07 Mar 2020: UPSC Exam Comprehensive News Analysis

7th March 2020 CNA:- Download PDF Here

TABLE OF CONTENTS

A. GS 1 Related
B. GS 2 Related
POLITY AND GOVERNANCE
1. Delimitation panel for J&K, northeastern States set up
2. Centre cannot brand organisations ‘political’: SC
INTERNATIONAL RELATIONS
1. India joins Indian Ocean Commission as an observer
HEALTH
1. Make containment highest priority: WHO
C. GS 3 Related
ECONOMY
1. As part of RBI bailout, SBI to pick up 49% in Yes Bank
2. Have enough forex reserves: Das
D. GS 4 Related
E. Editorials
POLITY AND GOVERNANCE
1. Making the environment conducive for justice
ECONOMY
1. Double-edged sword: On Supreme Court’s cryptocurrency ruling
F. Tidbits
1. Two Bills passed amid protest by Opposition
2. Oil plunges to lowest since 2017
G. Prelims Facts
H. UPSC Prelims Practice Questions
I. UPSC Mains Practice Questions

A. GS 1 Related

Nothing here for today!!!

B. GS 2 Related

Category: POLITY AND GOVERNANCE

1. Delimitation panel for J&K, northeastern States set up

Context:

• Setting up of the delimitation panel for Jammu and Kashmir and the North Eastern states of Assam, Arunachal Pradesh, Manipur and Nagaland.

Background:

• The delimitation exercise to readjust the division of each of the States and the Union Territories (UTs) into territorial constituencies for elections to the Lok Sabha and the State Legislative Assemblies based on the 2001 Census figures was last completed on November 26, 2008.
• However, this delimitation exercise was postponed in Assam, Arunachal Pradesh, Manipur and Nagaland on the apprehension of threat to peace and public order.
• Recently, the President had cancelled the order of the Union government that had deferred the delimitation exercise based on the fact that the President was satisfied that the circumstances leading to the deferment had ceased to exist, given that there had been significant improvement in the security situation, reduction in insurgency and improvement in the law and order situation in these States.

Details:

• The Law Ministry has issued an order to set up a Delimitation Commission for the Union Territory (UT) of Jammu and Kashmir and the northeastern states of Assam, Arunachal Pradesh, Manipur and Nagaland.
• The Commission will be headed by former Supreme Court judge Ranjana Prakash Desai and will have Election Commissioner Sushil Chandra as the ex-officio member of the Commission. Election Commissioners of the concerned States and UTs will also be members.

For more information refer:

CNA 29th Feb 2020: President gives nod for delimitation in the NE States

1. Centre cannot brand organisations ‘political’: SC

Context:

Supreme Court Judgment on certain provisions of the Foreign Contribution Regulation Act (FCRA), 2010 and the Foreign Contribution (Regulation) Rules of 2011.

Background:

• A petition was filed by Indian Social Action Forum (INSAF) in the Supreme Court, challenging certain provisions of the Foreign Contribution Regulation Act (FCRA), 2010 and the Foreign Contribution (Regulation) Rules of 2011.
  • The FCR act and rules confer the Centre with powers to classify organizations ‘political’ and shut down their access to foreign funds.

• The provision under Section 5 (1) of the FCRA was challenged through the petition. This provision allowed the Centre a free hand to decide whether a seemingly non-political organisation was political.
• The petitioner argued that Section 5(1) was vague and thus unconstitutional. 
• Section 5(4) of the FCRA was also challenged via the petition. The petitioner argued that the provision did not exactly identify the authority before which an organization could represent its grievance if it has been unfairly classified. 

Details:

• The Supreme Court agreeing with the observations made in the earlier judgment of the Delhi High Court has held that the provisions made under the FCR act and rules are “expansive” and not vague.
• It has thus dismissed the arguments of the provisions being unconstitutional.
• The bench has held that if the foreign funding was being used by the organization for political objectives, the government was well within its right to stop foreign aid to such organizations.
• The two-judge bench has however noted that the Central government cannot classify an organization political for using legitimate forms of dissent like bandh, hartal, road roko or jail ‘bharo’ to aid a public cause. The court noted that such a classification would deprive the organization of its right to receive foreign funds.
• The SC struck a similar balance in the cases of organizations of farmers, workers, students, youth based on caste, community, religion, language etc.

