Comprehensive News Analysis - 20 May 2016

A. GS1 Related

1. Cyclone Roanu to bring heavy rain to coastal A.P.

Topic: Geography

Category: Cyclone

Location: The Hindu

Key points:

• The cyclonic storm ‘Roanu’ over west central Bay of Bengal remained practically stationary and lay centred about 80 km south southeast of Machilipatnam, about 290 km south-southwest of Visakhapatnam and 160 km south-southwest of Kakinada.
• The system is likely to move initially north-northeastwards along and off Andhra Pradesh coast during the next 12 hours, thereafter north eastwards. It is likely to intensify into a severe cyclonic storm by tonight, according to the India Meteorological Department (IMD)

B. GS2 Related

1. India lauded for Red Line Campaign on antibiotics

Topic: Governance

Category: Health

Location: The Hindu

Key points:

• India’s idea of putting a red line on antibiotic packages to curb their over-the-counter sale is now being cited as a model that can be used globally to counter the rising threat of superbugs
• In its final report on tackling drug resistant infection, the global Review on Antimicrobial Resistancesays India has led the way so far with its idea of a ‘Red Line Campaign’ for antibiotics packaging, launched earlier this year and should be considered as a starting point.

2. Hybrid annuity model for highways draws bidders

Topic: Governance

 Category: Infrastructure

Location: The Hindu

Key points:

• The hybrid annuity model for awarding highway contracts introduced by the government last year, is beginning to get response from infrastructural players
• Under this public-private partnership (PPP) model, the government invests 40 per cent of the construction cost for building highways over a period and the balance comes from the private developer. The government will invest money in five equal instalments based on the targeted completion of the road project
• Also, unlike the build, operate and transfer (BOT) toll model, government will collect the highway toll tax. The private developer will recover his investment from the government by receiving annuity payments over a period of 15 years. The government also offers 80 per cent of prior land acquisition and forest clearance in such projects to the developers.

3. Obama’s Asia trip to reiterate ‘pivot’ doctrine

Topic: International Relations

Category: US-Asia

Location: The Hindu

Key points:

• Barack Obama’s visit to Vietnam and Japan next week will reiterate the “rebalance to Asia” policy.Mr. Obama will be the first serving U.S. President to visit Hiroshima, one of the two Japanese cities on which the U.S. dropped atomic bombs in 1945.The U.S. opened full diplomatic ties with Vietnam in 1995 but the relationship is far from smooth
• The visit will also underscore the significance the Obama administration attaches to the Trans Pacific Partnership (TPP), a trade agreement that is the cornerstone of the U.S.’s Asia-Pacific policy
• Maritimes disputes on the South China Sea will be part of the discussions at the G-7 meeting in Japan.

4.Rural transport scheme to take off in Bilaspur& North-East 

Topic: Governance

Category: Social Sector Schemes

Location: The Economic Times

Key points:

• The government is all set to launch the rural transport programme Pradhan Mantri Gram ParivahanYojana to provide connectivity and employment opportunities in remote villages

• The pilot project is expected to take off in Bilaspur district in Chhattisgarh and 20 areas in the north-eastern part of the country

• The scheme is aimed at addressing unsafe, poorly regulated, informal and unorganised rural transport services.It will be aligned with the rural roads programme Pradhan Mantri Gram SadakYojana, which has connected over a lakh habitations so far. In 2015-16 over 36,000 km of road network was added under the programme and the target in 2016-17 is to cross 48,000 km

5.State Assembly Elections:

Topic:Polity

Category:Elections

1) BJP (in Assam), Trinamool Congress (in West Bengal), Left Democratic Front (in Kerala), AIADMK (in Tamilnadu) and All India NR Congress (in Puducherry) won the recent assembly elections.

