25 Oct 2018: UPSC Exam Comprehensive News Analysis

TABLE OF CONTENTS

A. GS1 Related
B. GS2 Related
POLITY AND GOVERNANCE
1. Skill development centers to be set up on PPP model
2. Centre sets up GoM on sexual harassment
C. GS3 Related
ECONOMY
1. National Automated Clearing House
ENVIRONMENT
1. Sale ban on BS-IV vehicles from 2020
SCIENCE AND TECHNOLOGY
1. Sophia finally arrives
D. GS4 Related
E. Editorials
POLITY AND GOVERNANCE
1. Midnight rumble (CBI)
INTERNATIONAL RELATIONS
1. The long march (7,000 migrants from Central America; UNHCR)
ECONOMY
1. Liquidity squeeze hurts NBFCs
F. Tidbits
1. HC moved for ban on entry of non-Hindus
G. Prelims Fact
1. Israel, India sign $777 mn missile deal
2. Punjab bans sale of herbicide
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. Skill development centers to be set up on PPP model

 

  • The Centre has decided to set up skill development institutes on government land, in partnership with private players, across the country.
  • The public-private partnership model will be adopted to set up the institutes — to be called the Indian Institutes of Skills — at select locations, based on demand and available infrastructure.
  • The institutes are expected to help boost the global competitiveness of key industry sectors by providing high-quality skill training, applied research education and a direct and meaningful connection with the industry.
  • It will also provide opportunity to aspiring youth across the country to have access to highly skilled training, and enhance the scope of accountability through its linkage with industry and global competitiveness across sectors.

Related Information – Initiatives under Skill India Mission

  • Skill India Mission is an initiative of the Government of India, launched by the Prime Minister on the 16th of July 2015 with an aim to train over 40 crore people in India in different skills by 2022.
  • It includes various initiatives of the government like “National Skill Development Mission”, “National Policy for Skill Development and Entrepreneurship, 2015”, “Pradhan Mantri Kaushal Vikas Yojana (PMKVY)” and the “Skill Loan scheme”. The skill India mission tries to create a synergy between education, training and work in order to enable them to build a stronger India.

National Skill Development Mission

  • The mission was launched for creating convergence across various sectors and different States in terms of activities relating to skill training.
  • The mission would, along with consolidating & coordinating skilling efforts, expedite decision making across sectors to achieve quality skilling on a large scale.
  • The scheme would be implemented through a streamlined institutional mechanism driven by Ministry of Skill Development and Entrepreneurship (MSDE).

National Policy for Skill Development and Entrepreneurship 2015

  • The policy intends to create a skilling ecosystem on a large scale.
  • The objective of the policy is to meet the challenges of skilling at a large scale with quality and speed, enabling the individuals to realize their full potential through the life-long learning process where the competencies are garnered via instruments such as credit accumulations, credible certifications etc.
  • This policy will link skills development to improved employability and productivity.

Pradhan Mantri Kaushal Vikas Yojana (PMKVY)

  • PMKVY is a flagship scheme of the Ministry of Skill Development and Entrepreneurship (MSDE). It was launched with an objective of enabling a large number of youth in India to take up skill training that is relevant to specific industry, which would help them in securing a better livelihood.
  • The individuals with prior skills and learning experiences would also be certified under Recognition of Prior Learning (RPL) component. The scheme caters monetary rewards to those individuals who have successfully completed the sanctioned training programmes.
  • Sector specific skill councils such as Agriculture Sector Skill Council, Food Industry Capacity and Skill Initiative (FICSI), Health Sector Skill Council etc are established under the scheme.

Skill Loan Scheme

  • The skill loan scheme was launched with an intent to support the youth willing to take up skill training programmes in the country. This Skill Loan Scheme replaced the earlier Indian Banks Association (IBA) Model Loan Scheme for Vocational Education and Training.
  • Any Indian National taking admission in a course offered by Industrial Training Institutes (ITIs), Polytechnics , school recognized by Central or State education Boards, college affiliated to recognized university, training partners affiliated to National Skill Development Corporation (NSDC) Sector Skill Councils, State Skill Mission, State Skill Corporation can avail loan under the scheme. The repayment period under the scheme is 3 to 7 years.
  • This scheme does not discriminate against women.

2. Centre sets up GoM on sexual harassment

Context

  • The Centre on Wednesday established a Group of Ministers to recommend measures to effectively implement the law against sexual harassment at the workplace and to strengthen the legal and institutional framework in response to the #MeToo campaign.
  • Home Minister Rajnath Singh will head the GoM, which includes Minister for Road Transport and Highways Nitin Gadkari, Defence Minister Nirmala Sitharaman and Women and Child Development Minister Maneka Gandhi.
  • The GoM will come up with a comprehensive plan within three months and devise ways to ensure its time-bound implementation, an official statement said.
  • Minister of State for External Affairs M.J. Akbar had resigned recently after several journalists accused him of misconduct and harassment when they worked with him in different media organisations.

What is #MeToo movement?

  • The Me Too movement (or #MeToo movement), with many local and international alternatives, is a movement against sexual harassment and sexual assault.
  • #MeToo spread virally in October 2017 as a hashtag used on social media in an attempt to demonstrate the widespread prevalence of sexual assault and harassment, especially in the workplace.
  • It followed soon after the sexual misconduct allegations against Harvey Weinstein.
  • Tarana Burke, an American social activist and community organizer, began using the phrase “Me Too” as early as 2006, and the phrase was later popularized by American actress Alyssa Milano, on Twitter in 2017.
  • Milano encouraged victims of sexual harassment to tweet about it and “give people a sense of the magnitude of the problem”.
  • This was met with success that included but was not limited to high-profile posts from several American celebrities, including Gwyneth Paltrow, Ashley Judd, Jennifer Lawrence, and Uma Thurman.

