15 Mar 2020: UPSC Exam Comprehensive News Analysis

15th March 2020 CNA:- Download PDF Here

TABLE OF CONTENTS

A. GS 1 Related
B. GS 2 Related
HEALTH
1. The time is right for ‘One Health’ science
C. GS 3 Related
DEFENCE
1. MPs’ panel concerned at Defence fund shortfall
ENVIRONMENT
1. Heat stress may impact over 1.2 billion people annually by 2100: study
D. GS 4 Related
E. Editorials
HEALTH
1. How does soap use help in tackling COVID-19?
2. Is the global economy headed for recession?
ECONOMY
1. Yes Bank and bonds
F. Prelims Facts
G. Tidbits
1. GST on mobile phones hiked to 18%
2. Excise duty on fuels hiked by ₹3 per litre
3. 2 more banks to invest in Yes Bank
H. UPSC Prelims Practice Questions
I. UPSC Mains Practice Questions

E. Editorials

Category: HEALTH

1. How does soap use help in tackling COVID-19?

Context

  • The WHO has issued guidelines to reduce the risk of infection. It includes a regular and thorough cleaning of one’s hands with an alcohol-based hand rub or washing them with soap and water.

 

How does washing with soap helps get rid of the coronavirus?

  • The dirt on our hands contains innumerable viruses and bacteria. Washing with only water helps reduce the number of microbes but does not remove most of the virus and bacteria completely. Using soap, therefore, becomes far more effective in removing microbes.
  • Viruses such as coronavirus, influenza-causing viruses, Ebola, Zika have their genetic material encased in a layer of fat called the lipid envelope.
  • Soap molecules are pin-shaped with a head that is water-loving (hydrophilic) and a tail that is oil-loving (oleophilic).
    • Being oleophilic, the tail portion of the molecule tends to have an affinity for and ‘competes’ with the lipids in the virus envelope.
  • Since the chemical bonds holding the virus together are not very strong, the long oleophilic tail gets inserted into the envelope and tends to have a ‘crowbar’ effect that breaks the lipid envelope of the virus.
    • The tail also competes with the bond that binds the RNA and the lipid envelop thus dissolving the virus into its components which are then removed by water.
    • The oil-loving tail of the soap molecule thus disrupts the bond that binds dirt and non-enveloped viruses to the hand. The dirt and viruses are surrounded by several tails making them remain suspended particles. Rinsing with water washes away the suspended particles leading to clean hands.

Soap Molecule

 

Do all viruses have the lipid layer?

  • No, certain viruses do not have the lipid envelop and are called the non-enveloped viruses.
    • Rotavirus which causes severe diarrhea, poliovirus, adenovirus that causes pneumonia and even human papillomavirus (HPV) does not contain the lipid envelop.

 

How do alcohol-based hand sanitizers help get rid of coronavirus?

  • Like soap, the alcohol present in hand sanitizers dissolves the lipid envelop, thus inactivating the virus.
  • In addition, the alcohol also tends to change the shape or denature the mushroom-shaped protein structures that stick out of the lipid envelope.
    • The mushroom-shaped protein structures help the virus to bind to special structures found on human cells and enter the cells.
  • To be effective, the sanitizers should contain at least 60% alcohol.
  • Unlike soap lather, the alcohol does not come in contact with all parts of the hand. So care needs to be taken to use sufficient sanitizer to increase the coverage.
  • While a sanitizer can quickly reduce the number of microbes, it does not get rid of all types of germs, and is “not as effective when hands are visibly dirty or greasy”.

 

Should healthy people who are not taking care of COVID-19 patients use a mask?

  • Medical masks help prevent the spread of coronavirus infection. If worn properly, masks may be effective in preventing transmission of coronavirus.
  • Transmission through droplets from coughing and sneezing is one of the major routes of virus spread. When worn correctly, a mask can reduce the risk of inhaling droplets containing the virus.
  • With many studies showing that people infected with novel coronavirus transmit the virus even before symptoms show up, it may be prudent to wear a mask especially when the virus is spreading in the community.

 

What other precautions should be taken when a mask is used?