Category: INTERNATIONAL RELATIONS

1. India joins Indian Ocean Commission as an observer

Context:

• India’s induction into the Indian Ocean Commission (IOC).

Details:

• India has been approved as an observer state in the five-nation grouping of the Indian Ocean Commission (IOC).
• India will join China, which was also made an observer in 2016.
• The IOC includes Madagascar, Comoros, Seychelles, Mauritius and French Reunion from the Western Indian Ocean region.

Significance:

Government’s push for a greater role in IOR:

• Given China’s growing presence in the Indian Ocean region, India hopes to increase its naval presence and gain support for its maritime projects across the Indo-Pacific, beginning at East African shores.
• In December 2019, the Ministry of External Affairs decided to include Madagascar, Comoros and Reunion as part of the IOR (Indian Ocean Region) desk along with Sri Lanka, Maldives, Mauritius and Seychelles. Subsequently, they have been incorporated into one single division.
• The decision to join the IOC marks a part of the government’s push for greater prominence in the whole Indian Ocean Region (IOR), including what is called the Western or African Indian Ocean. 

Geographical advantage:

• The IOC is significant for its geographical location, as the islands sit around the key choke-point of the Mozambique Channel in the Indian Ocean.
• This channel gains prominence in the light of the U.S.-Iran tensions threatening the safety and viability of the Strait of Hormuz.

Category: HEALTH

1. Make containment highest priority: WHO

Context:

The global outbreak of COVID-19.

Details:

• Iran’s mushrooming outbreak of COVID-19 resembled the patterns observed in China and South Korea, which quickly uncovered more cases as they began to do active disease surveillance. 
• In the light of the number of confirmed cases of COVID-19 reaching 1,00,000, WHO director-general has asked all countries to make the containing of the outbreak of COVID-19 their top priority.
• Slowing down the epidemic would allow hospitals sufficient time to prepare and save lives.
• The WHO has warned against assuming that the virus spread would decrease during the approaching summer months in the northern hemisphere, as there was no evidence to justify such claims. It would be best to assume that the virus will continue to have the capacity to spread and plan accordingly.

C. GS 3 Related

Category: ECONOMY

1. As part of RBI bailout, SBI to pick up 49% in Yes Bank

Context:

The Reserve Bank of India (RBI) has announced a draft reconstruction scheme for Yes Bank.

Background:

Yes Bank’s troubles:

• Yes Bank, was one of the few Greenfield banks that were allowed to start banking operations by Reserve Bank of India in the post-liberalization era.
• Yes bank became the go-to bank for all those corporate borrowers whom other lenders did not want to lend loans to. Yes Bank had large exposure to troubled borrowers like the Anil Ambani Group, Dewan Housing Finance Corp. Ltd. and IL&FS.
• In the last five years of its operations, the loan book grew by over four times, but deposits failed to keep pace with loan growth. 
• Asset quality worsened during the period, with gross non-performing assets going up from 0.31% of gross advances as on March 2014 to 7.39% at end September 2019.
• Yes Bank faced challenges in raising capital, which it was required to set aside for ballooning bad loans. The bank’s failure to raise capital led to rating downgrades, which made capital-raising even more difficult. The bank was facing regular outflow of liquidity.
• Rapid growth and governance issues led to the decline of Yes Bank.

• Yes Bank, had suffered a dramatic doubling in gross non-performing assets over the April-September six-month period to Rs. 17,134 crores.

State’s efforts:

• The government has put a moratorium on Yes Bank till April 3, 2020, following its deteriorating financial condition. It has capped deposit withdrawal at Rs. 50,000.
• RBI, the banking regulator had superseded the board and appointed an administrator.

Details:

Capital infusion:

• The draft reconstruction scheme proposes bringing in the State Bank of India as an investor in Yes Bank. 
• According to the draft plan, the authorized capital for the reconstructed bank will be Rs. 5,000 crores, with 2,400 crore equity shares of Rs. 2 each, aggregating to Rs. 4,800 crores.
• SBI will pick up a 49% stake. The SBI will not be allowed to reduce its holding below 26% before completion of three years from the date of infusion of the capital.

New board:

• A new six-member board has been set up to look after the administration of the bank.

Employees:

• The scheme has taken care of the employees as it mandates that they will continue with the same remuneration and service conditions at least for one year.
• However, the above provision does not include key managerial personnel, on whom the board can take a call.

Stakeholders:

• All the deposits and liabilities of the reconstructed bank, and the rights, liabilities and obligations of its creditors, will continue in the same manner and with the same terms and conditions, completely unaffected by the scheme.
• However, the scheme has an exclusive provision concerning the additional tier 1 capital, which was issued by Yes Bank under the Basel III framework. The scheme states that this additional tier 1 capital will be written down permanently.
  • Tier 1 capital is a bank’s core capital and includes disclosed reserves (appears on the bank’s financial statements) and equity capital. It is a primary indicator to measure a bank’s financial health. These funds come into play when a bank must absorb losses without ceasing business operations.
  • Additional Tier 1 capital is defined as instruments that are not common equity but are eligible to be included in this tier. An example of AT1 capital is a contingent convertible or hybrid security, which has a perpetual term and can be converted into equity when a trigger event occurs. An event that causes security to be converted to equity occurs when bank capital falls below a certain threshold.

Concerns:

Exposure risks:

• The sudden moratorium on Yes Bank has put in trouble many fund houses that have exposure towards Yes Bank in the form of debt instruments like bonds or non-convertible debentures.
  • According to estimates, fund houses may have a cumulative exposure of about Rs. 2,783 crores towards Yes Bank.

• If the exclusive provision concerning the additional tier 1 capital goes through, it will hit hard the additional tier-I bondholders, up to an extent of around Rs. 10,800 cr.
  • The investors in such instruments typically include mutual fund houses and bank treasuries.

Risks of a bailout package:

• Though the RBI has done well by quickly framing of the resolution scheme, Yes Bank’s stock tumbled 56% on the BSE, eroding shareholders’ holdings and dragging the 10-bank S&P BSE Bankex down with it. This is an indicator of the risk that a sudden bank resolution can pose to the financial system of a country.

Ineffectiveness of the PCA framework: 

• Notably, Yes Bank has ended up at the resolution stage, without ever being placed under the central bank’s Prompt Corrective Action (PCA) framework.
• This brings into question as to how Yes Bank eluded the Prompt Corrective Action (PCA) framework meant exclusively to deal with banks under financial stress. 
• There have been arguments that the bank’s stated operational metrics had not breached the pre-set thresholds for triggering the PCA action and that the central bank had flagged several concerns, including a distinct divergence between the reported and RBI’s findings on the bank’s financials. 
• The Yes Bank example should serve as a warning to the RBI to review its PCA guideposts and revise them.

The inadequacy of the oversight role:

• Yes Bank’s troubles with non-performing assets are an indication of the troubles in the borrower industries, ranging from real estate to power and non-banking financial companies.
• The continued inability of several corporates to repay their loans resulting in many landing up in insolvency proceedings has meant that lenders have been the hardest hit. 
• With the economy facing a persistent slowdown, the prospects of banks’ burden of bad loans easing soon are limited.

Burdening the well-performing banks:

• The choice of SBI as the investor reflects the paucity of options the government has. 
• Recently, there have been many instances of other public sector banks merging with weaker banks as part of the Centre’s plan. Now the SBI will have to bail out a private player.

 RBI’s stand:

• The government has rebuffed accusations that the government had failed to monitor the Bank’s troubles. 
  • The RBI had been keeping tabs on the situation since 2017 and had taken steps to deal with the governance and leadership issues, the culture of weak compliance, wrong asset classification and risky credit decisions. 
  • Central agencies and banking regulator had pushed for management changes, slapped fines, investigated irregularities and urged equity infusions to improve Yes Bank’s financial health.
• Since a market-led and bank-led resolution of the problem is always preferable, RBI wanted to give time to the bank management to take all possible step and efforts to come out of the difficult situation. When the bank’s efforts were found to be ineffective, the RBI decided to step in.
• RBI Governor has stated that the resolution of Yes Bank would be done swiftly, with an outer limit of 30 days.
• The RBI governor has argued that this reconstruction scheme is important to maintain the stability and resilience of the Indian financial and banking sector.

For more information on this issue refer:

CNA 6th March 2020: Yes Bank put under moratorium till April 3

1. Have enough forex reserves: Das

Context:

The volatility of Indian currency due to fears of the global spread of COVID-19.

Background:

• The deadly virus that originated from China has spread to nearly 80 countries and has taken the lives of more than 3,300 people worldwide.
• As fears of the virus spread increase, there has been growing nervousness among the investors.
• The rupee has weakened consistently and stands at 73.87 against the dollar. This marks a 16-month low for the Indian currency.
• The global economy has been hit hard by COVID-19. According to IMF projections, the outbreak’s impact on the global economy will be 0.1 per cent and 0.4 per cent on the Chinese economy.

Details:

• Amid the volatility of the Indian currency due to fear of COVID-19 spreading, Reserve Bank of India (RBI) Governor has stated that the country has enough foreign exchange reserves.
  • Latest data released by RBI reveal that the country’s foreign exchange reserves stand at $481.5 billion. 
• The RBI governor has assured that the central bank would take all measures needed to secure the economy against the challenges arising from the deadly epidemic.
• The RBI governor has called upon the International Monetary Fund (IMF) to launch non-stigmatized currency swap lines to ease possible liquidity and financing constraints for countries that have been adversely affected by coronavirus (COVID-19).
  • The swap arrangement will help preserve the economy’s access to international capital markets.
  • The swap line would be critical for preserving global financial stability.

D. GS 4 Related

Nothing here for today!!!

E. Editorials

Category: POLITY AND GOVERNANCE

1. Making the environment conducive for justice

Context

• Hearing a PIL seeking FIRs against politicians and others over hate speeches, CJI S.A. Bobde expressed the courts’ helplessness in preventing riots

Background

• The Supreme Court (SC) is the protector of rights as guaranteed under the Constitution. People’s faith in the SC continues to be much more than in the political class and the executive.
  • The SC is the only institution that people can turn to when the state abuses its power.
• One of the many constraints imposed by the constitution upon state action is that the fundamental rights of all people in our country must be respected, protected and fulfilled. When the state fails to do this, constitutional courts are responsible for holding the state machinery accountable.
• In the past, the courts in India have gone an extra mile to safeguard the rights and liberties of citizens.

A lesson to emulate

• In the early 2000s, when cases of violence against newly married inter-caste couples following arbitrary and illegal diktats by khap panchayats were on the rise, the Punjab and Haryana High Court was inundated with pleas for protection from murderous members of the khaps.
  • As the cases kept piling and Haryana Police, which had a history of being partisan to such khaps, was doing precious little to protect the runaway couples, then chief justice of the high court summoned the DGPs of Punjab and Haryana as well as the inspector-general of Chandigarh, the senior-most police officer.
  • The court passed an order placing the responsibility of protecting the life and liberty of the fearful couples on the DGPs, making them personally liable in case any harm was done to them.
• Recently a bench of Justice S. Muralidhar and Justice Anup Jairam Bhambhani (Delhi High Court) was constituted past midnight (at 12:30 am on February 26) to respond to the humanitarian crisis at Al-Hind Hospital
  • The Court directed the Delhi Police to ensure safe passage of the injured by deploying all the resources at its command and on the strength of this order to ensure that apart from the safe passage, the injured victims receive immediate emergency treatment
• The Supreme Court can draw a lesson from the action of the Delhi High Court on how to prod the police into doing its job without fear or favor.
  • Not only did Justice S. Muralidhar hold a special hearing at his residence and force the police to shift riot victims to another hospital for better treatment, but he also made Chief Minister Arvind Kejriwal visit affected areas in northeast Delhi.
  • So, the Supreme Court does have the moral power to enforce accountability and action, if it chooses to use it.

A template for the future

• The role of the judiciary in riot situations is extremely important, in that it could prevent a slide into chaos.
• The judiciary does not wield a sword nor does it have the money power. But it is possessed of a more powerful alloy — moral authority, public trust and confidence.
• What the judiciary says or does has tremendous influence and it should never forget that, regardless of who wields the sword.
• Therefore, in such situations requiring urgent action the colonial belief that courts should be reactive should be forgotten and substituted by the public interest belief that courts should be proactive.

Category: ECONOMY

1. Double-edged sword: On Supreme Court’s cryptocurrency ruling

For more information on this issue, please read:

Comprehensive News Analysis 05 Mar 2020: SC frees trade in crypto-currencies, annuls RBI curb

F. Tidbits

1. Two Bills passed amid protest by Opposition

• The Lok Sabha has passed the Insolvency and Bankruptcy Code (Second Amendment) Bill and the Mines and Mineral Laws (Amendment), Bill.
• The Insolvency and Bankruptcy Code (IBC) Bill seeks to protect successful bidders of insolvent companies from any risk of criminal proceedings for offences committed by previous promoters of the companies concerned. 
• The Mines and Mineral Laws (Amendment) Bill proposes to remove end-use restrictions for participating in coal mine auctions and will open up the coal sector fully for commercial mining for all domestic and global companies.

2. Oil plunges to lowest since 2017

• Following reports that Russia has backed out of OPEC’s proposed deep and prolonged production cuts to stabilize prices, Oil prices declined by 8% in one day, to their lowest levels since mid-2017.
• The non-OPEC producer Russia has been arguing that it was too early to predict the impact of a coronavirus outbreak on global energy demand and will adopt a wait and watch approach regarding production reduction.

G. Prelims Facts

Nothing here for today!!!

H. UPSC Prelims Practice Questions

Q1. Which of the following statement/s is/are correct?

1. 1. The Prompt Corrective Action framework deems banks as risky if they slip trigger points based on the three parameters of capital ratios, asset quality and profitability.
   2. The Prompt Corrective Action framework is applicable only to commercial banks and not to co-operative banks and non-banking financial companies (NBFCs).

Options:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Q2. Which of the following are measures which would be adopted by the RBI to control 
depreciation of the Indian rupee?

1. Sell dollars in the foreign exchange market.
2. Deregulation of interest rates on deposits from non-resident Indians.
3. Buy dollars in the foreign exchange market.
4. Limit outbound investment and remittances from India.
5. Increase outbound investment and remittances from India.
6. Increase interest rates.
7. Decrease interest rates.

Choose the correct option:

1. 2, 3, 4 and 7 only
2. 1, 2, 4 and 6 only
3. 2, 3, 5 and 7 only
4. 1, 2, 5 and 6 only

3. Which of the following country is not a member of the Indian Ocean Commission (IOC)?

1. Seychelles
2. Mauritius
3. Maldives
4. Comoros

4. Which of the following country is currently not a member of the OPEC?

1. Gabon
2. Indonesia
3. Angola
4. Algeria

I. UPSC Mains Practice Questions

1. Discuss the provisions of the Reserve Bank of India’s Prompt Corrective Action Framework. Analyze the significance of the framework and also the associated concerns. (15 marks, 250 words)
2. Discuss the important factors which lead to depreciation of the Rupee and the concerns associated with it. What are the mechanisms available to arrest the depreciation of the rupee? (10 marks, 150 words)

7th March 2020 CNA:- Download PDF Here

Read previous CNA here.