09 Apr 2018: UPSC Exam Comprehensive News Analysis

A. GS1 Related
B. GS2 Related
SOCIAL ISSUES
1. Indians averse to adopting children with special needs
INTERNATIONAL RELATIONS
1. China objects to India’s ‘transgression’
C. GS3 Related
ECONOMY
1. Swiss aviation advisory firm interested in Air India
2. Bad loan menace: auditors come under lens of RBI
3. LTCG tax to spur growth in fixed-income MFs
4. Bring in securities exposure score, on the lines of CIBIL
SCIENCE AND TECHNOLOGY
1. AI can predict alien life
D. GS4 Related
E. Editorials
ECONOMY
1. Why Indian firms don’t innovate
2. Will IBC bankrupt banks?
F. Prelims Fact
G. UPSC Prelims Practice Questions
H. UPSC Mains Practice Questions 

A. GS1 Related

Nothing here for today!!!

B. GS2 Related

• The latest data shared by the apex body for adoption in the country — Child Adoption Resource Authority (CARA) — reveals that domestic adoptions of children with special needs has fallen with every passing year.
• At the same time, foreigners adopting children with a physical deformity or an ailment rose by 50% last year alone.For every Indian parent who adopts a differently-abled child there are at least seven foreigners who adopt such children from India after they fail to find a family in the country.
• A total of 355 differently-abled children were adopted by foreign applicants in 2017-2018, up from 237 in the preceding year. Only 46 such children were adopted by Indian parents in the same year. It was 76 in 2015-2016 and 49 in 2016-2017.
• Those who do adopt such children actually would have opted for a healthy child but because of the long waiting period involved, they switch to a differently-abled child. As per law, efforts have to be made to place a child within India first, and only when a child is not accepted by Indian applicants is he or she referred to foreigners. As a result, overseas applicants are mostly referred differently-abled children.
• Activists and parents attribute the huge gap to differences in cultural attitudes towards disabilities. We often see how parents of healthy children have huge expectations of them. So, naturally, there is social stigma attached with disabilities in our country.
• Activists say that while better social security abroad helps families adopt a child with disabilities, there is also a need to look within.
• In India, there are issues related to schooling, access to public spaces, and employment opportunities. While all these factors do contribute to parents in India not opting for differently-abled children, the primary reason is the attitude towards them.

In news

• In a fresh incident of friction, the Chinese military last month strongly protested against the Indian Army’s transgression into the strategically sensitive Asaphila area along the disputed border in Arunachal Pradesh, but India rejected the complaint.
• The sources said the Chinese raised the issue at a ‘Border Personnel Meeting’ (BPM) on but the Indian Army dismissed it, saying that the area in the upper Subansiri region of Arunachal Pradesh belongs to India and it has regularly been carrying out patrols there.
• Chinese called India’s patrolling in the area a transgression and the Indian Army objected to the terminology.

Border Personnel Meeting’ (BPM

• Under the BPM mechanism, the two sides can register their protest over any incident of transgression as there are varying perceptions about the Line of Actual Control (LAC) between the two countries.
• The delegation of China’s People’s Liberation Army specifically mentioned extensive patrolling in Asaphila by Indian troops, saying such violations may escalate tensions.
• However, India said its troops were aware of the alignment of the LAC and the Army would continue to carry out patrols up to the LAC, the de facto border.
• The sources said the Chinese military specifically mentioned large-scale Indian patrolling in Asaphila near Fishtail 1 on December 21, 22 and 23 last.
• Indian and Chinese troops hold BPMs to resolve issues triggering tensions along the border.

C. GS3 Related

• Global advisory firm Swiss Aviation Consulting has expressed interest in acquiring Air India, according to a senior official in the Ministry of Civil Aviation.
• The European firm is an independent advisory group offering services such as aircraft asset management, aircraft sales and acquisition support, risk management, strategic and operational advisory and flight training, among others.
• Founded in 2005, the Hunenberg-headquartered firm has affiliates in the UAE, Malaysia and South Africa, according to its website. An e-mail query to the firm on the disinvestment issue remained unanswered.
• The company’s keenness to buy Air India was shared with the Ministry of Civil Aviation months before the Centre formally invited bidders to participate in the disinvestment process. Though a foreign private player was said to have been interested at the time, Ministry officials had remained tight-lipped about its identity.
• The official, however, did not mention whether the Swiss firm had formally written to the ministry about its desire to pick up stake in the national carrier. Last month, the Ministry of Civil Aviation invited expression of interest in Air India’s disinvestment process and shared the broad contours of the stake sale.
• The government has offered management control and 76% share in Air India along with its low-cost subsidiary Air India Express and 50% per cent stake in AISATS, a ground-handling joint venture with Singapore Airport Terminal Services.