  • WHO cautions that using a mask alone will be insufficient to provide an “adequate level of protection”. It should be combined with hand hygiene to prevent human-to-human transmission.
  • So if an individual decides to wear a mask, care must be taken to regularly wash hands with soap or alcohol rub, and avoid touching the face with hands.
  • Incorrect mask-wearing might otherwise reduce the effectiveness in cutting the risk of transmission. It should be discarded once it gets wet or dirty, and care should be taken to safely dispose of used masks. The same mask should not be used for more than a couple of hours.

2. Is the global economy headed for recession?

Context

  • The global death toll due to COVID-19 has crossed the 5,300 mark, with over 1.42 lakh people infected. India, where 88 people have been infected, saw two casualties. A diverse set of industries has been impacted by the spread of the virus.

 

What does it mean to the global economy?

  • Analysts fear that the global economy may tip into a recession unless the virus turns out to be seasonal.
  • A recession sets in when the economy shows two consecutive quarters of contraction.

 

Why should the economy be affected?

  • If individuals engage less with the outer world and avoid work, education, fitness, and entertainment, a lot less economic activity would occur.
  • Businesses face the challenge of disrupted supply of components to make products, or of having to shut some of their factories temporarily, not to mention the workforce having to be quarantined.

 

Which are the industries impacted?

The Indian pharmaceutical, automobile, and mobile phone industries, immediately trembled.

  • The Indian Pharma Industry, which depends on China for 70% of raw materials needed to manufacture drugs here, has seen input costs go up by 50%
  • The Pesticides Sector is another that has been affected as manufacturers depend on China for raw materials.
    • While there are comforting stock levels for now in India, farmers may soon face pesticide availability issues unless the situation resolves quickly.
  • Even the Software Services Industry, which easily lends itself to working from remote locations, will have some issues as the decision-making is mostly in the West.
    • Since it is the key market for software services, it may be hit, with in-bound travel restricted and the U.S. declaring an emergency.
  • Textile and clothing exporters have started feeling the impact of Covid-19 because of supply chain disruptions, fall in exports and the cancellation of international events.

 

How will it hit the travel sector?

Travel has been hit severely as countries issue advisories to eliminate unnecessary travel and go into lockdown mode.

  • The U.S., for instance, has halted all inbound travel from Europe.
  • India has temporarily stopped grant of visas except for emergency situations.
  • Operators and service providers.  The vendors in the airport who provide services suffer due to this restriction. It this impacts the profits of — and jobs at — airlines, airport authorities and oil marketing companies
  • Evidence has also shown that cab drivers cannot afford to have their cabs out of circulation for even as short a period as a week if they have to provide comforts to their families. Curtailed travel and commutes can be devastating for them.

 

Commercial Impact of Coronavirus on Sports and Entertainment

  1. Sports
    • Indian Premier League has been postponed.
    • The South Africa-India cricket series has been cancelled.
    • In football, all Union of European Football Association (UEFA) competitions, including the Champions League and Europa League matches, have been postponed.
    • Formula 1 has called off the first race of the season, the Australian Grand Prix. In golf, the PGA has cancelled its Players’ Championship.
    • The U.S. basketball association, the National Basketball Association (NBA) suspended its season’s events indefinitely.
  1. Movies
    • States such as Kerala have shut down cinema halls for this month.
    • Indian movie releases have been postponed indefinitely.
    • The iconic Disneyworld has brought down its shutters temporarily to help prevent the spread of the virus.

 

Is there a silver lining at all?

  • Sales of medical supplies, soaps, hand sanitizers and essentials to be stocked up at home will evidently rise.
  • It is said that after the Severe Acute Respiratory Syndrome (SARS) epidemic in China in 2003, shoppers began to prefer buying online, to avoid crowded spaces and that e-commerce major Alibaba’s fortunes zoomed after this.
  • Digital shopping may get a boost.
  • With schools shutting down temporarily, online learning platforms are likely to get a boost.

Category: ECONOMY

1. Yes Bank and bonds

Background

Refer to 10 March 2020 Comprehensive News Analysis.

 

Context

  • The Government and the RBI are working on restructuring the Yes Bank.
  • The draft restructuring proposal put out by the Reserve Bank of India (RBI) says AT1 bonds will be entirely written off, while equity owners will be spared.

