09 Nov 2018: UPSC Exam Comprehensive News Analysis

TABLE OF CONTENTS

A. GS1 Related
B. GS2 Related
POLITY AND GOVERNANCE
1. SC issues notices to EC, ED
INTERNATIONAL RELATIONS
1. India to join Afghanistan peace talks today
C. GS3 Related
ECONOMICS
1. Flipkart, Amazon not violating norms: CCI
DEFENCE
1. Rafale fighter made for India takes maiden flight
D. GS4 Related
E. Editorials
ECONOMY
1. Independence and accountability (RBI  and the Government) 
WORLD HISTORY
1. A sacrifice remembered (World History: World War I)
F. Tidbits
1. SC recalls order enhancing life term to death
2. Ahmedabad may turn Karnavati
G. Prelims Fact
1. Six airports set to be privatized
H. UPSC Prelims Practice Questions
I. UPSC Mains Practice Questions 

A. GS1 Related

Nothing here for today!!!

B. GS2 Related

Category: POLITY AND GOVERNANCE

1. SC issues notices to EC, ED

 

Context

  • The Supreme Court has sought responses from the government on a petition seeking expeditious action and conduct of investigation into the use of black money or excess money in the election process by candidates and parties.
  • A Bench led by Chief Justice of India Ranjan Gogoi issued notices also to the Election Commission of India, the Enforcement Directorate (ED), the Central Board of Direct Taxes (CBDT) and several States on a petition filed by Kaka Ramakrishna, the secretary of the Communist Party of India’s Andhra Pradesh unit.

Details of the issue

  • The petition, filed through advocates T. Sudhakar and Sravan Kumar, said a proposal made in 1992 to the government to make bribery in elections a cognisable offence was pending till date. Successive governments have not moved a muscle.
  • The petition wants to make bribery a cognisable offence in time for the coming Assembly elections in Telangana, Madhya Pradesh, Chhattisgarh, Rajasthan and Lok Sabha elections.
  • The petition asked the court to direct the ED, the CBDT and appropriate State authorities to take “stringent action on seized money, liquor, narcotics and drugs in all elections from 2014 till date and fasten liability.”
  • The petition wants the “total net assets and tax revenue/income/expenditure, which is available to be appropriated by legislators, to be disclosed on a per vote basis so as to sensitise voters to the financial might of each vote.”
  • The petition blamed the Election Commission and other authorities for not disqualifying, between 2014-18, even a single candidate for spending excess to the limit fixed by the panel.

Related Concept – Criminalization of politics

  • Criminalization of politics means rising participation of criminals in the electoral process and selection of the same as elected representatives of the people.
  • Criminalization of politics ensures protection for those who break the law based on: Political, Group, Class, Caste, Communal considerations
  • It also results from partisan interfering in crime investigation and poor prosecution of cases.
  • Massive delays over the years and high costs in judicial process would be another reason for this phenomenon.
  • Mass withdrawal of court cases and unwarranted grant of parole have also spurred criminalization in politics.
  • According to the ADR’s analysis of EC data, 187 MPs in the current Lok Sabha face criminal charges (that is, 34.4 per cent). Of them, 113 face serious criminal charges. The number has gone up from 162 (76 serious) charges in 2009 and 128 (58 serious) in 2004.

Category: INTERNATIONAL RELATIONS

1. India to join Afghanistan peace talks today

 

Context

  • In a significant departure from India’s stand on engaging the Taliban, the government announced it would participate at a “non-official” level. Two former senior diplomats will attend talks on the Afghanistan peace process to be held in Russia on Friday.

Details of the issue

  • The talks, known as the “Moscow format” will include a “high-level” delegation from the Taliban as well as a delegation of Afghanistan’s “High Peace Council”, along with representatives of 12 countries, and will mark the first time an Indian delegation has been present at the table with the Taliban representatives based in Doha.
  • “India supports all efforts at peace and reconciliation in Afghanistan that will preserve unity and plurality, and bring security, stability and prosperity to the country. India’s consistent policy has been that such efforts should be Afghan-led, Afghan-owned, and Afghan-controlled and with participation of the Government of Afghanistan,” said MEA spokesperson Raveesh Kumar, adding that “Our participation at the meeting will be at the non-official level.”
  • The Russian government welcomed India’s decision to participate in the talks on November 9. “We highly regard Indian support in the peace process in Afghanistan and welcome Indian readiness and that of other partner countries in the Moscow format,” a Russian Embassy statement said on Thursday.
  • “India would have preferred a direct process between the Ghani government and the Taliban, but since that is not possible, a regional process like this one is the next best option. It is to Russia’s credit that they have been able to bring everyone to the table for this round of talks,” former Ambassador to Afghanistan Rakesh Sood told.
  • Apart from the Taliban leadership based in Doha and the HPC, the Russian government has invited delegations from India, Pakistan, the U.S., China, Iran and five Central Asian Republics.

