02 Apr 2018: UPSC Exam Comprehensive News Analysis

TABLE OF CONTENTS

A. GS1 Related
B. GS2 Related
POLITY
1. CVC wants to keep an eye on private banks
C. GS3 Related
ECONOMY
1. Section 80TTB: Arun Jaitley’s bonanza for senior citizens
2. Low-down on electric and hybrid vehicles
3. A national fleet, to keep us shipshape
D. GS4 Related
E. Editorials
SECURITY
1. Execution key for defence manufacturing in India
ECONOMY
1. Why the South Indian states must assist the North
2. Crediting India’s credit information companies
F. Prelims Fact
G. UPSC Prelims Practice Questions
H. UPSC Mains Practice Questions 

A. GS1 Related

Nothing here for today!!!

B. GS2 Related

Category: POLITY

1. CVC wants to keep an eye on private banks

 

  • The Central Vigilance Commission (CVC) has urged the Prime Minister’s Office to bring private sector banks under its watch, citing the fact that they have been involved in many recent instances of malfeasance.
  • Vigilance officers in all State-owned public sector banks are required to report irregularities and possible wrongdoing to the CVC, India’s apex body for checking corruption in the government.
  • Private sector banks are out of the CVC’s purview, but are subjected to statutory audits from the Reserve Bank of India (RBI).

Deviating from norms

  • Private banks have been rapped in recent months by the banking regulator for deviating from norms that govern the disclosure of non-performing assets (NPAs), leading to under-reporting.
  • The processes followed for lending decisions among private lenders have also come under the scanner.
  • The Central Bureau of Investigation disclosed last week that it has initiated a preliminary inquiry into loans granted by the country’s largest private lender ICICI Bank to Videocon Industries as it suspects a nexus between Deepak Kochhar, husband of the bank’s CEO and managing director Chanda Kochhar, and Videocon chairman Venugopal Dhoot.
  • The CVC has requested the PMO to consider empowering it to have an oversight on private banks as well, and make the legislative changes to facilitate the same.

C. GS3 Related

Category: ECONOMY

1. Section 80TTB: Arun Jaitley’s bonanza for senior citizens

 

  • Finance Ministry’s slew of measures such as increased deductions for interest income, enhanced provision and higher limits for medical insurance premiums and treatments have made the lives of senior citizens financially less burdensome.
  • Additionally, senior citizens have been given special bonanza by the introduction of a new section, i.e., 80TTB.
  • Under the provisions of this section, income earned from interest on bank savings deposits, fixed/recurring deposit schemes and deposits in post office will be exempted from income tax up to Rs 50,000.
  • This is a significant increase in the limit, as the current exemption limit stands at Rs 10,000 under Section 80TTA. The enhanced deduction limit would be available under a new section, 80TTB and the senior citizens will no longer be governed under the provisions of section 80TTA.
  • Additionally, the TDS threshold on deposits would be increased from Rs 10,000 to Rs 50,000. The only caveat is that the Rs 10,000 that was available for savings bank interest deduction would now not be allowed.
  • Besides, other privileges for senior citizens include a hike in deduction limit for health insurance premium and/ or medical expenditure from Rs 30,000 to Rs 50,000 under section 80D and for the treatment of certain specified illnesses, the deductions have been increased from Rs 60,000 to Rs 1 lakh under section 80DDB.
  • In addition to their regular investment allowances and deductions, pensioners would be allowed to deduct Rs 40,000 from their taxable income.
  • Also, the Pradhan Mantri Vaya Vandana Yojana, a pension scheme for senior citizens, now has a higher investment limit of Rs 15 lakh from Rs 7.5 lakh earlier.
  • Collectively, all these new deductions and allowances would result in an additional amount of around Rs 25,000 moving back into the pockets of senior citizens in the lower tax brackets.

2. Low-down on electric and hybrid vehicles

What are the differences between electric and hybrid vehicles?

