23 May 2020: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: INTERNATIONAL RELATIONS

1. India-Nepal ties (Cold neighbourhood)

Background

• In November 2019, India released fresh maps of the then newly created Union Territories (UTs) of Jammu and Kashmir, and Ladakh, along with a map of India depicting these UTs.
• In the maps, Pakistan-occupied Kashmir was part of Jammu and Kashmir, while Gilgit-Baltistan was included in Ladakh.
• The new map showed Kalapani, Lipulekh and Limpiyadhura as part of Pithoragarh district in Uttarakhand state.
• Nepal government lodged a protest against the inclusion of Kalapani area in India’s far west, claiming it as Nepalese territory.
  • Kalapani, they claimed, was a part of the Darchula district of Nepal, while the Indian map placed it under the Pithoragarh district in the state of Uttarakhand.

Context

• Nepal’s cabinet endorsed a new political map of that country that showed Kalapani and Lipulekh as part of Dharchula district of Nepal.

Sugauli Treaty of 1816

Before the 1816 Treaty of Sugauli, the Nepalese kingdom stretched from the Sutlej River in the West to the Teesta River in the East. Nepal lost the Anglo-Nepalese War and the resulting Treaty limited Nepal to its present territories.

• The Treaty of Sugauli established the boundary line of Nepal.
• It was signed between the East India Company and King of Nepal following the Anglo-Nepalese War of 1814-16.
• The Treaty that brought the Anglo-Nepal war to an end demarcated the Mahakali River as the western boundary of Nepal. But it is the origin of this river that causes the dispute.

Nepal:

• It claims that River Mahakali originates at Limpiyadhura, Northwest of Lipulekh, and flows Southwest.
• Thus all the territories East of Kali (Mahakali) river, including Limpiyadhura, Kalapani and Lipulekh, belong to Nepal.

India:

• India says that Kali Ganga (as the Mahakali is called in Uttarakhand) originates in black water springs at Kalapani (which is how the area gets its name) well below the Lipulekh Pass and flows South and slightly East.

Historical References:

• The British used the Lipu Lekh pass for trade with Tibet and China. The Survey of India maps since the 1870s showed the area of Lipu Lekh down to Kalapani as part of British India.
  • Both the Rana rulers of Nepal and the Nepalese Kings accepted the boundary and did not raise any objection with the government of India after India’s Independence.
• As a reward for the military help rendered by Jung Bahadur Rana in controlling the 1857 uprising, the areas of Nepalgunj and Kapilvastu were restituted to Nepal soon thereafter. The British did not return any part of Garhwal or Kumaon, including the Kalapani area, to Nepal.
• India’s present borders, not just with Nepal, but with many of its other neighbors, were drawn by the erstwhile British regime. India inherited the boundaries of British India. It cannot now unravel the historic past.

Nepal’s Diversion Tactics?

• The controversy has given Nepal’s Prime Minister K.P. Sharma Oli an opportunity to hide his government’s incompetence and failure to meet the basic needs of the people, and to divert attention away from the rising tide of opposition from within his own party.

Concerns

• What this war of maps and words really points to is the steady deterioration of the India-Nepal relationship.
• The issue appears to threaten the basis of a special relationship between India and Nepal, which has nurtured open borders and the free movement of people.
• The Tensions have also been fueled by Mr. Oli’s jibe that the “Indian virus looks more lethal than the one from China”.
• The mention by the Indian Army Chief, of a China hand behind Nepal’s new assertiveness, did not help. It made the issue seem bigger by making it appear as if Nepal has no mind of its own, thereby provoked more anti-India nationalism in Nepal.

Solving Boundary issues an example:

India has successfully resolved far more intractable border issues with Bangladesh, covering both the land and maritime boundaries.

• Land Boundary Settlement: It was solved by mutual exchange of territories. It also included the transfer of population. This was done by amending the constitution to give effect to the 1974 India-Bangladesh Land Boundary Agreement.
• Maritime Boundary Issue: The issue persisted between India and Bangladesh for a long time and India approached the Hague-based Permanent Court of Arbitration.
  • The Court ruling accepted much of Bangladesh’s claim and rejected India’s assertion on a baseline that took into account the curved nature of the India-Bangladesh shoreline

Compared to what was accomplished between India and Bangladesh, the India-Nepal border issues appear more easily solvable, so long as there is political goodwill and statecraft exercised on both sides. The way to move forward is to demarcate the entire India-Nepal boundary, and speedily execute the work of boundary maintenance.

