03 Jan 2021: UPSC Exam Comprehensive News Analysis

A. GS 1 Related

B. GS 2 Related

C. GS 3 Related

Category: ECONOMY

1. Trade deficit grows to $15 bn in Dec.

Context:

• India’s trade deficit widened to $15.71 billion with exports falling and imports rising.

Details:

• For many developing countries, a progression from low income to middle and upper middle-income country status rests heavily on successful trade in regional and global markets, however, the trade deficit has ballooned to $15.71 billion.
• The imports have increased and the exports have decreased, a widening trade deficit will have deep consequences.

Trade Deficit and its implications.

• Click here to know more about Trade Deficit

Exports

• India’s Exports in December 2020 stood at $26.89 billion, whereas the corresponding data for December 2019 was $27.11, showing a decline in exports.
• An increase in outbound shipments in November led by certain sectors such as gems and jewellery, engineering and chemicals bodes well.
• India is a net importer in December 2020, with a trade deficit of $15.71 billion, widened by 25.78%.
• Major commodities which have recorded positive growth in exports during December include oil meals (192.60%), iron ore (69.26%), carpets (21.12%), pharmaceuticals (17.44%), spices (17.06%), electronic goods (16.44%), fruits and vegetables (12.82%), and chemicals (10.73%).
• The following too saw a positive trend including cotton yarn/fabrics/ made-ups, handloom products (10.09 %), rice (8.60%), meat, dairy and poultry products (6.79%), gems and jewellery (6.75%), tea (4.47% ), and engineering goods (0.12%).

Imports

• Imports during the nine months of the current financial year declined by 29.08% to $258.29 billion.
• Imports stood at $364.18 billion in April-December 2019-20.
• The major commodities imported with positive growth in December 2020 include pulses (245.15%), gold (81.82%), vegetable oil (43.50%), chemicals (23.30%), electronic goods (20.90%), machine tools (13.46%), pearls, precious and semi-precious stones (7.81%), and fertilisers (1.42%).
• Sectors which recorded negative growth in December 2020 were silver, newsprint, transport equipment, cotton raw and waste, coal, coke and briquettes

India’s trade scenario in 2020.

• The trade deficit at $15.71 billion was highest since July 2020. The country had witnessed a trade surplus in June 2020.
• The merchandise exports contracted to $200.55 billion during the time interval between April-December, faring badly in comparison to the same period last year.

Conclusion:

• The ballooning of trade deficit is not a very healthy sign to the Indian economy, as a spiralling trade deficit can trigger inflation, sliding of rupee vis-à-vis dollar, bulge the Capital Account Deficit etc, therefore steps have to be taken to ensure that trade deficit remains in control.

E. Editorials

1. A rocky road for the banking sector in 2021

Context:

• The COVID-19 pandemic and the lockdown that followed has created problems of plenty in the economic arena. The news of volume of bad loans in the system declining in the September quarter has come as some form respite.
• The ability and willingness of banks to lend are critical for businesses and the economy to grow.

Details:

• India’s Scheduled commercial banks turned profitable in 2019-20 after undergoing two consecutive years of losses.
• State-run banks have witnessed losses for five years in a row, but their losses were lesser than previous years.
• The Reserve Bank of India (RBI) believes that the first half of 2020-21 saw redemption in bank’s health as seen by the improvement seen in certain bank’s statistical indicators like the non-performing assets (NPAs) falling to 7.5% of outstanding loans by September 2020.
• The RBI has called the Insolvency and Bankruptcy Code (IBC) in 2016 for special praise.
• Insolvency and Bankruptcy Code (IBC) in 2016 has been credited for the speedy resolution of a few large accounts

When were NPAs at dangerously high levels?

• March 2018 saw a peak in NPAs, about ₹10 lakh crore — around 11.5% of all loans. The period since then saw a gradual betterment in the health of the banks.
• India’s ‘twin balance sheet problem’ was largely a product of high levels of non-performing assets.
• Tracing of the ‘Twin balance sheet problem’ will lead to the latter half of the 2010s, as assumptions of persistently high economic growth made several large corporates overambitious in their investment ambitions, thus over-leveraging themselves in the process.
• And lenders, led by public sector banks, fuelled these plans through easy money on credit. The problem was particularly acute in the infrastructure sector, where high-stakes bets on several projects unravelled as growth (and demand) fizzled out following the global financial crisis of 2008.
• The stress from stretched corporate balance sheets infected banks’ own books and underwhelmed their capacity for fresh lending.
• This vicious cycle was interrupted to an extent by the IBC, which, along with tighter recognition norms for bad loans, helped correct the course over time.