C. GS3 Related

Category: ECONOMY

1. National Automated Clearing House

Context

  • Thousands of borrowers servicing loans obtained from the State Bank of India (SBI) through their accounts in other banks are facing delay with regard to their EMI repayment getting debited, thus putting them at a risk of being penalised.
  • At the heart of the muddle is a switch from Electronic Clearing System (ECS) to National Automated Clearing House (NACH) system, mandated for all banks by the National Payments Corporation of India.
  • Though introduced two years ago, the SBI began its actual switch to the new system last month, at the end of two-year transition period.
  • Meanwhile, National Payments Corporation of India (NPCI) has allowed use of ECS as well as NACH formats on two days of a week as a remedial measure. With this, State Bank of India is hopeful of resolving the issue by this month, the CGM said, assuring that all the penal charges, except those levied for insufficient funds in the account, would be returned.

What is NACH System?

  • Millions of payments transactions are taking place in the banking system daily. These payments are done by the individuals, corporate and government; and clearing them will be a huge task. For convenience, the clearing of these payments should be done electronically.
  • Such an electronic clearing system was developed by the National Payment Corporation of India (NPCI) and it is known as National Automated Clearing House (NACH).
  • NACH is a web based platform to facilitate interbank, high volume, electronic transactions for Banks, Financial Institutions, Corporates and Government. It basically functions like an electronic clearing service available especially for banks.
  • NACH was launched by the National Payment Corporation of India (NPCI). It is very useful to clear bulk and repetitive transactions that takes place among banks.
  • NACH System is used for making bulk transactions towards distribution of subsidies, dividends, interest, salary, pension etc. and also for bulk transactions towards collection of payments pertaining to telephone, electricity, water, loans, investments in mutual funds, insurance premium etc.
  • NACH has two wings – ECS Credit and ECS Debit. Similarly, local, regional, national ECSs are also operational.

Features of NACH

  • NACH is a centralised system, with an aim to consolidate multiple Electronic Clearing Systems (ECS) running across the country. It provides a framework for standard and practices for clearing and removes local barriers for payments.
  • NACH system covers the entire core banking enabled bank branches of the country irrespective of the location of the bank branch.
  • Under NACH, the NPCI provides a single set of rules (operating and business), common across all the Participants, Service Providers and Users etc. NACH system also supports Financial Inclusion measures initiated by Government and different agencies.
  • The NACH system helps member banks to design their own products besides addressing specific needs of the banks and corporates. It also has a Mandate Management System (MMS) and an online Dispute Management System (DMS) coupled with strong information exchange and MIS capabilities.
  • NACH is a robust, secure and scalable platform to the participants with both transaction and file based transaction processing capabilities.
  • NACH’s Aadhaar Payment Bridge (APB) System has been successfully channelizing Government subsidies and benefits (DBT) to the intended beneficiaries using the Aadhaar numbers. The APB System links the Government Departments and their sponsor banks on one side and beneficiary banks and beneficiary on the other hand.

National Payments Corporation of India

  • National Payments Corporation of India is the umbrella organisation for all retail payment systems in India, with a vision to enable citizens of the country to have access to e-payment services at anyplace and anytime.
  • Founded in 2008, NPCI is a not-for-profit organisation registered under section 25 of the Companies Act, 1956 (now Section 8 of Companies Act 2013).
  • The organisation has been promoted by the country’s central bank, the Reserve Bank of India. It has successfully completed the development of a domestic card payment network called RuPay, reducing the dependency on international card schemes. NPCI is headquartered in Mumbai.
  • National Payments Corporation of India is an initiative of the Reserve Bank of India and the Indian Banks’ Association.
  • Its Immediate Payment Service (IMPS) has enabled India to become the leading country in the world in real time payments in the retail sector.
  • Its other flagship products include National Financial Switch (NFS) and Cheque Truncation System (CTS). Its other products include Unified Payments Interface (UPI), RuPay Credit Card, National Electronic Toll Collection (NETC), National Common Mobility Card (NCMC) and Bharat Bill Payment System (BBPS). The aim of this product basket is to transform India into a cashless society.

Category: ENVIRONMENT

1. Sale ban on BS-IV vehicles from 2020

Context

  • The Supreme Court on Wednesday banned the sale and registration of motor vehicles conforming to the emission standard Bharat Stage-IV in the entire country from April 1, 2020.
  • The top court said that pollution has reached an “alarming and critical” level all over India.

Bharat Emission Standards

  • Bharat stage emission standards (BSES) are emission standards instituted by the Government of India to regulate the output of air pollutants from internal combustion engines and Spark-ignition engines equipment, including motor vehicles
  • The standards and the timeline for implementation are set by the Central Pollution Control Board under the Ministry of Environment & Forests and climate change
  • The standards, based on European regulations were first introduced in 2000
  • Bharat Stage IV emission norms have been in place since April 2010 and it has been enforced for entire country since April 2017
  • In 2016, the Indian government announced that the country would skip the BS-V norms altogether and adopt BS-VI norms by 2020
  • While the norms help in bringing down pollution levels, it invariably results in increased vehicle cost due to the improved technology & higher fuel prices

Why BS VI?

  • The pro-active approach from the Government of India has made the country leapfrog from the conventional BS-IV to directly adopt BS-VI emission norms as the next level for regulatory framework in India.
  • The BS-VI emission standards are much more elaborate in their scope and integrate substantial changes to existing emission standards ensuring cleaner products to the consumer.
  • Besides the more stringent limits on the gaseous emission components, the particulate matter (PM) limits have also been significantly reduced along with the introduction of particle number (PN) limits.

Category: SCIENCE AND TECHNOLOGY

1. Sophia finally arrives

 

  • After disappointing many for not being able to make it to the inaugural of the Vizag Fintech Festival, world’s first humanoid robot, Sophia, finally arrived in the city from Hong Kong on Wednesday.
  • “The robot, which has been granted citizenship by Saudi Arabia, will speak at the festival on Thursday.

Know about Sophia

  • Sophia was created by Hong Kong-based Hanson Robotics with the purpose of using such creations for the care of the elderly and crowd management at big events.
  • Sophia had hit the headlines after it was granted citizenship by Saudi Arabia and the United Nations Development Programme appointed it as its Innovation Champion.
  • The robot is equipped with voice recognition technology and facial reading. Cameras are fixed in its eyes along with computer algorithms to see. It is capable of showing over 50 facial expressions like a human being.