2) Anti-incumbency factor has worked against the ruling United Democratic Front (UDF) government in Kerala and also against the Congress government in Assam. Ever since the 2014 general election, the theme running across all assembly elections has been anti-incumbency. For Example, in Jharkhand, Maharashtra, Haryana, Jammu & Kashmir

C. GS3 Related

1. Missing EgyptAir flight may be work of terrorists; no sign of survivors

Topic: Security

Category: Terrorism

Location: The Hindu

Key points:

• An EgyptAir Flight 804, an Airbus A320 en route from Paris to Cairo with 66 people aboard changed direction in flight and crashed in the Mediterranean Sea
• Egyptian and Russian officials said it may have been brought down by terrorists
• The United States said it has not ruled out any possible causes for the crash, including mechanical failure, terrorism or a deliberate act by the pilot or crew. France is sending three investigators to Cairo along with a technical expert from Airbus, to join the probe into the missing flight

2. NASA super pressure balloon begins around-the-world journey:

Topic: S & T

Category:Space

1). NASA has launched a super pressure balloon (SPB) on a around-the-world test flight aimed at providing inexpensive access to the near-space environment for science and technology research

Note: Super pressure balloons – A super pressure balloon is a type of aerostatic balloon where the volume of the balloon is kept relatively constant in the face of changes in the temperature of the contained lifting gas. This allows the balloon to keep a stable altitude for long periods. They are typically used for extremely long duration flights of unmanned scientific experiments in the upper atmosphere, where atmospheric gas temperature is quite stable through the diurnal cycle.

2). The balloon is carrying the Compton Spectrometer and Imager (COSI) gamma-ray telescope and Carolina Infrasound instrument

3). COSI is a mission designed to probe the mysterious origins of galactic positrons, study the creation of new elements in the galaxy, and perform pioneering studies of gamma-ray bursts and black holes. Long-duration flights are vital to these types of studies

4). Carolina Infrasound instrument is designed to record acoustic wave field activity in the stratosphere. Previous balloon flights of the instrument have recorded low-frequency sounds in the stratosphere, some of which are believed to be new to science

3. Science ministry calls for research on energy efficient buildings

Topic: S&T

Topic: Energy efficiency

1) Under its Clean Energy Research Initiative, the ministry of science and technology is looking to begin a programme to support Research and Development (R&D) in the area of habitat energy efficiency. Research will be in the areas of research in the areas of energy-efficient building materials or construction technology for walls, roofs, windows; low energy cooling systems; increasing day lighting in buildings, building automation, and controls for energy savings

2) This will aid the government’s SmartCities mission

3) Buildings in India accounted for 35% of the total energy consumption, according to a report by Global Buildings Performance Network (GBPN) in 2013

4)  Under the Smart Cities Mission, the government sets the criteria for area-based development proposals to include at least 80% buildings that would be energy efficient

D. GS4 Related

1. Corporate lying and collateral damage;

Topic: Ethics

Category: Corporate Ethics

1) Volkswagen fails emission tests in India

Mitsubishi Motors Corp. manipulated fuel-economy data in its cars to exaggerate mileage numbers.

In the oil and gas sector, large companies such as Shell, ExxonMobil and Chevron have had to pay large fines to resolve allegations of under-reporting the value of natural gas and knowingly underpaying royalties.

Satyam and Saradha scams are other instances from India

2). The above mentioned examples have raised the issue of Corporate Ethics once again.

3) Business ethics (also corporate ethics) – It is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations

E. Important Editorials: A Quick Glance

The Hindu

The Indian Express:

Others:

PIB

a) An Intelligent Operations Centre and Mobile APP ‘Monitor’ for Smart President’s Estate was launched in Rashtrapati Bhavan

IBM partnered with Rashtra pathi Bhavan for the conceptualization, collaboration and quick implementation of the project aimed at converting the Estate into a smart township

b) NDMA conducts mock exercise on earthquake preparedness

A mock exercise on earthquake preparedness was conducted today by the National Disaster Management Authority (NDMA) in Faridabad, Haryana for assessing the preparedness and response mechanism of all Government agencies of the district in the event of a high intensity earthquake

2. The Economic Times:Should food and fuel decide policy rates?

Topic: Economy

Category: Monetary Policy

Key Points

• The Central Statistics Office has updated the base year and weights for the various goods and services in the consumer price index (CPI)