Background

  • The Taliban is a Sunni Islamic fundamentalist political movement in Afghanistan which is at present waging war within that country.
  • It was founded in 1994 and from 1996 to 2001; it was governing the country enforcing a strict interpretation of Islamic or Sharia law.
  • Many leading Muslims as well as much of the international community were highly critical of the Taliban government and ways.
  • Taliban then ruled it after 1996 as a totalitarian regime till it was removed by NATO-led coalition in 2001 forming a new democratically elected government political structure.
  • Hamid Karzai became the first ever democratically elected head of state in 2004 and the current President is Ashraf Ghani, since 29 September 2014.
  • Even after formation of a democratically elected government and removal of Taliban from power in Afghanistan, it still faces several internal issues and multipronged attacks by groups like Taliban and ISIS (Islamic State of Iraq and Syria).
  • Taliban still controls very large parts of Afghanistan and insurgency and terrorist forces are still strong in the nation. The control of government is limited only to urban areas and highways in reality.
  • US led NATO (North Atlantic Treaty Organization) forces have been in Afghanistan in the longest conflict engagement since World War II. They are trying to establish a Government in Afghanistan to a substantial extent and there is a ‘Rule of Law’.

Role of India in Afghanistan

  • India has focused on development of infrastructure and military aid in Afghanistan. India has aided the overthrow of Taliban and became the largest regional provider of humanitarian and reconstruction aid to Afghanistan.
  • India wants to improve transport connectivity and economic collaboration with countries in Central and South Asia. India has invested billions of dollars in Afghanistan and has worked on projects like Salma Dam.
  • India is also investing in the expansion of Chabahar port in Southeastern Iran, which will improve its connectivity to Afghanistan and Central Asia.

C. GS3 Related

Category: ECONOMICS

1. Flipkart, Amazon not violating norms: CCI

 

  • Fair trade watchdog CCI has concluded that the business practices of Flipkart and Amazon are not in violation of competition norms and rejected allegations of abuse of market dominance made by a grouping of online vendors.
  • Amid concerns expressed in various quarters about alleged unfair business ways in the fast-growing online market place, the CCI, in its ruling, also made it clear that any intervention in the evolving e-commerce market place needs to be “carefully crafted” to ensure that innovations are not stifled.
  • The latest ruling from the Competition Commission of India (CCI) has come on a complaint filed by the All India Online Vendors Association, a grouping of over 2,000 sellers on various e-commerce market places.
  • The allegations were made against Flipkart India Pvt. Ltd., which is into wholesale trading/distribution of books, mobiles, computers and related accessories, and Flipkart Internet Pvt. Ltd.

Competition Commission of India (CCI)

  • CCI is a quasi-judicial statutory body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an adverse effect on competition in India.
  • The duty of the Commission is to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
  • The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.
  • The Competition Act, 2002 prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.

 To achieve its objectives, the Competition Commission of India endeavours to do the following:

  • Make the markets work for the benefit and welfare of consumers.
  • Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of economy.
  • Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
  • Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
  • Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture competition culture in Indian economy.

Category: DEFENCE

1. Rafale fighter made for India takes maiden flight

 

Context

  • As the political controversy over the Rafale fighter jet deal continues in India, manufacturing of the aircraft customised as per the specifications of the Indian Air Force (IAF) is making progress.
  • The first aircraft built by Dassault Aviation for the IAF, a two-seater variant, made its maiden flight on October 30 in France and is designated RB 008, according to official sources.
  • “RB stands for Air Marshal R.K.S. Bhadauria as he had a major role in the contract negotiations,” an official source said.
  • Air Marshal Bhadauria was the Deputy Chief of the IAF during the contract negotiations for 36 Rafale jets and is presently the Air Officer Commanding-In-Chief of the IAF’s Training Command.

Details of the issue

  • In September 2016, India and France signed a €7.87 billion Inter-Governmental Agreement (IGA) for 36 Rafale multi-role fighter jets in fly-away condition
  • The surprise announcement for the 36 aircraft was made by Prime Minister Narendra Modi during a visit to Paris in April 2015, citing “critical operational necessity” of the IAF.
  • RB 008 will be the 36th aircraft to be delivered to the IAF in 2022, 67 months after the contract is signed, the source added.