What is Artificial Intelligence (AI)?

  • To make it simple – Artificial Intelligence is intelligence exhibited by machines.
  • It is a branch of computer science which deals with creating computers or machines as intelligent as human beings.
  • The term was coined in 1956 by John McCarthy at the Dartmouth conference, Massachusetts Institute of Technology.
  • It is a simulation of human intelligence processes such as learning (the acquisition of information and rules for using the information), reasoning (using the rules to reach approximate or definite conclusions), and self-correction by machines, especially computer systems.
  • Nowadays it has become an umbrella term which encompasses everything from robotic process automation to actual robotics.
  • Recently it has become widely popular and gained prominence due to its multifaceted application ranging from healthcare to military devices.

D. GS4 Related

Nothing here for today!!!

E. Editorials

Category: POLITY AND GOVERNANCE

1. Midnight rumble (CBI)

Larger Background:

A Brief History of the CBI:

  • The Central Bureau of Investigation traces its origin to the Special Police Establishment (SPE) which was set up in 1941 by the Government of India. The functions of the SPE then were to investigate cases of bribery and corruption in transactions with the War & Supply Deptt. Of India during World War II. Superintendence of the S.P.E. was vested with the War Department. Even after the end of the War, the need for a Central Government agency to investigate cases of bribery and corruption by Central Government employees was felt. The Delhi Special Police Establishment Act was therefore brought into force in 1946.
  • This Act transferred the superintendence of the SPE to the Home Department and its functions were enlarged to cover all departments of the Govt. of India. The jurisdiction of the SPE extended to all the Union Territories and could be extended also to the States with the consent of the State Government concerned.
  • The DSPE acquired its popular current name, Central Bureau of Investigation (CBI), through a Home Ministry resolution dated 1.4.1963.
  • Initially the offences that were notified by the Central Government related only to corruption by Central Govt. servants. In due course, with the setting up of a large number of public sector undertakings, the employees of these undertakings were also brought under CBI purview. Similarly, with the nationalisation of the banks in 1969, the Public Sector Banks and their employees also came within the ambit of the CBI.

The News:

    • In a recent surprise midnight move, the government divested Central Bureau of Investigation (CBI) director Alok Verma and his deputy Rakesh Asthana of their powers. This was done just hours after Verma directed his No. 2 to go on leave.
    • The government intervened after days of intense feuding that threatened to sully the image of India’s premier investigative agency that is probing a series of high-profile corruption cases.
    • It is important to note that there has been a long-running feud between the Central Bureau of Investigation (CBI) top boss Alok Verma and Rakesh Asthana, the special director who is the No. 2 at CBI.
    • This long running feud has been marked by allegations and counter-allegations of corruption and interference in high-profile cases, filing of an FIR against Asthana and now the arrest of senior CBI officer associated with him. Below is a brief summary of the origin of the feud and the twists and turns it has taken.
    • In October 2017, Asthana, who is a Gujarat-cadre IPS officer, was elevated to the position of No. 2 at the CBI by a selection committee headed by Central Vigilance Commission (CVC).
  • CBI head Verma had reportedly opposed Asthana’s elevation on the ground that he was being probed in a corruption case related to a Gujarat-based company Sterling Biotech.
  • Verma had placed before the committee a confidential report on Sterling Biotech in which names of various government officials including Asthana were mentioned for allegedly receiving money from the company.
  • However, it is important to note that Chief Vigilance Commissioner K V Chowdary said the decision was taken unanimously by members of the selection committee.
  • Later, Common Cause, which is an NGO of advocate Prashant Bhushan, moved the Supreme Court against Asthana’s elevation but the court refused to quash Asthana’s elevation.

A Closer Look:

  • Experts believe that at one level, what is going on in the Central Bureau of Investigation (CBI) is a ‘turf war’, a battle of egos between two individuals at the helm.
  • However, the unsavoury developments involving the CBI Director and its Special Director are reflective of a much deeper malaise. This is visible in the big rot at the very heart of the premier investigating agency.
  • The fact that the CBI registered a First Information Report against its own Special Director is extraordinary.
  • If the Director is justified in embarking on a high-profile probe into bribery charges against Mr. Asthana, it can only mean that corruption is pervasive, and that that even the second-in-command in the agency is not beyond it.
  • While, on the other hand, if Mr. Asthana is shown to be wrongly implicated, and his own charges, which are set out in a complaint to the Central Vigilance Commission, that other CBI officers are interfering in ongoing probes are proved right, the situation will be no better.

Prior Precedents where the CBI was brought under a negative light:

  • The Supreme Court held that the charges that Ranjit Sinha, when heading the agency, sought to help the accused in several cases and interfered in ongoing probes were ‘prima facie credible’; as a result, he was asked to keep away from the 2G telecom cases.
  • Similarly, A.P. Singh, another director, was booked last year for alleged links with meat exporter Moin Qureshi.
  • Thus, clearly, the existing procedure for the appointment of CBI Directors, which is made by a committee comprising the Prime Minister, the Chief Justice of India and the Leader of the Opposition, has not stripped the office of controversy.

A Look at the Vineet Narain & Others vs. Union of India Case:

    • This particular case concerns the historic Hawala scandal in India, which uncovered possible bribery payments to several high-ranking Indian politicians and bureaucrats from a funding source linked to suspected terrorists.
    • Following news coverage of the scandal, members of the public were dismayed by the failure of the Central Bureau of Investigation (CBI) to initiate investigations of the officials with the apparent intent to protect certain implicated individuals who were extremely influential in government and politics.  
    • This litigation was the result of public interest petitions filed on these matters with the Court pursuant to Article 32 of the Indian Constitution.
    • It is important to note that Article 32 of the Indian Constitution empowers the Supreme Court to issue directions for the enforcement of fundamental rights contained in the Constitution.
    • The Court agreed that the CBI had failed in its responsibility to investigate allegations of public corruption.  
    • Further, the Court laid down guidelines to ensure independence and autonomy of the CBI and ordered that the CBI be placed under the supervision of the Central Vigilance Commission (CVC), an independent governmental agency intended to be free from executive control or interference.  
    • This directive removed the CBI from the supervision of the Central Government thought to be partly responsible for the inertia that contributed to the CBI’s previous lack of urgency with respect to the investigation of high-ranking officials.
  • The CVC was now responsible for ensuring that allegations of corruption against public officials were thoroughly investigated regardless of the identity of the accused and without interference from the Government.