IndiGo’s exit

• Market leader IndiGo was the first to formally write to the government with an interest in the national carrier but pulled out of the race last week on the grounds that it was primarily interested in Air India’s international operations and Air India Express.

Potential bidders

• The Tata group and Singapore Airlines are also potentially open to bidding for the national carrier. According to a media report, a consortium of Jet Airways, Air France-KLM and Delta Airlines is also believed to have shown its willingness to buy stake in Air India.
• Ground-handling agencies including the Bird Group and Turkey’s Celebi too had written to the Ministry with a specific interest in buying Air India’s ground-handling arm, Air India Airport Transport Services Ltd.
• Foreign entities, including airlines, can invest up to 49% in Air India under the government approval route, under the condition that substantial ownership and effective control rests with an Indian national.

• With the RBI cracking the whip on bad loans menace, more than three dozen chartered accountants (CAs) are under the scanner for allegedly conniving with promoters in defaulting as well as restructuring the stressed assets, sources said.
• At a time when more number of companies with stressed assets are coming under the Insolvency and Bankruptcy Code (IBC), the central bank is also looking at the role of various key personnel associated with such entities.
• Sources said the Reserve Bank of India (RBI) is looking into the role of about 35 to 40 chartered accountants in loan defaults by companies.
• The regulator is looking to ascertain whether these chartered accountants helped the entities in any illegal manner causing deliberate defaults and subsequently assisting them in restructuring the dud assets, they added.
• The RBI lens on chartered accountants for suspected illegal activities with defaulting companies also come at a time when a substantial number of stressed assets are being taken up under the insolvency resolution mechanism. NPA woes in the banking system have been further highlighted with the over Rs. 13,000-crore scam at Punjab National Bank by diamond merchants Nirav Modi and Mehul Choksi.

SEBI scanner

• Meanwhile, CAs, company secretaries, cost accountants and valuers may have to forfeit their fees and face penalties if they are found lacking in their dealings with listed firms, according to a new set of norms being considered by SEBI.
• The Securities Exchange Board of India (SEBI) is looking to enhance oversight to check such frauds with new regulations for fiduciaries in the securities markets.
• It will require additional disclosure requirements and greater scrutiny of financial statements by auditors and other third party entities.
• SEBI may finalise rules which will put the responsibility on chartered accountants, company secretaries, cost accountants, valuers and monitoring agencies to get firms to comply with securities regulations and act in the interests of shareholders, he added.
• If such entities are found lacking in their dealings, SEBI may disgorge the wrongful gains, including the fee earned, along with an interest of 12% per annum from the date of default. Besides, SEBI may ask them not to directly or indirectly issue any certificate or report.

• The mutual fund industry, which witnessed significant growth in the wake of demonetisation of high-value currency notes in November 2016, is likely to grow faster in this current financial year. The industry’s efforts to reach smaller towns have started to reap fruit.
• Year 2017 was one of the most remarkable years for the mutual fund industry both in terms of growing the equity asset class, as well as systematic investment plans (SIP) as a mode of investing.
• This has not only resulted in an increase in the overall customer folio but has also led to new customer additions for the industry. The government’s bold move of demonetisation also acted as a blessing in disguise for the mutual fund industry, clocking huge inflows.
• Having seen this unprecedented flow into mutual funds in 2017, we may probably see the momentum in asset growth continue; however the rate of growth would be marginally lower.
• The SIP mode of investing will gain momentum in the coming year too. With the introduction of the Long Term Capital Gains (LTCG) tax, we see a pick up in fixed income-oriented mutual funds and serving the larger needs of the customers in choosing all possible asset classes from the mutual fund bouquet of products over and above equity-oriented schemes.

• Market participants likely to ask the capital market regulator, the Securities and Exchange Board of India (SEBI), to promote SEBLi (Security Exposure & Borrowing Limit) for providing them with a score, or a measure, for clients having derivative exposure in the equity, currency, bonds and commodity markets on the lines of CIBIL.
• CIBIL, or the Credit Information Bureau of India Ltd., provides a score that indicates the credit worthiness of an individual. This measure is a factor for lenders to determine whether or not a loan may be extended to that individual.
• SEBI recently introduced a product suitability framework to ensure that individual investors have a safety net when investing in equity derivatives. As per the regulator’s decision, it made brokers responsible for verifying retail investors’ exposure to derivatives market. This has received flak from the broker community.
• Under the circumstances, if desired by SEBI, he said, an independent agency should do the job and provide the information to the brokers without any incremental cost to them.