Know about Rafale

  • The Rafale is a 4th generation Aircraft with twin-engine, multi-role fighter aircraft. According to Dassault, it is capable of carrying out all combat missions: air defence, interception, ground support, in-depth strikes, reconnaissance, anti-ship strikes and nuclear deterrence.
  • These two squadrons will be like a spearhead or an arrowhead for the IAF formations. They will be used for the long range possessions attack missions.
  • Rafale provides standoff capability when any country attacks India. An active electronically scanned array (AESA) radar which enables the pilot to look 200 to 400 kms away. It gives long range precision strike capability, the pilot can detect enemy aircraft and share the information and also destroy the targets.
  • The 4th generation Aircraft capabilities involve Situational awareness in which Aircraft has got those sensors which enable the pilot to be aware situationally and detect the enemy Aircraft for which the Rafale has got AESA radar.
  • The weapons package includes Meteor radar guided Beyond Visual Range (BVR) missile considered the best in the class with range of over 150 km and Scalp long range air to ground missiles. The Rafale will also be fitted with MICA missiles, an Air to Land precision missile of more than 300 km range.
  • Today the warfare is beyond the range capability and not face to face.
  • This deal includes the cost of 36 Rafale fighters, the full weapons package, simulators, spares, maintenance, performance-based logistics, India-specific enhancements and associated supplies for five years.
  • The Rafale Aircraft will give India a superior Nuclear Strike capability and add to the existing nuclear strike capability of Sukhoi Su-30 and Mirage-2000.
  • It is the IAF which will spearhead the nuclear deterrence and Rafale will spearhead the deterrence.

D. GS4 Related

Nothing here for today!!!

 

E. Editorials

Category: ECONOMY

1. Independence and accountability (RBI and the Government)

Larger Background:

Note to Students:

This particular editorial analysis takes into account the larger issue of the ongoing turf war between the RBI and the Central Government on a few issues that have caused considerable friction. It also takes into account a recent development where the RBI has been asked to share details sought by the Central Information Commission.

  • In fact, this is a very relevant topic for students to prepare from the perspective of Indian Economy. Here we have suitably signposted the Editorial Analysis into multiple headings.

1.      “Larger Background”: This particular section talks about the broader background of the issue, taking into consideration specific points that may have been featured in previous editions of The Hindu. The thought process behind including this section is to give a ‘storyline’ approach to an aspirant when he/she goes through this topic.

2.      “Editorial Analysis”: This particular section gives an insight towards the specific points covered in the specific editorial that is the subject of our study.

3.      “The Way Forward/Concluding Remarks”: This sections gives aspirants concluding points that are taken from the article in question as well as some forwarding looking points taken from other articles, as and when required.

The important aspect to note here is that the issue being discussed in the news assumes priority over just the article.

Larger Background:

The Government at loggerheads with the RBI:

  • The government and RBI have been at loggerheads over a few issues for some time now.

  • The government believed that easing of lending rules for the banks under the prompt corrective action (PCA) framework could help reduce pressure on MSMEs.
  • However, the regulator stood its ground arguing that such a move would put the clock back and undo clean-up efforts.
  • Further, with the credit markets tightening after the IL&FS default in September, 2018, non-banking finance companies lobbied the government for more liquidity.
  • However, the RBI maintained its position since the banking system did not witness any spike in borrowing costs and the market was just repricing risk in an evolving situation.
  • Reportedly, the government and the RBI disagree on a large number of important issues such as classification of non-performing assets (NPAs) and setting up of a payments regulator independent of the RBI.

A look at the issue concerning setting up of a payments regulator independent of the RBI:

  • Recently, the Reserve Bank of India (RBI) said there is no case for having a regulator for payment systems outside the central bank.
  • The RBI had submitted a dissent note, against certain recommendations of the inter-ministerial committee for finalization of amendments to the Payment & Settlement Systems Act, 2007.
  • The draft Payment and Settlement System Bill, 2018 had made an important observation. It said that an independent payments regulatory board (PRB) needs to be established to regulate the payments sector aimed at fostering competition, consumer protection, systemic stability and resilience in the payments sector.
  • However, according to the RBI’s dissent note, the central bank believes that the PRB must remain with the central bank and headed by the RBI governor. The RBI and the government may nominate three members each to the board, with a casting vote for the governor.
  • Crucially, the RBI had cited the report of the Ratan Watal Committee on digital payments as recommending the establishment of the PRB within the overall structure of the RBI, arguing therefore that there is no need for any deviation.

A Note on the Ratan Watal Committee on digital payments:

  • This Committee on Digital Payments was constituted by the Ministry of Finance, Department of Economic Affairs under the Chairmanship of Shri. Ratan P. Watal, Principal Advisor, NITI Aayog and former Finance Secretary to the Government of India.
  • In its Report, the Committee had recommended a medium term strategy for accelerating growth of Digital Payments in India with a regulatory regime which is conducive to bridging the Digital divide by promoting competition, open access & interoperability in payments.
  • The Report recommended inclusion of financially and socially excluded groups and assimilation of emerging technologies in the market, while safeguarding security of Digital Transactions and providing level playing to all stakeholders and new players who will enter this new transaction space.
  • It had suggested inter-operability of the payments system between banks and non-banks, up-gradation of the digital payment infrastructure and institutions and a framework to reward innovations and for leading efforts in enabling digital payments.

A Closer Look:

  • The RBI observed that it would prefer the Payments Regulatory Board to function under the purview of the RBI Governor.
  • “There is no case of having a regulator for payment systems outside the RBI,” the note read.
  • In support of its stance, the RBI stated that the activities of payments banks come well within the purview of the traditional banking system, which the central bank oversees as the overarching financial regulator.
  • Thus, according to this logic, it might make better sense to have the RBI oversee the activities of payments banks as well instead of creating a brand new regulator for the growing industry.
  • The RBI, in essence, is pointing to the interconnection between the payments industry and the banking system to back the extension of its regulatory powers.
  • In conclusion, the RBI’s case makes good sense when seen from the perspective of the cost of regulatory compliance.
  • As stated above, there is definite overlapping between the current regulatory powers of the RBI and the proposed regulations for the payments industry.
  • Further, it is important to note that a unified regulator can thus help in lowering the compliance costs and enabling the seamless implementation of rules.
  • Also, there is the real risk that a brand new regulator may be unable to match the expertise of the RBI in carrying out necessary regulatory duties.
  • As a consequence of this, it makes better sense to have the RBI take charge of the rapidly growing payments industry which can ill-afford regulatory errors at this point.
  • The fact that the RBI has made public its dissent against the Union government’s idea, suggests that the central bank has serious problems with the dilution of its current powers over the financial sector.
  • However, the RBI’s demand for the centralisation of regulatory powers also brings with it the need for exercising a greater degree of responsibility.
  • One must note that when we are at a time where there are increasing risks to the stability of the domestic financial system, both the government and the RBI must look to work together to tackle these risks instead of battling over regulatory powers.

A Brief Note on Section 7:

The RBI is an entity independent of the government as it takes its own decisions. However, in certain instances, it has to listen to the government. This provision in the RBI Act is contained in its Section 7 which says:

(1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.

(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.

(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.

Thus, it is clear from the above that this section empowers the government to issue directions in public interest to the central bank, which otherwise does not take orders from the government.

Why is it that Section 7 is seen as an extreme measure?

  • It is important to note that Section 7 has never been used till now.
  • It was not used even when the country was close to default in the dark days of 1991, nor in the aftermath of the 2008 global financial crisis.
  • Importantly, it is not clear how this Section operates since it has never been used.
  • Some sections believe that this aggressive move could scandalise a section of academia and experts, while raising questions about the government’s intentions and the impact on the RBI’s autonomy.
  • A speech made last week by Viral Acharya, the deputy governor of the RBI, which brought the tensions between the RBI and the government to the fore, might have been provoked by the government’s invocation of Section 7.

Position Taken by the RBI:

  • The RBI recently came out with a statement.
  • The recent statement put out by the government underlines that the RBI is autonomous but within the framework of the RBI Act.
  • It is thus clear that the central bank cannot claim absolute autonomy.
  • It is autonomy within the limits set by the government and its extent depends on the subject and the context.
  • It is important to note that in a democracy, it is unthinkable that we will have an institution that is so autonomous that it is not answerable to the people.
  • Experts point out that the risk of such an institution is that it will impose its preferences on society against the latter’s will, which is undemocratic.
  • Experts further add that when seen from this perspective, the limits to the RBI’s autonomy will be clear.
  • It is autonomous and accountable to the people ultimately, through the government.
  • The onus is thus on responsible behaviour by both sides.

 

A Closer Look:

  • Experts have pointed out that Central bank-government tensions are a common phenomenon.

  • Successive governments have been in provocative situations with the RBI. On each occasion, the individuals involved defused tensions and found durable solutions outside the Section 7 consultation process.

  • Experts assert that never before in the 83 years of the RBI’s history, has the Section 7 consultation process been initiated for managing intractable disputes in not one or two, but three policy matters. Post-consultations, the government can give written directions to the RBI in ‘public interest’.

  • Some experts also assert that the disagreements relate to the RBI’s stringent restrictions on government-run banks whose non-performing assets (NPAs) have grown so much, that the only way of preventing risk spilling from them into the whole financial system is to quarantine their lending.

  • Another source of friction is

    government’s

    insistence that the RBI go soft on power companies defaulting on loan repayments.

  • The third source of friction is seigniorage, an eternal conflict. The RBI generates surpluses in the various money markets operations it runs. The RBI transfers part of the surpluses to the government, and with the rest it maintains various reserves to draw from in times of financial instability or contingencies. The Finance Ministry wants the RBI to reset the formulae so that larger surpluses become free for transfer to the government. Determined moves of this kind were resisted most recently by Governors Y.V. Reddy and D. Subbarao, both ex-IAS and old Ministry hands.

A Brief History of the long-standing battle:

  • It is important to note that the long-standing battle between the RBI and the government escalated in 2015.
  • As a matter of fact, the differences were so sharp that a substitute for the Finance Secretary was nominated to attend the RBI’s Board meetings.
  • Experts have pointed out that for the first time, an interview with a panel headed by Cabinet Secretary was instituted in the selection process for appointing the RBI Governor. Dr. Patel was chosen through this revamped process. Jaitley was not a member on the selection committee headed by the Cabinet Secretary or of the Appointments Committee of the Cabinet (ACC). His views were taken onboard informally.
  • It is important to note that the RBI has in recent years passed on its surpluses in totality to the government, transferring nothing to its own reserves. It is working on a framework that will assess its risk-buffer requirements in a systematic way for determining the transferable surpluses every year.
  • Still not satisfied, the Ministry has initiated Section 7 consultations for dipping into the RBI’s war chest for ₹3.6 lakh crore. It is believed that for Ministry mandarins, pressuring the RBI comes easier than raising resources through privatisation or expenditure reforms.
  • Questions arise:Would plugging those with the RBI’s surpluses serve ‘public interest’? Experts have argued that this is political convenience masquerading as public interest.

Some other pressing issues:

  • One also observes that the RBI is being blamed for the NPAs crisis — though at the height of public outrage over the Nirav Modi scam, critics argue that the government dragged its feet on filling the vacancy of the Deputy Governor in charge of bank supervision and inspections.
  • Patel was of the view that after decades of relying on public-sector banking background profiles, the job should be opened to a wider, global field of expertise. The panel that shortlisted candidates for approval by the ACC concurred with his opinion. Overcoming the IAS lobby’s resistance, applicants who combined exposure to public-sector banking system with experience at prestigious global banks were included in the shortlist.
  • But the ACC headed by the Prime Minister returned the shortlist, with a demand for more names, forcing re-advertisement of the vacancy and restarting of the process afresh.
  • The previous Deputy Governor had retired in mid-2017. The successor was appointed in June 2018. The position remained vacant for nearly 12 months.

Another Tangle- Issue surrounding the CIC and the RBI:

  • The Reserve Bank of India finds itself in the midst of another tangle.
  • The Central Information Commission (CIC) has recently directed RBI Governor Urjit Patel to show cause “why maximum penalty should not be imposed on him for” the central bank’s ostensible “defiance” of Supreme Court orders on disclosing the names of wilful defaulters on bank loans worth hundreds of crores of rupees.
  • One must take note that at the heart of the matter is the issue of burgeoning bad loans at the country’s commercial banks, which by the RBI’s own admission had, at the gross level, surged to 11.6% of all advances as on March 31, 2018, from September 2017’s 10.2% level.

What the charge against the central bank is all about?

  • It is important to note that in his order dated November 2, Information Commissioner M. Sridhar Acharyulu has come down heavily on the RBI and its chief for failing to uphold the interest of the public at large and not fulfilling its statutory duty to the depositors, the economy and the banking sector, by privileging individual banks’ interests over its obligation to ensure transparency.
  • While the central bank has repeatedly acknowledged the gravity of the problem it faces, including in ensuring more accountability from the more numerous public sector banks over which it wants greater control, it has consistently invoked both the risk to the country’s “economic interest” and its “fiduciary” relationship with lenders to avoid sharing information on the largest defaulters with RTI applicants.