Editorial Analysis:

  • Experts believe that the recent abrupt replacement of Alok Verma as Director of the Central Bureau of Investigation, even though this was as an interim measure, can be interpreted as a  culmination of a series of murky events that would deeply embarrass the Centre.
  • Unfortunately, what was perceived as an unseemly internal tussle among top officers of the premier investigating agency has morphed into a full-blown conflict between the Centre and Mr. Verma.
  • Further, it is important to note that it is one thing if Mr. Verma had merely challenged the legality of his dismissal. But he more than hinted at interference in his functioning.
  • The suggestion that the Centre’s action was meant to protect certain people has led to charges that he was removed because he was politically inconvenient.
  • Critics have called out the specific action by the Centre appointing the new acting director, M. Nageswara Rao, who has transferred many officers investigating cases against Mr. Asthana. This has raised the question whether the government is adopting strong-arm tactics against Mr. Verma, despite his tenure and independence being protected by the law.
  • As a matter of fact, the Central Vigilance Commission, in its order divesting Mr. Verma of his office, has said that since the atmosphere within the agency had become vitiated due to a factional feud, it had to intervene. It also charged Mr. Verma with not making available the records and files sought by the CVC in connection with a corruption complaint against him — an approach which it held was wilfully obstructionist.
  • The unfortunate controversy has raised the important question of whether the statutory changes aimed at insulating the CBI Director’s office from political and administrative interference are adequate.

Security of Tenure:

  • It is important to note that Section 4B of the Delhi Special Police Establishment Act assures the CBI Director of a two-year tenure and makes it clear that he cannot be transferred except by the high-power committee. Further, this high-power committee comprises of the Prime Minister, the Leader of the Opposition and the Chief Justice of India — that appointed the CBI Director.
  • The Honourable Supreme Court will address the question whether the ‘interim measure’ amounts to unlawfully curtailing the Director’s tenure.
  • The Honourable Supreme Court will also examine whether the CVC’s power of superintendence has been rightly invoked in the present case.

Concluding Remarks:

  • It is important to note that there are immediate and arguably more serious dimensions to this crisis. And it revolves around how to repair the image of a CBI that has been covered by a nasty feud.
  • Experts believe that the CBI labours under a dual image. This dual image is characterized by that of an independent agency in the perception of those disillusioned with the conduct of the jurisdiction police, and a ‘caged parrot’ or a handmaiden of the ruling party at the Centre in the eyes of the national Opposition.
  • Further, the recent developments, in which Central agencies are seen as targeting those in Opposition parties, add to the latter perception and do not augur well for its credibility.
  • To a large extent, the political leadership must bear the primary responsibility for such controversies.
  • In conclusion, it is difficult to ignore the fact that Mr. Asthana’s appointment as Special Director was made despite Mr. Verma’s vehement objections about his suitability, something the CVC chose to overrule.
  • Thus, in such circumstances, it is up to the CVC and the Centre to address the present crisis. A good place to start will be to take Mr. Asthana, whose name already figures in a case, temporarily out of the agency to ensure an impartial probe.

Category: INTERNATIONAL RELATIONS

1. The long march (7,000 migrants from Central America; UNHCR)

Note to the Students:

Although the main crux of the news article focuses on the roughly 7,000 migrants from Central America, who are heading towards the U.S. through Mexico; the issue is broader in its scope. We have taken the liberty to expand the narrative of this editorial to cover the United Nations High Commissioner for Refugees as well as India’s position on Refugees as well, taking a few examples.

Larger Background:

Brief Note on the United Nations High Commissioner for Refugees (UNHCR):

    • The 1951 Refugee Convention is the key legal document that forms the basis of our work. Ratified by 145 State parties, it defines the term ‘refugee’ and outlines the rights of the displaced, as well as the legal obligations of States to protect them.
  • The core principle is non-refoulement, which asserts that a refugee should not be returned to a country where they face serious threats to their life or freedom. This is now considered a rule of customary international law.
  • UNHCR serves as the ‘guardian’ of the 1951 Convention and its 1967 Protocol. According to the legislation, States are expected to cooperate with us in ensuring that the rights of refugees are respected and protected.

A Brief Look at India’s track record on refugees

Chakma and Hajong tribals

  • The Chakmas and the Hajongs were originally inhabitants of the Chittagong Hill Tracts of erstwhile East Pakistan (now Bangladesh) who were systematically forced out of that country.
  • First, they were displaced from their original homesteads because of the Kaptai hydroelectric dam on the Karnaphuli river in the early 1960s, and there was no rehabilitation and compensation.
  • Later, they became victims of religious persecution in East Pakistan, and fled to India.
  • It is important to note that while the Chakmas are Buddhists, the Hajongs are Hindus.
  • In the year 1947, the Chittagong Hill Tracts, which was a deeply forested, mountainous, area bordering Tripura, Mizoram and Myanmar, with a majority Buddhist population (about 97 per cent), was awarded to Pakistan.
  • In 1962, the Pakistani government imposed further misery on the Chakma tribe by building the Kaptai dam.
  • Approximately 40,000 Chakma tribals, who had lost their homes and farmland due to flooding, emigrated to India as refugees.
  • India, facing its own war in 1962 on the north-eastern border, offered 2,902 Chakma refugee families resettlement in Arunachal Pradesh.
  • It was only in the year 1996, with the Supreme Court pushing the State government to protect the Chakmas, did the harassment decline.
  • It is also important to note that although all of them were treated as refugees originally, the Government of India decided to grant them citizenship under Section 5(i)(a) of the Citizenship Act on the basis of a joint statement by the PMs of India and Bangladesh in 1972.
  • The State of Arunachal Pradesh, which came into being the same year, immediately opposed this, and continues to do so.
  • The state has been repeatedly saying that it could not permit “outsiders” to settle on its territory because that would adversely affect its demography, and stretch its limited resources.
  • Despite the opposition, however, about 1,500 Chakmas have their names in the state’s electoral rolls.
  • Last year, 2017, the Centre decided it would grant citizenship to Chakma and Hajong refugees living in the Northeast while ensuring that the rights of indigenous people are not diluted.
  • The issue had been discussed at a meeting convened by Union Home Minister Rajnath Singh and attended, among others, by Arunachal Pradesh Chief Minister Pema Khandu, Union minister Kiren Rijiju and National Security Adviser Ajit Doval. Rijiju, who hails from Arunachal Pradesh, said later that the Centre will urge the Supreme Court to modify its order granting citizenship to Chakma-Hajong refugees so that the rights of the indigenous people of Arunachal Pradesh are not diluted.