A decline in bad loans is good news. But is it the real picture?

• The problem is that the COVID-19 pandemic and the national lockdown that ensued put brakes on the economic activities, this was seen world-over.
• What makes the Indian economy peculiar was that the Indian economy was showing signs of slowdown from the past 2 years and the pandemic just made it worse.
• The regulatory forbearance has been cited by several economists as the reason why bad loans and insolvency proceedings have not surged yet.
  • Regulatory forbearance is a regulatory policy where a policy implemented by central banks and other regulatory authorities that permits banks and financial institutions to continue operating even when their capital is fully depleted)
  • The series of regulatory forbearance steps taken by authorities to help them tide over this unprecedented crisis.
• Measures like
  • Interest rates were cut after the onset of the pandemic,
  • A moratorium was offered on loan instalments due from borrowers, and
  • Liquidity infusion into the system has provided a temporary respite.
• The Insolvency and Bankruptcy Code 2016 is currently suspended
  • Sections 7, 9 and 10 of IBC enable financial creditors to initiate insolvency proceedings against a corporate debtor.
  • Whereas Section 9 grants these powers to operations creditors, Section 10 allows corporate debtors to initiate insolvency proceeding
  • Sections 7, 9 and 10 of the bankruptcy law were suspended for six months from March 25 by way of an ordinance in June.
• The Government has extended the suspension on the Insolvency and Bankruptcy Code (IBC)till the end of the present financial year (March 31 2021).
• The aftermath of the above-mentioned measures, the credit disbursal to key sectors of the economy has been insufficient.
• RBI believes that a real picture of the state of borrowers’ accounts (and consequently, the banking system in general, and the economy at large), will emerge once these policy support measures are rolled back.

What exactly has the RBI said about banks’ health?

• The true status of the bank’s health will be revealed once the regulatory forbearances measures will be withdrawn until then it is difficult to identify.
• The improved GNPA ratio of 7.5% at end-September 2020 does not reveal the accurate picture and doesn’t reflect the stress the economy is under.
• The RBI report revealed that the uncertainty induced by COVID-19 and its real economic impact, the asset quality of the banking system may deteriorate sharply, going forward
• The report also stated that there are large-scale loan defaults looming over housing finance companies, which have been hit by delays in completion of housing projects, cost overruns due to reverse migration of labourers, and delayed investments by buyers in the affordable housing sector as incomes shrank and jobs were lost.
• In the face of challenges faced by the Indian economy and the banking sector amidst the pandemic, RBI believes that it is important to “rewind various relaxations in a timely manner”, rein in loan impairment and ensure adequate capital infusion into banks.
• Several other experts have also stated that the government will have to dip into the tax revenues to shore up public sector banks.

What does this mean for India’s hopes for a bounce-back in the economy?

• Banks are the backbone of any economy, a pileup of bad loans hurts the banks’ ability and willingness to lend, the banks get into the risk-averse mode.
• Banks deem it is safer to park their funds in government securities, and public sector banks, that have seen a surge in deposits after the recent troubles at co-operative and private lenders like the PMC Bank, Yes Bank, and now Lakshmi Vilas Bank, may also prefer to go down the route.
• The Currency with public increased in the times of COVID-19, while solvency issues related to a private sector bank also brought about some reassignment of deposits.
• During 2020-21 so far, deposits with PSBs grew at a higher pace than usual, partly reflecting the perception of their safe-haven status.
• While several private lenders have chosen to raise additional buffer capital to offset shocks from potential loan defaults, some large state-run lenders have announced plans to raise resources in a staggered manner, depending on the prevailing market circumstances.
• Since public sector lenders still play a huge role in financing economic activity, it is important that they raise additional capital from the market or from their majority-owner — the government — before the stress ‘obscured’ by the COVID-19 relief measures becomes apparent.

Conclusion

• The RBI’s Financial Stability Report will be released soon, hence, its findings will be critical in determining how gloomy the situation really is.
• The restoration of the economy is crucial to improving the health of banking and non-banking financial sectors.
• The Union Budget for 2021-22, will have to address these issues in detail, the budget will also be of extreme importance for banks on the issues of a revival of demand and investments and the capital that can be earmarked for public sector bank recapitalization.

Category: HEALTH

1. Chalking out an effective COVID-19 vaccination plan

Context

• Covishield from the Pune-based Serum Institute of India and Covaxin of Bharat Biotech — are at final stages of emergency use authorisation (EUA) in India
• The several States and Union Territories have conducted a dry run for a COVID-19 vaccination programme to identify and iron out any flaws in the design if the vaccination programme.

Why was it necessary?