A few more assertions made by the CIC:

  • The CIC order is also unsparing of the government for not being more forthcoming. Acharyulu has also asked the Finance Ministry why it should not explain to the people the action taken, or contemplated, to recover dues from wilful defaulters, who owe banks more than Rs. 50 crore, and, where warranted, the criminal proceedings initiated.
  • Experts assert that while it is no one’s argument that all large unpaid loans are by-products of mala fide borrowing, the onus is on the RBI and the government to make as clean a breast of it as is legally possible, in order to retain public trust.
  • Given that the RBI has initiated steps to set up a digital Public Credit Registry that would include details of all borrowers including wilful defaulters, it would behove the banking regulator to meet the CIC’s November 16 deadline for furnishing the information sought about those owing Rs. 1,000 crore or more, to start with.

Editorial Analysis:

●       As the RBI’s autonomy is debated, experts believe that it needs to revisit its exclusive focus on inflation-targeting.

  • Recently, we observe that the RBI suggests that its independence is being violated while the government rationalises its intervention in terms of its concern for the economy. However, how does one make sense of these positions?

Understanding the idea of Autonomy:

  • Experts point out that even at the time when the idea of central bank independence began to germinate some two decades ago, this was understood to mean a ‘functional’ independence.
  • ‘Functional Independence’ suggests that the bank would be unconstrained by the government in its functioning, which includes both the instruments it uses and how it uses them.
  • However, its autonomy was not to extend to ‘goal’ independence.
  • Further, what the goals of the central bank should be were to be chosen by the government without reference to the bank.
  • The main issue here was whether the bank should focus on inflation alone or also on the level of employment. Within a decade of this debate, it had been conceded that the focus would be exclusively on the former, and monetary policy came to be identified with ‘inflation targeting’.
  • Having said this, there are two important narratives that emerge.
  1. Firstly, the discourse was solely among interlocutors from Western democracies, ensuring the issues were those related to their economies.
  2. Secondly, even as the major central banks of the world shifted to inflation targeting, in yet another example of American exceptionalism, the U.S. did not revise the goals of the Federal Reserve.

Further, it was to continue focus on maximising employment while keeping prices stable, a sensible recognition of a possible trade-off between these goals.

However, in India where for close to a quarter century political parties of all hues appear to suggest ‘what is good for America is the best for India’, this has been missed. In 2015 the RBI was by law, in line with a “modern monetary policy”, expected to target inflation. It was to remain the banking regulator though.

A Reflection on the Current Issues of Contention:

  • The issues of contention happen to be the following:
  1. the corrective action to be taken for stressed banks,
  2. the prudential norms to be adopted by financial institutions,
  3. the easing of liquidity and
  4. the sharing of the surplus generated by the RBI.

It is important to note that, with the exception of the last, all others are in the RBI’s sphere of operations.

  • However, on the other hand, on the sharing of the surplus, it is understood that the Government of India, legally is the owner of the surplus generated by the country’s public institutions.
  • Experts have pointed out that even under this architecture, though, all care must be taken to ensure that the central bank’s reserves are of a level commensurate with the extent of the financial sector and the potential degree of systemic risk from its malfunctioning, which can vary.
  • Experts have also pointed out that apart from the issue of sharing the surplus, the RBI should be left alone by the government to decide on the right course of action. This derives not so much from a notion of central bank independence as it does from the point of view of a credible governance policy.
  • The RBI is the banking regulator after all, and for the government to attempt to direct it would constitute micro-management.

 

The Issue of Stability of the Economy:

  • Further, there is reason to believe that some of the actions being sought to be imposed on the RBI today could jeopardise the stability of the economy.
  • It is important to note that while acting as the lender of last resort can be stabilising, under no circumstances would it be advisable to lower prudential norms in the presence of stressed banks.
  • Also, the government’s concern for the health of the medium and small enterprises is well-founded. After all, the medium and small enterprises were among the most affected sections following the demonetisation of 2016.
  • If, in the spirit of contriteness as it were, the government wants to reach out to them, the right course would be to provide interest rate subvention, rather than to force the RBI to tweak its lending norms. There is a severe lack of judgment in loan melas promising online sanction in less than an hour. There is the suggestion in this of the political business cycle, a government trying to nudge the economy prior to an election. The resistance of the RBI top brass to this desperate action is understandable.
  • Whatever may be the misfeasance of the government in its recent dealings with the RBI, however, it would yet be acceptable to review its own performance in the sphere in which it has an untrammelled independence, namely monetary policy. Under this arrangement it has control over the interest rate.
  • Over 2013-2018 there has been a 5 percentage point swing in the real interest rate in India, moving from a negative to a positive level, making it among the highest in the world, much higher than that of China.
  • This is clearly the consequence of an exclusive policy focus on inflation from even before inflation targeting was formally adopted by Parliament in India.
  • It may well have contributed to slow industrial and export growth, due to a real appreciation of the rupee, and a rise in NPAs even after their existence had been recognised. If this is the monetary policy that central bank independence brings with it, we might just be a little sceptical of the value of the independence itself.

Enabling the objective of job creation:

  • There is a certain populism inherent in privileging inflation control to justify extraordinarily high interest rates.
  • It is important to note that the absence of inflation by itself only benefits those in employment, it does not assure jobs to the unemployed.
  • Thus a monetary policy that ignores the impact of its actions on unemployment is not credible.
  • Interestingly, the government and the RBI have always been on the same page as far as inflation targeting is concerned. The populist message that inflation erodes the income of the poor, conceals the possibility that in the implementation, such a policy could hold back job creation by restricting investment.

Concluding Remarks:

  • In conclusion, the rising current account deficit, the slow growth of employment and the disappointing performance of manufacturing, the sector most closely affected by high interest rates, should prompt us to review how monetary policy is conducted in India.
  • Further, experts believe that the latest tussle between the executive and the central bank will eventually end, in all probability with a compromise.
  • However, its purpose would have been served if the debate leads to greater awareness on both sides of the other’s compulsions.
  • However, what if the Government and the RBI do have fundamental disagreements, as they seem to be having now, and are unable to arrive at a common ground?
  • It is important to note that the option of Section 7 is certainly available to the more powerful side; but Section 7 is a deterrent never to be used.
  • In conclusion, it is to avoid situations such as the one we are seeing now that former RBI Governor Raghuram Rajan argued for a clear enunciation of the RBI’s responsibilities.
  • In his book, “I Do What I Do”, former RBI Governor Raghuram Rajan points out that the position of the RBI Governor in the government hierarchy is not defined.
  • Lastly, the Governor has to be conscious of the limits to his autonomy at all times, and the government has to consider the advice coming from Mint Street in all seriousness, as indeed Dr. Reddy and Dr. Subbarao have also pointed out.

Category: WORLD HISTORY

1. A sacrifice remembered (World History: World War I)

Larger Background:

  • India was one of the largest contributors of soldiers during World War I. India’s participation at the Armistice Centenary ceremony will be a befitting tribute to the sacrifices made by these soldiers, underlining India’s historical contribution to global peace and security.

  • In a recent development, the Vice President of India, Shri M. Venkaiah Naidu, at the invitation of the Government of the Republic of France, will be visiting Paris from 9 to 11 November 2018, to represent Government of India in the activities commemorating the centenary of the Armistice of World War I.

  • As part of the Armistice Centenary, the French Government will also be hosting the Paris Peace Forum, which will take place in Paris from 11-13 November 2018.

  • The aim of the Paris Peace Forum is to establish a global platform to reaffirm the importance of multilateralism, international cooperation and reform of global governance institutions.

  • Further, the Forum provides a platform for discussion and debate with special emphasis on civil society initiatives and shares experiences and innovative solutions involving all the stakeholders in governance.

 

Editorial Analysis:

●       The contribution that Indians of all faiths made to the victory of good over evil in the First World War is little known, but it was crucial.

●       Rushed to the Western Front, Indian soldiers fought tenaciously to stop a German breakthrough.

●       Certain examples stand out like that of Darwan Singh Negi.

●       Darwan Singh Negi won one of the first Victoria Crosses, fighting to retake British trenches from the enemy although he had been seriously wounded in the head and the arm. Without men like him, the war might quickly have been lost.

●       In all, over one million Indians served overseas during the First World War.

●       Over 74,000 never returned. It is this fact that makes India’s choice of the marigold to symbolise remembrance an apt one, given the secular association of saffron with sacrifice.

Significance of the Centenary:

●       The centenary of the war has provided a welcome opportunity to recognise India’s role.

●       The United Services Institution, backed by the Ministry of External Affairs, has taken the initiative, launching a commemoration project.