Important to Note:

    • Currently, India hosts over 2,00,000 refugees. These refugees are victims of civil strife and war in Tibet, Bangladesh, Sri Lanka, Pakistan, Afghanistan and Myanmar. Some refugees, the Tibetans who arrived between 1959 and 1962, were given adequate refuge in over 38 settlements, with all privileges provided to an Indian citizen excluding the right to vote).
    • From an Indian context, the Foreigners Act (1946) and the Registration of Foreigners Act (1939) currently govern the entry and exit of all refugees, treating them as foreigners without due consideration of their special circumstances.
    • Refugees have been accorded constitutional protection by the judiciary. The National Human Rights Commission vs State of Arunachal Pradesh, 1996 case lends testimony to this.
  • Moreover, the Honourable Supreme Court of India has held that the right to equality (Article 14) and right to life and personal liberty (Article 21) extends to refugees.
  • However, it is also important to note that India remains the only significant democracy without legislation specifically for refugees.
  • Critics have pointed out that a well-defined asylum law would establish a formal refuge granting process with suitable exclusions (war criminals, serious offenders, etc.) kept.
  • It is also critical to note that India still remains a non-signatory to 1951 United Nations Refugee Convention and the 1967 Protocol, which help define the legal obligation of states to protect refugees.

Editorial Analysis:

  • The recent news of a winding caravan of more than 7,000 migrants coming from Central America through Mexico, heading towards the U.S. has become a political hot potato.

  • This issue is likely to thrust the immigration issue to the forefront of the U.S. mid-term elections, which is barely two weeks away.

  • Already, President Donald Trump, has fuelled fears that the caravan may harbour terrorists from West Asia. Further, he has also attacked Mexico for not stopping the “onslaught”.
  • It is important to note that there has been a common narrative of sloganeering around “illegal immigration” that would apparently steal American jobs and threaten the security of an otherwise peaceful American society.
  • However, in truth, most members of this caravan, are either economic migrants seeking escape from grinding poverty in places like Honduras or fleeing persecution, trafficking or gang violence in the region.
  • Unlike previous such caravans, whose members numbered in the hundreds and which dissipated along the way or upon reaching the border, this one has gathered momentum from sheer media attention and support from advocacy groups.
  • It is not going away any time soon. This situation puts candidates from both the major parties in the U.S. in a tricky position.

The Democrat Narrative Vs. The Republican

  • Democrats are wary of committing too much political currency to the caravan or undocumented migration as a phenomenon, given the prevailing mood in the country.
  • However, the Republican mainstream harbours concerns about the strident anti-immigrant rhetoric against the caravan, and what it stands for, emboldening far-right groups associated with racism and Islamophobia.

Concluding Remarks:

  • It is important to note that at the heart of the shrill debate on immigration is the weight of history.
  • Somehow, Americans can never get away from the fact that they are and will probably always be a nation of immigrants.
  • As President, Barack Obama took a hard line on undocumented worker deportations, whose number soared through his two terms in office. But he sought to toe a moderate line when it came to delaying the deportation of childhood arrivals, and policed borders with a relatively light touch.
  • On the contrary, Mr. Trump, has made every effort to deliver on his radical campaign promise to ban Muslims from entering the U.S., although he faced numerous legal setbacks in that mission, and then made even immigration hawks squirm over his decision to separate undocumented child migrants from their families.
  • Ultimately, experts believe that this recent issue of migrants coming towards the border will seek to cross that line in the sand which Mr. Trump and his supporters hope will one day become a high wall.
  • Liberal-progressive Americans who hope that these asylum-seekers will not be rudely rebuffed at that point will have to regroup and focus their energies on the November campaign and use any newfound power they win in Congress to chip away at the immigration agenda of the Trump machine.

Category: ECONOMY

1. Liquidity squeeze hurts NBFCs

Note to the Students:

This article, i.e. “Liquidity squeeze hurts NBFCs” connects to a larger issue which has been featuring in the news for quite some time now. The issue here to be read by students in detail is the series of defaults by the IL&FS holding company and group outfits beginning in August, 2018 which set off a market-wide contagion.

We have dealt with this issue extensively over the past few weeks now. However, since another update has featured in the Hindu, we have recapped some of the points that would lend a sense of continuity with the topic especially for first-time readers of this news.

Students are advised to go through this article as it has a relevance from the perspective of the GS-3 Paper (Indian Economy).

  • Here we have suitably signposted the Editorial Analysis into multiple headings.
  • “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.

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

  • “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.

