Upsc Exam Comprehensive News Analysis Jun27

F. Tidbits

1. SEBI set to open commodities to MFs

• The Securities and Exchange Board of India (SEBI) is gearing up to usher the next set of reforms in the commodity market by allowing mutual funds to participate in the segment while also actively considering allowing derivatives on commodity indices.
• A SEBI committee is separately looking into the issue of physical settlement for commodity derivative contracts (settling of a trade by give and take of shares rather than cash).

Background

• This comes two months after the regulator made it mandatory for stock derivatives to move to the physical settlement mechanism in a phased manner.
• The Commodity Derivatives Advisory Committee, which met recently, deliberated upon the issue of physical settlement in commodity derivatives and formed a subgroup to look into this specific matter.
• Based on the suggestions of the advisory committee, the regulator is soon expected to issue a consultation paper before framing the final guidelines.

Physical settlement

• Physical settlement refers to the system where the contract on the day of expiry is settled through the delivery of the underlying commodity instead of the current practice of cash.
• This assumes significance as currently only about 1-2% of the total turnover of certain commodities is settled by way of physical delivery.

Warehousing norms

• The regulator, however, will have to first frame the warehousing guidelines for non-agriculture commodities before going ahead with physical settlement.
• In September 2016, SEBI introduced warehousing norms for agri-commodities to ensure that exchanges do not face any default risk while the settlement and delivery of the commodity is assured.
• Equity exchanges BSE and NSE, which plan to start commodity trading from October, have asked SEBI to allow co-location in the commodity derivatives segment as well.

• The Centre’s initiative to reform public sector banks, begun in 2015 with the Indradhanush programme, appears to have lost steam, Reserve Bank of India’s (RBI) deputy governor Viral Acharya said.
• In his foreword to the Financial Stability Report (a biannual publication), Mr. Acharya said while the Centre’s decision to frontload capital infusion in public sector banks should impart robustness, governance reforms and market capital-raising appear to have again taken the backseat at the PSBs.
• The FSR reflects the overall assessment on the stability of India’s financial system and its resilience to risks emanating from global and domestic factors. The Report also discusses issues relating to development and regulation of the financial sector.
• According to the RBI, if governance reforms are undertaken promptly it would not only improve the financial performance of the banking sector but also help reduce operational risks.
• Acharya said the central bank’s decision to put 11 under-capitalised banks under prompt corrective action (PCA) was aimed at preventing further deterioration and nursing them back to health.
• However, the resulting shift of flows of finance to non-bank sources needs to be monitored carefully.
• According to the Report, six state-run banks that are under the PCA framework may see their capital adequacy ratio drop below the minimum regulatory level of 9% by March 2019 if there is no further recapitalisation by the Centre.
• The gross NPA ratio of all commercial banks is likely to rise to 12.2% by March 2019 as compared with 11.6% in March 2018, under the baseline scenario of a macro stress test.

• A U.S. delegation will hold meetings with Commerce Ministry officials at the Joint Secretary level to discuss ways forward to resolve the escalating trade issues between the U.S. and India.

Background

• The meetings come against the background of India’s recent notification of higher import tariffs for 29 goods originating in the U.S.
• However, the implementation date for these higher tariffs was set as August 4, leaving room for other solutions that could arise through dialogue.
• In addition, the notification left out the proposed increased tariffs on high-capacity motorcycles, such as those manufactured by Harley Davidson, tariffs on which were a sore point highlighted by U.S. President Donald Trump.

Key issues on agenda

• The two key issues on the agenda are India’s notified tariffs on U.S. imports, and duties on medical devices.

• The Reserve Bank of India has observed that the 7.7% GDP growth in the last quarter indicates the economy is well on the recovery track on the back of a sharp pick-up in gross fixed capital formation, but warned gathering headwinds including fiscal and current account challenges posed risks to the economic momentum.
• There has been an uptick in capacity utilisation with some industries such as steel closing the gap, the RBI said in its Financial Stability Report.
• The aggregate demand composition indicates a broad-based growth with revival of investment.

Concerns

• At the same time, the conditions that had resulted in fiscal consolidation, moderation in inflation and a benign current account, were changing, warranting caution, the RBI said.
• Specifically, it warned that the progress achieved on fiscal consolidation could face challenges unless there was buoyancy in tax receipts and restraint on expenditure.
• The widening current account deficit — the shortfall widened in 2017-18 on the back of a wider trade deficit — was also a challenge as it impacted exporters’ cost-effective access to U.S. dollar credit.
• While aggregate export credit increased moderately between March and December 2017, it was critical to ensure that public sector banks had continued access to global money markets as they contributed about 45% of the export credit.

External risks

• Enhanced supply of export credit from private sector banks, foreign banks and non-banking financial companies could offset the potential adverse impact on trade credit.
• Externally, tightening liquidity conditions in developed markets were impacting emerging market currencies, bonds and capital flows.
• Firming commodity prices, evolving geopolitical developments and rising protectionist sentiments pose added risks.