• Now that the Reserve Bank of India and the finance ministry are agreed that the CPI would be the sole parameter to set policy rates and anchor inflationary expectations, the revision has huge implications

• And it is entirely possible that the very instrumentality of inflation control would increasingly be distorted.The new base year is 2012 (= 100) in the index, and the weights for food and fuel items (including pan, tobacco and intoxicants) add up to 65.6%

• The high weightage for a relatively small consumption basket, if used to determine the overall cost of funds, can surely be distorting

• The weights for food and fuel in the CPI in mature markets are far lower, about 28.6% in the UK, for instance. Tracking prices over a much wider range of items would clearly present a more accurate overall inflation picture

• We have a “modern monetary policy framework” since 2015, anchored to the CPI. But the relative high weights for food and fuel are not the only problem. It is also a fact that there is rising demand for the so-called superior foods, given growing incomes and transfer payments, which tend to harden prices of such items. Also, the lack of logistics and storage capacity nationally can and does have a way of leading to price spikes here. And such supply disruptions can hardly be tamed by the instrument of policy rates

• In the monetary policy framework, attention has been skewed towards who would have a say on setting the rates at the expense of what policy goal or goals monetary policy should seek to achieve. It is time we restored balance

• Bottom-line: CPI would be the indicator for monetary policy makers. But CPI gives heavy weightage to food and fuels. This may fail to capture the inflation in other goods.Also supply disruptions can hardly be tamed by the instrument of policy rates

3. The Business Line: Bad offshoot of Mauritius tax treaty

Topic: Economy

Category: Taxation

Key Points

• The amendment to the over three decade old Double Taxation Avoidance Treaty (DTAA) between India and Mauritius has been seen as a progressive and much overdue tax reform measure. In another two years, an entity which is a resident of Mauritius, cannot avoid paying income tax on capital gains arising in India. This is expected to plug a huge source of revenue leakage and capital flight.

• But a more disturbing question has been overlooked: Does the new protocol discriminate between money meant for bona fide economic activity and that which originates from dubious sources — shell companies, foundations and NGOs — with security implications? This issue needs to be closely examined.

• Thirty three years back Government of India negotiated a Double Taxation Avoidance Agreement (DTAA) with Mauritius. Under this, tax payers who reside in one country and earn their income in another would not be taxed twice for the same income. However, this had, in effect, led to a situation where the entities concerned would avoid paying taxes in both countries

• This was because a Mauritian entity could avoid capital gains tax made in India, as India is not a ‘resident’ country, while not paying taxes in Mauritius as well, which does not levy the tax on its citizens

• India which levies capital gains tax on the sale of shares under the Income Tax Act, 1961, gave up this right under the DTAA.

• This ushered in billions of investment into India in the last 15 years. Some reports indicate that investments in the last one and a half decades would be around ₹4.63 lakh crore

• It worked like this: if you were to sell shares of an Indian entity, capital gains tax was payable. On the contrary if the shares of the holding entity in Mauritius were to be sold, which has no independent economic value other than the underlying value of the Indian subsidiary, it is exempt from capital gains tax both in India and in Mauritius!

• Mauritius became a “tax haven” for investments both “foreign” and “domestic” (routed through foreign jurisdiction) to flow freely into India. A 10 per cent margin or saving on the cost of money was a huge incentive for investments

• It also potentially became a route for bringing in black money and terror funds and ‘round tripped’ money — local funds being squirreled out of India and returning as foreign capital, thereby avoiding taxes

• Thus good and evil started to co-exist as inevitable sesame twins in the Indian investment market. The Mauritius route worked well for politicians, smugglers, anti-nationals and terrorists and their associates. It was exploited to win elections, smuggle drugs, foment terrorism and promote human trafficking

• It slowly became evident that the incentive to recycle funds had assumed alarming proportions worldwide. The G20 realised that enough was enough. A series of measures were brought into place, the most critical being the BEPS (Base Erosion and Profit Shifting), which was the trigger for the May 10 protocol between India and Mauritius.

• Its key features are:

• All investments up to March 31, 2017 will remain under the old regime i.e. ‘double non-taxation’. They will neither be taxed in India nor in Mauritius

• Between 2017 and 2019 capital gains would be taxed at 50 per cent of the domestic tax rate subject to the fulfilment of the Limitation of Benefits. The full rate would apply after 2019.

• The interest arising in India to Mauritian resident banks will be subject to withholding tax in India at 7.5 per cent after March 31, 2017.

• At first glance, the protocol appears to be a panacea for all evils. But, a closer look reveals that this attempt would only eliminate good investments in the next three years.

• Why so? The Supreme Court while deciding on the Vodafone case, declared that in deciding on taxation, the basic parameter should be whether the investment is being used for generating wealth and employment in legitimate business activities

• Therefore, funds associated with shell/conduit companies, charities, foundations and NGOs were not to be spared. The judgement significantly declared that the source of investment was not important, so long as it created wealth and employment. On the contrary, if the investment was dubious, it should be hunted down and brought to tax

• But what does this protocol seek to achieve? Legitimate and illegitimate investments do not share common traits. A legitimate investment into a business helps the economy progress. An illegitimate hawala transaction hurts it

• The protocol pursues a limited economic objective of taxing a transaction which otherwise remained outside India’s realm

• This protocol is now going to serve as a washing machine. Evil will now legally join the club of the good(not desirable) , so long as it chooses to pay capital gains tax. The only difference between the Vodafone judgement rendered by the Supreme Court and this protocol is that the former suggested exempting good money from taxation. Now, all that one has to factor in is a 10 per cent capital gains tax. Once that is paid, India can be flushed with illegitimate investments. This could lead to a legitimate investment with capital gains tax considering a different destination

• The need of the hour is twofold. Without a doubt, share transfers which stood exempted from time immemorial need to be taxed. This protocol has rightly designed a progressive transformation.

• But that is not sufficient. Coupled with this, the protocol should have added filters, check points and agencies and bodies to go into the very source and nature of investments. The idea cannot be to tax any investment, good or bad. A two-pronged attack could have been worked out: tax good money, which stood exempted till date, and prevent evil investments from entering India. A more likely consequence of this protocol is that good investment will start shrinking and illegitimate investments will thrive

4. The Business Line: Finding our own space under the sun

Topic: Governance

Category: Energy sector

Key Points

• It is easier, faster and cheaper to acquire fully assembled products. But it would seem very short-sighted with long-term repercussions. But that is exactly what we are doing across several sectors today

• Despite having the manufacturing base in the country, the list of finished products imported instead of made locally is very large. The solar sector is one such glaring example where the focus is to import cheaper products than to support and grow local manufacturing

• The argument for doing that is the need to produce solar energy at the lowest possible cost. Thus the panel becomes the raw material for the renewable energy industry and thus importing becomes attractive

• What the entire pro-import argument misses is the long term potential of solar industry. Some key arguments for indigenisation are:

• Solar is strategic: India is grossly energy deficit. We import close to 80 per cent of our fossil fuel and 20per cent of our total coal requirement. This is going to increase as our energy needs grow

• This not only will put significant stress on India’s exchequer but also make us more dependent on energy-surplus nations

• Solar is a plausible ticket to energy independence and there is strategic merit in ensuring we are self-sufficient in solar energy; integrated backward and forward

• Solar is universal: It is the only form of energy that can be consumed where it is produced. It is also the only renewable energy that is extremely scalable(can handle increasing demand)

• It thus has the capacity to take power to people and places that are currently deprived of it. It can also be a great agent of social equality

• Solar is futuristic: The world as we know is changing and the rules set in the 20th century will not hold in the 21st. In that sense, the argument that India is where the western world was in 1960s doesn’t hold any water. As the world wakes to its new reality, resources like clean energy, water and air will increasingly become as important as, if not more, pure economic growth

• Solar is big: According to various estimates, India’s solar energy potential using only barren land is upwards of 2000 GW. That is more than the total energy produced by the US and China combined.Mapping it to the current total energy production of almost 230 GW, it gives an indication of the true potential of the solar energy