  • The key difference between hybrid and all-EVs is in the sources of fuel and locomotion available to them. Hybrid vehicles have two sources available to them— a battery that powers an electric motor and a fuel tank that powers a normal petrol engine.
  • Typically, the battery can power the electric motor for only about 60-70 km, but there are constant improvements being made in the efficiency and capacity of lithium-ion batteries and so, this is expected to improve as more carmakers choose to roll out hybrid or electric variants.
  • Once the battery is depleted, the hybrid car switches over to the petrol engine, which then functions like any other normal car engine.
  • An all-EV does not have this advantage. Once its battery is depleted, it has no backup source of fuel.
  • However, electric cars have the benefit of larger batteries since they do not have to share space with a petrol engine or fuel tank. So, typically, an EV can travel a much longer distance than a hybrid car running on its battery.

How do you refuel them?

  • A normal plug-in hybrid vehicle can be refuelled by plugging the car into a wall socket or a charging point, and refilling the petrol tank.
  • However, there are some hybrid variants that can recharge the electric battery through a technology called regenerative braking, where the vehicle converts the force of the car when it brakes into electrical energy.
  • In these models, only the fuel tank needs to be filled. All EVs need to be charged from a charging point. Charging time depends on the size of the battery and the source of electricity. A DC charging point can fully charge a car battery in a fraction of the time taken using an AC charging point, which is 6-8 hours.

How does the Center differentiate between the two?

  • The main difference is in their tax treatment under the Goods and Services Tax. While EVs are taxed at 12%, hybrid vehicles are taxed on par with the luxury vehicles at 28% plus 15% cess.

3. A national fleet, to keep us shipshape

 

  • India’s shipping industry is at a crossroads. The country is aiming to make big strides in the maritime sector and investing billions of dollars to modernise and set up new ports as well as related infrastructure.
  • But its domestic shipping industry is finding it tough to compete with foreign shipping lines in carrying India specific export-import trade due to cost disadvantages and an uneven playing field. Indian shipowners have asked the Centre to consider having a national fleet.
  • This is in line with other major maritime powers supporting their own shipping firms, for retaining control and securing the transportation of critical cargo.
  • A national fleet policy mandates that ships engaged in trade must be flagged, or registered, in India irrespective of whether they are owned by Indian or foreign shipping lines. Though India has allowed 100% FDI in shipping since 2001, foreign lines are yet to flag in India.
  • If foreign shipping lines control over 90% of India’s cargo, why should they not be asked to flag some of their vessels in India and pay taxes like us.

Favourable regimes

  • Foreign lines register their vessels in favourable tax regimes such as Panama and at their local jurisdictions.
  • Japan, China, the U.S., Malaysia, Indonesia and European nations practice absolute cabotage to protect their shipping lines. The EU practices cabotage even in ship recycling.
  • China ensures that 600 million tonnes of coastal cargo is carried by Chinese vessels only. Cabotage refers to a legal restriction that limits the transportation of goods and people within the country by that country’s own transport services.
  • Japan ensures that all its imports are carried on by vessels owned, built and financed by entities registered in the country. The Donald Trump administration in the U.S. has proposed at least 30% of gas exports should be executed by their national carriers.

No policy support

  • But India lacks a comprehensive shipping policy to help build a vibrant industry. It has aimed to raise the ease of doing business to help reduce logistics costs. In the process, foreign shipping lines are benefiting at the cost of domestic ones, industry sources said.
  • It has now become a huge burden on us and disadvantage to flag our vessels in India because we have to bear more costs than foreign-registered vessels which just come, pick up and drop cargo and in the process now control over 90% of the trade.
  • There has to be some differentiation as we are flagged here. Otherwise Indian companies will move to other jurisdictions.
  • A tug of war has broken out between Indian and foreign lines after the latter started lobbying for removal of a facility called Right of First Refusal (RoFR) granted by India to local shipping firms to pick up cargo after matching the lowest tariff offered by a foreign carrier.
  • Challenging the view that India did not practice cabotage at all, foreign lines said RoFR was cabotage in a different form and claimed the right was protectionist.
  • If Indian shipping companies do not accept the rate quoted by the foreign line then the foreign-flagged ship is allowed permission to carry the same cargo for which it had bid. “This mechanism does not add any cost to the consumer but gives opportunity to an Indian company to carry at the rate quoted by a foreign line.
  • RoFR supports a legitimate tax-paying industry. There will be no discernible gain by removing RoFR but there will be a definite impact on the local industry with its removal.
  • India freely permits transshipment to foreign shipping lines as per policy guidelines issued in March 2016 and does not restrict market access to foreign shipping lines.
  • According to INSA, which represents 42 Indian shipping firms, RoFR is given to Indian ships because they pay tonnage tax in India and corporate taxes in the form of Minimum Alternate Tax and Goods and Services Tax.