• Around the region of Heroshah, previously arid hills are now covered with forest as far as the horizon.
• In northwestern Pakistan, hundreds of millions of trees have been planted to fight deforestation.
• Further north, in Khyber Pakhtunkhwa’s Swat, many of the high valleys were denuded by the Pakistan Taliban during their reign from 2006 to 2009. Now they are covered in pine saplings.
• In 2015 and 2016, some 16,000 labourers planted more than 9,00,000 fast-growing eucalyptus trees at regular, geometric intervals in Heroshah — and the titanic task is just a fraction of the effort across the province of Khyber Pakhtunkhwa.

Significance

• The new trees will reinvigorate the area’s scenic beauty, act as a control against erosion, help mitigate climate change, decrease the chances of floods and increase the chances of precipitation.
• Residents also see them as an economic boost — which, officials hope, will deter them from cutting the new growth down to use as firewood in a region where electricity can be sparse.

Billion Tree Tsunami

• The Heroshah and Swat plantations are part of the “Billion Tree Tsunami”, a provincial government programme that has seen a total of 300 million trees of 42 different species planted across the province.
• A further 150 million plants were given to landowners, while strict forest regeneration measures have allowed the regrowth of 730 million trees — roughly 1.2 billion new trees in total.
• The Billion Tree Tsunami, which cost the Khyber Pakhtunkhwa government $169 million, started in November 2014.
• They are still implementing maintenance safeguards such as fire protection, with the project due to be completed in June 2020.

• The Food Safety Department seized around 9,000 kg of formalin-laced seafood as part of ‘Operation Sagar Rani’, an ongoing crackdown.
• Meanwhile, people protested against the propaganda that fish sold in Kerala were laced with formalin.

Formalin

• Formalin is a 37% aqueous (water) solution of formaldehyde, a pungent gas, with the chemical formula HCHO, used as an antiseptic, disinfectant, and especially today as a fixative for histology (the study of tissues under the microscope).
• It is a toxic chemical used to preserve mortal remains and organs and is known to be a cancer-causing chemical.
• Formalin belongs to that rare group of poisons which are capable of producing death suddenly when swallowed.
• The introduction of formalin into the stomach is followed by the production of a gastritis which varies greatly in character.

• Assam wildlife officials are keen on replicating their Uttarakhand counterparts’ jumbo-relocation experiment for reducing man-elephant conflicts in western Assam.

The issue

• About half of 58 elephant corridors in the northeast, comprising 35% of the country’s, are in Assam. More than 15 of these corridors, used by an estimated 9,350 elephants, are under the Northeast Frontier Railway.
• Human habitations and barriers such as electric fences and trenches have blocked some of these corridors that once enabled movement of the herds.
• More worrying for wildlife officials and activists is the fact that conflicts are happening throughout the year, instead of winter months as in the past.
• The Brahmaputra Valley is very narrow and does not have space for so many elephants and humans to coexist without conflicts.

The Uttarakhand experiment

• One of the strategies discussed was translocation of the rogue loner and other troublemakers in the herds.
• An aggressive male near Rajaji was sedated and relocated 40 km away across a river. It eventually returned to its old haunts but was sobered by the displacement.
• That elephant has become less aggressive, maybe because of some kind of fright that it might be captured again and sent elsewhere.
• But the biggest challenge is finding suitable locations for translocation in Assam.

• The Centre informed the Madras High Court that the Law Commission was considering the possibility of making it a statutory obligation for those wanting to contest in elections to disclose full particulars regarding their health condition at the time of filing nominations.
• The voters must have a right to know the health condition of elected representatives (Jayalalitha died within an year of the election).
• The efficacy of imposing such a statutory obligation was questionable because a majority of voters cast their votes on the basis of political parties and their symbols rather than by weighing the credentials of individual candidates.

• When India and U.S. hold their first 2+2 Dialogue involving the External Affairs and Defence Ministers and their counterparts, one of the key issues would be questions regarding the recent Russia-related sanctions that have now come up as a key impediment for India’s defence modernisation.

Background

• The new dialogue format was agreed upon by the two sides during Prime Minister Narendra Modi’s visit to Washington D.C. in June 2017.
• The two sides will share perspectives on strengthening their strategic and security ties and exchange views on a range of bilateral, regional and global issues of mutual interest.
• The impact of CAATSA (Countering America’s Adversaries Through Sanctions Act) is still being assessed in the military circles even as policy moves from the U.S. have not been reassuring.
• Last week, the U.S. Senate passed the National Defence Authorization Act (NDAA) for 2019 without any waiver provisions under CAATSA for countries having significant defence relations with Russia.

India’s stand

• The Indian side will firmly place its objections to CAATSA during the 2+2 Dialogue as practically all major defence deals in the pipeline between India and the U.S. would be held up due to this.
• India has clearly explained how India and Russia’s defence cooperation has been going on for a long time and that it is a time-tested relationship.
• India mentioned that CAATSA cannot impact the India-Russia defence cooperation.

G. Practice Questions for UPSC Prelims Exam

H. UPSC Mains Practice Questions

1. The failure, inadequacy or injustice of state mechanisms have created space for Naxalite movements. In light of the above statement, discuss the complex causes of this extremist movement.