• Solar is growth: Apart from the social, commercial, fiscal and environmental benefits, solar is also good for the economy and development

• The estimated potential of solar energy in the next few years, with the expected installed capacity of 100 GW, will be more than 1 million jobs. Not to mention the scope of tapping into the immense potential to export the panels and build solar plants globally

• If the government pays attention to solar by streamlining import costs, promoting quality exports and incentivising industry to build strong R&D capabilities, the solar sector can also work towards setting up an established market in the country

• If the current target for solar energy by the government is completed as planned, the solar energy industry could witness a boom from a meagre 161 MW in 2012 to 100GW in 2020

• In fact, purely by the existing potential, the Indian solar sector can ramp up to be amongst the top generators of solar energy in the near future, thus become a significant part of the national GDP
• We need to stop seeing solar from a micro and short term point of view of what it can do today and consider its true potential. Limiting this inexhaustible energy source’s potential and defining its boundaries by today’s technology will be an unimaginable injustice to our country’s capacity

5. Business Standard: Power sector financing: PFC, REC might have to overhaul portfolio

Topic: Governance

Category: Energy sector

Key Points

• The two state-owned and largest lenders to the power sector have had a dip in their loan sanctions over the past four years

• Power Finance Corporation’s (PFC’s) loan sanction are down 41 per cent from what it was in 2012-13, to Rs 44,328 crore in the past financial year. For Rural Electrification Corporation (REC), sanctions fell seven per cent in 2014-15, from 2012-13. In 2015-16, though, its loan sanctions rose to Rs 54,422 crore, owning to a rise in renewable energy (RE) projects asking for financing.

• Loan disbursement is showing a similar downward trend in PFC, sliding 27 per cent in the past four financial years. As for REC, the disbursement numbers are mixed — negative in generation and slight growth in transmission

• PFC officials said the pipeline of big-ticket generation projects was empty. In the past five years, no generation project has achieved financial closure, by market data.

• Power sector financing: PFC, REC might have to overhaul portfolio “These projects will come for a loan proposal only when they sign purchase contracts. But, then, power prices in the spot market have come down to Rs 3 a unit, making states choose short-term power purchase than sign long-term agreements,” said an official

• At Rs 1.33 lakh crore, PFC and REC are the largest lenders to the state electricity boards (SEBs), which are now cumulatively battling debt exposure of Rs 4 lakh crore. The new UjwalDiscom Assurance Yojana (UDAY) aims to restructure this debt by floating sovereign guaranteed bonds at market rates. It also restricts future borrowings by states till their respective distribution companies (discoms) clear their books

• Analysts said there was a looming downgrade threat for PFC and REC. With no new generation projects coming up and loans extended to the distribution sector undergoing restructuring, the two could be looking at a complete overhaul in their portfolio – moving more towards transmission and distribution and the upcoming RE segment

The Financial Express:

6. To Read: Rethinking FRBM: Address counter-cyclicality & ‘crowding out’ of private investment

7. Useful Infographic: The Business Line

8.QUICK BITS

1. Centre ends sugar export subsidy

The central government has withdrawn the production–linked subsidy of Rs 4.50 a quintal that it transfers directly into the bank account of sugarcane farmers on the condition that the mills to which they sell have exported 80 per cent of their prescribed quota of sugar. The mills also have to produce a certain level of ethanol

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

• Cyclone Roanu
• Red Line Campaign
• Hybrid Annuity Model
• Transpacific partnership
• G7
• PM Gram Parivahan Yojana
• Super Pressure Balloon
• Galactic Positron
• NDMA
• Consumer Price Index
• DTAA
• PFC and REC

G. Fun with Practice Questions 🙂

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

Question 2: WWhich of the following statement(s) is/are correct about Hybrid Annuity Model of PPP(Highways)?

Question 3: Which of the following statement(s) is/are correct about the new CPI Inflation series adopted by India?

Question 4: Which of the following countries is/are members of the G7?

Question 5: Which of the following statement(s) is/are correct?

H. Archives:

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