Conclusion

• The more the trouble festers, those who stand to gain by deteriorating India-Nepal relations will benefit. There is need for the two countries to lower the temperature and defuse the issue. They must invest time and effort to find a solution.
• India and Nepal must not let their differences grow into a full-blown diplomatic crisis.
• Given the importance of ties with Nepal, India must not delay dealing with the matter, and at a time when it already has its hands full with the pandemic and a faceoff with China in Ladakh and Sikkim. This is a matter best handled bilaterally, through quiet diplomacy.

Category: ECONOMY

1. RBI cuts repo rate again, down to 4%

Context

• The Reserve Bank of India (RBI) has reduced the key interest rate or the Repo Rate (the interest rate that the RBI charges for funds given to banks) by 40 bps to stabilize the financial system.
• Cumulatively, since the imposition of the national lockdown in March 2020, the MPC has cut rates by 115 basis points. The repo rate now stands at 4 per cent.

Why did the RBI cut interest rates?

• The Monetary Policy Committee (MPC), was of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress.
• The impact of the shock has been compounded by the interaction of supply disruptions and demand compression. Beyond the destruction of economic and financial activity, livelihood and health are severely affected.
• Even as various measures initiated by the government and the Reserve Bank work to mitigate the adverse impact of the pandemic on the economy, this accommodative step is a necessity to revive growth and mitigate the impact of COVID-19 on the economy
• The decision was also considered keeping inflation within the target.

Other measures taken by the RBI

• The central bank has extended the Loan Repayment Moratorium for another three months till August 31, 2020.
  • The extension of the moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMIs during the moratorium period.
• In addition, Interest Payment Deferment for working capital loans has also been extended by another six months.
• RBI has also decided to increase the Group Exposure Limit of banks from 25% to 30% of its capital base.
  • Group exposure limit determines the maximum amount a bank can lend to one business house.
• All other conditions for the facility remain unchanged — a loan will not be classified by the lender as non-performing and there will not be any impact on individual credit scores.
• A liquidity facility for Exim Bank of India was also opened as it has been decided to extend a ₹15,000 crore line of credit for a period of 90 days to enable it to avail a U.S. dollar swap facility to meet its foreign exchange requirements.
• Also to alleviate difficulties being faced by exporters in their production and realisation cycles, it has been decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to July 31, 2020.

Significance

• It will make funds cheaper for banks thus aiding them to bring down lending rates.
  • EMIs on home, auto, personal and term loan rates are expected to come down in the coming days.
• It will reduce the Cost of Capital and ease the financial burden on businesses due to the extended lockdown.
• The extension of the Repayment Moratorium on loans is a welcome measure.
  • The extension will provide relief to many individuals, especially the self-employed, as they would have found it difficult to service their loans such as car loans, home loans etc. due to loss of income during the lockdown period.
  • Missing an EMI payment would mean risking adverse action by banks which can adversely impact one’s credit score.
• In another significant measure, the RBI has allowed borrowers and banks to convert the interest charges during the moratorium period (from March 1 to August 31) into a term loan which can be repaid by March 2021.
  • This is expected to reduce the burden on borrowers who have gone for a moratorium.
• The increase in Group Exposure Limit will help large corporate borrowers who may find themselves handicapped in raising funds from the markets now.

Concerns

• The extended period given may however still not be enough as it will offer borrowers only about seven months from the end of the moratorium period during which they will have to crank up their businesses and service their loans.
  • The RBI could have put off accumulated interest repayment by one year.
• There was some disappointment in the markets that the RBI did not relax norms for loan restructuring by lenders.
• Will monetary easing help?
  • Demand for credit is likely to remain low as, with continuing economic and health uncertainty, firms and households will postpone their decisions.
  • Moreover, risk averse banks are likely to hold back even if there are borrowers.
• Higher-rated borrowers are likely to continue to get easy funding, while lower-rated borrowers will struggle.

Conclusion

• Monetary measures may have been taken to ease economic stress. But there are limitations to what it can achieve. It cannot do the heavy lifting alone. Fiscal support is needed.