Job generation

  • They employ only Indian seafarers, train 1.5 cadets for every 10 persons employed in a vessel, bear training costs of Rs. 16 lakh per cadet a year, employ offshore staff and use insurance, legal and ship repair facilities leading to increased employment and creation of ancillary industries.
  • Indian vessels often fail to match the pricing quotes of foreign shipping lines because they pay higher taxes.
  • They also employ more people than foreign carriers; they pay more bunker rate because the base rate is high; their cost of employees is higher because they pay taxes on wages to Indian seafarers; they pay higher rate of tonnage tax and pay IGST at 5% of the value of the ship. All these are not applicable to foreign-flagged vessels.
  • Indian shipping companies said in the absence of RoFR, there would be no incentives to flag their vessels in India. This will lead to loss of onshore and offshore jobs. Indian importers will be vulnerable to freight subjugation and exports will be non competitive.
  • According to analysts, multiple issues plague the industry, impacting both Indian exports and imports.
  • Indian shipping needs structural changes that will boost our contribution in both trade and shipping lines.Currently, over 90% share is contributed by foreign flags.
  • A dedicated structural programme has to be initiated towards setting up of an enabling ecosystem to increase the contribution of Indian flags to a sizeable amount.
  • The demand for continuance of RoFR to all government cargo is justified. However, we need to create an ecosystem which balances the trade and shipping line ecosystem.
  • Currently, foreign shipping lines carry India freight worth $52 billion a year. If 10% of that comes to Indian shipping lines, the domestic industry would have business of $5.2 billion which is enough to revive the sector, industry sources said.
  • The government continues to handhold the road and rail sectors with special rates and policies by promoting and directing cargo. Shipping needs similar policies and support along with a consistent policy environment.
  • The plan expenditure in shipping in the last 25 years has been 1.78% of railways, 2.3% of road and 16% of port allocation.

D. GS4 Related

Nothing here for today!!!

E. Editorials

Category: SECURITY

1. Execution key for defence manufacturing in India

  • Defexpo 2018, the biennial defence exhibition, will be held at Chennai from 11-14 April. It has been nearly four years since the Make in India initiative was announced by Prime Minister Narendra Modi.
  • Fundamentally, the initiative is meant to enhance manufacturing, attract investments, create jobs and increase technical depth. But for defence, there is the added criticality of achieving self-reliance for security.
  • The intensity and complexity of security challenges is increasing due to the nexus between China and Pakistan. With infrastructural improvements in Tibet, belligerence on the Line of Actual Control has increased. China’s military engagements with South Asian and Indian Ocean region states have been increasing. There is a continuing endeavour by Pakistan to push the envelope of proxy war.
  • Faced with such security threats, India cannot afford to be 60-70% import-dependent for defence. Furthermore, the international community expects India to be a net provider of security in the Indian Ocean region. India is poised to become a $5 trillion-dollar economy by 2025.
  • Such economic growth requires to be undergirded by strong security, and underpinned by the capability to project power in the battlespace, both physical and cognitive.
  • Close on the heels of Make in India, the defence procurement procedure (DPP) 2016 incorporated several new provisions to achieve indigenization and promote MSME (micro, small and medium enterprises).
  • These include the ‘Buy-Indigenously Designed Developed and Manufactured’ as the most preferred category for procurement, ‘Make II’ (private industry-funded design and development opportunity for simpler requirements), and reservations for MSME in Make I and II. Concomitantly, there were policy interventions in the management of offsets, an increase in foreign direct investment (FDI) in defence from 26% to 49% and the strategic partnership programme.
  • Even such forward-looking policies could not make the impact that had been visualized. Past legacy and convoluted procedures kept process dominant over outcome. In the past six months, with defence minister Nirmala Sitharaman, a concerted drive is visible.
  • With swift shuttles between the front line and industry, the minister has made a spate of announcements like simplification of Make II, two defence industrial corridors, and the draft defence production policy 2018.
  • The Make II procedure has been simplified considerably and timelines have been compressed. A refreshing new feature is the provision for industry or individuals to suggest suo motu proposals for potential Make II projects.
  • Projects up to Rs3 crore are earmarked for MSME. Now “acceptance of necessity” needs to be provided and projects commenced on priority for the vision to be realized.
  • The draft defence production policy 2018 envisions India as one of the world’s top five defence producers by 2025, with self-reliance in 13 areas covering almost the entire range of weapons and systems. A turnover of Rs1.7 trillion is visualized in defence by 2025, with Rs70,000 crore being invested to create employment for two-three million people.
  • The export target has been fixed at Rs35,000 crore ($5 billion) by 2025. The FDI limit is proposed to be raised to 74% under the automatic route for “niche technologies”.
  • “Hackathons” are proposed to resolve problems, with allocation of Rs1,000 crore for 2018-22 and defence innovation hubs are proposed to encourage start-ups.
  • The draft defence production policy is a grand vision document with unambiguous goals and objectives. This ambitious policy needs to be backed by granular detailing. Most important is continuity and scale for creating viable business cases for the entire life cycle.
  • The numerous instances of RFP (request for proposal) cancellations, discontinuation of schemes after months of RFI (request for information) interactions in favour of nominations to the public sector, leads to scepticism in the private sector.
  • As much as the public sector requires boosting, the private sector needs encouragement. The private sector needs assurance of orders to build a business case for investment.
  • To accomplish the export targets, the Indian defence industry has to start displaying capabilities in defence exhibitions across the world. India has to conduct international professional military competitions based on indigenously manufactured defence equipment to establish credibility.
  • For the development of the two corridors, the policy provides for 50% assistance from the government of India. The state governments and the industry need to pitch in for the rest. For the ministry of defence, separate allocations over and above defence budget estimates would be necessary. Provision for testing facilities by industry needs to be supported by incorporating third-party certification.
  • Defexpo 2018, for the first time, intends to project India’s defence manufacturing capabilities to the world. The press release states that Defexpo 2018 will brand India as a defence exporter of several defence systems and components for all three services.
  • While showcasing the strengths of India’s substantial public sector, it will also unveil India’s growing private industry and spreading MSME base for components and sub-systems.
  • For Defexpo 2018, the defence production policy 2018 and Make in India to succeed, the process has to be simplified and mindsets have to be changed to enable trust. Organizational security for well-meaning decisions is an imperative, of course with accountability for timelines.

Category: ECONOMY

1. Why the South Indian states must assist the North

  • The discontent of the southern states shows no signs of abating. On Friday, Kerala finance minister Thomas Isaac added his voice to the chorus of southern dissent about the terms of reference (ToR) of the 15th Finance Commission.
  • Using 2011 census data instead of 1971 census data to decide the allocation of tax revenue to states could lead to a major disruption of southern finances, according to him, since southern states have been more successful in bringing down population growth rates after 1971.
  • It is understated criticism compared to his peers, Dravida Munnetra Kazhagam working president Stalin and Karnataka chief minister Siddaramaiah. Andhra Pradesh chief minister Chandrababu Naidu has summed up the southern perspective best.
  • The change in census data, he has argued, is a betrayal: “Southern states contribute maximum tax revenues to the centre, but the latter is diverting the money to the development of northern states.”
  • The debate is not just about the distribution of tax revenues but goes to the heart of how one looks at joint responsibilities in any political project such as the Indian nation state.
  • It is a given in any complicated political system that one area will support another. For example, what if the same logic is used by the richer districts or metropolitan areas to argue against transfer of resources to the poorer parts of states? Or from the cities to the villages?
  • And what if a mineral-rich state such as Bihar were to argue that the more developed states of today grew at its cost during the planning era because of the freight equalization scheme that demolished its comparative advantage in metals production?
  • The members of the constituent assembly agreed to compromise on the fiscal autonomy of the states because the individual citizen rather than the state is the locus of development. This would be possible only if the centre has the authority to pool revenue, and redistribute it as needed.
  • Krishna Sinha, then prime minister of Bihar, the fourth richest province when India became independent, noted that it was the “duty of the centre to give greater assistance to the poorer provinces” in order to bring them on par with the richer provinces. Fiscal transfers are hardwired into every complex federal political system.
  • This has been a guiding principle of every Finance Commission since. There are good reasons for it. The Finance Commission is often portrayed as having to choose between equity and efficiency, but this is a misrepresentation. The two are complementary.
  • A state that is starved of fiscal resources will be unable to invest in public goods required to close the income gap with other states, thus further increasing the divergence between states. This undercuts the political logic of the Indian Union; having the most populous areas of the country fall further behind is simply not politically sustainable.
  • This is not to argue for stasis on the part of the Finance Commission. In this particular instance, the southern states are correct that using 2011 data is a bad idea — but not for the reasons they have given.
  • It is, in fact, a poor idea to give any weightage to population at all, as critics have pointed out over the years. It is a clumsy proxy by which to gauge a state’s fiscal needs. A balance between more granular criteria — development indicators, fiscal discipline, fiscal disabilities such as per capita income distance — is essential.
  • It seemed till recently that successive Finance Commissions were moving in this direction. Till the 7th Finance Commission, population was given 80-90% weightage in deciding allocation of income tax. This fell sharply to 22.5% in the 8th Finance Commission and as low as 10% by the 11th Finance Commission.
  • The slow creep to 25% and higher from the 12th Finance Commission has been retrograde. The population criterion must be done away with entirely. The development needs of an area are not necessarily captured in its population statistics.
  • The northern states are currently deeply dependent on central transfers because of their weak tax bases. The goods and services tax (GST) could help them since it is levied on consumption rather than production. There are always good reasons to ask whether liberal central transfers reduce the incentive of their state governments to invest in economic growth.
  • It is a very complicated political economy question, but the answer is not cutting their federal support but pushing them to adopt policies for more rapid economic growth as well as population control. This is not something that can happen overnight, but the example of how a state such as Rajasthan has broken out of the old Bimaru trap shows that it is not impossible.
  • Southern states will continue to assist the North in the foreseeable future. This is as it must be. The political idea of a country with as many centrifugal forces as India should not be held hostage to regional grandstanding.

2. Crediting India’s credit information companies

  • The perception of India’s banking system is at an all-time low. Glitterati international fugitives, ponzi schemes built on the back of a creaky international transfer system, a regulator with self-confessed lack of teeth, newspaper exposes, rumours and innuendos are all contributing grist to this bleak mill.
  • This dark picture is the result of misuse and abuse by a cosy coterie of “corpocrats” working hand-in-glove with pliant bank boards and executives, sometimes with a political nudge, to create one big bad-loan mess.
  • Households have remained largely untouched by this not only because India’s household credit penetration is low—retail loans by scheduled banks make up only 11% of gross domestic product (GDP)—but also because of a relatively new set of institutions—India’s credit bureaus—that have functioned behind the scenes to mitigate problems in this sector.
  • There are four of them today, and over the last few years they have been making remarkable strides in covering a greater and greater proportion of India’s households.
  • A credit bureau is an important part of the financial architecture of an economy. Its primary purpose is to reduce the information asymmetry between the supplier of credit (the bank or non-banking financial company, or NBFC) and the customer.
  • Information asymmetry is economics-speak for the information a buyer may conceal that could have an impact on the availability and price of credit that he receives. By tracking every instance of credit (and associated cash flows), credit bureaus keep a live record of how each customer “behaves”. A synthesis of this cumulative behaviour over time yields a credit score.
  • This credit score can then be used by the financial system to determine both whether the customer is creditworthy and (on a range of scores) how to price credit. At an aggregate level, creditworthy customers can get cheaper credit while less creditworthy customers get more expensive credit, reducing the aggregate cost.
  • Even though credit bureaus are relatively new to India, they have been around for over a century in some countries. A credit bureau is known by various terms around the world, such as the consumer reporting agency in the US, credit reference agency in the UK, and a credit information company (CIC) in India.
  • In India, Transunion CIBIL (TU-CIBIL) was born in 2000 as the Consumer Information Bureau of India Ltd based on recommendations made by the N.H. Siddiqui committee. Three more CICs were added in 2010—Experian, Equifax and High Mark. In 2011, High Mark began to serve as the Microfinance CIC in India.
  • Financial institutions—commercial banks, rural banks, housing finance companies, cooperative banks and NBFCs with an asset base of Rs100 crore—are required to become members of at least one CIC. India has a unique but useful provision that each financial institution is required to report information to each of the four CICs, thus facilitating full access to all records.
  • A committee led by Aditya Puri of HDFC Bank recommended that a standard format be used for data reporting. In addition, they specified useful data inputs such as detailed product classification, information about guarantors, clear separation of the consumer bureau from the commercial bureau (cross-referenced where they might serve as guarantors for the other) and unique identification numbers. Even though scoring methodologies vary a little, all CICs now score on a range from 300 to 900, going from poor to good creditworthiness.
  • For lending to large companies, banks have generally ignored these credit scores because corporate balance sheets (and bonds) have been rated by credit rating agencies like CRISIL, ICRA and CARE Ratings. In addition, banks lend to large companies on both a relationship and “facility basis”, meaning that they account for other forms of security like collateral, cash-flow linkage and asset backing. This allows for a lot of discretion with credit officers and bank credit committees.
  • For retail lending, particularly lending without collateral, the credit scores from India’s credit bureaus are an important input. Combining this with income data (that the CCIs do not collect) and transaction data (now available from application programming interface-based data aggregators like Yodlee and Perfios) completes the picture.
  • The smaller size and distributed nature of these loans and the objective way in which the credit scores are computed has so far resulted in a much better credit experience in recent times than in the large loan sector.
  • In India, both the well-to-do and microfinance customers are now largely covered by these CICs. There remains a big gap in credit behaviour coverage of the middle class. As credit bureau data has improved, credit card outstandings, at nearly Rs50,000 crore, have grown at a healthy pace of 30% year-on-year (more than any type of credit).
  • This, in turn, supports the information and robustness of the credit bureaus. The entire ecosystem should encourage broader and deeper coverage by the CICs.
  • This wider footprint will support increased household access to credit for investment and consumption. This will set up a virtuous cycle for job creation, particularly among small and medium enterprises.

F. Prelims Fact

Nothing here for today!!!

G. Practice Questions for UPSC Prelims Exam

Question 1. Consider the following statements about Tiangong-1:
  1. Tiangong-1 (Heavenly Palace or Celestial Palace-1) was China’s first prototype space station or space laboratory
  2. It was placed in orbit as part of China’s efforts towards building its own space station.

Which of the statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer
Question 2. Consider the following statements:
  1. Delhi became the first city in India to supply ultra-clean Bharat Stage (BS) VI grade fuel.
  2. The major difference in standards between the existing BS-IV and new BS-VI auto fuel norms is presence of sulphur.

Which of the statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer
Question 3. Consider the following statements:
  1. Hybrid vehicles have two sources available to them— a battery that powers an electric motor and a fuel tank that powers a normal petrol engine.
  2. All EVs need to be charged from a charging point.

Which of the statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer
Question 4. Consider the following statements:
  1. CVC is India’s apex body for checking corruption in the government.
  2. Private sector banks are out of the CVC’s purview.

Which of the statements are correct?

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. None of the above

See

Answer

H. UPSC Mains Practice Questions

General Studies II 
 
  1. Private Sector banks need to be regulated on par with Public Sector banks. Critically analyse.

General Studies III

  1. The draft defence production policy 2018 envisions India as one of the world’s top five defence producers by 2025. This ambitious policy needs to be backed by granular detailing. Discuss.
Also, check previous Daily News Analysis

 

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