Background:

  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) was set up in 1987 by the legendary M.J. Pherwani (former chairman of Unit Trust of India, National Housing Bank, etc.) to finance and promote infrastructure projects in the country.
  • This holding company is now a financial behemoth with assets of over Rs. 1,15,000 crore and a  debt of Rs. 91,000 crore.
  • IL&FS Finance, which is a group company of the holding IL&FS company, defaulted in late August on a commercial paper repayment. This development was followed by a default by IL&FS on repayment of a Rs. 1,000 crore deposit to Small Industries Development Bank of India (SIDBI).
  • Pursuant to this, a series of defaults by the holding company and group outfits followed. These defaults ran into the weeks leading up to the annual general meeting of IL&FS on September 29, 2018.
  • Infrastructure Leasing & Financial Services Ltd. (IL&FS) is listed as “systemically important” by the Reserve Bank of India. The company has over Rs. 1,15,000 crore of assets and Rs. 91,000 crore of debt. Thus, it is too big to fail. This is further underlined by the fact that interlinkages between IL&FS and other financial sector entities such as banks, mutual funds and infrastructure players are too strong and the company would have taken them all down with it if it were allowed to fail.

A Note on IL&FS:

  • IL&FS is a holding company that operates through 169 other companies.
  • These 169 other companies are either subsidiaries, group companies or joint ventures with others. It has been in the past and is currently as well, associated with landmark projects.
  • A few among these projects include the tunnel under the Zoji La Pass, Delhi-Noida toll bridge, Gujarat International Finance Tec-City (GIFT) and a host of road, power, water and port projects.
  • Three of IL&FS’group companies are listed on the stock markets.
  • These group companies are IL&FS Investment Managers Ltd., IL&FS Engineering and Construction Company Ltd. and IL&FS Transportation Networks Ltd.
  • IL&FS was originally promoted by the Central Bank of India, Unit Trust of India and HDFC. Orix Corporation of Japan, Abu Dhabi Investment Authority, LIC and SBI joined in as co-promoters later.

How did this crisis take place?

Essentially, the company borrowed many times its equity. This figure is rumoured to be between 10-18 times its equity. This money was borrowed to fund its infrastructure projects, most of which bring in returns over 20-25 years.

To compound matters, IL&FS’s borrowings were all repayable in the short to medium-term of roughly 8-10 years.

The chokepoint for IL&FS came from the fact that its projects were stalling and not being completed due to various reasons. These reasons ranged from:

  1. statutory approvals not coming in
  2. problems of land acquisition and
  3. projects simply becoming unviable as it happened in the case of power plants.

Further, with returns from these projects not coming in, IL&FS was forced to borrow more. Lenders pulled the plug leading to trouble for IL&FS.

It is important to note that assets and receivables were exaggerated in the financial statements and the top managers took home large pay-outs and continued to pay dividends to shareholders despite the financial situation. An investigation has been ordered by the Serious Fraud Investigation Office.

A Look at Certain Specifics:

    • Recently, the Centre moved to supersede the Board of Directors.
    • The decision to change the management has ushered in the appointment of experienced people, such as Uday Kotak, who has rich experience in the finance sector; G.C. Chaturvedi, former bureaucrat and non-executive chairman of ICICI Bank; and G.N. Bajpai, former chairman of the Securities and Exchange Board of India and the Life Insurance Corporation. It is believed that these appointments should lend confidence to lenders and investors.
  • The Life Insurance Corporation of India is the largest shareholder in IL&FS with a 25.34% stake, followed by Orix Corporation of Japan with 23.54%.
  • The Centre has explicitly stated its intent, which is to “ensure that needed liquidity is arranged for IL&FS from the financial system”.
  • By doing so, the Centre has sent out an unambiguous message to the markets that it will not allow the company to fail.
  • It is believed that any rescue plan for the company obviously had to begin with replacing the existing management that was responsible for mismanaging its affairs.
  • Currently, the problem appears to be one of liquidity and not solvency.
  • It is believed that this is a classic case of over-leveraging, and an asset-liability mismatch caused by funding projects of 20-25 years payback period with relatively short-term funds of 8-10 years.

Certain Questions that Remain:

  • In conclusion, there are some important questions that need to be answered.
  • If IL&FS was a systemically important company, how did its over-leveraging escape the notice of the Reserve Bank of India?
  • What did the periodic inspections of the company by RBI reveal? How did the developing situation pass the attention of shareholders? Did they look the other way since their dividends were serviced?
  • Finding answers to these questions is as important as rescuing IL&FS.
  • Finally, it is felt that there is a need for long-term finance sources for infrastructure projects.
  • Currently, the LIC and some insurance companies are the only domestic sources and they too do not lend beyond 10 to 12 years.
  • Thus, the Centre and the RBI should look at ways to deepen the debt markets where infrastructure players can borrow long-term.
  • Moreover, it also needs to be analysed as to how a company listed as “systemically important” managed to fly under the radar with misgovernance. It is important to note that the debt pile-up due to over-leveraging did not happen overnight.

A Deeper Insight:

  • Experts believe that much before the crisis at Infrastructure Leasing & Financial Services (IL&FS) came out into the open last month, mutual funds were comfortably holding bonds – commercial paper, debentures, structured obligation – issued by the company amounting to nearly Rs. 3,500 crore.
  • Further, IL&FS was a tiny part of the overall debt exposure of mutual funds to NBFCs and other brokerages, which was pegged at Rs. 11.25 trillion as on September 30, 2018.
  • This is a little over 51% of the total assets under management (AUM) — Rs. 22.04 trillion — of mutual funds in India.
  • However, everything changed when two IL&FS group entities were downgraded early in September that directly put around Rs. 1,000 crore worth of debt papers at risk.
  • Since this development, questions have been repeatedly raised about the quality of assets that fund houses are holding and whether they need to act on them.
  • Experts believe that the default of Infrastructure Leasing & Financial Services (IL&FS) on several of its debt obligations over the last couple of months has raised serious questions about how regulators missed the growing debt pile of a systemically important financial institution.
  • Crucially, the IL&FS saga has also exposed the underlying weaknesses in the non-banking financial company (NBFC) sector as a whole which has depended heavily on low-cost, short-term debt financing to sustain its shaky business model.
  • Currently, we observe that both international and domestic interest rates continue to rise. As a consequence to this, the stocks of NBFCs have been punished as investors expect the profit margins of these companies to come under pressure as their borrowing costs rise.
  • Added to this, there is the further risk of NBFCs being unable to roll over their short-term debt in case of a severe credit crunch in the aftermath of the IL&FS saga. Experts believe that this is a more serious risk.
  • Experts believe that the steep crash of shares of Dewan Housing Finance Ltd. has been the defining moment of the present crisis.
  • Currently, we see that the Reserve Bank of India, the National Housing Bank and the State Bank of India decided last week to increase the supply of liquidity in the market to keep interest rates under control.
  • We have also observed that the RBI has urged NBFCs to make use of equity rather than debt to finance their operations. This is apart from the government’s decision to replace IL&FS’s management and commitment to providing the company with sufficient liquidity.
  • Experts believe that the prolonged supply of low-cost funds to the NBFC sector also creates the risk of building an unsustainable bubble in various sectors of the economy.
  • Experts further assert that the defaults associated with any such bubbles will eventually only affect the loan books of lenders.
  • There is a concern with State bailouts as well. It is feared that State bailouts could also fuel the problem of moral hazard as other financial institutions may expect a similar lifeline in the future.

