 Direct to Home (DTH) Television Channels for providing high quality educational content to all teachers, students and citizens across the country interested in lifelong learning. There will be new content of four hours every day, which would be telecast six times a day allowing the student to choose the time of his/her convenience.

i) Introduction of alternate fuels:-

a. Flex Fuel ethanol
b. Bio Diesel
c. Bio-CNG
d. Retro fitment of Hybrid Electric Vehicles 

ii) BS-VI fuel emission norms

Topic: Banking

Category: Economy

Key points:

• Entities that were granted an in-principle approval for starting a payments bank were given a year to launch the bank and in turn gain a payments bank license. After eight months, a JV between a group with deep pockets, a bank, and a telecom player decided that it made no economic sense to start and operate a payments bank
• Considering the stringent regulations and restrictions on operations, it seems very likely that more players will drop out of starting small and payments banks in the near future. RBI had engineered a similar fiasco with the local area banks (LABs) in 1997. Of the 10 licensees, only four are in existence at present. The LABs were, similarly, constrained by regulations requiring them to remain in unprofitable rural markets and were allowed to open only one branch in an urban area per district (maximum of three)
• The payments bank model has been envisaged based on the success of M-Pesa in sub-Saharan Africa. A study by Bill and Melinda Gates Foundation identified four reasons why M-Pesa was able to reach a level of penetration that banks did not in Kenya. One, the cost of transferring cash to the villages from cities was extremely high (sometimes 20%). There was also a lack of safety in sending cash. Two, Safaricom, a telecom company, is a highly trusted brand, more so than Kenyan banks. Three, Kenyan banks were restricted from utilising banking correspondents beyond a certain distance, thereby limiting their scope of reach. Four, for nearly five years, Safaricom enjoyed a monopoly because banks did not have branches in remote areas due to high costs and because it made M-Pesa easily available by strategically tying up with those vendors who provided mobile phone services and recharge
• The extent of similarity between India and Kenya is limited to the lack of bank branch networks in remote areas. Indian banks, too, find it unprofitable to have branches in rural areas. But, the cost of transferring money in India is very low. Once bank accounts open under the Pradhan Mantri Jan-DhanYojana, operating bank accounts via mobile or through banking correspondents which include payments, savings and, in limited cases, credit services will neither be hard nor expensive. One wonders if a mobile money system would not be tantamount to a platform which already exists in the banking sector viz. National Payments Corporation of India and Unified Payments Interface
• Under the current regulatory framework, payments banks are not allowed to lend so their classification, as banks, in itself is incorrect. Their only purpose is to make payment services ubiquitous, which means, they may be, more appropriately, governed under the Payments and Settlements Act 2007. Payments banks have been mandated to hold 75% of their liabilities in SLR securities (yielding ~6.5%) and the remaining 25% as deposits with other banks (yielding ~7.25%). This means that payment banks have no risk on the asset side of the balance sheet. Assuming that the cost of funds for these payments banks will be comparable to current scheduled commercial banks, (we are stretching our imagination here), that leaves absolutely no net interest margin for these banks to cover their costs
• The cost of funds for payments banks (and even small banks) will definitely be higher than full service banks which have better credit as well as access to inter-bank options and RBI for overnight liquidity requirements. To counter this, the balances held with payments banks will give lower returns than the balances held with scheduled commercial banks
• There will be no incentive for customers to hold deposits in these payments banks. This leaves charging for payments as the only possible source of revenue for payments banks. This begs the question as to why anyone would keep any float in a payments or small bank account which presumably would not pay any interest (Paytm wallet, M-Pesa or Airtel money earn no interest currently). Almost all banks in India have implemented a core banking solution and are able to provide payment services via internet banking at almost negligible cost. There is a near zero transaction cost for a consumer (on most platforms) for transfer of money via NEFT or RTGS. Debit cards and ATM machines are also available widely but with an urban bias for now
• The assumption seems to have been that payments banks will leverage technology and have minimal operating costs. Payments business is different from banking. It enables the transfer of funds from a payer to a beneficiary. Banks, payments networks like Visa, MasterCard and cash were the only mode of payments for a very long time. In the last decade, with the advent of technology, banks have faced a challenge to their monopoly on payments by a clutch of technology and telecom companies, most notably; M-Pesa, ApplePay,Google Wallet and the like
• India has been at the forefront of the payments revolution with systems like NEFT, RTGS and ECS, which were promoted by RBI and led to massive improvement in performance and customer services by banks. In the second version of this revolution, companies like Paytm and other digital wallets have garnered a lot of traction with tech-savvy consumers. Payment services like M-Pesa or Airtel money however have not taken off like they did in sub-Saharan Africa
• What the RBI needs to consider is that there are not many telecom or financial companies more trusted than some of the big PSU banks in India. They have a reach and presence that is unmatched by anyone else apart from India Post. A mobile wallet is a depreciating currency as every transaction incurs a transaction fee. Would the poor not prefer to transact via normal banks and not mobile money if similar payment and banking services are provided by banks? It is obvious that because of the restrictions imposed by RBI, payment banks have no business model
• Of all the payment banks licensed, only telecom companies, IT players and retail chains have a different cost structure and technology platform than regular banks. These players were already in the payments business via wallets and mobile money applications. If only these companies had to remain in the fray, RBI need not have gone through the whole licensing charade, instead the RBI could have taken marginal yet effective measures to legitimise and rationalise the operations of existing players in the field