• Developments in artificial intelligence (AI) may help us to predict the probability of life on other planets, according to a study.
• Researchers at Plymouth University in the UK used artificial neural networks (ANNs) to classify planets into five types, estimating a probability of life in each case, which could be used in future interstellar exploration missions.

What are ANNs?

• ANNs are systems that attempt to replicate the way the human brain learns.They are one of the main tools used in machine learning, and are particularly good at identifying patterns that are too complex for a biological brain to process.
• The team has trained the network to classify planets into five different types, based on whether they are most like the present-day Earth, the early Earth, Mars, Venus or Saturn’s moon Titan.
• All five of these objects are rocky bodies known to have atmospheres, and are among the most potentially habitable objects in our Solar System.
• As life is currently known only to exist on Earth, the classification uses a ‘probability of life’ metric which is based on the relatively well-understood atmospheric and orbital properties of the five target types.
• Given the results so far, this method may prove to be extremely useful for categorising different types of exoplanets using results from ground-based and near Earth observatories.

D. GS4 Related

E. Editorials

• A large proportion of Indian companies just don’t have the policy or human resource capabilities to invest in innovation though the country fares favourably in terms of research and development (R&D) spending when compared with its peers, according to a top World Bank official.
• If you look at how much India invests in R&D as a share of GDP compared to other countries at its level of income per capita, it actually doesn’t do badly. (R&D spending) substantially above the average. That said, there are a couple of things to note.

Low R&D investments

• One, there aren’t that many of the big and modern firms that are investing a huge amount in R&D. And, the vast majority of firms in India don’t have the capability to do R&D.
• We have [the] data on measures of management practices around the world and you have the good performers such as Sweden and Germany, and you have parts of Africa that do pretty badly. India is somewhere in the middle. It’s around China, Latin American levels.
• What this means is that firms in India lack the capability to take a careful look at their basic plant layouts, can’t make long-term plans, don’t have an innovation strategy and don’t have an HR human resources policy to staff their innovation strategy.
• The other point about India was that the focus should be on increasing productivity and not simply focussing on R&D or single-mindedly increasing employment.
• R&D is one of several types of innovation that firms can do, but there are lots of others, such as the adoption of better practices and products, upgrading quality, licensing technology from abroad, all these things are under the heading of ‘innovation.
• It is not feasible for a country or a company to do everything by itself, and that India still stands to gain a lot from borrowing technology from abroad, which then enables it to leapfrog some existing technologies, such as the case with 4G adoption or the implementation of BS-VI fuel norms.
• However, borrowing technology from abroad and then implementing it at cheaper prices in India could lead to some friction between the exigencies of a developing country and the huge investment needed for R&D.
• A case in point being how, in 2012, the Indian government stripped pharmaceutical company Bayer of its exclusive rights to sell its cancer treatment drug in India and granted Natco Pharma a licence to sell a generic version of the drug at about 3% of the price Bayer was charging.
• It’s difficult, to reconcile the demands of a developing country and the huge investments that R&D requires. Ideally, you could say the government should be paying whatever the costs are to recover the R&D investment and delivering it at lower prices. But this is a huge demand on the government Budget.

Business environment

• What leads a firm to want to accumulate more knowledge or innovate.On the one hand, you have to look at the business environment, the macro stability [and] look at opportunities to export once you get going, all those sorts of things that say it will be worthwhile to sink money into upgrading, raising quality levels, doing R&D, etc,.
• All those things on the demand side are critical.But many firms have trouble identifying an opportunity. In the sense that they don’t have the managerial capabilities. SMEs (small and medium enterprises) are constantly in a situation where they are putting out fires, they don’t have a five-year plan, they don’t have somebody keeping track of what new technology has come out of some place that they could bring to the firm.