Why weren’t red flags raised?

It is important to note that while all fund houses have an internal valuation policy for debt instruments, it typically gets triggered only after a security is downgraded by rating agencies such as CRISIL and ICRA.

    • Once the instruments fall below investment grade, it is the call of the fund houses to value it. It is the Securities and Exchange Board of India (SEBI) which mandates that once a non-government security falls below investment grade, it has to be valued at a discount of 25% to its face value.
    • Although there is a valuation policy in place, a fund house can choose to decide whether or not it wants to gradually mark down the asset or just write it off.
    • Fund houses typically choose to write it off when the downgrades or defaults are swift and sudden.
  • It is important to note that any mark-down or write-off impacts the net asset value (NAV) of the scheme and hence fund houses prefer to gradually mark down securities where there is a risk of delay in payment or even default.

Why is the rescue important?

    • It is important to note that on a standalone basis, the IL&FS may constitute a small portion of the overall debt assets of mutual funds, but a default creates a ripple effect for all NBFCs.
  • Such a ripple effect is created for all NBFCs as the cost of funds goes up with mutual funds becoming wary of buying such securities.
  • According to industry players, NBFCs have already seen the cost of funds going up by 20-30 basis points in the last one month. A direct quantifiable impact is visible in the stock markets wherein many of the listed NBFCs have seen their value erode by more than 50%, compared to their recent highs.
  • In conclusion, it is important to note that if IL&FS had been allowed to collapse, it would have impacted the whole NBFC industry. It would have hit sectors such as:
  1. housing finance,
  2. capital market fund raising,
  3. margin financing and even
  4. retail loans to a large extent.

It is important to note that a recent report by the government sent to the Ministry of Corporate Affairs (MCA) said a default by IL&FS could have significant repercussions, including widespread redemption pressures, sell-off in the debt market, liquidity crunch and 1,500 smaller NBFCs shutting shop for lack of adequate capital.

The government further said that avoiding a default would require a combination of measures of asset sales, restructuring of some liabilities and fresh infusion of funds by investors and lenders. Currently, the RBI is believed to be looking at strengthening the regulatory framework to avoid asset liability mismatches by NBFCs.

A Look at the Current State of Affairs:

    • A new board of Infrastructure Leasing & Financial Services (IL&FS) was appointed by the Centre on October 1, 2018. This was done  after it secured the approval of the National Company Law Tribunal (NCLT) to supersede the previous board.
    • The previous board was  accused of ‘mismanagement’ and ‘compromise of corporate governance norms,’ leading to financial issues.
  • The State Bank of India, which also happens to be the country’s largest lender, has also stepped in to support with liquidity as it decided to triple its target for loan purchase from NBFCs to Rs. 45,000 crore for the current financial year.
  • The government also stepped in to address the governance issues at IL&FS.
  • Based on a report of the Ministry of Corporate Affairs, which indicated serious deficiencies in IL&FS, the holding company, and its subsidiaries, the government moved the National Company Law Tribunal to dismantle the board and bring in new members to avoid a collapse.
  • The board is expected to submit a resolution plan by October 31, 2018.

Who’m does the board comprise of?

    • The stewardship of the new board, has been entrusted to Uday Kotak, executive vice-chairman & managing director of Kotak Mahindra Bank.
    • Mr. Kotak will join hands with Vineet Nayyar, who has been named vice-chairman & managing director.
    • Vineet Nayyar had played a role in the rescue of Satyam Computer Services after its founder Ramalinga Raju admitted to a massive accounting fraud.
    • The newly constituted board also includes former banking secretary G.C. Chaturvedi and former SEBI chairman G.N. Bajpai.
  • G.N. Bajpai had also served as chairman of Life Insurance Corporation of India, which is also the largest shareholder in IL&FS.
  • Nand Kishore and Dr. Malini Shankar have been roped in as the other directors, while C.S. Rajan’s name was added on October 3, 2018 after seeking fresh approval from the NCLT.

Editorial Analysis:

    • Currently, we observe that shares of non-banking financial companies (NBFCs) have witnessed a steep fall in recent weeks after concerns over whether they can successfully meet their short-term dues.
    • Further, Housing finance companies (HFCs) in particular have seen their shares punished severely over fears of a severe liquidity crisis.
  • Dewan Housing Finance has been the worst hit among HFCs.
  • The current crisis began with the default of Infrastructure Leasing and Financial Services on several of its dues.
  • The Union government subsequently decided to step in and assure lenders to the company that their money would be paid back safely without any default.

How did the situation concerning NBFCs Precipitate?