 

Basel Accord

  • The primary purpose of a bank is to engage in the business of banking, which entails taking deposits and giving loans. For engaging in this business, banks are required to have sufficient capital, such that their deposit holders are protected.
  • The capital required by banks is regulated by The Reserve Bank of India, which is the primary regulator for all banking activities in India. Internationally, central bankers like RBI follow common minimum standards of capital adequacy, which are known as the Basel accords.
  • Post the Global Financial Crisis in 2008, regulators around the world agreed to stronger capital adequacy norms, to protect banks from any systemic risk and keep adequate capital buffers. These regulations are known as Basel III regulations and banks in India are following these guidelines
    • Requiring banks to have their own finance in the form of permanent capital, before taking on deposits or loans, is one of the underlying principles of Basel III norms.

 

Tier 1 and Tier 2 capital

  • Under the Basel III framework, banks’ regulatory capital is divided into Tier 1 and Tier 2 capital.
    • In India, one of the key new rules brought in was that banks must maintain capital at a minimum ratio of 11.5 percent of their risk-weighted loans.
    • Of this, 9.5 percent needs to be in Tier-1 capital and 2 percent in Tier-2.
  • Tier-1 capital refers to equity and other forms of permanent capital that stays with the bank, as deposits and loans flow in and out.
  • Tier 1 capital is subdivided into Common Equity Tier (CET) and Additional Capital (AT1).
    • Equity and Preference Capital is classified as CET
    • Perpetual bonds are classified as AT1.
    • Together, CET and AT1 are called Common Equity.

 

Common Equity Capital

Under Basel III norms, the minimum requirement for Common Equity Capital has been defined.

  • By nature, CET is the equity capital of the bank, where returns are linked to the banks’ performance and therefore the performance of the share price.

What are AT1 bonds?

  • AT1 bonds, also known as Additional Tier 1 bonds, are unsecured perpetual bonds issued by banks to shore up their capital base to meet Basel III requirements.
    • AT1 bonds are issued by banks to supplement their permanent or Tier 1 capital which is mainly made up of equity shares.
  • Both AT1 and Tier 2 capital are subordinated debt instruments and are ranked lower than deposits, secured and unsecured creditors in the order of liquidation.
  • The investors in such instruments typically include mutual fund houses and bank treasuries.
    • The investors invest in these bonds because of higher yield than secured bonds issued by the same entity.
  1. Unique Features
  • AT1 bonds are in the nature of debt instruments, which carry a fixed coupon payable annually from past or present profits of the bank. These AT1 bonds have no maturity and are therefore called perpetual bonds.
    • These bonds are perpetual and carry no maturity date.
    • Instead, they carry call options that allow banks to redeem them after five or 10 years.
  • If the RBI feels that a bank is tottering on the brink and needs a rescue, it can simply ask the bank to cancel its outstanding AT-1 bonds without consulting its investors.
    • This is what has happened to YES Bank’s AT-1 bond-holders who are said to have invested ₹10,800 crore.
    • The write-off also kicks in if the RBI decides that the bank is beyond the “Point of Non Viability” or needs a public sector capital infusion to survive
  1. Risks Associated with these bonds
  • First, the issuing bank has the discretion to skip coupon payments.
    • Under normal circumstances, it can pay from profits or revenue reserves in case of losses for the period when the interest needs to be paid.
  • Second, the bank has to maintain a common equity tier I ratio of 5.5%, failing which the bonds can get written down.

 

How did these bonds get into the hands of retail investors?

  • Reports suggest that retail investors were sold these high-value bonds (the face value is ₹10 lakh each) as high-return alternatives to fixed deposits, given that they were offering 2-3% higher interest than FDs.
  • Some investors also bought them through their brokers based on their high yields in the secondary market.

 

How it will impact the AT1 bondholders?

As a part of this proposal, the RBI has proposed to permanently write off the AT1 bonds issued by the bank while protecting the interest of the depositors.

  • Such a proposal ends up affecting retail investors who may have invested in the AT1 bonds directly.
  • It also impacts investors who have invested in Mutual Funds which in turn have invested in these instruments.

 

So who should invest in AT1 bonds?

  • Only affluent investors who are willing to take on a higher risk of a capital loss for higher yields.

 

Possible Solution

Given that one of the important objectives of the regulator is to protect retail investors, a solution has to be found which will protect the interests of these investors.