●       Crucially, this has unearthed contemporary accounts by Indian soldiers, which will change how future histories of India’s war are written.

●       These accounts confirm what might seem a surprising fact. The Indians who volunteered, just like their British counterparts, believed profoundly that the cause they fought for was just.

Concluding Remarks:

  • In conclusion, we must note that new threats to freedom and the world order confront us today, especially in the increasingly important Indo-Pacific region.

F. Tidbits

1. SC recalls order enhancing life term to death

 

  • The Supreme Court has recalled its 2009 judgment converting life imprisonment for three persons, found guilty of rape and murder, to death.
  • In 2009, the Supreme Court had dismissed their appeals against their death penalty. Now, almost nine years later, the court reasoned that since the first three men had been granted an opportunity to file fresh appeals, their co-accused should also be given the same chance before the Supreme Court.
  • A Review Bench, led by Justice Kurian Joseph, found that the three convicts did not have a lawyer to defend them in the court during the hearing of an appeal filed by the Maharashtra government for enhancement of their sentence.
  • Deciding their review petition against the 2009 judgment, the Bench allowed the three men to file fresh appeals. These appeals would now be heard by an appropriate Bench of the court.
  • “They have been deprived of an opportunity of engaging counsel and of urging such submissions as they may have been advised to urge in defence to the appeals filed by the State for enhancement,” the Supreme Court held in an order on October 31.
  • The Justice Kurian Bench also threw a life-line to three other co-accused in the case. These three had already been sentenced to death by the lower courts. They had separately approached the Supreme Court for a stay of their impending execution.

Ahmedabad may turn Karnavati

  • The Gujarat government on Thursday said it was considering renaming as Karnavati.
  • Chief Minister Vijay Rupani told reporters in Gandhinagar the name change could be effected before the Lok Sabha election.
  • Rupani’s statement comes days after the BJP government in Uttar Pradesh announced renaming of Allahabad and Faizabad as Prayagraj and Ayodhya, respectively.
  • “People have been demanding for long that Ahmedabad be renamed as Karnavati. The government is considering this demand. The consultation process has been started [to find out] if legally we can do it. After consultations we will take a concrete step,” he said.

G. Prelims Fact

1. Six airports set to be privatized

  • The Union Cabinet on Thursday gave an “in principle” approval for operating, managing and developing six non-metro airports — Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru — under the Public Private Partnership (PPP).
  • At present, airports at Delhi, Mumbai, Bangalore, Hyderabad and Cochin are managed under the PPP model. The PPP mode has helped create world-class airports, while also helping the AAI increase its revenues, IT and Law Minister Ravi Shankar Prasad told reporters.
  • “PPP in infrastructure projects brings efficiency in service delivery, expertise, enterprise and professionalism, apart from harnessing the needed investments in the public sector,” the official statement said.
  • The airport sector is a top contender among infrastructure sectors in terms of international interest. “International operators and investors prefer brownfield airport expansion opportunities with having more than 3-4 million passenger capacity,” the statement said.

 

H. Practice Questions for UPSC Prelims Exam

Question 1. Which of the following is/are listed as critically endangered in the IUCN Red List?
  1. Nilgiri Langur
  2. Bengal Florican (Bengal Bustard)
  3. Pink-headed duck

Choose the right option:

  1. 1and 2 only
  2. 2 and 3 only 
  3. 1 and 3 only
  4. 1,2 and 3

See

Answer
Question 2. What is NavIC?
  1. It is a long-range ballistic missile of the Indian Army.
  2. It is a positioning system developed by ISRO.
  3. It is a new herbal fertilizer developed by the Indian Agricultural Research Institute.
  4. It is a new remote sensing satellite developed by ISRO.

See

Answer
Question 3. The term ‘Gross Non-Performing Assets (NPA)’ includes such assets as those of
  1. Foreign Banks
  2. Regional Rural Banks
  3. Non-Banking Financial Companies

 

Options:

  1. 1 only
  2. 1 and 3 only
  3. 3 only
  4. 1,2 and 3

See

Answer

I. Practice Questions for UPSC Mains Exam

  1. In the light of the National River Ganga (Rejuvenation, Conservation and Management) Bill, 2018, discuss the advantages and challenges of waterways. (200 Words)

  2. “Supreme Court ending the Sabarimala ban is a victory of constitutional morality over regressive social and religious practices. Critically examine. (200 words)

Also, check previous Daily News Analysis

 

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