• India’s ‘Expanded Programme on Immunization’, which began in 1978, gave the country much needed experience in administering essential vaccines to children and pregnant women.
• In 1985, the programme was renamed ‘Universal Immunisation Programme’, under which about 12 different vaccines are provided through the government health system.
• The vaccination organization includes a three-tier system at the district, state and national levels to monitor coverage and adverse events and to ensure that the vaccines adhere to quality norms.
• As per the UNICEF data, approximately 9 million immunisation sessions are conducted every year in India and despite that, only about 60% of eligible children are fully immunised, with wide variations among States.
• The COVID-19 vaccine will involve two doses spaced at least four weeks apart and will have to be administered at a very large scale, it would thus necessitate more planning, personnel and logistical arrangements.
• India’s priority list of beneficiaries includes healthcare workers, municipal workers, police personnel, those over 50 years of age, and younger people with identified co-morbidities. This, the government has calculated, works out to 30 crore people, and given the pace of vaccine production and administration, it will be August till all on the priority list are inoculated.
• The prospect of having two vaccines and two doses for earmarked beneficiaries will entail an unprecedented level of digitisation.
• The dry-run will assess the operational feasibility of Co-WIN application at the ground level.

How was it organised?

• The dry run was carried out in one or two districts of the States and sessions were conducted at district hospitals or medical colleges, community or primary healthcare centres, private health facilities, and at outreach sites in urban and rural areas.
• The dry run tested all the key steps in the COVID-19 vaccination process in a field environment.
• The programme involved State administrators generating a ‘user ID’. These ‘IDs’ were sent as an SMS to 25 volunteers at each session site. There are five such sites in each district.
• Each site is manned by a medical officer, who bears the responsibility of ensuring that these groups of 25 people are inoculated. Though there were no actual shots administered, details of every person who is to get the jab are being punched into the Co-WIN application, which is part of the database that will keep track of every inoculation.
• The dry run involved dummy boxes of vaccines being brought to the centre; cold storage points were also checked to ensure coordination with the actual points of vaccine delivery.
• Once the session was finished, all data and feedback were relayed back to the district, State, and eventually Central centres for feedback and analysis.
• The exercise began in Assam, Andhra Pradesh, Gujarat and Punjab. States have already prepared lists of priority groups — healthcare workers, municipal workers, and Army and police personnel — and beneficiaries who had registered themselves on the Co-WIN app were sent SMSs informing them about the time and place of their “COVID-19 vaccination” as a mock drill.

What has been the experience of the trial run?

• The Punjab government successfully completed the exercise at 12 sites in two districts.
• Health officials in Assam said they focused on “software efficacy” and would be carrying out the physical part of the drill involving 300 people in two districts.
• The two-day exercise in Andhra Pradesh was conducted at five-session sites, including public and private medical institutions, with 25 dummy beneficiaries (healthcare workers) at each site.

Following the dummy run, are actual vaccines ready to be rolled out?

• Two vaccine candidates — Covishield, developed by the Serum Institute-Pune and based on the AstraZeneca ‘Oxford’ vaccine, and Covaxin, developed by Bharat Biotech and the Indian Council for Medical Research (ICMR) — have been cleared by an expert panel of the Drug Controller General of India.
• The companies before supplying the vaccine will have to secure a formal approval by the DCGI.
• The SII has said it has already stockpiled 50 million doses and will have another 50 million ready by next week. It is reasonable to assume that the first vaccines will begin to go out within the coming weeks.
• The dry-runs are useful as dress-rehearsal before the all-important roll-out of vaccination drive.
• However, the takeaway from the dry-runs will reveal largely administrative readiness of the structure but will reveal little about the toughest parts of the vaccination process, namely the actual inoculation, reactions, severe adverse reactions and potential hospitalisation.
• So far, as part of vaccine trials in India, thousands of people have been administered test vaccines in hospital settings. Many future inoculations are expected to be conducted in rural settings, where necessary healthcare infrastructure is absent.
• The example of United States highlights how the cumbersome process will take more time than what is estimated, the Pfizer and Moderna vaccines was expected to vaccinate 20 million people within a month but has barely progressed to 2.8 million.

Conclusion:

• The dry run will help identify the flaws in the vaccine administration organization, however, the actual vaccination drive will be a real challenge taking into consideration the quantum of people that will have to inoculate, the safety precautions, the huge extent of digitization etc.

Category: INTERNATIONAL RELATIONS

Q1.Financial Stability Report is released by which of the following organisation?

Q2.Consider the following:

Q3. UNSC Resolution 1373 deal with which of the following

Q4. River Tirekhtyakh is found in which of the following countries?

Read the previous CNA here.

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