  • One of the probable way out is to convert the debt into equity.
  • This conversion allows the bank to write off their liability, can offset the higher permanent capital against provisions for bad loans and still give the bondholders the chance to participate in the future success of the bank and recover their lost dues.
  • A permanent write down, while within the regulatory ambit, changes the risk characteristics of this instrument and may end up damaging the AT1 market in India permanently.

F. Prelims Facts

Nothing here for today!!!

G. Tidbits

1. GST on mobile phones hiked to 18%

Context

  • The Goods and Services Tax (GST) Council has decided to increase the rate on mobile phones and specific parts to 18% from the current 12%, from April 1

Details

  • The decision was taken not to increase the prices but to correct the inverted structure of duty on some products wherein the rate of tax paid on inputs purchased is more than the rate of tax on finished products on outward supplies.

Impact

  • Mobile phones are likely to get costlier
  • Consumption will be stymied and it might be detrimental to the vision of Digital India.

2. Excise duty on fuels hiked by ₹3 per litre

Context

  • The government increased duties on petrol and diesel
  • This will shore up revenues to exploit the steep fall in global crude prices.

Details

  • Special excise duty on petrol was hiked by Rs 2 to Rs 8 per litre in case of petrol and to Rs 4 in the case of diesel
  • Additionally, road cess on petrol was raised by Rs 1 per liter each on petrol and diesel to Rs 10.
  • The increase in excise duty would in normal course result in a hike in petrol and diesel prices but most of it would be adjusted against the fall in rates because of a slump in international oil prices.
    • This was on the back of a deepening slowdown in the world economy as the outbreak of novel coronavirus has spread across the globe and a price war between major oil-producing countries like Saudi Arabia, Iran, and Russia.
  • The Centre has taken this step of increasing the duty to raise some revenue in view of a tight fiscal situation.
    • This would help in generating the resources for the development of infrastructure and other developmental items of expenditure

Revenue impact

  • Roughly, every rupee hike in excise duty is expected to yield Rs 13,000-14,000 crore annually.

For more information, read 13 March 2020 Comprehensive News Analysis.

3. Two more banks to invest in Yes Bank

Context

  • Two more banks — Federal Bank and Bandhan Bank — have committed to invest ₹300 crores each in crisis-hit Yes Bank.

Details

  • Federal Bank Limited has decided to invest Rs 300 crore in Yes Bank
  • The Bank has issued an equity commitment Letter for the subscription of 300 million shares of Yes Bank at a price of Rs 10 per equity share.
    • The commitment is pursuant to the scheme of reconstruction of Yes Bank proposed by the Reserve Bank of India under section 45 of the Banking Regulation Act, 1949 and subject to regulatory approvals and other conditions as set out in the Letter.

H. UPSC Prelims Practice Questions

Q1. Bedaquiline is a medication used to treat

a) Breast Cancer
b) Multidrug-Resistant Tuberculosis (MDR-TB)
c) Polio
d) Lymphatic Filariasis

See
Answer
Q2. Which of the following conditions are required for hailstorms to occur?
  1. Highly developed Cumulonimbus clouds need to be present.
  2. There must also be strong currents of air ascending through these clouds.
  3. The clouds will need to contain high concentrations of supercooled liquid water.

Options:

a) 1 and 2 only
b) 1 and 3 only
c) 3 only
d) 1, 2 and 3

See
Answer
Q3. Consider the following statements with respect to Wasp-76b
  1. It is an extreme kind of exoplanet that’s twice the width of Jupiter
  2. It was discovered by NASA’s Wasp telescope system

Which of the above statement/s is/are correct?

a) 1 only
b) 2 only
c) Both 1 and 2
d) None

See
Answer
Q4. The Cook Strait separates

a) Tasmania from the Australian mainland
b) Great Britain from continental Europe.
c) North and South Islands of New Zealand
d) Gibraltar and Peninsular Spain in Europe from Morocco in Africa.

See
Answer

I. UPSC Mains Practice Questions

  1. Has the coronavirus caused enough economic damage to send the global economy into recession? Substantiate.
  2. The concept of ‘One Health’ can be effectively implemented for reducing the incidence of emerging zoonotic threats. Discuss.

15th March 2020 CNA:- Download PDF Here

Read the previous CNA here.

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