Topic: GST

Category: Taxation

Key points:

• As vegetable prices steam up again, the cut in petrol prices by ₹2.25 per litre in the past week comes as a bit of a breather. But how would you like it if you also had lower taxes and a uniform rate for petrol and diesel across the country? As the Parliament ponders GST, the All India Petroleum Dealers Association has come up with a demand to streamline petrol and diesel prices across India. They’ve dubbed it “One Nation One Rate”
• What is it?
• Retail prices of petrol and diesel differ from State to State and even vary between city limits and the suburbs. So where does this price differential come from? Well, to understand this, we need to know how fuel prices at the pump are arrived at. To calculate fuel prices, the basic cost of petrol/diesel imported into the country, including freight, is considered in dollar terms. This is converted into rupees using an average exchange rate. A variety of State-level taxes get added to this – cess, state value added tax (VAT) and State Specific Charges that allow firms to recover entry tax and octroi, before arriving at the final retail price at the pump. Differential tax rates, especially VAT from State to State are the major cause for differences in fuel prices across the country
• According to data from the Ministry of Petroleum and Natural Gas, the effective rate of state taxes levied on petrol in Delhi is 27 per cent where as in Mumbai it is 35.08 per cent. This makes the petrol dearer by almost a ₹5 in Mumbai (₹67.11 per litre, Indian Oil Corporation) compared to Delhi (₹62.51 per litre). The same logic applies for diesel as well. With state-level taxes at 31.56 per cent, diesel is sold at ₹68.44 per litre in Bhopal, which is higher than ₹62.95 per litre in Chandigarh where the effective tax rate is 17.27 per cent
• To put an end to the disparity, over 50,000 fuel pump owners across the country have gotten together and demanded that petroleum products, which have been specifically left out of the GST regime, be swept under it, so that fuel rates can be made uniform. But convincing individual States which currently rake in substantial taxes through VAT to lower their rates may prove an uphill task
• Why is it important?
• Uniform prices may make fuel pricing more transparent and easy to understand for consumers. Plus, it may curb grey market activity. With VAT differentials widening, there has been an increase in grey market fuel movements across State borders
• Reports say that grey market racketeers buy fuel in the ‘cheaper’ states and sell them in States where they are priced higher. Uniform pricing across the nation can avoid this illegal trade. Also the petrol pump owners association claims that a uniform tax rate will result in an increase in revenues for the government
• Given the way States are resisting even plain vanilla GST, it may not become a reality anytime soon

Topic: Dispute Resolution

Category: Governance

Key points:

• The Prime Minister’s Office is reportedly assessing the functioning of tribunals. Tribunals were created to bring experitse and speed to dispute resolution. India has many tribunals that hear pleas against orders by sectoral regulators. Last year, a parliamentary standing committee had voiced concerns over the ‘sad state of affairs’ in tribunals, saying some of them were dysfunctional due to large-scale vacancies. Scrapping tribunals is not the answer
• The judiciary is already over-burdened. Instead, the government must provide human and financial resources for tribunals to function effectively. A tribunal would serve to sum up the evidence and elucidate the principles and rules needed to evaluate the evidence, even if the tribunal’s finding goes for review at a high court or the Supreme Court.
• It makes sense to have a sitting or retired judge of the Supreme Court or a high court on these tribunals, which, ideally should be multi-member bodies that contain domain experts as well. Regulators, whether in the financial sector or in telecom or energy, have wide-ranging powers, and their actions can impose a significant burden on regulated entities
• Rightly, the Financial Sector Legislative Reforms Commission had said the rule of law requires that a clear judicial process be available to persons who seek to challenge regulatory actions. The tribunals offer the first opportunity of appeal. The Securities Appellate Tribunal, for example, hears pleas against orders by the capital market, insurance and pension regulators
• The PMO’s energies would be better spent on pushing legislation to make regulators accountable to Parliament, to enable them to function independently. Structured interactions and periodic reporting will enable Parliament to review regulatory actions and raise investor comfort.
• Do tribunals fail to ease the burden on the higher judiciary? The apex court can lighten its burden by refusing to hear cases that do not raise questions of legal principle or of fundamental rights. The high courts can benefit from the tribunals’s expert rulings

The National Investigation Agency (NIA) on Monday filed a charge sheet against six suspected operatives of the IS for allegedly conspiring to carry out terror strikes in the Capital and neighbouring regions during the ArdhKumbh mela in Haridwar in January.The Agency filed the chargesheet in the court of District Judge Amarnath of the Patiala House district courts under Sections 120 (criminal conspiracy) of the Indian Penal Code and various provisions of the Unlawful Activities (Prevention) Act (UAPA).

The Central Board of Direct Taxes (CBDT) said on Monday that it put together a database of about nine lakh high-value transactions, of which nearly one lakh that involve purchases or investments exceeding Rs. 1 crore could come under scrutiny for tax evasion

MIT scientists have developed an inexpensive, solar-powered water treatment system for rural Indian villages, which lack affordable potable water and electricity.

The researchers designed, built and tested their prototype system, and their next step is to implement it in a village outside of Hyderabad.

With its Start-up Policy having drawn only lukewarm response so far, the government is planning a twin-pronged approach to spur the initiative.

In places having no leading centres such as the IITs, the IIMs, or other renowned institutes, colleges would be clubbed to form an incubator hub.Incubators plagued by staff-shortage that impacted their ability to handle numerous applications would be asked to co-opt outside experts quickly so that no applicant was denied the expertise required to develop and commercialise their ventures.

While the National Green Tribunal’s directive to RTOs to de-register diesel vehicles that are over 10 years old in Delhi will adversely affect owners of such vehicles, it is a godsend for the industry as it may boost demand for new vehicles in the short-term.But in the longer run, a piecemeal approach would impact consumer sentiment on the use of diesel cars.

MSMEs get squeezed all the time by their large buyers, who pay after long delays. All would be better off if the MSME could sell its claim on the large buyer in the market. The MSME would get its money quickly, while the market would get a claim on the better rated large buyer instead of holding a claim on the MSME. All this will happen as the three Trade-Receivables Discounting Systems (TReDS) which the RBI has licensed, start later this financial year,” the RBI governor said.

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

• IED
• Naxalism
• Unified Payments Interface
• GST Bill
• TB Symptoms
• Monetary Policy Committee
• Bio chemical Oxygen Demand
• Bio CNG
• Payments Bank

G. Fun with Practice Questions 🙂

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

Question 2: Which of the following is/are correct about Unified Payments Interface System?

Question 3: Which of the following is/are correct about Bio diesel?

Question 4: Which of the following methods are used to diagnose TB?

Question 5: Which of the following countries share boundary with Turkey?

H. Archives:

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