Upgrading capability

• That managerial capability comes with much more sophisticated firms and part of what we are arguing is that countries like Japan and Singapore invested a lot in capability upgrading programmes that sought to first organise the plant, get people with good records and a clean plant, with some sort of vision for the future, some way of listening to workers and evaluating the quality of the staff, all those very basic building blocks.
• One manner to address these deficiencies is to attract talent from abroad by engaging with the Indian diaspora more and trying encourage them to come back and bring their training and expertise to India.
• In both China and India, a lot of international patenting is being done by firms that are multinationals. So, in some sense, you have very sharp Indians working for multinationals, but with unclear spillovers to the local economy. So, both the brain drain and this phenomenon could be seen as bad.
• On the other hand, Ireland, Taiwan, and India started their tech industries largely due to the returning diaspora.
• Another way in which the Indian government could help SMEs is to help them identify their strengths and weaknesses in a systematic manner and then provide them with access to international best practices and advice on how those could help them.
• Most of the SMEs are full of smart people, often trained as engineers, very committed to their firms and the workers, but they are often just not aware of how they could be doing things better. The management support programmes that Japan, Singapore, the entire West engages in are important for exactly that reason.
• There are some quick wins if you just tell firms that this what you should be doing and this is where you are.
• And the thing is, most of these governments subsidise these programmes.If you have a small company that doesn’t know how good or bad it is, you can’t expect them to shell out a huge sum of money to find out. But if the company becomes better and starts earning more, then the government earns back that money in taxes.

• When Parliament passed the Insolvency and Bankruptcy Code (IBC) in 2017, it was intended to herald a new era for banking.
• Assets — steel mills, power plants, telecom towers languishing in the never-never land of corporate debt restructuring would be auctioned and put back into use. Banks would take a hair cut but would emerge healthier. Or so it was thought.

No equality

• The government, in its anxiety to help banks, passed a law which gives seniority to bondholders and lenders over suppliers of goods and services. The Indian constitution provides for equality under the law. This is a fundamental right and a basic feature of the constitution.
• It cannot be legislated away. By taking the ground that the act can pay certain types of creditors ahead of others, the IBC opens up a basic question.

Can a credit card company claim precedence over the Kirana Store in a bankruptcy?

• A company could source equipment from two suppliers. One supplier insists on a Letter of credit from a bank. The other would provide it without a letter of credit. The buyer would have to pay that bank ahead of the supplier who did not ask for a letter of credit.
• The mere involvement of a bank or financial institution would seem to be adequate for achieving this priority. Ericsson and L&T, to name but two, have taken recourse to the courts in their recoveries from RCom and Bhushan.
• Banks take over assets deemed to be charged under an umbrella “present and future assets” clause.
• When neither the company nor the banks have parted with cash for assets, why would the principles of natural justice allow banks to get the assets for free? Should not the supplier at least be deemed to be a secured creditor with a collateral of the goods supplied?
• Even if the Act was just, would it apply to supplies made and debt incurred before the Act was passed? The Vodafone case brought the spotlight on the legality of retrospective taxation.
• The law had to be amended to provide for the retrospective effect. The tax involved was a fraction of the amounts at stake in the resolution of the top 25 NPAs alone. The IBC is silent on its applicability in relation to debt incurred prior to its promulgation.
• The one certainty is that this legal tangle will be many years into resolution. The RBI provides for a 50% provision for secured assets which are referred to NCLT.
• Provisions rise to 100% if the company is insolvent or the asset is an NPA for three years. All other ways of resolutions have been dispensed with in RBI’s February circular. As time elapses, it looks like the IBC will result in a hit to the networth of the banks. May be this dawning realisation is why the RBI allowed banks to reduce provisions to 40% for NCLT cases in late March.
• Conventional wisdom is that equity ranks last — below all financial debt, trade credits and even preference shares. In India, banks can use “strategic debt resolution” by which they convert part of their debt to equity.
• The devolution of powers to the committee of creditors, which comprises only secured financial lenders, has resulted in strange antics where equity gets paid before debt.
• Witness that so far many offers for assets are targeted solely at the interest of the secured financial lenders by giving a repayment of secured loans in cash as well as an offer to buy out outstanding equity.
• The real problem stems from moral hazard. Legislators should have aimed for fairness to all creditors and equality under law not merely because they are high-sounding moral principles, but because people can accept a sacrifice if every one else sacrifices too.
• Its difficult to avoid the impression that the IBC’s legal sleight of hand is an attempt to avoid a second recapitalisation bill.

F. Prelims Fact

G. Practice Questions for UPSC Prelims Exam

Question 1. Consider the following statements about Artificial Neural Networks (ANNs):

Question 2. Consider the following statements about Border Personnel Meeting points:

Question 3. Consider the following statements about CARA:

H. UPSC Mains Practice Questions

Also, check previous Daily News Analysis