  • It is important to note that many NBFCs use short-term loans borrowed from the money market to extend long-term loans to their customers.
  • This leads to a mismatch in the duration of their assets and liabilities and exposes NBFCs to the substantial risk of being unable to pay back their lenders on time.
  • NBFCs usually resort to rolling over, or refinancing, their old short-term debt with new short-term debt to compensate for the mismatch in duration.
  • However, even though NBFCs usually manage to roll over their short-term debt smoothly, there are times when they may fail to do so.
  • Such risk is high particularly during times of crisis when lenders are affected by fear.
  • In such cases, they may have to resort to sale of their assets at distress prices to meet their dues.
  • This situation can turn a liquidity crisis into a more serious solvency crisis, wherein the total value of the assets of a company falls below the value of its total liabilities.
  • Further, NBFCs also face the risk of having to pay higher interest rates each time they refinance their short-term debt.
  • Further, as interest rates rise across the globe, equity investors believe that the cost of borrowing of NBFCs will rise and affect their profit margins. This is seen as the primary reason behind the fall in the shares of many NBFCs. Investors may be pricing in the prospect of falling profits for NBFCs in the coming quarters.
  • Currently, it is estimated that NBFCs need to repay about Rs. 1.2 trillion of short-term debt in the current quarter. How they manage to meet these dues remains to be seen.

The Way Forward:

    • Finally, regarding NBFCs, it is hoped that banks will offer a helping hand to NBFCs to meet their short-term dues to lenders like mutual funds.
    • Many experts further believe that a widespread financial panic may not be on the cards as the government will act as a lender of last resort.
    • However, it is important to note that such bailouts, create the risk of moral hazard in the wider financial system.
    • NBFCs, for instance, may continue to borrow short-term to extend long-term loans to their customers because they expect the government to bail them out if they get into trouble.
    • In fact, some experts believe that financial institutions in general have traditionally resorted to borrowing short-term to finance long-term loans simply because there is an implicit guarantee extended by the government.
  • As the cost of borrowing funds rises, NBFCs may have to settle for lower profits unless they find a way to pass the burden of higher rates on to borrowers.
    • Experts believe that policymakers should try to focus on taking steps to address structural problems that contributed to the crisis. This includes steps necessary to widen the borrower base of NBFCs which have been banned from accepting deposits. This step would allow NBFCs to tap into more reliable sources of funding and avoid similar liquidity crises in the future.
    • The biggest challenge for the IL&FS board is to raise funds in quick time so that fresh defaults can be avoided.
  • One possible way to get money is to sell assets.
  • However, a more permanent way of getting funds is to raise equity capital.
    • Capital can be raised through a rights issue.
  • It is important to note that the proposal for a rights issue was mooted by the previous board too, but they were unable to convince the large shareholders.
    • Another option is to sell stakes to a new promoter. Again, that was also mooted by the previous board, but some existing shareholders could not agree on valuations. So the new board has its task cut out.
    • As Uday Kotak, the newly appointed chairman of IL&FS, indicated, the crisis is much bigger and more complex than it was initially thought.
  • An example to illustrate this is the fact that the new board found that there are 348 entities in the group, significantly larger than the 169 entities it was aware of. This itself underscores the task at hand.
  • It is also to be seen if the new board, which the government has thrown its weight behind, could convince the shareholders for more fund infusion.

F. Tidbits

1. HC moved for ban on entry of non-Hindus

 

  • A writ petition was filed in the Kerala High Court on Wednesday seeking a ban on entry of non-Hindus into the Sabarimala temple.
  • The court adjourned the hearing on the petition to October 29 after asking the government to respond to the petition.
  • In his petition, T.G. Mohandas, a devotee of Ayyappa, sought a directive to enforce Rule 3 (a) framed under the Kerala Hindu Places of Public Worship (Authorisation of entry) Act, 1965, which prohibits entry of non-Hindus into temples.
  • He said the Supreme Court had invalidated only Rule 3 (b) that prevented entry of women at such time during which they were not allowed by custom and usage to enter a place of public worship. However, the clauses (a), (c), (d), (f) of the rules were still in force.
  • Thus, non-Hindus and drunk or disorderly persons were not permitted entry into a Hindu temple under the Devaswom boards. However, persons of unsound mind could be permitted under proper control and with the permission of the executive authority of the place of public worship concerned.

G. Prelims Fact

1. Israel, India sign $777 mn missile deal

 

  • Israel Aerospace Industries (IAI) has signed a $777 mn deal with Bharat Electronics Limited (BEL) to supply additional Barak-8 Long Range Surface to Air Missile (LRSAM) systems for seven warships of the Indian Navy.
  • “IAI’s partnership with India dates many years back and has culminated in joint system development and production,” IAI Chief Executive Officer Nimrod Sheffer said in Israel on Wednesday.
  • The LRSAM can intercept aerial targets up to a range of 80 km. It is being co-developed by the DRDO in India and IAI, and will be manufactured by Bharat Dynamics Limited.

2. Punjab bans sale of herbicide

 

  • The Punjab government has banned the sale of the herbicide, glyphosate. “This chemical has been observed to be a group 2A cancer-causing material.
  • It is also known to cause other health problems and has the potential to damage human DNA,” said an official statement here.

H. Practice Questions for UPSC Prelims Exam

Question 1. Which of the following are cited by the Economic Survey as main reasons for Delhi’s 
poor air quality?
  1. Humidity and absence of wind
  2. Crop residue burning
  3. Power plants
  4. Vehicular emission

Select the correct answer using the codes given below:

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

See

Answer
Question 2. What is Twin Balance Sheet Syndrome?
  1. Current account and Capital Account Deficits in Balance of Payment.
  2. Fiscal Deficit and Current Account Deficit
  3. Financial Stress faced by Public Sector Banks and Large Corporate houses.
  4. Financial Stress faced by Public Sector Undertakings and Fiscal Deficit.

See

Answer
Question 3. Panama disease, which is frequently in news, is related to:
  1. Brain growth in new born children
  2. Soil-borne fungus threatening Banana crops
  3. Bio-accumulation of heavy metals in fish
  4. Stunting in children aged below 10 years

See

Answer

I. Practice Questions for UPSC Mains Exam

  1. The total number of tax returns filed in the country increased by over 80% over the last four financial years, according to data released by the Central Board of Direct Taxes recently. In this context highlight the steps taken by the Union government over the last few years to widen its tax base. (Maximum 250 words)
  2. “Amritsar disaster – avoidable tragedy” – critically evaluate this statement in the context of recent tragedy in Amritsar. (Maximum 150 words)

Also, check previous Daily News Analysis

 

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