2. Notes on a digital currency plan, made in China

Context

• People’s Bank of China (PBoC), China’s central bank has initiated the Central Bank Digital Currency (CBDC).
• It is christened as Digital Currency Electronic Payment (DCEP) which is available via a mobile wallet app.

What is DCEP?

• DCEP is designed to function as “cash,” or just as the base money supply, M0 (M0 is currency in circulation).
• DCEP is built with blockchain and cryptography, which presumably ensure superb security, it is run on a centralized database.
  • DCEP uses a DLT architecture (with central controls) which preserves the primacy of the monetary authority, unlike private cryptocurrencies such as Bitcoin that are truly decentralised.
• The plan is part of the response to President Xi Jinping’s push to “seize the opportunity” of blockchain technology.
• The digital yuan is structured on a two-tier monetary system:
  • A central bank-issued CBDC for commercial banks and
  • A commercial bank-issued CBDC focused on the public.
• This is the first such serious initiative in the whole world.

Pilot Cities

• It includes Shenzhen, Suzhou, Xiong’an and Chengdu, and people with an account in major banks such as the Agricultural Bank of China (ABC).
• Account holders can open a digital DCEP wallet on their ABC app, top up its balance and use it to pay for service provided by local businesses including Starbucks, McDonald’s and participating grocery stores and restaurants.
• It will also involve transferring salaries to government workers in the form of the new Digital Currency.

Why China developed it?

• Chinese investors were always enamored of cryptocurrencies. Bitcoin became increasingly popular as an alternative asset class in China. China has emerged as the capital of the crypto ecosystem, accounting for nearly 90% of trading volumes and hosting two-thirds of bitcoin mining operations.
• The PBoC tried hard to curtail this exuberance but achieved limited success. This move to introduce the CBDC in China is a logical outcome of the efforts to curb and tackle its runaway cryptomarket practices. Or, the philosophy of the PBoC could simply have been, if you cannot beat them, join them.

Advantages

Compared to physical money, DCEP has its distinctive pros.

• For the government, a digital yuan could eliminate money printing costs and high handling charges.
  • It is a powerful antidote for tax evasion, money laundering and terror financing.
  • It can materially boost tax revenues while also improving financial compliance and national security.
  • As a tool of financial inclusion, particularly in emergencies, Direct Benefit Transfers can be instantly delivered by state authorities deep into rural areas, directly into the mobile wallets of citizens who need them.
  • It will provide central banks an uncluttered view and powerful insights into purchasing patterns at the citizen scale.
    • By digitizing coins and physical cash and incentivizing the use of the DCEP on mobile apps tied to the PBOC, it could give China greater leverage over interest rates to spur spending or to curb the outflow of cash from the country.
  • For commercial banks, DCEP could facilitate more money transactions with lower costs, increase business innovation while minimizing the risks.
  • For the public, DCEP could save them from indirect transaction fees for interbank transfers. Domestic and cross-border payments will also involve less friction.

Disadvantages

• This would give rise to a surveillance state and the concomitant erosion in citizen privacy and anonymity.
• CBDCs be used to spy on every movement of people’s money.

Monetary authorities previously have objected to idea of cryptocurrencies

It is due to the following reasons:

• Wild fluctuations in the value of cryptocurrencies
• The implied challenge to the monopoly of central banks in issuing fiat currencies
• The looming possibility of software bugs
• The tainted shadow of the dark web

Signals from the move

• First, on the world economic stage, it may want DCEP to challenge the hegemony of the U.S. dollar as the default global reserve currency.
• Second, in its war with American BigTech, it may want to showcase DCEP as its weapon of choice to counter Facebook’s Libra, which is planning to offer a common cryptocurrency to 2 billion-plus FB users across the world.
• Third, and still in the realm of speculation, it may wish to use the DCEP to clip the wings of AliPay and WeChatPay, gigantic fintech duopolies that control 90% of China’s domestic digital payments, and whose ambitions may one day pose a threat to the aura and authority of the central bank.

Conclusion

• From gold to silver to paper to digital, the march of currencies goes on.
• China has rolled the dice on central bank digital currencies, challenging other nations to follow.

Q1. 1. The Treaty of Sugauli of 1816 was signed between the East India Company 
and which other of the following?

Q2. Which of the following health conditions are considered under Metabolic syndrome?

Q3. Which of the following statement/s is/are correct with respect to 
the Open skies Treaty?

Q4. The term Dongfeng-41 is associated with: